G.R. No.
167552 April 23, 2007
EUROTECH INDUSTRIAL TECHNOLOGIES, INC.,Petitioner
vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents
Before Us is a petition for review by certiorari assailing the Decision[1] of the Court of
Appeals dated 10 August 2004 and its Resolution[2] dated 17 March 2005 in CA-G.R.
SP No. 71397 entitled, Eurotech Industrial Technologies, Inc. v. Hon. Antonio T.
Echavez. The assailed Decision and Resolution affirmed the Order [3] dated 29
January 2002rendered by Judge Antonio T. Echavez ordering the dropping of
respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-
19672.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and distribution of various
European industrial equipment for customers here in the Philippines. It has as one of
its customers Impact Systems Sales (Impact Systems) which is a sole proprietorship
owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales
manager of Impact Systems and was impleaded in the court a quo in said capacity.
From January to April 1995, petitioner sold to Impact Systems various products
allegedly amounting to ninety-one thousand three hundred thirty-eight (P91,338.00)
pesos.Subsequently, respondents sought to buy from petitioner one unit of sludge
pump valued at P250,000.00 with respondents making a down payment of fifty
thousand pesos (P50,000.00).[4] When the sludge pump arrived from the United
Kingdom, petitioner refused to deliver the same to respondents without their having
fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent
EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner, the pertinent part of which states:
1.) That ASSIGNOR[5] has an outstanding receivables from Toledo Power
Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND
(P365,000.00) PESOS as payment for the purchase of one unit of Selwood Spate
100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the
ASSIGNEE[6] the said receivables from Toledo Power Corporation in the amount of
THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which
receivables the ASSIGNOR is the lawful recipient;
3.) That the ASSIGNEE does hereby accept this assignment.[7]
Following the execution of the Deed of Assignment, petitioner delivered to
respondents the sludge pump as shown by Invoice No. 12034 dated 30 June 1995.[8]
Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed
of Assignment, proceeded to collect from Toledo Power Company the amount
of P365,135.29 as evidenced by Check Voucher No. 0933 [9] prepared by said power
company and an official receipt dated 15 August 1995 issued by Impact
Systems.[10] Alarmed by this development, petitioner made several demands upon
respondents to pay their obligations. As a result, respondents were able to make
partial payments to petitioner. On 7 October 1996, petitioners counsel sent
respondents a final demand letter wherein it was stated that as of 11 June 1996,
respondents total obligations stood at P295,000.00 excluding interests and attorneys
fees.[11] Because of respondents failure to abide by said final demand letter, petitioner
instituted a complaint for sum of money, damages, with application for preliminary
attachment against herein respondents before
the Regional Trial Court of Cebu City.[12]
On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of
preliminary attachment.[13]
On 25 June 1997, respondent EDWIN filed his Answer[14] wherein he admitted
petitioners allegations with respect to the sale transactions entered into by Impact
Systems and petitioner between January and April 1995. [15] He, however, disputed
the total amount of Impact Systems indebtedness to petitioner which, according to
him, amounted to only P220,000.00.[16]
By way of special and affirmative defenses, respondent EDWIN alleged that he is not
a real party in interest in this case. According to him, he was acting as mere agent of
his principal, which was the Impact Systems, in his transaction with petitioner and the
latter was very much aware of this fact. In support of this argument, petitioner points
to paragraphs 1.2 and 1.3 of petitioners Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He
is the proprietor of a single proprietorship business known as Impact Systems Sales
(Impact Systems for brevity), with office located at 46-A del Rosario Street, Cebu City,
where he may be served summons and other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident
of Cebu City. He is the Sales Manager of Impact Systems and is sued in this action in
such capacity.[17]
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Defult with
Motion for Summary Judgment. The trial court granted petitioners motion to declare
respondent ERWIN in default for his failure to answer within the prescribed period
1
despite the opportunity granted[18] but it denied petitioners motion for summary
judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16
October 2001.[19] However, the conduct of the pre-trial conference was deferred
pending the resolution by the trial court of the special and affirmative defenses raised
by respondent EDWIN.[20]
After the filing of respondent EDWINs Memorandum [21] in support of his special and
affirmative defenses and petitioners opposition[22] thereto, the trial court rendered its
assailed Order dated 29 January 2002 dropping respondent EDWIN as a party
defendant in this case. According to the trial court
A study of Annex G to the complaint shows that in the Deed of Assignment,
defendant Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales;
that [Impact] Systems Sale is a single proprietorship entity and the complaint shows
that defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is
represented by its general manager Alberto de Jesus in the contract which is dated
June 28, 1995. A study of Annex H to the complaint reveals that [Impact] Systems
Sales which is owned solely by defendant Erwin H. Cuizon, made a down payment
of P50,000.00 that Annex H is dated June 30, 1995 or two days after the execution of
Annex G, thereby showing that [Impact] Systems Sales ratified the act of Edwin B.
Cuizon; the records further show that plaintiff knew that [Impact] Systems Sales, the
principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted the down
payment of P50,000.00. Plaintiff, therefore, cannot say that it was deceived by
defendant Edwin B. Cuizon, since in the instant case the principal has ratified the act
of its agent and plaintiff knew about said ratification. Plaintiff could not say that the
subject contract was entered into by Edwin B. Cuizon in excess of his powers since
[Impact] Systems Sales made a down payment of P50,000.00 two days later.
In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be
dropped as party defendant.[23]
Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the
Court of Appeals which, however, affirmed the 29 January 2002 Order of the court a
quo.The dispositive portion of the now assailed Decision of the Court of Appeals
states:
WHEREFORE, finding no viable legal ground to reverse or modify the conclusions
reached by the public respondent in his Order dated January 29, 2002, it is
hereby AFFIRMED.[24]
Petitioners motion for reconsideration was denied by the appellate court in its
Resolution promulgated on 17 March 2005. Hence, the present petition raising, as
sole ground for its allowance, the following:
2
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT
RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS
SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE HE HAS
NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE
PARTICIPATE IN THE PERPETUATION OF A FRAUD.[25]
To support its argument, petitioner points to Article 1897 of the New Civil Code which
states:
Art. 1897. The agent who acts as such is not personally liable to the party with whom
he contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of
ERWINs act of collecting the receivables from the Toledo Power Corporation
notwithstanding the existence of the Deed of Assignment signed by EDWIN on behalf
of Impact Systems. While said collection did not revoke the agency relations of
respondents, petitioner insists that ERWINs action repudiated EDWINs power to sign
the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his
powers as an agent, petitioner claims that he should be made personally liable for the
obligations of his principal.[26]
Petitioner also contends that it fell victim to the fraudulent scheme of respondents
who induced it into selling the one unit of sludge pump to Impact Systems and signing
the Deed of Assignment. Petitioner directs the attention of this Court to the fact that
respondents are bound not only by their principal and agent relationship but are in
fact full-blooded brothers whose successive contravening acts bore the obvious signs
of conspiracy to defraud petitioner.[27]
In his Comment,[28] respondent EDWIN again posits the argument that he is not a real
party in interest in this case and it was proper for the trial court to have him dropped
as a defendant. He insists that he was a mere agent of Impact Systems which is
owned by ERWIN and that his status as such is known even to petitioner as it is
alleged in the Complaint that he is being sued in his capacity as the sales manager of
the said business venture. Likewise, respondent EDWIN points to the Deed of
Assignment which clearly states that he was acting as a representative of Impact
Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another with the latters consent. [29] The
underlying principle of the contract of agency is to accomplish results by using the
services of others to do a great variety of things like selling, buying, manufacturing,
and transporting.[30]Its purpose is to extend the personality of the principal or the party
for whom another acts and from whom he or she derives the authority to act. [31] It is
said that the basis of agency is representation, that is, the agent acts for and on
behalf of the principal on matters within the scope of his authority and said acts have
the same legal effect as if they were personally executed by the principal. [32] By this
legal fiction, the actual or real absence of the principal is converted into his legal or
juridical presence qui facit per alium facit per se.[33]
The elements of the contract of agency are: (1) consent, express or implied, of the
parties to establish the relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a representative and not for himself;
(4) the agent acts within the scope of his authority.[34]
In this case, the parties do not dispute the existence of the agency relationship
between respondents ERWIN as principal and EDWIN as agent. The only cause of
the present dispute is whether respondent EDWIN exceeded his authority when he
signed the Deed of Assignment thereby binding himself personally to pay the
obligations to petitioner.Petitioner firmly believes that respondent EDWIN acted
beyond the authority granted by his principal and he should therefore bear the effect
of his deed pursuant to Article 1897 of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not
personally liable to the party with whom he contracts. The same provision, however,
presents two instances when an agent becomes personally liable to a third
person. The first is when he expressly binds himself to the obligation and the second
is when he exceeds his authority. In the last instance, the agent can be held liable if
he does not give the third party sufficient notice of his powers. We hold that
respondent EDWIN does not fall within any of the exceptions contained in this
provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the
sales manager of Impact Systems. As discussed elsewhere, the position of manager
is unique in that it presupposes the grant of broad powers with which to conduct the
business of the principal, thus:
The powers of an agent are particularly broad in the case of one acting as a general
agent or manager; such a position presupposes a degree of confidence reposed and
investiture with liberal powers for the exercise of judgment and discretion in
transactions and concerns which are incidental or appurtenant to the business
entrusted to his care and management. In the absence of an agreement to the
contrary, a managing agent may enter into any contracts that he deems reasonably
necessary or requisite for the protection of the interests of his principal entrusted to
his management. x x x.[35]
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-
within his authority when he signed the Deed of Assignment. To recall, petitioner
refused to deliver the one unit of sludge pump unless it received, in full, the payment
for Impact Systems indebtedness.[36] We may very well assume that Impact Systems
desperately needed the sludge pump for its business since after it paid the amount of
fifty thousand pesos (P50,000.00) as down payment on 3 March 1995,[37] it still
3
persisted in negotiating with petitioner which culminated in the execution of the Deed
of Assignment of its receivables from Toledo Power Company on 28 June
1995.[38] The significant amount of time spent on the negotiation for the sale of the
sludge pump underscores Impact Systems perseverance to get hold of the said
equipment. There is, therefore, no doubt in our mind that respondent EDWINs
participation in the Deed of Assignment was reasonably necessary or was required in
order for him to protect the business of his principal. Had he not acted in the way he
did, the business of his principal would have been adversely affected and he would
have violated his fiduciary relation with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both
from respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here
that Article 1897 of the New Civil Code upon which petitioner anchors its claim
against respondent EDWIN does not hold that in case of excess of authority, both the
agent and the principal are liable to the other contracting party. [39] To reiterate, the
first part of Article 1897 declares that the principal is liable in cases when the agent
acted within the bounds of his authority. Under this, the agent is completely absolved
of any liability. The second part of the said provision presents the situations when the
agent himself becomes liable to a third party when he expressly binds himself or he
exceeds the limits of his authority without giving notice of his powers to the third
person. However, it must be pointed out that in case of excess of authority by the
agent, like what petitioner claims exists here, the law does not say that a third person
can recover from both the principal and the agent. [40]
As we declare that respondent EDWIN acted within his authority as an agent, who did
not acquire any right nor incur any liability arising from the Deed of Assignment, it
follows that he is not a real party in interest who should be impleaded in this case. A
real party in interest is one who stands to be benefited or injured by the judgment in
the suit, or the party entitled to the avails of the suit. [41] In this respect, we sustain his
exclusion as a defendant in the suit before the court a quo.
WHEREFORE, premises considered, the present petition is DENIED and the
Decision dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of
Appeals in CA-G.R. SP No. 71397, affirming the Order dated 29 January 2002 of the
Regional Trial Court, Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial Court, Branch
8, Cebu City, for the continuation of the proceedings against respondent ERWIN
CUIZON.
SO ORDERED.

G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of CONCEPCION
RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF
APPEALS, respondents.
This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his
principal, Concepcion Rallos, sold the latter's undivided share in a parcel of land
pursuant to a power of attorney which the principal had executed in favor. The
administrator of the estate of the went to court to have the sale declared
uneanforceable and to recover the disposed share. The trial court granted the relief
prayed for, but upon appeal the Court of Appeals uphold the validity of the sale and
the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos
were sisters and registered co-owners of a parcel of land known as Lot No. 5983 of
the Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11116 of
the Registry of Cebu. On April 21, 1954, the sisters executed a special power of
attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in their
behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955,
Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia in
lot 5983 to Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The
deed of sale was registered in the Registry of Deeds of Cebu, TCT No. 11118 was
cancelled, and a new transfer certificate of Title No. 12989 was issued in the named
of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of
Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court
of First Instance of Cebu, praying (1) that the sale of the undivided share of the
deceased Concepcion Rallos in lot 5983 be d unenforceable, and said share be
reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix
Go Chan & Sons Realty Corporation be cancelled and another title be issued in the
names of the corporation and the "Intestate estate of Concepcion Rallos" in equal
undivided and (3) that plaintiff be indemnified by way of attorney's fees and payment
of costs of suit. Named party defendants were Felix Go Chan & Sons Realty
Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but subsequently,
the latter was dropped from the complaint. The complaint was amended twice;
defendant Corporation's Answer contained a crossclaim against its co-defendant,
Simon Rallos while the latter filed third-party complaint against his sister, Gerundia
Rallos While the case was pending in the trial court, both Simon and his sister
4
Gerundia died and they were substituted by the respective administrators of their
estates.
After trial the court a quo rendered judgment with the following dispositive portion:
A. On Plaintiffs Complaint
(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-
indiviso share of Concepcion Rallos in the property in question, Lot 5983 of the
Cadastral Survey of Cebu is concerned;
(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title
No. 12989 covering Lot 5983 and to issue in lieu thereof another in the names of
FELIX GO CHAN & SONS REALTY CORPORATION and the Estate of Concepcion
Rallos in the proportion of one-half (1/2) share each pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an
undivided one-half (1/2) share of Lot 5983 to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of
Simeon Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of
P1,000.00; and
(5) Ordering both defendants to pay the costs jointly and severally.
B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of
Simeon Rallos, to pay to defendant Felix Co Chan & Sons Realty Corporation the
sum of P5,343.45, representing the price of one-half (1/2) share of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon
Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons
Realty Corporation the sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate
of Simeon Rallos, against Josefina Rallos special administratrix of the Estate of
Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to filing either a complaint
against the regular administrator of the Estate of Gerundia Rallos or a claim in the
Intestate-Estate of Cerundia Rallos, covering the same subject-matter of the third-
party complaint, at bar. (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of
Appeals from the foregoing judgment insofar as it set aside the sale of the one-half
(1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to earlier,
resolved the appeal on November 20, 1964 in favor of the appellant corporation
sustaining the sale in question. 1 The appellee administrator, Ramon Rallos, moved
for a reconsider of the decision but the same was denied in a resolution of March 4,
1965. 2
What is the legal effect of an act performed by an agent after the death of his
principal? Applied more particularly to the instant case, We have the query. is the sale
of the undivided share of Concepcion Rallos in lot 5983 valid although it was
executed by the agent after the death of his principal? What is the law in this
jurisdiction as to the effect of the death of the principal on the authority of the agent to
act for and in behalf of the latter? Is the fact of knowledge of the death of the principal
a material factor in determining the legal effect of an act performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of law
relevant to the matter tinder consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract
in the name of another without being authorized by the latter, or unless he has by law
a right to represent him. 3 A contract entered into in the name of another by one who
has no authority or the legal representation or who has acted beyond his powers,
shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other contracting
party.4 Article 1403 (1) of the same Code also provides:
ART. 1403. The following contracts are unenforceable, unless they are justified:
(1) Those entered into in the name of another person by one who hi - been given no
authority or legal representation or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of
the relationship of agency whereby one party, caged the principal (mandante),
authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of agency are: (1) there is
consent, express or implied of the parties to establish the relationship; (2) the object
is the execution of a juridical act in relation to a third person; (3) the agents acts as a
representative and not for himself, and (4) the agent acts within the scope of his
authority. 5
Agency is basically personal representative, and derivative in nature. The authority of
the agent to act emanates from the powers granted to him by his principal; his act is
the act of the principal if done within the scope of the authority. Qui facit per alium
facit se. "He who acts through another acts himself". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned only
with one cause death of the principal Paragraph 3 of Art. 1919 of the Civil Code
which was taken from Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
5
3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent;
... (Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent, agency
is extinguished by the death of the principal or the agent. This is the law in this
jurisdiction.8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the
rationale for the law is found in the juridical basis of agency which
is representation Them being an in. integration of the personality of the principal
integration that of the agent it is not possible for the representation to continue to exist
once the death of either is establish. Pothier agrees with Manresa that by reason of
the nature of agency, death is a necessary cause for its extinction. Laurent says that
the juridical tie between the principal and the agent is severed ipso jure upon the
death of either without necessity for the heirs of the fact to notify the agent of the fact
of death of the former. 9
The same rule prevails at common law the death of the principal effects
instantaneous and absolute revocation of the authority of the agent unless the Power
be coupled with an interest. 10 This is the prevalent rule in American Jurisprudence
where it is well-settled that a power without an interest confer. red upon an agent is
dissolved by the principal's death, and any attempted execution of the power
afterward is not binding on the heirs or representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of
the agent extinguishes the agency, subject to any exception, and if so, is the instant
case within that exception? That is the determinative point in issue in this litigation. It
is the contention of respondent corporation which was sustained by respondent court
that notwithstanding the death of the principal Concepcion Rallos the act of the
attorney-in-fact, Simeon Rallos in selling the former's sham in the property is valid
and enforceable inasmuch as the corporation acted in good faith in buying the
property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule
afore-mentioned.
ART. 1930. The agency shall remain in full force and effect even after the death of the
principal, if it has been constituted in the common interest of the latter and of the
agent, or in the interest of a third person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the
principal or of any other cause which extinguishes the agency, is valid and shall be
fully effective with respect to third persons who may have contracted with him in
good. faith.
Article 1930 is not involved because admittedly the special power of attorney
executed in favor of Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after
the death of his principal is valid and effective only under two conditions, viz: (1) that
the agent acted without knowledge of the death of the principal and (2) that the third
person who contracted with the agent himself acted in good faith. Good faith here
means that the third person was not aware of the death of the principal at the time he
contracted with said agent. These two requisites must concur the absence of one will
render the act of the agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of
the death of his principal at the time he sold the latter's share in Lot No. 5983 to
respondent corporation. The knowledge of the death is clearly to be inferred from the
pleadings filed by Simon Rallos before the trial court. 12 That Simeon Rallos knew of
the death of his sister Concepcion is also a finding of fact of the court a quo 13 and of
respondent appellate court when the latter stated that Simon Rallos 'must have
known of the death of his sister, and yet he proceeded with the sale of the lot in the
name of both his sisters Concepcion and Gerundia Rallos without informing appellant
(the realty corporation) of the death of the former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of
his principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law
expressly requires for its application lack of knowledge on the part of the agent of the
death of his principal; it is not enough that the third person acted in good faith. Thus in
Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now
Art. 1931 of the new Civil Code sustained the validity , of a sale made after the death
of the principal because it was not shown that the agent knew of his principal's
demise. 15 To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al.,
1961, where in the words of Justice Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no
proof and there is no indication in the record, that the agent Luy Kim Guan was aware
of the death of his principal at the time he sold the property. The death 6f the principal
does not render the act of an agent unenforceable, where the latter had no
knowledge of such extinguishment of the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of
Appeals reasoned out that there is no provision in the Code which provides that
whatever is done by an agent having knowledge of the death of his principal is void
even with respect to third persons who may have contracted with him in good faith
and without knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the
general rule enunciated in Article 1919 that the death of the principal extinguishes the
agency. That being the general rule it follows a fortiorithat any act of an agent after
the death of his principal is void ab initio unless the same fags under the exception
provided for in the aforementioned Articles 1930 and 1931. Article 1931, being an
exception to the general rule, is to be strictly construed, it is not to be given an
6
interpretation or application beyond the clear import of its terms for otherwise the
courts will be involved in a process of legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the vendee acting in good
faith relied on the power of attorney which was duly registered on the original
certificate of title recorded in the Register of Deeds of the province of Cebu, that no
notice of the death was aver annotated on said certificate of title by the heirs of the
principal and accordingly they must suffer the consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries
which We quote:
If the agency has been granted for the purpose of contracting with certain persons,
the revocation must be made known to them. But if the agency is general iii nature,
without reference to particular person with whom the agent is to contract, it is
sufficient that the principal exercise due diligence to make the revocation of the
agency publicity known.
In case of a general power which does not specify the persons to whom represents'
on should be made, it is the general opinion that all acts, executed with third persons
who contracted in good faith, Without knowledge of the revocation, are valid. In such
case, the principal may exercise his right against the agent, who, knowing of the
revocation, continued to assume a personality which he no longer had. (Manresa Vol.
11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a
mode of terminating an agency which is to be distinguished from revocation
by operation of law such as death of the principal which obtains in this case. On page
six of this Opinion We stressed that by reason of the very nature of the relationship
between principal and agent, agency is extinguished ipso jure upon the death of
either principal or agent. Although a revocation of a power of attorney to be effective
must be communicated to the parties concerned, 18 yet a revocation by operation of
law, such as by death of the principal is, as a rule, instantaneously effective inasmuch
as "by legal fiction the agent's exercise of authority is regarded as an execution of the
principal's continuing will. 19 With death, the principal's will ceases or is the of
authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death of
the principal What the Code provides in Article 1932 is that, if the agent die his heirs
must notify the principal thereof, and in the meantime adopt such measures as the
circumstances may demand in the interest of the latter. Hence, the fact that no notice
of the death of the principal was registered on the certificate of title of the property in
the Office of the Register of Deeds, is not fatal to the cause of the estate of the
principal
6. Holding that the good faith of a third person in said with an agent affords the former
sufficient protection, respondent court drew a "parallel" between the instant case and
that of an innocent purchaser for value of a land, stating that if a person purchases a
registered land from one who acquired it in bad faith even to the extent of
foregoing or falsifying the deed of sale in his favor the registered owner has no
recourse against such innocent purchaser for value but only against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the case
of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo
was a co-owner of lands with Agustin Nano. The latter had a power of attorney
supposedly executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land
titles. The power was registered in the Office of the Register of Deeds. When the
lawyer-husband of Angela Blondeau went to that Office, he found all in order
including the power of attorney. But Vallejo denied having executed the power The
lower court sustained Vallejo and the plaintiff Blondeau appealed. Reversing the
decision of the court a quo, the Supreme Court, quoting the ruling in the case
of Eliason v. Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of the defendant- appellee
must be overruled. Agustin Nano had possession of Jose Vallejo's title papers.
Without those title papers handed over to Nano with the acquiescence of Vallejo, a
fraud could not have been perpetuated. When Fernando de la Canters, a member of
the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff,
searched the registration record, he found them in due form including the power of
attorney of Vallajo in favor of Nano. If this had not been so and if thereafter the proper
notation of the encumbrance could not have been made, Angela Blondeau would not
have sent P12,000.00 to the defendant Vallejo.' An executed transfer of registered
lands placed by the registered owner thereof in the hands of another operates as a
representation to a third party that the holder of the transfer is authorized to deal with
the land.
As between two innocent persons, one of whom must suffer the consequence of a
breach of trust, the one who made it possible by his act of coincidence bear the loss.
(pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because
here We are confronted with one who admittedly was an agent of his sister and who
sold the property of the latter after her death with full knowledge of such death. The
situation is expressly covered by a provision of law on agency the terms of which are
clear and unmistakable leaving no room for an interpretation contrary to its tenor, in
the same manner that the ruling in Blondeau and the cases cited therein found a
basis in Section 55 of the Land Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any voluntary instrument
is presented for registration shall be conclusive authority from the registered owner to
the register of deeds to enter a new certificate or to make a memorandum of
registration in accordance with such instruments, and the new certificate or
7
memorandum Shall be binding upon the registered owner and upon all persons
claiming under him in favor of every purchaser for value and in good faith: Provided
however, That in all cases of registration provided by fraud, the owner may pursue all
his legal and equitable remedies against the parties to such fraud without prejudice,
however, to the right, of any innocent holder for value of a certificate of title. ... (Act
No. 496 as amended)
7. One last point raised by respondent corporation in support of the appealed decision
is an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v.
McKenzie wherein payments made to an agent after the death of the principal were
held to be "good", "the parties being ignorant of the death". Let us take note that the
Opinion of Justice Rogers was premised on the statement that the parties were
ignorant of the death of the principal. We quote from that decision the following:
... Here the precise point is, whether a payment to an agent when the Parties are
ignorant of the death is a good payment. in addition to the case in Campbell before
cited, the same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general
question that a payment after the death of principal is not good. Thus, a payment of
sailor's wages to a person having a power of attorney to receive them, has been held
void when the principal was dead at the time of the payment. If, by this case, it is
meant merely to decide the general proposition that by operation of law the death of
the principal is a revocation of the powers of the attorney, no objection can be taken
to it. But if it intended to say that his principle applies where there was 110 notice of
death, or opportunity of twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the accident
circumstance of the death of the principal, which he did not know, and which by no
possibility could he know? It would be unjust to the agent and unjust to the debtor. In
the civil law, the acts of the agent, done bona fide in ignorance of the death of his
principal are held valid and binding upon the heirs of the latter. The same rule holds in
the Scottish law, and I cannot believe the common law is so unreasonable... (39 Am.
Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may
evoke, mention may be made that the above represents the minority view in
American jurisprudence. Thus in Clayton v. Merrett, the Court said.
There are several cases which seem to hold that although, as a general principle,
death revokes an agency and renders null every act of the agent thereafter
performed, yet that where a payment has been made in ignorance of the death, such
payment will be good. The leading case so holding is that of Cassiday v. McKenzie, 4
Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this view ii broadly
announced. It is referred to, and seems to have been followed, in the case of Dick v.
Page, 17 Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate of
the deceased principal had received the benefit of the money paid, and therefore the
representative of the estate might well have been held to be estopped from suing for
it again. . . . These cases, in so far, at least, as they announce the doctrine under
discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4
Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite, alone in
announcing the principle in its broadest scope. (52, Misc. 353, 357, cited in 2 C.J.
549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that
the opinion, except so far as it related to the particular facts, was a mere dictum,
Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded more as an
extrajudicial indication of his views on the general subject, than as the adjudication of
the Court upon the point in question. But accordingly all power weight to this opinion,
as the judgment of a of great respectability, it stands alone among common law
authorities and is opposed by an array too formidable to permit us to following it. (15
Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in
American jurisprudence, no such conflict exists in our own for the simple reason that
our statute, the Civil Code, expressly provides for two exceptions to the general rule
that death of the principal revokes ipso jure the agency, to wit: (1) that the agency is
coupled with an interest (Art 1930), and (2) that the act of the agent was executed
without knowledge of the death of the principal and the third person who contracted
with the agent acted also in good faith (Art. 1931). Exception No. 2 is the doctrine
followed in Cassiday, and again We stress the indispensable requirement that the
agent acted without knowledge or notice of the death of the principal In the case
before Us the agent Ramon Rallos executed the sale notwithstanding notice of the
death of his principal Accordingly, the agent's act is unenforceable against the estate
of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent
appellate court, and We affirm en toto the judgment rendered by then Hon. Amador E.
Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3 of this
Opinion, with costs against respondent realty corporation at all instances.
So Ordered
8
G.R. No. L-18058 January 16, 1923
FABIOLA SEVERINO, plaintiff-appellee,
vs.
GUILLERMO SEVERINO, defendant-appellant.
FELICITAS VILLANUEVA, intervenor-appellee.
This is an action brought by the plaintiff as the alleged natural daughter and sole heir
of one Melecio Severino, deceased, to compel the defendant Guillermo Severino to
convey to her four parcels of land described in the complaint, or in default thereof to
pay her the sum of P800,000 in damages for wrongfully causing said land to be
registered in his own name. Felicitas Villanueva, in her capacity as administratrix of
the estate of Melecio Severino, has filed a complaint in intervention claiming in the
same relief as the original plaintiff, except in so far as she prays that the conveyance
be made, or damages paid, to the estate instead of to the plaintiff Fabiola Severino.
The defendant answered both complaints with a general denial.
The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as the
acknowledged natural child of the said Melecio Severino and ordering the defendant
to convey 428 hectares of the land in question to the intervenor as administratrix of
the estate of the said Melecio Severino, to deliver to her the proceeds in his
possession of a certain mortgage placed thereon by him and to pay the costs. From
this judgment only the defendant appeals.
The land described in the complaint forms one continuous tract and consists of lots
Nos. 827, 828, 834, and 874 of the cadaster of Silay, Province of Occidental Negros,
which measure, respectively, 61 hectares, 74 ares, and 79 centiares; 76 hectares, 34
ares, and 79 centiares; 52 hectares, 86 ares, and 60 centiares and 608 hectares, 77
ares and 28 centiares, or a total of 799 hectares, 75 ares, and 46 centiares.
The evidence shows that Melecio Severino died on the 25th day of May, 1915; that
some 428 hectares of the land were recorded in the Mortgage Law Register in his
name in the year 1901 by virtue of possessory information proceedings instituted on
the 9th day of May of that year by his brother Agapito Severino in his behalf; that
during the lifetime of Melecio Severino the land was worked by the defendant,
Guillermo Severino, his brother, as administrator for and on behalf of the said Melecio
Severino; that after Melecio's death, the defendant Guillermo Severino continued to
occupy the land; that in 1916 a parcel survey was made of the lands in the
municipality of Silay, including the land here in question, and cadastral proceedings
were instituted for the registration of the lands titles within the surveyed area; that in
the cadastral proceedings the land here in question was described as four separate
lots numbered as above stated; that Roque Hofilea, as lawyer for Guillermo
Severino, filed answers in behalf of the latter in said proceedings claiming the lots
mentioned as the property of his client; that no opposition was presented in the
proceedings to the claims of Guillermo Severino and the court therefore decreed the
title in his favor, in pursuance of which decree certificates of title were issued to him in
the month of March, 1917.
It may be further observed that at the time of the cadastral proceedings the plaintiff
Fabiola Severino was a minor; that Guillermo Severino did not appear personally in
the proceedings and did not there testify; that the only testimony in support of his
claims was that of his attorney Hofilea, who swore that he knew the land and that he
also knew that Guillermo Severino inherited the land from his father and that he, by
himself, and through his predecessors in interest, had possessed the land for thirty
years.
The appellant presents the following nine assignments of error:
1. The trial court erred in admitting the evidence that was offered by plaintiff in order
to establish the fact that said plaintiff was the legally acknowledged natural child of
the deceased Melecio Severino.
2. The trial court erred in finding that, under the evidence presented, plaintiff was the
legally acknowledged natural child of Melecio Severino.
3. The trial court erred in rejecting the evidence offered by defendant to establish the
absence of fraud on his part in securing title to the lands in Nacayao.
4. The trial court erred in concluding that the evidence adduced by plaintiff and
intervenor established that defendant was guilty of fraud in procuring title to the lands
in question in his name.
5. The trial court erred in declaring that the land that was formerly placed in the name
of Melecio Severino had an extent of either 434 or 428 hectares at the time of his
death.
6. The trial court erred in declaring that the value of the land in litigation is P500 per
hectare.
7. The trial court erred in granting the petition of the plaintiff for an attachment without
first giving the defendant an opportunity to be heard.
8. The trial court erred in ordering the conveyance of 428 hectares of land by
defendant to the administratrix.
9. The trial court erred in failing or refusing to make any finding as to the defendant's
contention that the petition for attachment was utterly devoid of any reasonable
ground.
9
In regard to the first two assignments of error, we agree with the appellant that the
trial court erred in making a declaration in the present case as to the recognition of
Fabiola Severino as the natural child of Melecio Severino. We have held in the case
of Briz vs. Briz and Remigio (43 Phil., 763), that "The legitimate heirs or kin of a
deceased person who would be prejudiced by a declaration that another person is
entitled to recognition as the natural child of such decedent, are necessary and
indispensable parties to any action in which a judgment declaring the right to
recognition is sought." In the present action only the widow, the alleged natural child,
and one of the brothers of the deceased are parties; the other potential heirs have not
been included. But, inasmuch as the judgment appealed from is in favor of the
intervenor and not of the plaintiff, except to the extent of holding that the latter is a
recognized natural child of the deceased, this question is, from the view we take of
the case, of no importance in its final disposition. We may say, however, in this
connection, that the point urged in appellant's brief that it does not appear
affirmatively from the evidence that, at the time of the conception of Fabiola, her
mother was a single woman, may be sufficiently disposed of by a reference to article
130 of the Civil Code and subsection 1 of section 334 of the Code of Civil Procedure
which create the presumption that a child born out of wedlock is natural rather than
illegitimate. The question of the status of the plaintiff Fabiola Severino and her right to
share in the inheritance may, upon notice to all the interested parties, be determined
in the probate proceedings for the settlement of the estate of the deceased.
The fifth assignment of error relates to the finding of the trial court that the land
belonging to Melecio Severino had an area of 428 hectares. The appellant contends
that the court should have found that there were only 324 hectares inasmuch as one
hundred hectares of the original area were given to Melecio's brother Donato during
the lifetime of the father Ramon Severino. As it appears that Ramon Severino died in
1896 and that the possessory information proceedings, upon which the finding of the
trial court as to the area of the land is principally based, were not instituted until the
year 1901, we are not disposed to disturb the conclusions of the trial court on this
point. Moreover, in the year 1913, the defendant Guillermo Severino testified under
oath, in the case of Montelibano vs. Severino, that the area of the land owned by
Melecio Severino and of which he (Guillermo) was the administrator, embraced an
area of 424 hectares. The fact that Melecio Severino, in declaring the land for taxation
in 1906, stated that the area was only 324 hectares and 60 ares while entitled to
some weight is not conclusive and is not sufficient to overcome the positive statement
of the defendant and the recitals in the record of the possessory information
proceedings.
The sixth assignment of error is also of minor importance in view of the fact that in the
dispositive part of the decision of the trial court, the only relief given is an order
requiring the appellant to convey to the administratrix the land in question, together
with such parts of the proceeds of the mortgage thereon as remain in his hands. We
may say further that the court's estimate of the value of the land does not appear
unreasonable and that, upon the evidence before us, it will not be disturbed.
The seventh and within assignments of error relate to the ex parte granting by the trial
court of a preliminary attachment in the case and the refusal of the court to dissolve
the same. We find no merit whatever in these assignments and a detailed discussion
of them is unnecessary.
The third, fourth, and eight assignments of error involve the vital points in the case,
are inter-related and may be conveniently considered together.
The defendant argues that the gist of the instant action is the alleged fraud on his part
in causing the land in question to be registered in his name; that the trial court
therefore erred in rejecting his offer of evidence to the effect that the land was owned
in common by all the heirs of Ramon Severino and did not belong to Melecio
Severino exclusively; that such evidence, if admitted, would have shown that he did
not act with fraudulent intent in taking title to the land; that the trial court erred in
holding him estopped from denying Melecio's title; that more than a year having
elapsed since the entry of the final decree adjudicating the land to the defendant, said
decree cannot now be reopened; that the ordering of the defendant to convey the
decreed land to the administratrix is, for all practical purposes, equivalent to the
reopening of the decree of registration; that under section 38 of the Land Registration
Act the defendant has an indefeasible title to the land; and that the question of
ownership of the land being thus judicially settled, the question as to the previous
relations between the parties cannot now be inquired into.
Upon no point can the defendant's contentions be sustained. It may first be observed
that this is not an action under section 38 of the Land Registration Act to reopen or
set aside a decree; it is an action in personam against an agent to compel him to
return, or retransfer, to the heirs or the estate of its principal, the property committed
to his custody as such agent, to execute the necessary documents of conveyance to
effect such retransfer or, in default thereof, to pay damages.
That the defendant came into the possession of the property here in question as the
agent of the deceased Melecio Severino in the administration of the property, cannot
be successfully disputed. His testimony in the case of Montelibano vs. Severino (civil
case No. 902 of the Court of First Instance of Occidental Negros and which forms a
part of the evidence in the present case) is, in fact, conclusive in this respect. He
there stated under oath that from the year 1902 up to the time the testimony was
given, in the year 1913, he had been continuously in charge and occupation of the
land as the encargado or administrator of Melecio Severino; that he had always
known the land as the property of Melecio Severino; and that the possession of the
latter had been peaceful, continuous, and exclusive. In his answer filed in the same
case, the same defendant, through his attorney, disclaimed all personal interest in the
land and averred that it was wholly the property of his brother Melecio.
Neither is it disputed that the possession enjoyed by the defendant at the time of
obtaining his decree was of the same character as that held during the lifetime of his
brother, except in so far as shortly before the trial of the cadastral case the defendant
10
had secured from his brothers and sisters a relinguishment in his favor of such rights
as they might have in the land.
The relations of an agent to his principal are fiduciary and it is an elementary and very
old rule that in regard to property forming the subject-matter of the agency, he is
estopped from acquiring or asserting a title adverse to that of the principal. His
position is analogous to that of a trustee and he cannot consistently, with the
principles of good faith, be allowed to create in himself an interest in opposition to that
of his principal or cestui que trust. Upon this ground, and substantially in harmony
with the principles of the Civil Law (see sentence of the supreme court of Spain of
May 1, 1900), the English Chancellors held that in general whatever a trustee does
for the advantage of the trust estate inures to the benefit of the cestui que trust.
(Greenlaw vs. King, 5 Jur., 18; Ex parte Burnell, 7 Jur., 116; Ex parte Hughes, 6 Ves.,
617; Ex parte James, 8 Ves., 337; Oliver vs. Court, 8 Price, 127.) The same principle
has been consistently adhered to in so many American cases and is so well
established that exhaustive citations of authorities are superfluous and we shall
therefore limit ourselves to quoting a few of the numerous judicial expressions upon
the subject. The principle is well stated in the case of Gilbert vs. Hewetson (79 Minn.,
326):
A receiver, trustee, attorney, agent, or any other person occupying fiduciary relations
respecting property or persons, is utterly disabled from acquiring for his own benefit
the property committed to his custody for management. This rule is entirely
independent of the fact whether any fraud has intervened. No fraud in fact need be
shown, and no excuse will be heard from the trustee. It is to avoid the necessity of
any such inquiry that the rule takes so general a form. The rule stands on the moral
obligation to refrain from placing one's self in positions which ordinarily excite conflicts
between self-interest and integrity. It seeks to remove the temptation that might arise
out of such a relation to serve one's self-interest at the expense of one's integrity and
duty to another, by making it impossible to profit by yielding to temptation. It applies
universally to all who come within its principle.
In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme Court,
speaking through Chief Justice Marshall, said:
But Massie, the agent of Oneale, has entered and surveyed a portion of that land for
himself and obtained a patent for it in his own name. According to the clearest and
best established principles of equity, the agent who so acts becomes a trustee for his
principal. He cannot hold the land under an entry for himself otherwise than as trustee
for his principal.
In the case of Felix vs. Patrick (145 U. S., 317), the United States Supreme Court,
after examining the authorities, said:
The substance of these authorities is that, wherever a person obtains the legal title to
land by any artifice or concealment, or by making use of facilities intended for the
benefit of another, a court of equity will impress upon the land so held by him a trust
in favor of the party who is justly entitled to them, and will order the trust executed by
decreeing their conveyance to the party in whose favor the trust was created.
(Citing Bank of Metropolis vs. Guttschlick, 14 Pet., 19, 31; Moses vs. Murgatroyd, 1
Johns. Ch., 119; Cumberland vs.Codrington, 3 Johns. Ch., 229, 261;
Neilson vs. Blight, 1 Johns. Cas., 205; Weston vs. Barker, 12 Johns., 276.)
The same doctrine has also been adopted in the Philippines. In the case of Uy Aloc
vs. Cho Jan Ling (19 Phil., 202), the facts are stated by the court as follows:
From the facts proven at the trial it appears that a number of Chinese merchants
raised a fund by voluntary subscription with which they purchased a valuable tract of
land and erected a large building to be used as a sort of club house for the mutual
benefit of the subscribers to the fund. The subscribers organized themselves into an
irregular association, which had no regular articles of association, and was not
incorporated or registered in the commercial registry or elsewhere. The association
not having any existence as a legal entity, it was agreed to have the title to the
property placed in the name of one of the members, the defendant, Cho Jan Ling,
who on his part accepted the trust, and agreed to hold the property as the agent of
the members of the association. After the club building was completed with the funds
of the members of the association, Cho Jan Ling collected some P25,000 in rents for
which he failed and refused to account, and upon proceedings being instituted to
compel him to do so, he set up title in himself to the club property as well as to the
rents accruing therefrom, falsely alleging that he had bought the real estate and
constructed the building with his own funds, and denying the claims of the members
of the association that it was their funds which had been used for that purpose.
The decree of the court provided, among other things, for the conveyance of the club
house and the land on which it stood from the defendant, Cho Jan Ling, in whose
name it was registered, to the members of the association. In affirming the decree,
this court said:
In the case at bar the legal title of the holder of the registered title is not questioned; it
is admitted that the members of the association voluntarily obtained the inscription in
the name of Cho Jan Ling, and that they had no right to have that inscription
cancelled; they do not seek such cancellation, and on the contrary they allege and
prove that the duly registered legal title to the property is in Cho Jan Ling, but they
maintain, and we think that they rightly maintain, that he holds it under an obligation,
both express and implied, to deal with it exclusively for the benefit of the members of
the association, and subject to their will.
In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the plaintiff,
Camacho, took title to the land in his own name, while acting as agent for the
municipality. The court said:
There have been a number of cases before this court in which a title to real property
was acquired by a person in his own name, while acting under a fiduciary capacity,
and who afterwards sought to take advantage of the confidence reposed in him by
11
claiming the ownership of the property for himself. This court has invariably held such
evidence competent as between the fiduciary and the cestui que trust.
xxx xxx xxx
What judgment ought to be entered in this case? The court below simply absolved the
defendant from the complaint. The defendant municipality does not ask for a
cancellation of the deed. On the contrary, the deed is relied upon the supplement the
oral evidence showing that the title to the land is in the defendant. As we have
indicated in Consunji vs. Tison, 15 Phil., 81, and Uy Aloc vs. Cho Jan Ling, 19 Phil.,
202, the proper procedure in such a case, so long as the rights of innocent third
persons have not intervened, is to compel a conveyance to the rightful owner. This
ought and can be done under the issues raised and the proof presented in the case at
bar.
The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in point.
As will be seen from the authorities quoted, and agent is not only estopped from
denying his principal's title to the property, but he is also disable from acquiring
interests therein adverse to those of his principal during the term of the agency. But
the defendant argues that his title has become res adjudicata through the decree of
registration and cannot now be disturbed.
This contention may, at first sight, appear to possess some force, but on closer
examination it proves untenable. The decree of registration determined the legal title
to the land as the date of the decree; as to that there is no question. That, under
section 38 of the Land Registration Act, this decree became conclusive after one year
from the date of the entry is not disputed and no one attempts to disturb the decree or
the proceedings upon which it is based; the plaintiff in intervention merely contends
that in equity the legal title so acquired inured to the benefit of the estate of Melecio
Severino, the defendant's principal and cestui que trust and asks that this superior
equitable right be made effective by compelling the defendant, as the holder of the
legal title, to transfer it to the estate.
We have already shown that before the issuance of the decree of registration it was
the undoubted duty of the defendant to restore the property committed to his custody
to his principal, or to the latter's estate, and that the principal had a right of action in
personam to enforce the performance of this duty and to compel the defendant to
execute the necessary conveyance to that effect. The only question remaining for
consideration is, therefore, whether the decree of registration extinguishing this
personal right of action.
In Australia and New Zealand, under statutes in this respect similar to ours, courts of
equity exercise general jurisdiction in matters of fraud and error with reference to
Torrens registered lands, and giving attention to the special provisions of the Torrens
acts, will issue such orders and direction to all the parties to the proceedings as may
seem just and proper under the circumstances. They may order parties to make
deeds of conveyance and if the order is disobeyed, they may cause proper
conveyances to be made by a Master in Chancery or Commissioner in accordance
with the practice in equity (Hogg, Australian Torrens System, p. 847).
In the Untied States courts have even gone so far in the exercise of their equity
jurisdiction as to set aside final decrees after the expiration of the statutory period of
limitation for the reopening of such decrees (Baart vs. Martin, 99 Minn., 197). But,
considering that equity follows the law and that our statutes expressly prohibit the
reopening of a decree after one year from the date of its entry, this practice would
probably be out of question here, especially so as the ends of justice may be attained
by other equally effective, and less objectionable means.
Turning to our own Land Registration Act, we find no indication there of an intention
to cut off, through the issuance of a decree of registration, equitable rights or
remedies such as those here in question. On the contrary, section 70 of the Act
provides:
Registered lands and ownership therein, shall in all respects be subject to the same
burdens and incidents attached by law to unregistered land. Nothing contained in this
Act shall in any way be construed to relieve registered land or the owners thereof
from any rights incident to the relation of husband and wife, or from liability to
attachment on mesne process or levy on execution, or from liability to any lien of any
description established by law on land and the buildings thereon, or the interest of the
owner in such land or buildings, or to change the laws of descent, or the rights of
partition between coparceners, joint tenants and other cotenants, or the right to take
the same by eminent domain, or to relieve such land from liability to be appropriated
in any lawful manner for the payment of debts, or to change or affect in any other way
any other rights or liabilities created by law and applicable to unregistered land,
except as otherwise expressly provided in this Act or in the amendments hereof.
Section 102 of the Act, after providing for actions for damages in which the Insular
Treasurer, as the Custodian of the Assurance Fund is a party, contains the following
proviso:
Provided, however, That nothing in this Act shall be construed to deprive the plaintiff
of any action which he may have against any person for such loss or damage or
deprivation of land or of any estate or interest therein without joining the Treasurer of
the Philippine Archipelago as a defendant therein.
That an action such as the present one is covered by this proviso can hardly admit of
doubt. Such was also the view taken by this court in the case of Medina Ong-Quingco
vs. Imaz and Warner, Barnes & Co. (27 Phil., 314), in which the plaintiff was seeking
to take advantage of his possession of a certificate of title to deprive the defendant of
land included in that certificate and sold to him by the former owner before the land
was registered. The court decided adversely to plaintiff and in so doing said:
As between them no question as to the indefeasibility of a Torrens title could arise.
Such an action could have been maintained at any time while the property remained
in the hands of the purchaser. The peculiar force of a Torrens title would have been
12
brought into play only when the purchaser had sold to an innocent third person for
value the lands described in his conveyance. . . . Generally speaking, as between the
vendor and the purchaser the same rights and remedies exist with reference to land
registered under Act No. 496, as exist in relation to land not so registered.
In Cabanos vs. Register of Deeds of Laguna and Obiana (40 Phil., 620), it was held
that, while a purchaser of land under a pacto de retro cannot institute a real action for
the recovery thereof where the vendor under said sale has caused such lands to be
registered in his name without said vendee's consent, yet he may have his personal
action based on the contract of sale to compel the execution of an unconditional deed
for the said lands when the period for repurchase has passed.
Torrens titles being on judicial decrees there is, of course, a strong presumption in
favor of their regularity or validity, and in order to maintain an action such as the
present the proof as to the fiduciary relation of the parties and of the breach of trust
must be clear and convincing. Such proof is, as we have seen, not lacking in this
case.
But once the relation and the breach of trust on the part of the fiduciary in thus
established, there is no reason, neither practical nor legal, why he should not be
compelled to make such reparation as may lie within his power for the injury caused
by his wrong, and as long as the land stands registered in the name of the party who
is guilty of the breach of trust and no rights of innocent third parties are adversely
affected, there can be no reason why such reparation should not, in the proper case,
take the form of a conveyance or transfer of the title to the cestui que trust. No
reasons of public policy demand that a person guilty of fraud or breach of trust be
permitted to use his certificate of title as a shield against the consequences of his own
wrong.
The judgment of the trial court is in accordance with the facts and the law. In order to
prevent unnecessary delay and further litigation it may, however, be well to attach
some additional directions to its dipositive clauses. It will be observed that lots Nos.
827, 828, and 834 of a total area of approximately 191 hectares, lie wholly within the
area to be conveyed to the plaintiff in intervention and these lots may, therefore, be
so conveyed without subdivision. The remaining 237 hectares to be conveyed lie
within the western part of lot No. 874 and before a conveyance of this portion can be
effected a subdivision of that lot must be made and a technical description of the
portion to be conveyed, as well as of the remaining portion of the lot, must be
prepared. The subdivision shall be made by an authorized surveyor and in
accordance with the provisions of Circular No. 31 of the General Land Registration
Office, and the subdivision and technical descriptions shall be submitted to the Chief
of that office for his approval. Within thirty days after being notified of the approval of
said subdivision and technical descriptions, the defendant Guillermo Severino shall
execute good and sufficient deed or deeds of conveyance in favor of the
administratrix of the estate of the deceased Melecio Severino for said lots Nos. 827,
828, 834, and the 237 hectares segregated from the western part of lot No. 874 and
shall deliver to the register of deeds his duplicate certificates of title for all of the four
lots in order that said certificates may be cancelled and new certificates issued. The
cost of the subdivision and the fees of the register of deeds will be paid by the plaintiff
in intervention. It is so ordered
With these additional directions the judgment appealed from is affirmed, with the
costs against the appellant. The right of the plaintiff Fabiola Severino to establish in
the probate proceedings of the estate of Melecio Severino her status as his
recognized natural child is reserved.
G.R. No. 149353 June 26, 2006
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court
questioning the Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-
G.R. CV No. 66985, which reversed the Decision dated July 29, 1998 of the Regional
Trial Court (RTC), Branch 21, City of Manila; and the CA Resolution2 dated August 6,
2001 which denied petitioners Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint
for Specific Performance with Damages against Jocelyn B. Doles (petitioner),
docketed as Civil Case No. 97-82716. Respondent alleged that petitioner was
indebted to the former in the concept of a personal loan amounting to P405,430.00
representing the principal amount and interest; that on October 5, 1996, by virtue of a
"Deed of Absolute Sale",3 petitioner, as seller, ceded to respondent, as buyer, a
parcel of land, as well as the improvements thereon, with an area of 42 square
meters, covered by Transfer Certificate of Title No. 382532, 4 and located at a
subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite, in
order to satisfy her personal loan with respondent; that this property was mortgaged
to National Home Mortgage Finance Corporation (NHMFC) to secure petitioners loan
in the sum of P337,050.00 with that entity; that as a condition for the foregoing sale,
respondent shall assume the undue balance of the mortgage and pay the monthly
amortization of P4,748.11 for the remainder of the 25 years which began on
13
September 3, 1994; that the property was at that time being occupied by a tenant
paying a monthly rent of P3,000.00; that upon verification with the NHMFC,
respondent learned that petitioner had incurred arrearages amounting to P26,744.09,
inclusive of penalties and interest; that upon informing the petitioner of her arrears,
petitioner denied that she incurred them and refused to pay the same; that despite
repeated demand, petitioner refused to cooperate with respondent to execute the
necessary documents and other formalities required by the NHMFC to effect the
transfer of the title over the property; that petitioner collected rent over the property for
the month of January 1997 and refused to remit the proceeds to respondent; and that
respondent suffered damages as a result and was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint, denied
that she borrowed money from respondent, and averred that from June to September
1995, she referred her friends to respondent whom she knew to be engaged in the
business of lending money in exchange for personal checks through her capitalist
Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo, Theresa
Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed money
from respondent and issued personal checks in payment of the loan; that the checks
bounced for insufficiency of funds; that despite her efforts to assist respondent to
collect from the borrowers, she could no longer locate them; that, because of this,
respondent became furious and threatened petitioner that if the accounts were not
settled, a criminal case will be filed against her; that she was forced to issue eight
checks amounting to P350,000 to answer for the bounced checks of the borrowers
she referred; that prior to the issuance of the checks she informed respondent that
they were not sufficiently funded but the latter nonetheless deposited the checks and
for which reason they were subsequently dishonored; that respondent then
threatened to initiate a criminal case against her for violation of Batas Pambansa
Blg. 22; that she was forced by respondent to execute an "Absolute Deed of Sale"
over her property in Bacoor, Cavite, to avoid criminal prosecution; that the said deed
had no valid consideration; that she did not appear before a notary public; that the
Community Tax Certificate number on the deed was not hers and for which
respondent may be prosecuted for falsification and perjury; and that she suffered
damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is
valid; second; if valid, whether petitioner is obliged to sign and execute the necessary
documents to effect the transfer of her rights over the property to the respondent; and
third, whether petitioner is liable for damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which
states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the
complaint for insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration: 5
Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and
further admission that the checks issued by these borrowers in payment of the loan
obligation negates [sic] the cause or consideration of the contract of sale executed by
and between plaintiff and defendant. Moreover, the property is not solely owned by
defendant as appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532
(Annex A, Complaint), thus:
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the
share of Teodorico Doles on the parcel of land described in this certificate of title by
virtue of the special power of attorney to mortgage, executed before the notary public,
etc."
The rule under the Civil Code is that contracts without a cause or consideration
produce no effect whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed her sole
assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE
GROUND OF [sic] THE DEED OF SALE BETWEEN THE PARTIES HAS NO
CONSIDERATION OR INSUFFICIENCY OF EVIDENCE.6
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which
reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED.
The Decision of the lower court dated July 29, 1998 is REVERSED and SET ASIDE.
A new one is entered ordering defendant-appellee to execute all necessary
documents to effect transfer of subject property to plaintiff-appellant with the
arrearages of the formers loan with the NHMFC, at the latters expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the
amount borrowed from the respondent to her friends. Hence, the Deed of Absolute
Sale was supported by a valid consideration, which is the sum of money petitioner
owed respondent amounting to P405,430.00, representing both principal and interest.
The CA took into account the following circumstances in their entirety: the supposed
friends of petitioner never presented themselves to respondent and that all
transactions were made by and between petitioner and respondent; 7 that the money
borrowed was deposited with the bank account of the petitioner, while payments
made for the loan were deposited by the latter to respondents bank account; 8 that
petitioner herself admitted in open court that she was "re-lending" the money loaned
from respondent to other individuals for profit; 9 and that the documentary evidence
14
shows that the actual borrowers, the friends of petitioner, consider her as their
creditor and not the respondent.10
Furthermore, the CA held that the alleged threat or intimidation by respondent did not
vitiate consent, since the same is considered just or legal if made to enforce ones
claim through competent authority under Article 133511 of the Civil Code;12 that with
respect to the arrearages of petitioner on her monthly amortization with the NHMFC in
the sum of P26,744.09, the same shall be deemed part of the balance of petitioners
loan with the NHMFC which respondent agreed to assume; and that the amount
of P3,000.00 representing the rental for January 1997 supposedly collected by
petitioner, as well as the claim for damages and attorneys fees, is denied for
insufficiency of evidence.13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing
that respondent categorically admitted in open court that she acted only as agent or
representative of Arsenio Pua, the principal financier and, hence, she had no legal
capacity to sue petitioner; and that the CA failed to consider the fact that petitioners
father, who co-owned the subject property, was not impleaded as a defendant nor
was he indebted to the respondent and, hence, she cannot be made to sign the
documents to effect the transfer of ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground
that the foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28,
2001, petitioner filed the present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF
THE RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE
PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT
PAYMENT FROM THE DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A
CAUSE.14
Although, as a rule, it is not the business of this Court to review the findings of fact
made by the lower courts, jurisprudence has recognized several exceptions, at least
three of which are present in the instant case, namely: when the judgment is based
on a misapprehension of facts; when the findings of facts of the courts a quo are
conflicting; and when the CA manifestly overlooked certain relevant facts not disputed
by the parties, which, if properly considered, could justify a different conclusion. 15 To
arrive at a proper judgment, therefore, the Court finds it necessary to re-examine the a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they
evidence presented by the contending parties during the trial of the case. were just referred.

The Petition is meritorious. Atty. Diza:

The principal issue is whether the Deed of Absolute Sale is supported by a valid q. And you have transact[ed] with the plaintiff?
consideration.
witness:
1. Petitioner argues that since she is merely the agent or representative of the alleged
debtors, then she is not a party to the loan; and that the Deed of Sale executed a. Yes, sir.
between her and the respondent in their own names, which was predicated on that
Atty. Diza:
pre-existing debt, is void for lack of consideration.
q. What is that transaction?
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the
form of a price certain in money16 and that this sum indisputably pertains to the debt witness:
in issue. This Court has consistently held that a contract of sale is null and void and
produces no effect whatsoever where the same is without cause or a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.
consideration.17 The question that has to be resolved for the moment is whether this
Atty. Diza:
debt can be considered as a valid cause or consideration for the sale.
q. Did the plaintiff personally see the transactions with your friends?
To restate, the CA cited four instances in the record to support its holding that
petitioner "re-lends" the amount borrowed from respondent to her friends: first, the witness:
friends of petitioner never presented themselves to respondent and that all
transactions were made by and between petitioner and respondent; 18 second; the a. No, sir.
money passed through the bank accounts of petitioner and respondent; 19 third,
petitioner herself admitted that she was "re-lending" the money loaned to other Atty. Diza:
individuals for profit;20 and fourth, the documentary evidence shows that the actual
q. Your friends and the plaintiff did not meet personally?
borrowers, the friends of petitioner, consider her as their creditor and not the
respondent.21 witness:
On the first, third, and fourth points, the CA cites the testimony of the petitioner, then a. Yes, sir.
defendant, during her cross-examination:22
Atty. Diza:
Atty. Diza:
q. You are intermediaries?
q. You also mentioned that you were not the one indebted to the plaintiff?
witness:
witness:
a. We are both intermediaries. As evidenced by the checks of the debtors they were
a. Yes, sir. deposited to the name of Arsenio Pua because the money came from Arsenio Pua.
Atty. Diza: xxxx
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Atty. Diza:
Maria Luisa Inocencio, Zenaida Romulo, they are your friends?
q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically
witness: the one you mentioned [a] while ago?

witness:

15
a. Yes, she knows the money will go to those persons. q. So it is not actually your money but the money of Arsenio Pua?

Atty. Diza: witness:

q. You are re-lending the money? a. Yes, sir.

witness: Court:

a. Yes, sir. q. It is not your money?

Atty. Diza: witness:

q. What profit do you have, do you have commission? a. Yes, Your Honor.

witness: Atty. Villacorta:

a. Yes, sir. q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate
somebody, are you aware of that?
Atty. Diza:
witness:
q. How much?
a. I am aware of that.
witness:
Atty. Villacorta:
a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends
none, sir. q. More or less she [accommodated] several friends of the defendant?

Based on the foregoing, the CA concluded that petitioner is the real borrower, while witness:
the respondent, the real lender.
a. Yes, sir, I am aware of that.
But as correctly noted by the RTC, respondent, then plaintiff, made the following
admission during her cross examination:23 xxxx

Atty. Villacorta: Atty. Villacorta:

q. Who is this Arsenio Pua? q. And these friends of the defendant borrowed money from you with the assurance
of the defendant?
witness:
witness:
a. Principal financier, sir.
a. They go direct to Jocelyn because I dont know them.
Atty. Villacorta:
xxxx
q. So the money came from Arsenio Pua?
Atty. Villacorta:
witness:
q. And is it not also a fact Madam witness that everytime that the defendant borrowed
a. Yes, because I am only representing him, sir. money from you her friends who [are] in need of money issued check[s] to you?
There were checks issued to you?
Other portions of the testimony of respondent must likewise be considered: 24
witness:
Atty. Villacorta:

16
a. Yes, there were checks issued. may even be implied from the words and conduct of the parties and the
circumstances of the particular case.27Though the fact or extent of authority of the
Atty. Villacorta: agents may not, as a general rule, be established from the declarations of the agents
alone, if one professes to act as agent for another, she may be estopped to deny her
q. By the friends of the defendant, am I correct?
agency both as against the asserted principal and the third persons interested in the
witness: transaction in which he or she is engaged.28

a. Yes, sir. In this case, petitioner knew that the financier of respondent is Pua; and respondent
knew that the borrowers are friends of petitioner.
Atty. Villacorta:
The CA is incorrect when it considered the fact that the "supposed friends of
q. And because of your assistance, the friends of the defendant who are in need of [petitioner], the actual borrowers, did not present themselves to [respondent]" as
money were able to obtain loan to [sic] Arsenio Pua through your assistance? evidence that negates the agency relationshipit is sufficient that petitioner disclosed
to respondent that the former was acting in behalf of her principals, her friends whom
witness:
she referred to respondent. For an agency to arise, it is not necessary that the
a. Yes, sir. principal personally encounter the third person with whom the agent interacts. The
law in fact contemplates, and to a great degree, impersonal dealings where the
Atty. Villacorta: principal need not personally know or meet the third person with whom her agent
transacts: precisely, the purpose of agency is to extend the personality of the principal
q. So that occasion lasted for more than a year? through the facility of the agent.29
witness: In the case at bar, both petitioner and respondent have undeniably disclosed to each
other that they are representing someone else, and so both of them are estopped to
a. Yes, sir.
deny the same. It is evident from the record that petitioner merely refers actual
Atty. Villacorta: borrowers and then collects and disburses the amounts of the loan upon which she
received a commission; and that respondent transacts on behalf of her "principal
q. And some of the checks that were issued by the friends of the defendant bounced, financier", a certain Arsenio Pua. If their respective principals do not actually and
am I correct? personally know each other, such ignorance does not affect their juridical standing as
agents, especially since the very purpose of agency is to extend the personality of the
witness:
principal through the facility of the agent.
a. Yes, sir.
With respect to the admission of petitioner that she is "re-lending" the money loaned
Atty. Villacorta: from respondent to other individuals for profit, it must be stressed that the manner in
which the parties designate the relationship is not controlling. If an act done by one
q. And because of that Arsenio Pua got mad with you? person in behalf of another is in its essential nature one of agency, the former is the
agent of the latter notwithstanding he or she is not so called. 30 The question is to be
witness: determined by the fact that one represents and is acting for another, and if relations
exist which will constitute an agency, it will be an agency whether the parties
a. Yes, sir.
understood the exact nature of the relation or not.31
Respondent is estopped to deny that she herself acted as agent of a certain Arsenio
That both parties acted as mere agents is shown by the undisputed fact that the
Pua, her disclosed principal. She is also estopped to deny that petitioner acted as
friends of petitioner issued checks in payment of the loan in the name of Pua. If it is
agent for the alleged debtors, the friends whom she (petitioner) referred.
true that petitioner was "re-lending", then the checks should have been drawn in her
This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency name and not directly paid to Pua.
is representation.25 The question of whether an agency has been created is ordinarily
a question which may be established in the same way as any other fact, either by
direct or circumstantial evidence. The question is ultimately one of intention. 26 Agency
17
With respect to the second point, particularly, the finding of the CA that the
disbursements and payments for the loan were made through the bank accounts of
petitioner and respondent,
suffice it to say that in the normal course of commercial dealings and for reasons of
convenience and practical utility it can be reasonably expected that the facilities of the
agent, such as a bank account, may be employed, and that a sub-agent be
appointed, such as the bank itself, to carry out the task, especially where there is no
stipulation to the contrary.32
In view of the two agency relationships, petitioner and respondent are not privy to the
contract of loan between their principals. Since the sale is predicated on that loan,
then the sale is void for lack of consideration.
2. A further scrutiny of the record shows, however, that the sale might have been
backed up by another consideration that is separate and distinct from the debt:
respondent averred in her complaint and testified that the parties had agreed that as
a condition for the conveyance of the property the respondent shall assume the
balance of the mortgage loan which petitioner allegedly owed to the NHMFC. 33 This
Court in the recent past has declared that an assumption of a mortgage debt may
constitute a valid consideration for a sale.34
Although the record shows that petitioner admitted at the time of trial that she owned
the property described in the TCT,35 the Court must stress that the Transfer
Certificate of Title No. 38253236 on its face shows that the owner of the property
which admittedly forms the subject matter of the Deed of Absolute Sale refers neither
to the petitioner nor to her father, Teodorico Doles, the alleged co-owner. Rather, it
states that the property is registered in the name of "Household Development
Corporation." Although there is an entry to the effect that the petitioner had been
granted a special power of attorney "covering the shares of Teodorico Doles on the
parcel of land described in this certificate," 37 it cannot be inferred from this bare
notation, nor from any other evidence on the record, that the petitioner or her father
held any direct interest on the property in question so as to validly constitute a
mortgage thereon38 and, with more reason, to effect the delivery of the object of the
sale at the consummation stage.39 What is worse, there is a notation that the TCT
itself has been "cancelled."40
In view of these anomalies, the Court cannot entertain the
possibility that respondent agreed to assume the balance of the mortgage loan which
petitioner allegedly owed to the NHMFC, especially since the record is bereft of any
factual finding that petitioner was, in the first place, endowed with any ownership
rights to validly mortgage and convey the property. As the complainant who initiated
the case, respondent bears the burden of proving the basis of her complaint. Having
failed to discharge such burden, the Court has no choice but to declare the sale void
for lack of cause. And since the sale is void, the Court finds it unnecessary to dwell on
18
the issue of whether duress or intimidation had been foisted upon petitioner upon the
execution of the sale.
Moreover, even assuming the mortgage validly exists, the Court notes respondents
allegation that the mortgage with the NHMFC was for 25 years which began
September 3, 1994. Respondent filed her Complaint for Specific Performance in
1997. Since the 25 years had not lapsed, the prayer of respondent to compel
petitioner to execute necessary documents to effect the transfer of title is premature.
WHEREFORE, the petition is granted. The Decision and Resolution of the Court of
Appeals are REVERSED and SET ASIDE. The complaint of respondent in Civil Case
No. 97-82716 is DISMISSED.
SO ORDERED.
G.R. No. L-57339 December 29, 1983
AIR FRANCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A.
GANA, RAMON GANA, MANUEL GANA, MARIA TERESA GANA, ROBERTO
GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE AREVALO, and EMILY SAN
JUAN, respondents.
In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of
then respondent Court of Appeals 1 promulgated on 15 December 1980 in CA-G.R.
No. 58164-R, entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air France",
which reversed the Trial Court's judgment dismissing the Complaint of private
respondents for damages arising from breach of contract of carriage, and awarding
instead P90,000.00 as moral damages.
Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine
(the GANAS), purchased from AIR FRANCE through Imperial Travels, Incorporated,
a duly authorized travel agent, nine (9) "open-dated" air passage tickets for the
Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of US$2,528.85 for their
economy and first class fares. Said tickets were bought at the then prevailing
exchange rate of P3.90 per US$1.00. The GANAS also paid travel taxes of P100.00
for each passenger.
On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets
with other tickets for the same route. At this time, the GANAS were booked for the
Manila/Osaka segment on AIR FRANCE Flight 184 for 8 May 1970, and for the
Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22 May 1970. The aforesaid
tickets were valid until 8 May 1971, the date written under the printed words "Non
valuable apres de (meaning, "not valid after the").
The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc,
a Secretary of the Sta. Clara Lumber Company where Jose Gana was the Director
and Treasurer, for the extension of the validity of their tickets, which were due to
expire on 8 May 1971. Teresita enlisted the help of Lee Ella Manager of the Philippine
Travel Bureau, who used to handle travel arrangements for the personnel of the Sta.
Clara Lumber Company. Ella sent the tickets to Cesar Rillo, Office Manager of AIR
FRANCE. The tickets were returned to Ella who was informed that extension was not
possible unless the fare differentials resulting from the increase in fares triggered by
an increase of the exchange rate of the US dollar to the Philippine peso and the
increased travel tax were first paid. Ella then returned the tickets to Teresita and
informed her of the impossibility of extension.
In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one
day before the expiry date. In the morning of the very day of their scheduled
departure on the first leg of their trip, Teresita requested travel agent Ella to arrange
the revalidation of the tickets. Ella gave the same negative answer and warned her
that although the tickets could be used by the GANAS if they left on 7 May 1971, the
tickets would no longer be valid for the rest of their trip because the tickets would then
have expired on 8 May 1971. Teresita replied that it will be up to the GANAS to make
the arrangements. With that assurance, Ella on his own, attached to the tickets
validating stickers for the Osaka/Tokyo flight, one a JAL. sticker and the other an SAS
(Scandinavian Airways System) sticker. The SAS sticker indicates thereon that it was
"Reevaluated by: the Philippine Travel Bureau, Branch No. 2" (as shown by a circular
rubber stamp) and signed "Ador", and the date is handwritten in the center of the
circle. Then appear under printed headings the notations: JL. 108 (Flight), 16 May
(Date), 1040 (Time), OK (status). Apparently, Ella made no more attempt to contact
AIR FRANCE as there was no more time.
Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7
May 1971 on board AIR FRANCE Flight 184 for Osaka, Japan. There is no question
with respect to this leg of the trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor
the tickets because of their expiration, and the GANAS had to purchase new tickets.
They encountered the same difficulty with respect to their return trip to Manila as AIR
FRANCE also refused to honor their tickets. They were able to return only after pre-
payment in Manila, through their relatives, of the readjusted rates. They finally flew
back to Manila on separate Air France Frights on 19 May 1971 for Jose Gana and 26
May 1971 for the rest of the family.
19
On 25 August 1971, the GANAS commenced before the then Court of First Instance
of Manila, Branch III, Civil Case No. 84111 for damages arising from breach of
contract of carriage.
AIR FRANCE traversed the material allegations of the Complaint and alleged that the
GANAS brought upon themselves the predicament they found themselves in and
assumed the consequential risks; that travel agent Ella's affixing of validating stickers
on the tickets without the knowledge and consent of AIR FRANCE, violated airline
tariff rules and regulations and was beyond the scope of his authority as a travel
agent; and that AIR FRANCE was not guilty of any fraudulent conduct or bad faith.
On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and
Additional Stipulations of Fact as wen as on the documentary and testimonial
evidence.
The GANAS appealed to respondent Appellate Court. During the pendency of the
appeal, Jose Gana, the principal plaintiff, died.
On 15 December 1980, respondent Appellate Court set aside and reversed the Trial
Court's judgment in a Decision, which decreed:
WHEREFORE, the decision appealed from is set aside. Air France is hereby ordered
to pay appellants moral damages in the total sum of NINETY THOUSAND PESOS
(P90,000.00) plus costs.
SO ORDERED. 2
Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse
before this instance, to which we gave due course.
The crucial issue is whether or not, under the environmental milieu the GANAS have
made out a case for breach of contract of carriage entitling them to an award of
damages.
We are constrained to reverse respondent Appellate Court's affirmative ruling
thereon.
Pursuant to tariff rules and regulations of the International Air Transportation
Association (IATA), included in paragraphs 9, 10, and 11 of the Stipulations of Fact
between the parties in the Trial Court, dated 31 March 1973, an airplane ticket is valid
for one year. "The passenger must undertake the final portion of his journey by
departing from the last point at which he has made a voluntary stop before the expiry
of this limit (parag. 3.1.2. ) ... That is the time allowed a passenger to begin and to
complete his trip (parags. 3.2 and 3.3.). ... A ticket can no longer be used for travel if
its validity has expired before the passenger completes his trip (parag. 3.5.1.) ... To
complete the trip, the passenger must purchase a new ticket for the remaining portion
of the journey" (ibid.) 3
From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of
contract when it dishonored the tickets of the GANAS after 8 May 1971 since those
tickets expired on said date; nor when it required the GANAS to buy new tickets or
have their tickets re-issued for the Tokyo/Manila segment of their trip. Neither can it
be said that, when upon sale of the new tickets, it imposed additional charges
representing fare differentials, it was motivated by self-interest or unjust enrichment
considering that an increase of fares took effect, as authorized by the Civil
Aeronautics Board (CAB) in April, 1971. This procedure is well in accord with the
IATA tariff rules which provide:
6. TARIFF RULES
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
All journeys must be charged for at the fare (or charge) in effect on the date on which
transportation commences from the point of origin. Any ticket sold prior to a change of
fare or charge (increase or decrease) occurring between the date of commencement
of the journey, is subject to the above general rule and must be adjusted accordingly.
A new ticket must be issued and the difference is to be collected or refunded as the
case may be. No adjustment is necessary if the increase or decrease in fare (or
charge) occurs when the journey is already commenced. 4
The GANAS cannot defend by contending lack of knowledge of those rules since the
evidence bears out that Teresita, who handled travel arrangements for the GANAS,
was duly informed by travel agent Ella of the advice of Reno, the Office Manager of
Air France, that the tickets in question could not be extended beyond the period of
their validity without paying the fare differentials and additional travel taxes brought
about by the increased fare rate and travel taxes.
ATTY. VALTE
Q What did you tell Mrs. Manucdoc, in turn after being told this by Mr. Rillo?
A I told her, because that is the reason why they accepted again the tickets when we
returned the tickets spin, that they could not be extended. They could be extended by
paying the additional fare, additional tax and additional exchange during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ... 5
The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of
Appeals, 65 SCRA 237 (1975), holding that it would be unfair to charge respondents
therein with automatic knowledge or notice of conditions in contracts of adhesion, is
inapplicable. To all legal intents and purposes, Teresita was the agent of the GANAS
and notice to her of the rejection of the request for extension of the validity of the
tickets was notice to the GANAS, her principals.
20
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing
reservations for JAL. Flight 108 for 16 May 1971, without clearing the same with AIR
FRANCE allegedly because of the imminent departure of the GANAS on the same
day so that he could not get in touch with Air France 6 was certainly in contravention
of IATA rules although as he had explained, he did so upon Teresita's assurance that
for the onward flight from Osaka and return, the GANAS would make other
arrangements.
Q Referring you to page 33 of the transcript of the last session, I had this question
which reads as follows: 'But did she say anything to you when you said that the
tickets were about to expire?' Your answer was: 'I am the one who asked her. At that
time I told her if the tickets being used ... I was telling her what about their bookings
on the return. What about their travel on the return? She told me it is up for the Ganas
to make the arrangement.' May I know from you what did you mean by this testimony
of yours?
A That was on the day when they were asking me on May 7, 1971 when they were
checking the tickets. I told Mrs. Manucdoc that I was going to get the tickets. I asked
her what about the tickets onward from the return from Tokyo, and her answer was it
is up for the Ganas to make the arrangement, because I told her that they could leave
on the seventh, but they could take care of that when they arrived in Osaka.
Q What do you mean?
A The Ganas will make the arrangement from Osaka, Tokyo and Manila.
Q What arrangement?
A The arrangement for the airline because the tickets would expire on May 7, and
they insisted on leaving. I asked Mrs. Manucdoc what about the return onward portion
because they would be travelling to Osaka, and her answer was, it is up to for the
Ganas to make the arrangement.
Q Exactly what were the words of Mrs. Manucdoc when you told her that? If you can
remember, what were her exact words?
A Her words only, it is up for the Ganas to make the arrangement.
Q This was in Tagalog or in English?
A I think it was in English. ... 7
The circumstances that AIR FRANCE personnel at the ticket counter in the airport
allowed the GANAS to leave is not tantamount to an implied ratification of travel agent
Ella's irregular actuations. It should be recalled that the GANAS left in Manila the day
before the expiry date of their tickets and that "other arrangements" were to be made
with respect to the remaining segments. Besides, the validating stickers that Ella
affixed on his own merely reflect the status of reservations on the specified flight and
could not legally serve to extend the validity of a ticket or revive an expired one.
The conclusion is inevitable that the GANAS brought upon themselves the
predicament they were in for having insisted on using tickets that were due to expire
in an effort, perhaps, to beat the deadline and in the thought that by commencing the
trip the day before the expiry date, they could complete the trip even thereafter. It
should be recalled that AIR FRANCE was even unaware of the validating SAS and
JAL. stickers that Ella had affixed spuriously. Consequently, Japan Air Lines and AIR
FRANCE merely acted within their contractual rights when they dishonored the tickets
on the remaining segments of the trip and when AIR FRANCE demanded payment of
the adjusted fare rates and travel taxes for the Tokyo/Manila flight.
WHEREFORE, the judgment under review is hereby reversed and set aside, and the
Amended Complaint filed by private respondents hereby dismissed.
No costs.
SO ORDERED.
G.R. No. 114311. November 29, 1996
COSMIC LUMBER CORPORATION, petitioner, vs. COURT OF APPEALS and
ISIDRO PEREZ, respondents.
COSMIC LUMBER CORPORATION through its General Manager executed on 28
January 1985 a Special Power of Attorney appointing Paz G. Villamil-Estrada as
attorney-in-fact -
x x x to initiate, institute and file any court action for the ejectment of third persons
and/or squatters of the entire lot 9127 and 443 and covered by TCT Nos. 37648 and
37649, for the said squatters to remove their houses and vacate the premises in order
that the corporation may take material possession of the entire lot, and for this
purpose, to appear at the pre-trial conference and enter into any stipulation of facts
and/or compromise agreement so far as it shall protect the rights and interest of the
corporation in the aforementioned lots.[1]
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney,
instituted an action for the ejectment of private respondent Isidro Perez and recover
the possession of a portion of Lot No. 443 before the Regional Trial Court of
Dagupan, docketed as Civil Case No. D-7750.[2]
On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement with
respondent Perez, the terms of which follow:
1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer
Rodolfo dela Cruz the area at present occupied by defendant wherein his house is
21
located is 333 square meters on the easternmost part of lot 443 and which portion
has been occupied by defendant for several years now;
2. That to buy peace said defendant pays unto the plaintiff through herein attorney-in-
fact the sum of P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and possession of the defendant by
virtue of this compromise agreement over said portion of 333 square m. of lot 443
which portion will be located on the easternmost part as indicated in the sketch as
annex A;
4. Whatever expenses of subdivision, registration, and other incidental expenses shall
be shouldered by the defendant.[3]
On 27 November 1985 the Compromise Agreement was approved by the trial court
and judgment was rendered in accordance therewith.[4]
Although the decision became final and executory it was not executed within the 5-
year period from date of its finality allegedly due to the failure of petitioner to produce
the owners duplicate copy of Title No. 37649 needed to segregate from Lot No. 443
the portion sold by the attorney-in-fact, Paz G. Villamil-Estrada, to private respondent
under the compromise agreement. Thus on 25 January 1993 respondent filed a
complaint to revive the judgment, docketed as Civil Case No. D-10459.[5]
Petitioner asserts that it was only when the summons in Civil Case No. D-10459 for
the revival of judgment was served upon it that it came to know of the compromise
agreement entered into between Paz G. Villamil-Estrada and respondent Isidro Perez
upon which the trial court based its decision of 26 July 1993 in Civil Case No. D-
7750. Forthwith, upon learning of the fraudulent transaction, petitioner sought
annulment of the decision of the trial court before respondent Court of Appeals on the
ground that the compromise agreement was void because: (a) the attorney-in-fact did
not have the authority to dispose of, sell, encumber or divest the plaintiff of its
ownership over its real property or any portion thereof; (b) the authority of the
attorney-in-fact was confined to the institution and filing of an ejectment case against
third persons/squatters on the property of the plaintiff, and to cause their eviction
therefrom; (c) while the special power of attorney made mention of an authority to
enter into a compromise agreement, such authority was in connection with, and
limited to, the eviction of third persons/squatters thereat, in order that the corporation
may take material possession of the entire lot; (d) the amount of P26,640.00 alluded
to as alleged consideration of said agreement was never received by the plaintiff; (e)
the private defendant acted in bad faith in the execution of said agreement knowing
fully well the want of authority of the attorney-in-fact to sell, encumber or dispose of
the real property of plaintiff; and, (f) the disposal of a corporate property indispensably
requires a Board Resolution of its Directors, a fact which is wanting in said Civil Case
No. D-7750, and the General Manager is not the proper officer to encumber a
corporate property.[6]
On 29 October 1993 respondent court dismissed the complaint on the basis of its
finding that not one of the grounds for annulment, namely, lack of jurisdiction, fraud or
illegality was shown to exist.[7] It also denied the motion for reconsideration filed by
petitioner, discoursing that the alleged nullity of the compromise judgment on the
ground that petitioners attorney in fact Villamit-Estrada was not authorized to sell the
subject property may be raised as a defense in the execution of the compromise
judgment as it does not bind petitioner, but not as a ground for annulment of judgment
because it does not affect the jurisdiction of the trial court over the action nor does it
amount to extrinsic fraud.[8]
Petitioner challenges this verdict. It argues that the decision of the trial court is void
because the compromise agreement upon which it was based is void. Attorney-in-fact
Villamil-Estrada did not possess the authority to sell or was she armed with a Board
Resolution authorizing the sale of its property. She was merely empowered to enter
into a compromise agreement in the recovery suit she was authorized to file against
persons squatting on Lot No. 443, such authority being expressly confined to
the ejectment of third persons or squatters of x x x lot x x x (No.) 443 x x x for the said
squatters to remove their houses and vacate the premises in order that the
corporation may take material possession of the entire lot x x x x
We agree with petitioner. The authority granted Villamil-Estrada under the special
power of attorney was explicit and exclusionary: for her to institute any action in court
to eject all persons found on Lots Nos. 9127 and 443 so that petitioner could take
material possession thereof, and for this purpose, to appear at the pre-trial and enter
into any stipulation of facts and/or compromise agreement but only insofar as this was
protective of the rights and interests of petitioner in the property. Nowhere in this
authorization was Villamil-Estrada granted expressly or impliedly any power to sell the
subject property nor a portion thereof. Neither can a conferment of the power to sell
be validly inferred from the specific authority to enter into a compromise
agreement because of the explicit limitation fixed by the grantor that the compromise
entered into shall only be so far as it shall protect the rights and interest of the
corporation in the aforementioned lots. In the context of the specific investiture
of powers to Villamil-Estrada, alienation by sale of an immovable certainly cannot be
deemed protective of the right of petitioner to physically possess the same, more so
when the land was being sold for a price of P80.00 per square meter, very much less
than its assessed value of P250.00 per square meter, and considering further that
petitioner never received the proceeds of the sale.
When the sale of a piece of land or any interest thereon is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void. [9] Thus the
authority of an agent to execute a contract for the sale of real estate must be
conferred in writing and must give him specific authority, either to conduct the general
business of the principal or to execute a binding contract containing terms and
conditions which are in the contract he did execute. [10] A special power of attorney is
necessary to enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration. [11] The
22
express mandate required by law to enable an appointee of an agency (couched) in
general terms to sell must be one that expressly mentions a sale or that includes a
sale as a necessary ingredient of the act mentioned.[12] For the principal to confer the
right upon an agent to sell real estate, a power of attorney must so express the
powers of the agent in clear and unmistakable language. When there is any
reasonable doubt that the language so used conveys such power, no such
construction shall be given the document.[13]
It is therefore clear that by selling to respondent Perez a portion of petitioners land
through a compromise agreement, Villamil-Estrada acted without or in obvious
authority. The saleipso jure is consequently void. So is the compromise
agreement. This being the case, the judgment based thereon is necessarily
void. Antipodal to the opinion expressed by respondent court in resolving petitioners
motion for reconsideration, the nullity of the settlement between Villamil-Estrada and
Perez impaired the jurisdiction of the trial court to render its decision based on the
compromise agreement. In Alviar v. Court of First Instance of La Union,[14] the Court
held -
x x x x this court does not hesitate to hold that the judgment in question is null and
void ab initio. It is not binding upon and cannot be executed against the petitioners. It
is evident that the compromise upon which the judgment was based was not
subscribed by them x x x x Neither could Attorney Ortega bind them validly in the
compromise because he had no special authority x x x x
As the judgment in question is null and void ab initio, it is evident that the court
acquired no jurisdiction to render it, much less to order the execution thereof x x x
x x x x A judgment, which is null and void ab initio, rendered by a court without
jurisdiction to do so, is without legal efficacy and may properly be impugned in any
proceeding by the party against whom it is sought to be enforced x x x x
This ruling was adopted in Jacinto v. Montesa,[15] by Mr. Justice J.B.L. Reyes, a
much-respected authority on civil law, where the Court declared that a judgment
based on a compromise entered into by an attorney without specific authority from the
client is void. Such judgment may be impugned and its execution restrained in any
proceeding by the party against whom it is sought to be enforced. The Court also
observed that a defendant against whom a judgment based on a compromise is
sought to be enforced may file a petition for certiorari to quash the execution. He
could not move to have the compromise set aside and then appeal from the order of
denial since he was not a party to the compromise. Thus it would appear that the
obiter of the appellate court that the alleged nullity of the compromise agreement
should be raised as a defense against its enforcement is not legally
feasible. Petitioner could not be in a position to question the compromise agreement
in the action to revive the compromise judgment since it was never privy to such
agreement. Villamil-Estrada who signed the compromise agreement may have been
the attorney-in-fact but she could not legally bind petitioner thereto as she was not
entrusted with a special authority to sell the land, as required in Art. 1878, par. (5), of
the Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the
Court of Appeals to annul and set aside judgments of Regional Trial Courts.[16] Thus,
the Intermediate Appellate Court (now Court of Appeals) shall exercise x x x x (2)
Exclusive original jurisdiction over action for annulment of judgments of the Regional
Trial Courts x x x x However, certain requisites must first be established before a final
and executory judgment can be the subject of an action for annulment. It must either
be void for want of jurisdiction or for lack of due process of law, or it has been
obtained by fraud.[17]
Conformably with law and the above-cited authorities, the petition to annul the
decision of the trial court in Civil Case No. D-7750 before the Court of Appeals was
proper. Emanating as it did from a void compromise agreement, the trial court had no
jurisdiction to render a judgment based thereon.[18]
It would also appear, and quite contrary to the finding of the appellate court that the
highly reprehensible conduct of attorney-in-fact Villamil-Estrada in Civil Case No.
7750 constituted an extrinsic or collateral fraud by reason of which the judgment
rendered thereon should have been struck down. Not all the legal semantics in the
world can becloud the unassailable fact that petitioner was deceived and betrayed by
its attorney-in-fact. Villamil-Estrada deliberately concealed from petitioner, her
principal, that a compromise agreement had been forged with the end-result that a
portion of petitioners property was sold to the deforciant, literally for a song. Thus
completely kept unaware of its agents artifice, petitioner was not accorded even a
fighting chance to repudiate the settlement so much so that the judgment based
thereon became final and executory.
For sure, the Court of Appeals restricted the concept of fraudulent acts within too
narrow limits. Fraud may assume different shapes and be committed in as many
different ways and here lies the danger of attempting to define fraud. For man in his
ingenuity and fertile imagination will always contrive new schemes to fool the unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where
it is one the effect of which prevents a party from hearing a trial, or real contest, or
from presenting all of his case to the court, or where it operates upon matters, not
pertaining to the judgment itself, but to the manner in which it was procured so that
there is not a fair submission of the controversy. In other words, extrinsic fraud refers
to any fraudulent act of the prevailing party in the litigation which is committed outside
of the trial of the case, whereby the defeated party has been prevented from
exhibiting fully his side of the case by fraud or deception practiced on him by his
opponent.[19] Fraud is extrinsic where the unsuccessful party has been prevented
from exhibiting fully his case, by fraud or deception practiced on him by his opponent,
as by keeping him away from court, a false promise of a compromise; or where the
defendant never had knowledge of the suit, being kept in ignorance by the acts of the
plaintiff; or where an attorney fraudulently or without authority connives at his defeat;
23
these and similar cases which show that there has never been a real contest in the
trial or hearing of the case are reasons for which a new suit may be sustained to set
aside and annul the former judgment and open the case for a new and fair hearing. [20]
It may be argued that petitioner knew of the compromise agreement since the
principal is chargeable with and bound by the knowledge of or notice to his agent
received while the agent was acting as such. But the general rule is intended to
protect those who exercise good faith and not as a shield for unfair dealing. Hence
there is a well-established exception to the general rule as where the conduct and
dealings of the agent are such as to raise a clear presumption that he will not
communicate to the principal the facts in controversy.[21] The logical reason for this
exception is that where the agent is committing a fraud, it would be contrary to
common sense to presume or to expect that he would communicate the facts to the
principal.Verily, when an agent is engaged in the perpetration of a fraud upon his
principal for his own exclusive benefit, he is not really acting for the principal but is
really acting for himself, entirely outside the scope of his agency. [22] Indeed, the basic
tenets of agency rest on the highest considerations of justice, equity and fair play, and
an agent will not be permitted to pervert his authority to his own personal advantage,
and his act in secret hostility to the interests of his principal transcends the power
afforded him.[23]
WHEREFORE, the petition is GRANTED. The decision and resolution of respondent
Court of Appeals dated 29 October 1993 and 10 March 1994, respectively, as well as
the decision of the Regional Trial Court of Dagupan City in Civil Case No. D-7750
dated 27 November 1985, are NULLIFIED and SET ASIDE. The Compromise
Agreement entered into between Attorney-in-fact Paz G. Villamil-Estrada and
respondent Isidro Perez is declared VOID. This is without prejudice to the right of
petitioner to pursue its complaint against private respondent Isidro Perez in Civil Case
No. D-7750 for the recovery of possession of a portion of Lot No. 443.
SO ORDERED.
G.R. No. L-18377 December 29, 1962
ANASTACIO G. DUGO, petitioner,
vs.
ADRIANO LOPENA, ROSA RAMOS and HON. ANDRES REYES, Judge of the
Court of First Instance of Rizal,respondents.
On September 10, 1959, herein petitioner Anastacio Dugo and one Rodrigo S.
Gonzales purchased 3 parcel of land from the respondents Adriano Lopena and Rosa
Ramos for the total price of P269,804.00. Of this amount P28.000.00 was given as
down payment with the agreement that the balance of P241,804.00 would be paid in
6 monthly installments.
To secure the payment of the balance Anastacio Dugo and Rodrigo S. Gonzales,
the vendees, on September 11, 1958, executed over the same 3 parcels of land Deed
of Real Estate Mortgage in favor of the respondent Adriano Lopena and Rosa
Ramos. This deed was duly registered with the Office of the Register of Deeds Rizal,
with the condition that failure of the vendees to pay any of the installments on their
maturity dates shall automatically cause the entire unpaid balance to become due
and demandable.
The vendees defaulted on the first installment. It resulted then that on November 7,
1959, the vendors, herein respondents Adriano Lopena and Rosa Ramos, filed a
complaint for the foreclosure of the aforementioned real estate mortgage with the
Court of First Instance of Rizal the Hon. Judge Andres Reyes, presiding. This
complaint was answered by the herein petitioner and the other vendee, Rodrigo S.
Gonzales, on December 7, 1959.
Meanwhile, there were 2 other civil cases filed in the same lower court against the
same defendants Anastacio Dugo and Rodrigo S. Gonzales. The plaintiff in one was
a certain Dionisio Lopena, and in the other case, the complainants were Bernardo
Lopena and Maria de la Cruz.
Both complaints involved the same cause of action as that of herein respondents
Adriano Lopena and Rosa Ramos. As a matter of fact all three cases arose out of one
transaction. In view of the identical nature of the above three cases, they were
consolidated by the lower court into just one proceeding.
It must be made clear, however, that this present decision refers solely to the
interests and claim of Adriano Lopena against Anastacio Dugo alone.
Before the cases could be tried, a compromise agreement dated January 15, 1960
was submitted to the lower court for approval. It was signed by herein respondents
Adriano Lopena and Rosa Ramos on one hand, and Rodrigo S. Gonzales, on the
other. It was not signed by the herein petitioner. However, Rodrigo S. Gonzales
represented that his signature was for both himself and the herein petitioner.
Moreover, Anastacio Dugo's counsel of record, Atty. Manuel O. Chan, the same
lawyer who signed and submitted for him the answer to the complaint, was present at
the preparation of the compromise agreement and this counsel affixed his signature
thereto.
The text of this agreement is hereunder quoted:
COMPROMISE AGREEMENT
COME NOW the parties in the above entitled cases and unto this Hon. Court
respectfully set forth:
That, the plaintiffs, have agreed to give the defendants up to June 30, 1960 to pay the
mortgage indebtedness in each of the said cases;
24
That, should the defendants fail to pay the said mortgage indebtedness, judgments of
foreclosure shall thereafter be entered against the said defendants;
That, the defendants hereby waive the period of redemption provided by law after
entry of judgments;
That, in the event of sale of the properties involved in these three cases, the
defendants agree that the said properties shall be sold at one time at public auction,
that is, one piece of property cannot be sold without the others.
This compromise agreement was approved by the lower court on the same day it was
submitted, January 15, 1960.
Subsequently, on May 3, 1960, a so-called Tri-Party Agreement was drawn. The
signatories to it were Anastacio Dugo (herein petitioner) and Rodrigo S. Gonzales as
debtors, Adriano Lopena and Rosa Ramos (herein respondents) as creditors, and,
one Emma R. Santos as pay or. The stipulations of the Tri-Party Agreement were as
follows: .
A TRI-PARTY AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This contract entered into by and between
(1) MMA R. SANTOS, Filipino, of legal age, single, with residence and postal address
at ..........., Rizal Avenue, Manila, hereinafter referred to as the PAYOR,
(2) ANASTACIO C. DUGO Filipino, of legal age, single, with residence and postal
address at 137 N. Domingo, Quezon City, and RODRIGO S. GONZALES, Filipino, of
legal age, married to Magdalena Balatbat, with residence and postal address at 73
Maryland, Quezon City, hereinafter referred to as the DEBTOR,
and
(3) DIONISIO LOPENA, married to Teofila Nofuente, LIBRADA LOPENA, married to
Arellano Cawagas, BERNARDO LOPENA, married to Maria de la Cruz, and
ADRIANO LOPENA, married to Rosa Ramos, all of whom are Filipinos, of legal ages,
with residence and postal address at Sucat, Muntinlupa, Rizal, hereinafter
represented by their attorney of record, ANTONIO LOPENA, hereinafter referred to
as the CREDITOR,
W I T N E S S E T H:
WHEREAS, the DEBTOR is indebted to the CREDITOR as of this date in the
aggregate amount of P503,000.00 for the collection of which, the latter as party
plaintiffs have institute foreclosure proceedings against the former as party defendant
in Civil Cases Nos. 5872, 5873 and 5874 now pending in the Court of First Instance,
Pasig, Rizal;
WHEREAS, the PAYOR, hereby submits and binds herself to the force and effect of
the Order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal,
Branch VI, which order is hereby made an integral part of this agreement as ANNEX
"A";
WHEREAS, the PAYOR with due knowledge and consent of the DEBTOR, hereby
proposes to pay the aforesaid indebtedness in the sum of P503,000.00 to the
CREDITOR for and in behalf of the DEBTOR under the following terms and condition
petitions:
(a) To pay the said P503,000.00 in installments in the following schedule of amounts
and time: P50,000.00 on or before May 31, 1960 70,000.00 on or before June 30,
1960 70,000.00 on or before July 31, 1960 313,000.00 on or before Aug. 31, 1960.
(b) That the DEBTOR and the PAYOR hereby waive any right to object and oblige
themselves not to oppose the motion that the CREDITOR may file during the first
week of July 1960, or subsequently thereafter, informing the Court of the exact money
obligation of the DEBTOR which shall be P503,000.00 minus whatever payments, if
any, made before June 30, 1960 by the PAYOR and praying for the issuance of an
order to sell the property covered by the mortgage.
(c) That the CREDITOR, once he has the order referred to, should not execute the
same by giving it to the sheriff if the PAYOR is regular and punctual in the payment of
all of the installments stated above. PROVIDED, however, if the PAYOR defaults or
fails to pay anyone of the installments in the manner stated above, the PAYOR and
the DEBTOR hereby permit the CREDITOR to execute the order of sale referred to
above, and they (PAYOR and DEBTOR) hereby waive any and all objection's or
oppositions to the propriety of the public auction sale and to the confirmation of the
sale to be made by the court.
(d) That the CREDITOR, at his option, may execute the August installment stated in
letter (a) of this paragraph if the PAYOR has paid regularly the May, June, and July
installments, and provided further that one half () of the August installment in the
amount of P156,500.00 is paid on the said date of August 31, 1960.
NOW, THEREFORE, for and in consideration of the foregoing stipulations, the
DEBTOR and CREDITOR hereby accept, approve and ratify the above-mentioned
propositions of the PAYOR and all the parties herein bind and oblige themselves to
comply to the covenants and stipulations aforestated;
That by mutual agreements of all the parties herein, this TRI-PARTY AGREEMENT
may be submitted to Court to form integral parts of the records of the Civil Cases
mentioned above;
IN WITNESS WHEREOF, the parties hereunto affix their signature on this 3rd day of
May, 1960 in the City of Manila, Philippines.
25
When Anastacio Dugo (herein petitioner) and Rodrigo S. Gonzales failed to pay the
balance of their indebtedness on June 30, 1960, herein respondents Lopena and
Ramos filed on July 5, 1960, a Motion for the Sale of Mortgaged Property. Although
this last motion was filed ex parte, Anastacio Dugo and Rodrigo S. Gonzales were
notified of it by the lower court. Neither of them, however, despite the notice, filed any
opposition thereto. As a result, the lower court granted the above motion on July 19,
1960, and ordered the sale of the mortgaged property.
On August 25, 1960, the 3 parcels of land above-mentioned were sold by the Sheriff
at a public auction where at herein petitioners, together with the plaintiffs of the other
two cases won as the highest bidders. The said sheriff's sale was later confirmed by
the lower court on August 30, 1960. In this connection, it should also made of record
that before confirming the sale, the lower court gave due notice of the motion for the
confirmation to the herein petitioner who filed no opposition therefore.
On August 31, 1960, Anastacio Dugo filed a motion to set aside all the proceedings
on the ground that the compromise agreement dated January 15, 1960 was void ab
initio with respect to him because he did not sign the same. Consequently, he argued,
all subsequent proceedings under and by virtue of the compromise agreement,
including the foreclosure sale of August 25, 1960, were void and null as regards him.
This motion to set aside, however, was denied by the lower court in its order of
December 14, 1960.
Upon denial of the said motion to set aside, Anastacio Dugo filed a Notice of Appeal
from the order of August 31, 1960 approving the foreclosure sale of August 25, 1960,
as well as the order of December 14, 1960, denying his motion to set aside. The
approval of the record on appeal however, was opposed by the herein respondent
spouses who claimed that the judgment was not appealable having been rendered by
virtue of the compromise agreement. The opposition was contained in a motion to
dismiss the appeal. Anastacio Dugo filed a reply to the above motion. Soon
thereafter, the lower court dismissed the appeal.
Two issues were raised to this Court for review, to wit:
(1) Was the compromise agreement of January 15, 1960, the Order of the same date
approving the same, and, all the proceedings subsequent thereto, valid or void insofar
as the petitioner herein is concerned?
(2) Did the lower court abuse its discretion when it dismissed the appeal of the herein
petitioner?
Petitioner Anastacio Dugo insists that the Compromise Agreement was void ab
initio and could have no effect whatsoever against him because he did not sign the
same. Furthermore, as it was void, all the proceedings subsequent to its execution,
including the Order approving it, were similarly void and could not result to anything
adverse to his interest.
The argument was not well taken. It is true that a compromise is, in itself, a contract.
It is as such that the Civil Code speaks of it.
ART. 2028. A compromise is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already commenced.
Moreover, under Art. 1878 of the Civil Code, a third person cannot bind another to a
compromise agreement unless he, the third person, has obtained a special power of
attorney for that purpose from the party intended to be bound.
ART. 1878. Special powers of attorney are necessary in the following cases:
xxx xxx xxx
xxx xxx xxx
(3) To compromise, to submit questions to arbitration, to renounce the right to appeal
from a judgment, to waive objections to the venue of an action or to abandon a
prescription already acquired;
However, although the Civil Code expressly requires a special power of attorney in
order that one may compromise an interest of another, it is neither accurate nor
correct to conclude that its absence renders the compromise agreement void. In such
a case, the compromise is merely unenforceable. This results from its nature is a
contract. It must be governed by the rules and the law on contracts.
ART. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;
Logically, then, the next inquiry in this case should be whether the herein petitioner,
Anastacio Dugo had or had not ratified the compromise agreement. If he had, then
the compromise agreement was legally enforced against him; otherwise, he should
be sustained in his contention that it never bound him, nor ever could it be made to
bind him.
The ratification of the compromise agreement was conclusively established by the Tri-
Party Agreement of May 1960. It is to be noted that the compromise agreement was
submitted to and approved by the lower court January 15, 1960. Now, the Tri-Party
Agreement referred itself to that order when it stipulated thus:
WHEREAS, the MAYOR, hereby submits and binds herself to the force and effect of
the order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal,
Branch which order is hereby made an integral part of this agreement as Annex "A
Having so consented to making that court order approving the compromise
agreement an integral part of the Tri-Party Agreement, how can the petitioner herein
now repudiate the compromise agreement and claim he has not authorized it?
26
When it appears that the client, on becoming aware the compromise and the
judgment thereon, fails to repudiate promptly the action of his attorney, he will not
afterwards be heard to contest its validity (Rivero vs. Rivero, 59 Phil. 15).
Besides, this Court has not overlooked the fact that which indeed Anastacio Dugo
was not a signatory to the compromise agreement, the principal provision of the said
instrument was for his benefit. Originally, Anastacio Dugo's obligation matured and
became demandable on October 10, 1959. However, the compromise agreement
extended the date of maturity to June 30, 1960. More than anything, therefore, the
compromise agreement operated to benefit the herein petitioner because it afforded
him more time and opportunity to fulfill his monetary obligations under the contract. If
only for this reason, this Court believes that the herein petitioner should not be heard
to repudiate the said agreement.
Lastly, the compromise agreement stated "that, should the defendants fail to pay the
said mortgage indebtedness, judgment of foreclosure shall thereafter be entered
against the said defendants:" Beyond doubt, this was ratified by the Tri-Party
Agreement when it covenanted that
If the MAYOR defaults or fails to pay anyone of the installments in the manner stated
above, the MAYOR and the DEBTOR hereby permit the CREDITOR to execute the
order of sale referred to above (the Judgment of Foreclosure), and they (PAYOR and
DEBTOR) hereby waive any and all objections or oppositions to the propriety of the
public auction sale and to the confirmation of the sale to be made by the Court.
Petitioner Dugo finally argued that even assuming that the compromise agreement
was valid, it nevertheless could not be enforced against him because it has been
novated by the Tri-Party Agreement which brought in a third party, namely, Emma R.
Santos, who assumed the mortgaged obligation of the herein petitioner.
This Court cannot accept the argument. Novation by presumption has never been
favored. To be sustained, it need be established that the old and new contracts are
incompatible in all points, or that the will to novate appears by express agreement of
the parties or in acts of similar import. (Martinez v. Cavives, 25 Phil. 581; Tiy Sinco
vs. Havana, 45 Phil. 707; Asia Banking Corp. vs. Lacson Co.. 48 Phil. 482; Pascual
vs. Lacsamana, 53 O.G. 2467, April 1957).
An obligation to pay a sum of money is not novated, in a new instrument wherein the
old is ratified, by changing only the term of payment and adding other obligations not
incompatible with the old one (Inchausti vs. Yulo, 34 Phil. 978; Pablo vs. Sapungan,
71 Phil. 145) or wherein the old contract is merely supplemented by the new one
Ramos vs. Gibbon, 67 Phil. 371).
Herein petitioner claims that when a third party Emma R. Santos, came in and
assumed the mortgaged obligation, novation resulted thereby inasmuch as a new
debtor was substituted in place of the original one. In this kind of novation, however, it
is not enough that the juridical relation of the parties to the original contract is
extended to a third person; it is necessary that the old debtor be released from the
obligation, and the third person or new debtor take his place in the new relation.
Without such release, there is no novation; the third person who has assumed the
obligation of the debtor merely becomes a co-debtor or surety. If there is no
agreement as to solidarity, the first and the new debtors are considered obligation
jointly. (IV Tolentino, Civil Code, p. 360, citing Manresa. There was no such release of
the original debtor in the Tri-Party Agreement.
It is a very common thing in the business affairs for a stranger to a contract to assume
its obligations; an while this may have the effect of adding to the number of persons
liable, it does not necessarily imply the extinguishment of the liability of the first debtor
(Rios v Jacinto, etc., 49 Phil. 7; Garcia vs. Khu Yek Ching, 65 Phil. 466). The mere
fact that the creditor receives a guaranty or accepts payments from a third person
who has agreed to assume the obligation, when there is no agreement that the first
debtor shall be released from responsibility, do not constitute a novation, and the
creditor can still enforce the obligation against the original debtor (Straight vs.
Haskell, 49 Phil. 614; Pacific Commercial Co. vs. Sotto, 34 Phil. 237; Estate of Mota
vs. Serra, 47 Phil. 446).
In view of all the foregoing, We hold that the Tri-Party Agreement was an instrument
intended to render effective the compromise agreement. It merely complemented an
ratified the same. That a third person was involved in it is inconsequential. Nowhere
in the new agreement may the release of the herein petitioner be even inferred.
Having held that the compromise agreement was validity and enforceable against the
herein petitioner, it follows that the lower court committed no abuse of discretion when
it dismissed the appeal of the herein petitioner.
WHEREFORE, the petition for certiorari and mandamus filed by the herein petitioner
is hereby dismissed. The order of the lower court dismissing the appeal is her by
affirmed, with costs.
G.R. No. 111448. January 16, 2002
AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners,
vs. DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS
DEVELOPMENT CORPORATION, respondents
Petition for review on certiorari assailing the Decision dated December 10, 1992 and
the Resolution (Amending Decision) dated August 5, 1993 of the Court of Appeals in
CA-G.R. CV No. 30133.
Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and
a registered owner of a parcel of commercial lot consisting of 2,094 square meters,
located at 104 E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro Manila. The
27
property is covered by Transfer Certificate of Title No. 39849 issued by the Registry
of Deeds of the Province of Rizal.[1]
On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of
Dieselman, issued a letter denominated as "Authority To Sell Real Estate" [2] to
Cristeta N. Polintan, a real estate broker of the CNP Real Estate Brokerage. Cruz, Jr.
authorized Polintan "to look for a buyer/buyers and negotiate the sale" of the lot
at P3,000.00 per square meter, or a total ofP6,282,000.00. Cruz, Jr. has no written
authority from Dieselman to sell the lot.
In turn, Cristeta Polintan, through a letter[3] dated May 19, 1988, authorized Felicisima
("Mimi") Noble[4] to sell the same lot.
Felicisima Noble then offered for sale the property to AF Realty & Development, Inc.
(AF Realty) at P2,500.00 per square meter.[5] Zenaida Ranullo, board member and
vice-president of AF Realty, accepted the offer and issued a check in the amount of
P300,000.00 payable to the order of Dieselman. Polintan received the check and
signed an "Acknowledgement Receipt"[6]indicating that the amount of P300,000.00
represents the partial payment of the property but refundable within two weeks should
AF Realty disapprove Ranullo's action on the matter.
On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo
asked Polintan for the board resolution of Dieselman authorizing the sale of the
property. However, Polintan could only give Ranullo the original copy of TCT No.
39849, the tax declaration and tax receipt for the lot, and a photocopy of the Articles
of Incorporation of Dieselman.[7]
On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged
receipt of the said P300,000.00 as "earnest money" but required AF Realty to finalize
the sale at P4,000.00 per square meter.[8] AF Realty replied that it has paid an initial
down payment of P300,000.00 and is willing to pay the balance. [9]
However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from
AF Realty the return of the title of the lot earlier delivered by Polintan. [10]
Claiming that there was a perfected contract of sale between them, AF Realty filed
with the Regional Trial Court, Branch 160, Pasig City a complaint for specific
performance (Civil Case No. 56278) against Dieselman and Cruz, Jr.. The complaint
prays that Dieselman be ordered to execute and deliver a final deed of sale in favor of
AF Realty.[11] In its amended complaint,[12]AF Realty asked for payment of
P1,500,000.00 as compensatory damages; P400,000.00 as attorneys fees; and
P500,000.00 as exemplary damages.
In its answer, Dieselman alleged that there was no meeting of the minds between the
parties in the sale of the property and that it did not authorize any person to enter into
such transaction on its behalf.
Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation
(Midas) executed a Deed of Absolute Sale [13] of the same property. The agreed price
was P2,800.00 per square meter. Midas delivered to Dieselman P500,000.00 as
down payment and deposited the balance of P5,300,000.00 in escrow account with
the PCIBank.
Constrained to protect its interest in the property, Midas filed on April 3, 1989 a
Motion for Leave to Intervene in Civil Case No. 56278. Midas alleged that it has
purchased the property and took possession thereof, hence Dieselman cannot be
compelled to sell and convey it to AF Realty. The trial court granted Midas' motion.
After trial, the lower court rendered the challenged Decision holding that the acts of
Cruz, Jr. bound Dieselman in the sale of the lot to AF Realty.[14] Consequently, the
perfected contract of sale between Dieselman and AF Realty bars Midas'
intervention. The trial court also held that Midas acted in bad faith when it initially paid
Dieselman P500,000.00 even without seeing the latter's title to the
property. Moreover, the notarial report of the sale was not submitted to the Clerk of
Court of the Quezon City RTC and the balance of P5,300,000.00 purportedly
deposited in escrow by Midas with a bank was not established.
The dispositive portion of the trial courts Decision reads:
WHEREFORE, foregoing considered, judgment is hereby rendered ordering
defendant to execute and deliver to plaintiffs the final deed of sale of the property
covered by the Transfer Certificate of Title No. 39849 of the Registry of Deed of Rizal,
Metro Manila District II, including the improvements thereon, and ordering defendants
to pay plaintiffs attorneys fees in the amount of P50,000.00 and to pay the costs.
"The counterclaim of defendants is necessarily dismissed.
"The counterclaim and/or the complaint in intervention are likewise dismissed
"SO ORDERED.[15]
Dissatisfied, all the parties appealed to the Court of Appeals.
AF Realty alleged that the trial court erred in not holding Dieselman liable for moral,
compensatory and exemplary damages, and in dismissing its counterclaim against
Midas.
Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding
that a contract of sale between Dieselman and AF Realty was perfected. Midas
further averred that there was no bad faith on its part when it purchased the lot from
Dieselman.
In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment
of the trial court holding that since Cruz, Jr. was not authorized in writing by
Dieselman to sell the subject property to AF Realty, the sale was not perfected; and
that the Deed of Absolute Sale between Dieselman and Midas is valid, there being no
28
bad faith on the part of the latter. The Court of Appeals then declared Dieselman and
Cruz, Jr. jointly and severally liable to AF Realty for P100,000.00 as moral damages;
P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees. [16]
On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by
the parties, promulgated an Amending Decision, the dispositive portion of which
reads:
WHEREFORE, The Decision promulgated on October 10, 1992, is hereby
AMENDED in the sense that only defendant Mr. Manuel Cruz, Jr. should be made
liable to pay the plaintiffs the damages and attorneys fees awarded therein, plus the
amount of P300,000.00 unless, in the case of the said P300,000.00, the same is still
deposited with the Court which should be restituted to plaintiffs.
"SO ORDERED.[17]
AF Realty now comes to this Court via the instant petition alleging that the Court of
Appeals committed errors of law.
The focal issue for consideration by this Court is who between petitioner AF Realty
and respondent Midas has a right over the subject lot.
The Court of Appeals, in reversing the judgment of the trial court, made the following
ratiocination:
From the foregoing scenario, the fact that the board of directors of Dieselman never
authorized, verbally and in writing, Cruz, Jr. to sell the property in question or to look
for buyers and negotiate the sale of the subject property is undeniable.
"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and
negotiate the sale of the subject property, it should be noted that Cruz, Jr. could not
confer on Polintan any authority which he himself did not have. Nemo dat quod non
habet. In the same manner, Felicisima Noble could not have possessed authority
broader in scope, being a mere extension of Polintans purported authority, for it is a
legal truism in our jurisdiction that a spring cannot rise higher than its
source. Succinctly stated, the alleged sale of the subject property was effected
through persons who were absolutely without any authority whatsoever from
Dieselman.
"The argument that Dieselman ratified the contract by accepting the P300,000.00 as
partial payment of the purchase price of the subject property is equally
untenable. The sale of land through an agent without any written authority is void.
xxxxxxxxx
"On the contrary, anent the sale of the subject property by Dieselman to intervenor
Midas, the records bear out that Midas purchased the same from Dieselman on 30
July 1988. The notice of lis pendens was subsequently annotated on the title of the
property by plaintiffs on 15 August 1988. However, this subsequent annotation of the
notice of lis pendens certainly operated prospectively and did not retroact to make the
previous sale of the property to Midas a conveyance in bad faith. A subsequently
registered notice of lis pendens surely is not proof of bad faith. It must therefore be
borne in mind that the 30 July 1988 deed of sale between Midas and Dieselman is a
document duly certified by notary public under his hand and seal. x x x. Such a deed
of sale being public document acknowledged before a notary public is admissible as
to the date and fact of its execution without further proof of its due execution and
delivery (Bael vs. Intermediate Appellate Court, 169 SCRA617; Joson vs. Baltazar,
194 SCRA 114) and to prove the defects and lack of consent in the execution thereof,
the evidence must be strong and not merely preponderant x x x. [18]
We agree with the Court of Appeals.
Section 23 of the Corporation Code expressly provides that the corporate powers of
all corporations shall be exercised by the board of directors. Just as a natural person
may authorize another to do certain acts in his behalf, so may the board of directors
of a corporation validly delegate some of its functions to individual officers or agents
appointed by it.[19] Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the board. [20] Absent
such valid delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or connected
with, the performance of authorized duties of such director, are held not binding on
the corporation.[21]
In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority
from the board of directors of respondent Dieselman to sell or to negotiate the sale of
the lot, much less to appoint other persons for the same purpose. Respondent Cruz,
Jr.s lack of such authority precludes him from conferring any authority to Polintan
involving the subject realty.Necessarily, neither could Polintan authorize Felicisima
Noble. Clearly, the collective acts of respondent Cruz, Jr., Polintan and Noble cannot
bind Dieselman in the purported contract of sale.
Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be
ratified where, as here, there is acceptance of the benefits involved. In this case the
receipt by respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial payment
of the lot effectively binds respondent Dieselman.[22]
We are not persuaded.
Involved in this case is a sale of land through an agent. Thus, the law on agency
under the Civil Code takes precedence. This is well stressed in Yao Ka Sin Trading
vs. Court of Appeals:[23]
Since a corporation, such as the private respondent, can act only through its officers
and agents, all acts within the powers of said corporation may be performed by
agents of its selection; and, except so far as limitations or restrictions may be
imposed by special charter, by-law, or statutory provisions, the same general
principles of law which govern the relation of agency for a natural person
29
govern the officer or agent of a corporation, of whatever status or rank, in
respect to his power to act for the corporation; and agents when once
appointed, or members acting in their stead, are subject to thesame rules,
liabilities, and incapacities as are agents of individuals and private
persons. (Emphasis supplied)
Pertinently, Article 1874 of the same Code provides:
ART. 1874. When a sale of piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing; otherwise, the sale shall be
void. (Emphasis supplied)
Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were
not authorized by respondent Dieselman to sell its lot, the supposed contract is
void. Being a void contract, it is not susceptible of ratification by clear mandate of
Article 1409 of the Civil Code, thus:
ART. 1409. The following contracts are inexistent and void from the very
beginning:
xxx
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived. (Emphasis supplied)
Upon the other hand, the validity of the sale of the subject lot to respondent Midas is
unquestionable. As aptly noted by the Court of Appeals,[24] the sale was authorized by
a board resolution of respondent Dieselman dated May 27, 1988.
The Court of Appeals awarded attorney's fees and moral and exemplary damages in
favor of petitioner AF Realty and against respondent Cruz, Jr.. The award was made
by reason of a breach of contract imputable to respondent Cruz, Jr. for having acted
in bad faith. We are no persuaded. It bears stressing that petitioner Zenaida Ranullo,
board member and vice-president of petitioner AF Realty who accepted the offer to
sell the property, admitted in her testimony[25] that a board resolution from respondent
Dieselman authorizing the sale is necessary to bind the latter in the transaction; and
that respondent Cruz, Jr. has no such written authority. In fact, despite demand, such
written authority was not presented to her. [26] This notwithstanding, petitioner Ranullo
tendered a partial payment for the unauthorized transaction. Clearly, respondent
Cruz, Jr. should not be held liable for damages and attorney's fees.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby AFFIRMED with MODIFICATION in the sense that the award of damages and
attorney's fees is deleted. Respondent Dieselman is ordered to return to petitioner AF
Realty its partial payment of P300,000.00. Costs against petitioners.
SO ORDERED.

G.R. No. 144805 June 8, 2006
EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,
Vs.
ETERNIT CORPORATION (now ETERTON MULTI- RESOURCES
CORPORATION), ETEROUTREMER, S.A. and Promulgated: FAR EAST BANK &
TRUST COMPANY, Respondents
On appeal via a Petition for Review on Certiorari is the Decision[1] of the Court of
Appeals (CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional
Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the
Resolution[2] of the CA denying the motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized and registered under
Philippine laws. Since 1950, it had been engaged in the manufacture of roofing
materials and pipe products. Its manufacturing operations were conducted on eight
parcels of land with a total area of 47,233 square meters. The properties, located
in Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title
Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124 and 451125 under
the name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the
shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a
corporation organized and registered under the laws of Belgium.[3] Jack Glanville, an
Australian citizen, was the General Manager and President of EC, while Claude
Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their offices
in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in
the Philippines and wanted to stop its operations in the country. The Committee for
Asia of ESAC instructed Michael Adams, a member of ECs Board of Directors, to
30
dispose of the eight parcels of land. Adams engaged the services of realtor/broker
Lauro G. Marquez so that the properties could be offered for sale to prospective
buyers. Glanville later showed the properties to Marquez.
Marquez thereafter offered the parcels of land and the improvements thereon to
Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September
12, 1986, Marquez declared that he was authorized to sell the properties
for P27,000,000.00 and that the terms of the sale were subject to negotiation.[4]
Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to
Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings
offered to buy the property for P20,000,000.00 cash. Marquez apprised Glanville of
the Litonjua siblings offer and relayed the same to Delsaux in Belgium, but the latter
did not respond.On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring
on his position/ counterproposal to the offer of the Litonjua siblings. It was only
on February 12, 1987 that Delsaux sent a telex to Glanville stating that, based on the
Belgian/Swiss decision, the final offer was US$1,000,000.00 and P2,500,000.00 to
cover all existing obligations prior to final liquidation. [5]
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux.
Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with
Glanville, and in a Letter dated February 26, 1987, confirmed that the Litonjua siblings
had accepted the counter-proposal of Delsaux. He also stated that the Litonjua
siblings would confirm full payment within 90 days after execution and preparation of
all documents of sale, together with the necessary governmental clearances. [6]
The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security
Bank & Trust Company, Ermita Branch, and drafted an Escrow Agreement to
expedite the sale.[7]
Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the
sale would be implemented. In a telex dated April 22, 1987, Glanville informed
Delsaux that he had met with the buyer, which had given him the impression that he
is prepared to press for a satisfactory conclusion to the sale. [8] He also emphasized to
Delsaux that the buyers were concerned because they would incur expenses in bank
commitment fees as a consequence of prolonged period of inaction. [9]
Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of
the Philippines, the political situation in the Philippines had improved. Marquez
received a telephone call from Glanville, advising that the sale would no longer
proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that he
had been instructed by his principal to inform Marquez that the decision has been
taken at a Board Meeting not to sell the properties on which Eternit Corporation is
situated.[10]
Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC
Regional Office had decided not to proceed with the sale of the subject land, to wit:
May 22, 1987
Mr. L.G. Marquez
L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the
sale of the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering
[the] new political situation since the departure of MR. MARCOS and a certain
stabilization in the Philippines, the Committee has decided not to stop our
operations in Manila. In fact, production has started again last week, and (sic) to
recognize the participation in the Corporation.
31
We regret that we could not make a deal with you this time, but in case the policy
would change at a later state, we would consult you again.
xxx
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)[11]
When apprised of this development, the Litonjuas, through counsel, wrote EC,
demanding payment for damages they had suffered on account of the aborted sale.
EC, however, rejected their demand.
The Litonjuas then filed a complaint for specific performance and damages against
EC (now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust
Company, and ESAC in the RTC of Pasig City. An amended complaint was filed, in
which defendant EC was substituted by Eterton Multi-Resources Corporation; Benito
C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were
impleaded as additional defendants on account of their purchase of ESAC shares of
stocks and were the controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was
not doing business in the Philippines, it cannot be subject to the jurisdiction of
Philippine courts; the Board and stockholders of EC never approved any resolution to
sell subject properties nor authorized Marquez to sell the same; and the telex dated
October 28, 1986 of Jack Glanville was his own personal making which did not bind
EC.
On July 3, 1995, the trial court rendered judgment in favor of defendants and
dismissed the amended complaint.[12] The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-
Resources Corporation and Eteroutremer, S.A. is dismissed on the ground that there
is no valid and binding sale between the plaintiffs and said defendants.
The complaint as against Far East Bank and Trust Company is likewise dismissed for
lack of cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation
and Eteroutremer, S.A. is also dismissed for lack of merit.[13]
The CA ruled that Marquez, who was a real estate broker, was a special agent within
the purview of Article 1874 of the New Civil Code. Under Section 23 of the
Corporation Code, he needed a special authority from ECs board of directors to bind
such corporation to the sale of its properties. Delsaux, who was merely the
representative of ESAC (the majority stockholder of EC) had no authority to bind the
latter. The CA pointed out that Delsaux was not even a member of the board of
directors of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel
had been created between the parties.

The trial court declared that since the authority of the agents/realtors was not in
writing, the sale is void and not merely unenforceable, and as such, could not have
In the instant petition for review, petitioners aver that
been ratified by the principal. In any event, such ratification cannot be given any
retroactive effect. Plaintiffs could not assume that defendants had agreed to sell the
property without a clear authorization from the corporation concerned, that is, through
resolutions of the Board of Directors and stockholders. The trial court also pointed out I
that the supposed sale involves substantially all the assets of defendant EC which
would result in the eventual total cessation of its operation. [14] THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PERFECTED CONTRACT OF SALE.

The Litonjuas appealed the decision to the CA, alleging that (1) the lower court erred
in concluding that the real estate broker in the instant case needed a written authority II
from appellee corporation and/or that said broker had no such written authority; and
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING
(2) the lower court committed grave error of law in holding that appellee corporation is
THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT
not legally bound for specific performance and/or damages in the absence of an
ETERNIT BEFORE THE SALE CAN BE PERFECTED.
enabling resolution of the board of directors.[15] They averred that Marquez acted
merely as a broker or go-between and not as agent of the corporation; hence, it was
not necessary for him to be empowered as such by any written authority. They further
claimed that an agency by estoppel was created when the corporation clothed III
Marquez with apparent authority to negotiate for the sale of the properties. However,
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND
since it was a bilateral contract to buy and sell, it was equivalent to a perfected
DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT
contract of sale, which the corporation was obliged to consummate.
PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY
RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT
AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING
In reply, EC alleged that Marquez had no written authority from the Board of Directors POWER TO SELL THE SAID PROPERTIES.[17]
to bind it; neither were Glanville and Delsaux authorized by its board of directors to
offer the property for sale. Since the sale involved substantially all of the corporations
assets, it would necessarily need the authority from the stockholders.
Petitioners maintain that, based on the facts of the case, there was a perfected
contract of sale of the parcels of land and the improvements thereon for
US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final liquidation.
On June 16, 2000, the CA rendered judgment affirming the decision of the Petitioners insist that they had accepted the counter-offer of respondent EC and that
RTC. [16] The Litonjuas filed a motion for reconsideration, which was also denied by before the counter-offer was withdrawn by respondents, the acceptance was made
the appellate court. known to them through real estate broker Marquez.

32
Petitioners assert that there was no need for a written authority from the Board of 6. Glanvilles telex to Delsaux inquiring WHEN WE (Respondents) WILL IMPLEMENT
Directors of EC for Marquez to validly act as broker/middleman/intermediary. As ACTION TO BUY AND SELL;
broker, Marquez was not an ordinary agent because his authority was of a special
and limited character in most respects. His only job as a broker was to look for a
buyer and to bring together the parties to the transaction. He was not authorized to
7. More importantly, Exhibits G and H of the Respondents, which evidenced the fact
sell the properties or to make a binding contract to respondent EC; hence, petitioners
that Petitioners offer was allegedly REJECTED by both Glanville and Delsaux.[18]
argue, Article 1874 of the New Civil Code does not apply.

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-
In any event, petitioners aver, what is important and decisive was that Marquez was
offer to petitioners offer and thereafter reject such offer unless they were authorized
able to communicate both the offer and counter-offer and their acceptance of
to do so by respondent EC. Petitioners insist that Delsaux confirmed his authority to
respondent ECs counter-offer, resulting in a perfected contract of sale.
sell the properties in his letter to Marquez, to wit:

Petitioners posit that the testimonial and documentary evidence on record amply
Dear Sir,
shows that Glanville, who was the President and General Manager of respondent EC,
and Delsaux, who was the Managing Director for ESAC Asia, had the necessary Re: Land of Eternit Corporation
authority to sell the subject property or, at least, had been allowed by respondent EC
to hold themselves out in the public as having the power to sell the subject properties.
Petitioners identified such evidence, thus:

1. The testimony of Marquez that he was chosen by Glanville as the then President
and General Manager of Eternit, to sell the properties of said corporation to any
interested party, which authority, as hereinabove discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties
spanned SEVERAL MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties
to the Petitioners;
I would like to confirm officially that our Group has decided not to proceed with the
sale of the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering the
new political situation since the departure of MR. MARCOS and a certain stabilization
in the Philippines, the Committee has decided not to stop our operations in Manila[.]
[I]n fact production started again last week, and (sic) to reorganize the participation in
the Corporation.

We regret that we could not make a deal with you this time, but in case the
4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as policy would change at a later stage we would consult you again.
evidenced by the Petitioners ACCEPTANCE of the counter-offer;

5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the In the meantime, I remain
Security Bank and that an ESCROW agreement was drafted over the subject
properties; Yours sincerely,

C.F. DELSAUX[19]

33

Petitioners further emphasize that they acted in good faith when Glanville and
Delsaux were knowingly permitted by respondent EC to sell the properties within the
scope of an apparent authority. Petitioners insist that respondents held themselves to
the public as possessing power to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are
factual, hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the
petition, respondents EC (now EMC) and ESAC reiterate their submissions in the CA.
They maintain that Glanville, Delsaux and Marquez had no authority from the
stockholders of respondent EC and its Board of Directors to offer the properties for
sale to the petitioners, or to any other person or entity for that matter. They assert that
the decision and resolution of the CA are in accord with law and the evidence on
record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville
and Delsaux, conformed to the written authority of Marquez to sell the properties. The
authority of Glanville and Delsaux to bind respondent EC is evidenced by the fact that
Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent EC to
Ruperto Tan on June 1, 1997. Given the significance of their positions and their
duties in respondent EC at the time of the transaction, and the fact that respondent
ESAC owns 90% of the shares of stock of respondent EC, a formal
resolution of the Board of Directors would be a mere ceremonial formality. What is
important, petitioners maintain, is that Marquez was able to communicate the offer of
respondent EC and the petitioners acceptance thereof. There was no time that they
acted without the knowledge of respondents. In fact, respondent EC never repudiated
the acts of Glanville, Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues
raised by petitioner in this case are factual. Whether or not Marquez, Glanville, and
Delsaux were authorized by respondent EC to act as its agents relative to the sale of
the properties of respondent EC, and if so, the boundaries of their authority as
agents, is a question of fact.In the absence of express written terms creating the
relationship of an agency, the existence of an agency is a fact question.[20] Whether
an agency by estoppel was created or whether a person acted within the bounds of
his apparent authority, and whether the principal is estopped to deny the apparent
authority of its agent are, likewise, questions of fact to be resolved on the basis of the
34
evidence on record.[21] The findings of the trial court on such issues, as affirmed by
the CA, are conclusive on the Court, absent evidence that the trial and appellate
courts ignored, misconstrued, or misapplied facts and circumstances of substance
which, if considered, would warrant a modification or reversal of the outcome of the
case.[22]
It must be stressed that issues of facts may not be raised in the Court under Rule 45
of the Rules of Court because the Court is not a trier of facts. It is not to re-examine
and assess the evidence on record, whether testimonial and documentary. There are,
however, recognized exceptions where the Court may delve into and resolve factual
issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6)
when the Court of Appeals, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and appellee; (7) when
the findings of the Court of Appeals are contrary to those of the trial court; (8) when
the findings of fact are conclusions without citation of specific evidence on which they
are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts
not disputed by the parties, which, if properly considered, would justify a different
conclusion; and (10) when the findings of fact of the Court of Appeals are premised
on the absence of evidence and are contradicted by the evidence on record. [23]
We have reviewed the records thoroughly and find that the petitioners failed to
establish that the instant case falls under any of the foregoing exceptions. Indeed, the
assailed decision of the Court of Appeals is supported by the evidence on record and
the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its
properties and that it had empowered Adams, Glanville and Delsaux or Marquez to
offer the properties for sale to prospective buyers and to accept any counter-offer.
Petitioners likewise failed to prove that their counter-offer had been accepted by
respondent EC, through Glanville and Delsaux. It must be stressed that when specific
performance is sought of a contract made with an agent, the agency must be
established by clear, certain and specific proof.[24]
Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code
of the Philippines, provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code,
the corporate powers of all corporations formed under this Code shall be exercised,
all business conducted and all property of such corporations controlled and held by
the board of directors or trustees to be elected from among the holders of stocks, or
where there is no stock, from among the members of the corporation, who shall hold
office for one (1) year and until their successors are elected and qualified.
Indeed, a corporation is a juridical person separate and distinct from its members or
stockholders and is not affected by the personal rights,
obligations and transactions of the latter.[25] It may act only through its board of
directors or, when authorized either by its by-laws or by its board resolution, through
its officers or agents in the normal course of business. The general principles of
agency govern the relation between the corporation and its officers or agents, subject
to the articles of incorporation, by-laws, or relevant provisions of law.[26]
Under Section 36 of the Corporation Code, a corporation may sell or convey its real
properties, subject to the limitations prescribed by law and the Constitution, as
follows:
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this
Code has the power and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage
and otherwise deal with such real and personal property, including securities and
bonds of other corporations, as the transaction of a lawful business of the corporation
may reasonably and necessarily require, subject to the limitations prescribed by the
law and the Constitution.
The property of a corporation, however, is not the property of the stockholders or
members, and as such, may not be sold without express authority from the board of
directors.[27] Physical acts, like the offering of the properties of the corporation for
sale, or the acceptance of a counter-offer of prospective buyers of such properties
and the execution of the deed of sale covering such property, can be performed by
the corporation only by officers or agents duly authorized for the purpose by corporate
by-laws or by specific acts of the board of directors. [28] Absent such valid
35
delegation/authorization, the rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of such director, are not binding
on the corporation.[29]
While a corporation may appoint agents to negotiate for the sale of its real properties,
the final say will have to be with the board of directors through its officers and agents
as authorized by a board resolution or by its by-laws.[30] An unauthorized act of an
officer of the corporation is not binding on it unless the latter ratifies the same
expressly or impliedly by its board of directors. Any sale of real property of a
corporation by a person purporting to be an agent thereof but without written authority
from the corporation is null and void. The declarations of the agent alone are
generally insufficient to establish the fact or extent of his/her authority. [31]
By the contract of agency, a person binds himself to render some service or to do
something in representation on behalf of another, with the consent or authority of the
latter.[32]Consent of both principal and agent is necessary to create an agency. The
principal must intend that the agent shall act for him; the agent must intend to accept
the authority and act on it, and the intention of the parties must find expression either
in words or conduct between them.[33]
An agency may be expressed or implied from the act of the principal, from his silence
or lack of action, or his failure to repudiate the agency knowing that another person is
acting on his behalf without authority. Acceptance by the agent may be expressed, or
implied from his acts which carry out the agency, or from his silence or inaction
according to the circumstances.[34] Agency may be oral unless the law requires a
specific form.[35] However, to create or convey real rights over immovable property, a
special power of attorney is necessary.[36] Thus, when a sale of a piece of land or any
portion thereof is through an agent, the authority of the latter shall be in writing,
otherwise, the sale shall be void.[37]
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any
resolution of the Board of Directors of respondent EC empowering Marquez, Glanville
or Delsaux as its agents, to sell, let alone offer for sale, for and in its behalf, the eight
parcels of land owned by respondent EC including the improvements thereon. The
bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of
stock of respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners
claim that he had likewise been authorized by respondent EC to sell the parcels of
land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the
authority of Delsaux, who, in turn, acted on the authority of respondent ESAC,
through its Committee for Asia,[38] the Board of Directors of respondent ESAC,[39] and
the Belgian/Swiss component of the management of respondent ESAC. [40] As such,
Adams and Glanville engaged the services of Marquez to offer to sell the properties
to prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner
that he was authorized to offer for sale the property for P27,000,000.00 and the other
terms of the sale subject to negotiations. When petitioners offered to purchase the
property for P20,000,000.00, through Marquez, the latter relayed petitioners offer to
Glanville; Glanville had to send a telex to Delsaux to inquire the position of
respondent ESAC to petitioners offer.However, as admitted by petitioners in their
Memorandum, Delsaux was unable to reply immediately to the telex of Glanville
because Delsaux had to wait for confirmation from respondent ESAC. [41] When
Delsaux finally responded to Glanville on February 12, 1987, he made it clear that,
based on the Belgian/Swiss decision the final offer of respondent ESAC was
US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final
liquidation.[42] The offer of Delsaux emanated only from the Belgian/Swiss decision,
and not the entire management or Board of Directors of respondent ESAC. While it is
true that petitioners accepted the counter-offer of respondent ESAC, respondent EC
was not a party to the transaction between them; hence, EC was not bound by such
acceptance.
While Glanville was the President and General Manager of respondent EC, and
Adams and Delsaux were members of its Board of Directors, the three acted for and
in behalf of respondent ESAC, and not as duly authorized agents of respondent EC; a
board resolution evincing the grant of such authority is needed to bind EC to any
agreement regarding the sale of the subject properties. Such board resolution is not a
mere formality but is a condition sine qua non to bind respondent EC. Admittedly,
respondent ESAC owned 90% of the shares of stocks of respondent EC; however,
the mere fact that a corporation owns a majority of the shares of stocks of another, or
even all of such shares of stocks, taken alone, will not justify their being treated as
one corporation.[43]
It bears stressing that in an agent-principal relationship, the personality of the
principal is extended through the facility of the agent. In so doing, the agent, by legal
fiction, becomes the principal, authorized to perform all acts which the latter would
have him do. Such a relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by law or by any court. [44]
The petitioners cannot feign ignorance of the absence of any regular and valid
authority of respondent EC empowering Adams, Glanville or Delsaux to offer the
36
properties for sale and to sell the said properties to the petitioners. A person dealing
with a known agent is not authorized, under any circumstances, blindly to trust the
agents; statements as to the extent of his powers; such person must not act
negligently but must use reasonable diligence and prudence to ascertain whether the
agent acts within the scope of his authority.[45] The settled rule is that, persons dealing
with an assumed agent are bound at their peril, and if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them to
prove it.[46] In this case, the petitioners failed to discharge their burden; hence,
petitioners are not entitled to damages from respondent EC.
It appears that Marquez acted not only as real estate broker for the petitioners but
also as their agent. As gleaned from the letter of Marquez to Glanville, on February
26, 1987, he confirmed, for and in behalf of the petitioners, that the latter had
accepted such offer to sell the land and the improvements thereon. However, we
agree with the ruling of the appellate court that Marquez had no authority to bind
respondent EC to sell the subject properties. A real estate broker is one who
negotiates the sale of real properties. His business, generally speaking, is only to find
a purchaser who is willing to buy the land upon terms fixed by the owner. He has no
authority to bind the principal by signing a contract of sale. Indeed, an authority to find
a purchaser of real property does not include an authority to sell. [47]
Equally barren of merit is petitioners contention that respondent EC is estopped to
deny the existence of a principal-agency relationship between it and Glanville or
Delsaux. For an agency by estoppel to exist, the following must be established: (1)
the principal manifested a representation of the agents authority or knowlingly allowed
the agent to assume such
authority; (2) the third person, in good faith, relied upon such representation; (3)
relying upon such representation, such third person has changed his position to his
detriment.[48]An agency by estoppel, which is similar to the doctrine of apparent
authority, requires proof of reliance upon the representations, and that, in turn, needs
proof that the representations predated the action taken in reliance. [49] Such proof is
lacking in this case. In their communications to the petitioners, Glanville and Delsaux
positively and unequivocally declared that they were acting for and in behalf of
respondent ESAC.
Neither may respondent EC be deemed to have ratified the transactions between the
petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The
transactions and the various communications inter se were never submitted to the
Board of Directors of respondent EC for ratification.
 IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
against the petitioners.
SO ORDERED.
G.R. No. 118375. October 3, 2003
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA
QUEAO, respondents.
Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision
of the Sixteenth Division of the respondent Court of Appeals promulgated on 21
December 1994[1], which affirmed in toto the decision handed down by the Regional
Trial Court (RTC) of Pasay City.[2]
The case arose when on 11 August 1981, private respondent Aurora Queao (Queao)
filed a complaint before the Pasay City RTC for cancellation of a Real Estate
Mortgage she had entered into with petitioner Celestina Naguiat (Naguiat). The RTC
rendered a decision, declaring the questioned Real Estate Mortgage void, which
Naguiat appealed to the Court of Appeals. After the Court of Appeals upheld the RTC
decision, Naguiat instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand
Pesos (P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed
to Queao Associated Bank Check No. 090990 (dated 11 August 1980) for the amount
of Ninety Five Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by
the Corporate Resources Financing Corporation. She also issued her own
Filmanbank Check No. 065314, to the order of Queao, also dated 11 August 1980
and for the amount of Ninety Five Thousand Pesos (P95,000.00). The proceeds of
these checks were to constitute the loan granted by Naguiat to Queao. [3]
To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11
August 1980 in favor of Naguiat, and surrendered to the latter the owners duplicates
of the titles covering the mortgaged properties.[4] On the same day, the mortgage
37
deed was notarized, and Queao issued to Naguiat a promissory note for the amount
of TWO HUNDRED THOUSAND PESOS (P200,000.00), with interest at 12% per
annum, payable on 11 September 1980.[5] Queao also issued a Security Bank and
Trust Company check, postdated 11 September 1980, for the amount of TWO
HUNDRED THOUSAND PESOS (P200,000.00) and payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was dishonored for
insufficiency of funds. On the following day, 12 September 1980, Queao requested
Security Bank to stop payment of her postdated check, but the bank rejected the
request pursuant to its policy not to honor such requests if the check is drawn against
insufficient funds.[6]
On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding
settlement of the loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt
(Ruebenfeldt) met with Naguiat. At the meeting, Queao told Naguiat that she did not
receive the proceeds of the loan, adding that the checks were retained by
Ruebenfeldt, who purportedly was Naguiats agent.[7]
Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of
Rizal Province, who then scheduled the foreclosure sale on 14 August 1981. Three
days before the scheduled sale, Queao filed the case before the Pasay City
RTC,[8] seeking the annulment of the mortgage deed. The trial court eventually
stopped the auction sale.[9]
On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate
Mortgage null and void, and ordering Naguiat to return to Queao the owners
duplicates of her titles to the mortgaged lots. [10] Naguiat appealed the decision before
the Court of Appeals, making no less than eleven assignments of error. The Court of
Appeals promulgated the decision now assailed before us that affirmed in toto the
RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially on
the issue of whether Queao had actually received the loan proceeds which were
supposed to be covered by the two checks Naguiat had issued or indorsed. Naguiat
claims that being a notarial instrument or public document, the mortgage deed enjoys
the presumption that the recitals therein are true. Naguiat also questions the
admissibility of various representations and pronouncements of Ruebenfeldt, invoking
the rule on the non-binding effect of the admissions of third persons.[11]
The resolution of the issues presented before this Court by Naguiat involves the
determination of facts, a function which this Court does not exercise in an appeal
by certiorari. Under Rule 45 which governs appeal by certiorari, only questions of law
may be raised[12] as the Supreme Court is not a trier of facts.[13] The resolution of
factual issues is the function of lower courts, whose findings on these matters are
received with respect and are in fact generally binding on the Supreme Court. [14] A
question of law which the Court may pass upon must not involve an examination of
the probative value of the evidence presented by the litigants. [15] There is a question
of law in a given case when the doubt or difference arises as to what the law is on a
certain state of facts; there is a question of fact when the doubt or difference arises as
to the truth or the falsehood of alleged facts.[16]
Surely, there are established exceptions to the rule on the conclusiveness of the
findings of facts of the lower courts.[17] But Naguiats case does not fall under any of
the exceptions. In any event, both the decisions of the appellate and trial courts are
supported by the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat vigorously insists that
Queao received the loan proceeds. Capitalizing on the status of the mortgage deed
as a public document, she cites the rule that a public document enjoys the
presumption of validity and truthfulness of its contents. The Court of Appeals,
however, is correct in ruling that the presumption of truthfulness of the recitals in a
public document was defeated by the clear and convincing evidence in this case that
pointed to the absence of consideration.[18] This Court has held that the presumption
of truthfulness engendered by notarized documents is rebuttable, yielding as it does
to clear and convincing evidence to the contrary, as in this case. [19]
On the other hand, absolutely no evidence was submitted by Naguiat that the checks
she issued or endorsed were actually encashed or deposited. The mere issuance of
the checks did not result in the perfection of the contract of loan. For the Civil Code
provides that the delivery of bills of exchange and mercantile documents such as
checks shall produce the effect of payment only when they have been cashed. [20] It is
only after the checks have produced the effect of payment that the contract of loan
may be deemed perfected. Art. 1934 of the Civil Code provides:
An accepted promise to deliver something by way of commodatum or simple loan is
binding upon the parties, but the commodatum or simple loan itself shall not be
perfected until the delivery of the object of the contract.
A loan contract is a real contract, not consensual, and, as such, is perfected only
upon the delivery of the object of the contract.[21] In this case, the objects of the
contract are the loan proceeds which Queao would enjoy only upon the encashment
of the checks signed or indorsed by Naguiat. If indeed the checks were encashed or
deposited, Naguiat would have certainly presented the corresponding documentary
evidence, such as the returned checks and the pertinent bank records. Since Naguiat
presented no such proof, it follows that the checks were not encashed or credited to
Queaos account.
Naguiat questions the admissibility of the various written representations made by
Ruebenfeldt on the ground that they could not bind her following the res inter alia acta
alteri nocere non debet rule. The Court of Appeals rejected the argument, holding that
since Ruebenfeldt was an authorized representative or agent of Naguiat the situation
falls under a recognized exception to the rule.[22] Still, Naguiat insists that Ruebenfeldt
was not her agent.
38
Suffice to say, however, the existence of an agency relationship between Naguiat and
Ruebenfeldt is supported by ample evidence. As correctly pointed out by the Court of
Appeals, Ruebenfeldt was not a stranger or an unauthorized person. Naguiat
instructed Ruebenfeldt to withhold from Queao the checks she issued or indorsed to
Queao, pending delivery by the latter of additional collateral. Ruebenfeldt served as
agent of Naguiat on the loan application of Queaos friend, Marilou Farralese, and it
was in connection with that transaction that Queao came to know Naguiat. [23] It was
also Ruebenfeldt who accompanied Queao in her meeting with Naguiat and on that
occasion, on her own and without Queao asking for it, Reubenfeldt actually drew a
check for the sum of P220,000.00 payable to Naguiat, to cover for Queaos alleged
liability to Naguiat under the loan agreement.[24]
The Court of Appeals recognized the existence of an agency by estoppel[25] citing
Article 1873 of the Civil Code.[26] Apparently, it considered that at the very least, as a
consequence of the interaction between Naguiat and Ruebenfeldt, Queao got the
impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to
correct Queaos impression. In that situation, the rule is clear. One who clothes
another with apparent authority as his agent, and holds him out to the public as such,
cannot be permitted to deny the authority of such person to act as his agent, to the
prejudice of innocent third parties dealing with such person in good faith, and in the
honest belief that he is what he appears to be.[27] The Court of Appeals is correct in
invoking the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship between Naguiat and
Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to
Queao were never encashed or deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a quo that the
lender did not remit and the borrower did not receive the proceeds of the loan. That
being the case, it follows that the mortgage which is supposed to secure the loan is
null and void. The consideration of the mortgage contract is the same as that of the
principal contract from which it receives life, and without which it cannot exist as an
independent contract.[28] A mortgage contract being a mere accessory contract, its
validity would depend on the validity of the loan secured by it. [29]
WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs
against petitioner.
SO ORDERED.
G.R. No. 113074. January 22, 1997
ALFRED HAHN, petitioner, vs. COURT OF APPEALS and BAYERISCHE
MOTOREN WERKE AKTIENGESELLSCHAFT (BMW), respondents.

This is a petition for review of the decision[1] of the Court of Appeals dismissing a
complaint for specific performance which petitioner had filed against private
respondent on the ground that the Regional Trial Court of Quezon City did not acquire
jurisdiction over private respondent, a nonresident foreign corporation, and of the
appellate court's order denying petitioner's motion for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style
"Hahn-Manila." On the other hand, private respondent Bayerische Motoren Werke
Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the laws
of the former Federal Republic of Germany, with principal office at Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a "Deed of
Assignment with Special Power of Attorney," which reads in full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark
and device in the Philippines which ASSIGNOR uses and has been using on the
products manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized
exclusive Dealer of the ASSIGNEE in the Philippines, the same being evidenced by
certificate of registration issued by the Director of Patents on 12 December 1963 and
is referred to as Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said
transfer of the said BMW trademark and device in favor of the ASSIGNEE herein with
the Philippines Patent Office;
NOW THEREFORE, in view of the foregoing and in consideration of the stipulations
hereunder stated, the ASSIGNOR hereby affirms the said assignment and transfer in
favor of the ASSIGNEE under the following terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user other than
ASSIGNOR or infringer of the BMW trademark in the Philippines, for such purpose,
the ASSIGNOR shall inform the ASSIGNEE immediately of any such use or
infringement of the said trademark which comes to his knowledge and upon such
information the ASSIGNOR shall automatically act as Attorney-In-Fact of the
ASSIGNEE for such case, with full power, authority and responsibility to prosecute
unilaterally or in concert with ASSIGNEE, any such infringer of the subject mark and
for purposes hereof the ASSIGNOR is hereby named and constituted as
ASSIGNEE's Attorney-In-Fact, but any such suit without ASSIGNEE's consent will
exclusively be the responsibility and for the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has
been usual in the past without a formal contract, and for that purpose, the dealership
of ASSIGNOR shall cover the ASSIGNEE's complete production program with the
39
only limitation that, for the present, in view of ASSIGNEE's limited production, the
latter shall not be able to supply automobiles to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has been usual in
the past without a formal contract." But on February 16, 1993, in a meeting with a
BMW representative and the president of Columbia Motors Corporation (CMC), Jose
Alvarez, petitioner was informed that BMW was arranging to grant the exclusive
dealership of BMW cars and products to CMC, which had expressed interest in
acquiring the same. On February 24, 1993, petitioner received confirmation of the
information from BMW which, in a letter, expressed dissatisfaction with various
aspects of petitioner's business, mentioning among other things, decline in sales,
deteriorating services, and inadequate showroom and warehouse facilities, and
petitioner's alleged failure to comply with the standards for an exclusive BMW
dealer.[2] Nonetheless, BMW expressed willingness to continue business relations
with the petitioner on the basis of a "standard BMW importer" contract, otherwise, it
said, if this was not acceptable to petitioner, BMW would have no alternative but to
terminate petitioner's exclusive dealership effective June 30, 1993.
Petitioner protested, claiming that the termination of his exclusive dealership would be
a breach of the Deed of Assignment.[3] Hahn insisted that as long as the assignment
of its trademark and device subsisted, he remained BMW's exclusive dealer in the
Philippines because the assignment was made in consideration of the exclusive
dealership. In the same letter petitioner explained that the decline in sales was due to
lower prices offered for BMW cars in the United States and the fact that few
customers returned for repairs and servicing because of the durability of BMW parts
and the efficiency of petitioner's service.
Because of Hahn's insistence on the former business relation, BMW withdrew on
March 26, 1993 its offer of a "standard importer contract" and terminated the
exclusive dealer relationship effective June 30, 1993.[4] At a conference of BMW
Regional Importers held on April 26, 1993 in Singapore, Hahn was surprised to find
Alvarez among those invited from the Asian region. On April 29, 1993, BMW
proposed that Hahn and CMC jointly import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for
specific performance and damages against BMW to compel it to continue the
exclusive dealership. Later he filed an amended complaint to include an application
for temporary restraining order and for writs of preliminary, mandatory and prohibitory
injunction to enjoin BMW from terminating his exclusive dealership. Hahn's amended
complaint alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the Philippines with
principal offices at Munich, Germany. It may be served with summons and other court
processes through the Secretary of the Department of Trade and Industry of the
Philippines. . . .
....
5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of
Assignment with Special Power of Attorney covering the trademark and in
consideration thereof, under its first whereas clause, Plaintiff was duly acknowledged
as the "exclusive Dealer of the Assignee in the Philippines" . . . .
....
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the
Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and
without any monetary contribution from defendant BMW, established BMW's goodwill
and market presence in the Philippines. Pursuant thereto, Plaintiff has invested a lot
of money and resources in order to single-handedly compete against other
motorcycle and car companies .... Moreover, Plaintiff has built buildings and other
infrastructures such as service centers and showrooms to maintain and promote the
car and products of defendant BMW.
....
10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was
willing to maintain with Plaintiff a relationship but only "on the basis of a standard
BMW importer contract as adjusted to reflect the particular situation in the Philippines"
subject to certain conditions, otherwise, defendant BMW would terminate Plaintiff's
exclusive dealership and any relationship for cause effective June 30, 1993. . . .
....
15. The actuations of defendant BMW are in breach of the assignment agreement
between itself and plaintiff since the consideration for the assignment of the BMW
trademark is the continuance of the exclusive dealership agreement. It thus, follows
that the exclusive dealership should continue for so long as defendant BMW enjoys
the use and ownership of the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104 of
the Quezon City Regional Trial Court, which on June 14, 1993 issued a temporary
restraining order. Summons and copies of the complaint and amended complaint
were thereafter served on the private respondent through the Department of Trade
and Industry, pursuant to Rule 14, 14 of the Rules of Court. The order, summons and
copies of the complaint and amended complaint were later sent by the DTI to BMW
via registered mail on June 15, 1993[5] and received by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the application
for the writ of preliminary injunction proceeded ex parte, with petitioner Hahn
testifying. On June 30, 1993, the trial court issued an order granting the writ of
preliminary injunction upon the filing of a bond of P100,000.00. On July 13, 1993,
following the posting of the required bond, a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did
not acquire jurisdiction over it through the service of summons on the Department of
40
Trade and Industry, because it (BMW) was a foreign corporation and it was not doing
business in the Philippines. It contended that the execution of the Deed of
Assignment was an isolated transaction; that Hahn was not its agent because the
latter undertook to assemble and sell BMW cars and products without the
participation of BMW and sold other products; and that Hahn was an indentor or
middleman transacting business in his own name and for his own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business
in the Philippines through him as its agent, as shown by the fact that BMW invoices
and order forms were used to document his transactions; that he gave warranties as
exclusive BMW dealer; that BMW officials periodically inspected standards of service
rendered by him; and that he was described in service booklets and international
publications of BMW as a "BMW Importer" or "BMW Trading Company" in the
Philippines.
The trial court[6] deferred resolution of the Motion to dismiss until after trial on the
merits for the reason that the grounds advanced by BMW in its motion did not seem
to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed a petition
for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE
INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE
WRIT OF PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE TERMS FOR
THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING RESOLUTION
OF THE MOTION TO DISMISS ON THE GROUND OF LACK OF JURISDICTION,
AND THEREBY FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order and, after
hearing, for a writ of preliminary injunction, to enjoin the trial court from proceeding
further in Civil Case No. Q-93-15933. Private respondent pointed out that, unless the
trial court's order was set aside, it would be forced to submit to the jurisdiction of the
court by filing its answer or to accept judgment in default, when the very question was
whether the court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's complaint. On
December 20, 1993, it rendered judgment finding the trial court guilty of grave abuse
of discretion in deferring resolution of the motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court before it came out with
its questioned order of July 26, 1993, we rule and so hold that petitioner's (BMW)
motion to dismiss could be resolved then and there, and that the respondent judge's
deferment of his action thereon until after trial on the merit constitutes, to our mind,
grave abuse of discretion.
....
. . . [T]here is not much appreciable disagreement as regards the factual matters
relating, to the motion to dismiss. What truly divide (sic) the parties and to which they
greatly differ is the legal conclusions they respectively draw from such facts, (sic) with
Hahn maintaining that on the basis thereof, BMW is doing business in the Philippines
while the latter asserts that it is not.
Then, after stating that any ruling which the trial court might make on the motion to
dismiss would anyway be elevated to it on appeal, the Court of Appeals itself resolved
the motion. It ruled that BMW was not doing business in the country and, therefore,
jurisdiction over it could not be acquired through service of summons on the DTI
pursuant to Rule 14, Section 14. The court upheld private respondent's contention
that Hahn acted in his own name and for his own account and independently of BMW,
based on Alfred Hahn's allegations that he had invested his own money and
resources in establishing BMW's goodwill in the Philippines and on BMW's claim that
Hahn sold products other than those of BMW. It held that petitioner was a mere
indentor or broker and not an agent through whom private respondent BMW
transacted business in the Philippines. Consequently, the Court of Appeals dismissed
petitioner's complaint against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in finding
that the trial court gravely abused its discretion in deferring action on the motion to
dismiss and (2) in finding that private respondent BMW is not doing business in the
Philippines and, for this reason, dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon foreign corporations. If the defendant is a foreign corporation, or a
nonresident joint stock company or association, doing business in the Philippines,
service may be made on its resident agent designated in accordance with law for that
purpose, or, if there be no such agent, on the government official designated by law
to that effect, or on any of its officers or agents within the Philippines. (Emphasis
added)
What acts are considered "doing business in the Philippines" are enumerated in 3(d)
of the Foreign Investments Act of 1991 (R.A. No. 7042) as follows: [7]
d) the phrase "doing business" shall include soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches, appointing
representatives or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totalling one hundred eighty
(180) days or more; participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and any other act or
acts that imply a continuity of commercial dealings or arrangements and
contemplate to that extent the performance of acts or works, or the exercise of
some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business
41
organization: Provided, however, That the phrase "doing business" shall not be
deemed to include mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as such
investor; nor having, a nominee director or officer to represent its interests in such
corporation; nor appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its own
account. (Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors in the
Philippines" but not when the representative or distributor "transacts business in its
name and for its own account." In addition, Section 1(f)(1) of the Rules and
Regulations implementing (IRR) the Omnibus Investment Code of 1987 (E.O. No.
226) provided:
(f) "Doing business" shall be any act or combination of acts, enumerated in Article 44
of the Code. In particular, "doing business" includes:
(1).... A foreign firm which does business through middlemen acting in their own
names, such as indentors, commercial brokers or commission merchants, shall not
be deemed doing business in the Philippines. But such indentors, commercial brokers
or commission merchants shall be the ones deemed to be doing business in the
Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor in the
Philippines of private respondent BMW. If he is, BMW may be considered doing
business in the Philippines and the trial court acquired jurisdiction over it (BMW) by
virtue of the service of summons on the Department of Trade and Industry.
Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of BMW
cars and products, BMW, a foreign corporation, is not considered doing business in
the Philippines within the meaning of the Foreign Investments Act of 1991 and the
IRR, and the trial court did not acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for
his own account and not as agent or distributor in the Philippines of BMW on the
ground that "he alone had contacts with individuals or entities interested in acquiring
BMW vehicles. Independence characterizes Hahn's undertakings, for which reason
he is to be considered, under governing statutes, as doing business." (p. 13) In
support of this conclusion, the appellate court cited the following allegations in Hahn's
amended complaint:
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the
Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and
without any monetary contributions from defendant BMW; established BMW's
goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff invested a
lot of money and resources in order to single-handedly compete against other
motorcycle and car companies.... Moreover, Plaintiff has built buildings and other
infrastructures such as service centers and showrooms to maintain and promote the
car and products of defendant BMW.
As the above quoted allegations of the amended complaint show, however, there is
nothing to support the appellate court's finding that Hahn solicited orders alone and
for his own account and without "interference from, let alone direction of, BMW." (p.
13) To the contrary, Hahn claimed he took orders for BMW cars and transmitted them
to BMW. Upon receipt of the orders, BMW fixed the down payment and pricing
charges, notified Hahn of the scheduled production month for the orders, and
reconfirmed the orders by signing and returning to Hahn the acceptance sheets.
Payment was made by the buyer directly to BMW. Title to cars purchased passed
directly to the buyer and Hahn never paid for the purchase price of BMW cars sold in
the Philippines. Hahn was credited with a commission equal to 14% of the purchase
price upon the invoicing of a vehicle order by BMW. Upon confirmation in writing that
the vehicles had been registered in the Philippines and serviced by him, Hahn
received an additional 3% of the full purchase price. Hahn performed after-sale
services, including, warranty services, for which he received reimbursement from
BMW. All orders were on invoices and forms of BMW.[8]
These allegations were substantially admitted by BMW which, in its petition
for certiorari before the Court of Appeals, stated:[9]
9.4. As soon as the vehicles are fully manufactured and full payment of the purchase
prices are made, the vehicles are shipped to the Philippines. (The payments may be
made by the purchasers or third-persons or even by Hahn.) The bills of lading are
made up in the name of the purchasers, but Hahn-Manila is therein indicated as the
person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of
conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the
purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a
commission of fourteen percent (14%) of the full purchase price thereof, and as soon
as he confirms in writing, that the vehicles have been registered in the Philippines and
have been serviced by him, he will receive an additional three percent (3%) of the full
purchase prices as commission.
Contrary to the appellate court's conclusion, this arrangement shows an agency. An
agent receives a commission upon the successful conclusion of a sale. On the other
hand, a broker earns his pay merely by bringing the buyer and the seller together,
even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at his own
expense, Hahn said that he had to follow BMW specifications as exclusive dealer of
BMW in the Philippines. According to Hahn, BMW periodically inspected the service
centers to see to it that BMW standards were maintained. Indeed, it would seem from
42
BMW's letter to Hahn that it was for Hahn's alleged failure to maintain BMW
standards that BMW was terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service centers and
showrooms does not necessarily prove that he is not an agent of BMW. For as
already noted, there are facts in the record which suggest that BMW exercised control
over Hahn's activities as a dealer and made regular inspections of Hahn's premises to
enforce compliance with BMW standards and specifications. [10] For example, in its
letter to Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions and letters that we
have to tackle the Philippine market more professionally and that we are through your
present activities not adequately prepared to cope with the forthcoming challenges.[11]
In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of
Appeals,[12] in which the foreign corporation entered into a "Representative
Agreement" and a "Licensing Agreement" with a domestic corporation, by virtue of
which the latter was appointed "exclusive representative" in the Philippines for a
stipulated commission. Pursuant to these contracts, the domestic corporation sold
products exported by the foreign corporation and put up a service center for the
products sold locally. This Court held that these acts constituted doing business in the
Philippines. The arrangement showed that the foreign corporation's purpose was to
penetrate the Philippine market and establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive distributor in the
Philippines, even as it announced in the Asian region that Hahn was the "official BMW
agent" in the Philippines.[13]
The Court of Appeals also found that petitioner Alfred Hahn dealt in other products,
and not exclusively in BMW products, and, on this basis, ruled that Hahn was not an
agent of BMW. (p. 14) This finding is based entirely on allegations of BMW in its
motion to dismiss filed in the trial court and in its petition for certiorari before the Court
of Appeals.[14] But this allegation was denied by Hahn [15] and therefore the Court of
Appeals should not have cited it as if it were the fact.
Indeed this is not the only factual issue raised, which should have indicated to the
Court of Appeals the necessity of affirming the trial court's order deferring resolution
of BMW's motion to dismiss. Petitioner alleged that whether or not he is considered
an agent of BMW, the fact is that BMW did business in the Philippines because it sold
cars directly to Philippine buyers. [16]This was denied by BMW, which claimed that
Hahn was not its agent and that, while it was true that it had sold cars to Philippine
buyers, this was done without solicitation on its part. [17]
It is not true then that the question whether BMW is doing business could have been
resolved simply by considering the parties' pleadings. There are genuine issues of
facts which can only be determined on the basis of evidence duly presented. BMW
cannot short circuit the process on the plea that to compel it to go to trial would be to
deny its right not to submit to the jurisdiction of the trial court which precisely it denies.
Rule 16, 3 authorizes courts to defer the resolution of a motion to dismiss until after
the trial if the ground on which the motion is based does not appear to be indubitable.
Here the record of the case bristles with factual issues and it is not at all clear
whether some allegations correspond to the proof.
Anyway, private respondent need not apprehend that by responding to the summons
it would be waiving its objection to the trial court's jurisdiction. It is now settled that. for
purposes of having summons served on a foreign corporation in accordance with
Rule 14, 14, it is sufficient that it be alleged in the complaint that the foreign
corporation is doing business in the Philippines. The court need not go beyond the
allegations of the complaint in order to determine whether it has jurisdiction. [18] A
determination that the foreign corporation is doing business is only tentative and is
made only for the purpose of enabling the local court to acquire jurisdiction over the
foreign corporation through service of summons pursuant to Rule 14, 14. Such
determination does not foreclose a contrary finding should evidence later show that it
is not transacting business in the country. As this Court has explained:
This is not to say, however, that the petitioner's right to question the jurisdiction of the
court over its person is now to be deemed a foreclosed matter. If it is true, as
Signetics claims, that its only involvement in the Philippines was through a passive
investment in Sigfil, which it even later disposed of, and that TEAM Pacific is not its
agent, then it cannot really be said to be doing business in the Philippines. It is a
defense, however, that requires the contravention of the allegations of the complaint,
as well as a full ventilation, in effect, of the main merits of the case, which should not
thus be within the province of a mere motion to dismiss. So, also, the issue posed by
the petitioner as to whether a foreign corporation which has done business in the
country, but which has ceased to do business at the time of the filing, of a complaint,
can still be made to answer for a cause of action which accrued while it was doing,
business, is another matter that would yet have to await the reception and admission
of evidence. Since these points have seasonably been raised by the petitioner, there
should be no real cause for what may understandably be its apprehension, i.e., that
by its participation during the trial on the merits, it may, absent an invocation of
separate or independent reliefs of its own, be considered to have voluntarily
submitted itself to the court's jurisdiction.[19]
Far from committing an abuse of discretion, the trial court properly deferred resolution
of the motion to dismiss and thus avoided prematurely deciding a question which
requires a factual basis, with the same result if it had denied the motion and
conditionally assumed jurisdiction. It is the Court of Appeals which, by ruling that
BMW is not doing business on the basis merely of uncertain allegations in the
pleadings, disposed of the whole case with finality and thereby deprived petitioner of
his right to be heard on his cause of action. Nor was there justification for nullifying
the writ of preliminary injunction issued by the trial court. Although the injunction was
43
issued ex parte, the fact is that BMW was subsequently heard on its defense by filing
a motion to dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is
REMANDED to the trial court for further proceedings.
SO ORDERED.
G.R. No. 121824. January 29, 1998
BRITISH AIRWAYS, petitioner, vs. COURT OF APPEALS, GOP MAHTANI, and
PHILIPPINE AIRLINES, respondents.
In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the
decision of respondent Court of Appeals[1] promulgated on September 7, 1995, which
affirmed the award of damages and attorneys fees made by the Regional Trial Court
of Cebu, 7th Judicial Region, Branch 17, in favor of private respondent GOP Mahtani
as well as the dismissal of its third-party complaint against Philippine Airlines (PAL).[2]
The material and relevant facts are as follows:
On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In
anticipation of his visit, he obtained the services of a certain Mr. Gumar to prepare his
travel plans. The latter, in turn, purchased a ticket from BA where the following
itinerary was indicated:[3]
CARRIER FLIGHT DATE TIME STATUS
MANILA MNL PR 310Y 16 APR 1730 OK
HONGKONG HKG BA 20 M 16 APR 2100 OK
BOMBAY BOM BA 19 M 23 APR 0840 OK
MANILA MNL"
Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to
Hongkong via PAL, and upon arrival in Hongkong he had to take a connecting flight to
Bombay on board BA.
Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces
of luggage containing his clothings and personal effects, confident that upon reaching
Hongkong, the same would be transferred to the BA flight bound for Bombay.
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was
missing and that upon inquiry from the BA representatives, he was told that the same
might have been diverted to London. After patiently waiting for his luggage for one
week, BA finally advised him to file a claim by accomplishing the Property Irregularity
Report.[4]
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for
damages and attorneys fees[5] against BA and Mr. Gumar before the trial court,
docketed as Civil Case No. CEB-9076.
On September 4, 1990, BA filed its answer with counter claim [6] to the complaint
raising, as special and affirmative defenses, that Mahtani did not have a cause of
action against it.Likewise, on November 9, 1990, BA filed a third-party
complaint[7] against PAL alleging that the reason for the non-transfer of the luggage
was due to the latters late arrival in Hongkong, thus leaving hardly any time for the
proper transfer of Mahtanis luggage to the BA aircraft bound for Bombay.
On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it
disclaimed any liability, arguing that there was, in fact, adequate time to transfer the
luggage to BA facilities in Hongkong. Furthermore, the transfer of the luggage to
Hongkong authorities should be considered as transfer to BA. [8]
After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its
decision in favor of Mahtani,[9] the dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is rendered for the plaintiff and
against the defendant for which defendant is ordered to pay plaintiff the sum of Seven
Thousand (P7,000.00) Pesos for the value of the two (2) suit cases; Four Hundred
U.S. ($400.00) Dollars representing the value of the contents of plaintiffs luggage;
Fifty Thousand (P50,000.00) Pesos for moral and actual damages and twenty percent
(20%) of the total amount imposed against the defendant for attorneys fees and costs
of this action.
The Third-Party Complaint against third-party defendant Philippine Airlines is
DISMISSED for lack of cause of action.
SO ORDERED.
Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial
courts findings. Thus:
WHEREFORE, in view of all the foregoing considerations, finding the Decision
appealed from to be in accordance with law and evidence, the same is hereby
AFFIRMED in toto, with costs against defendant-appellant.
SO ORDERED.[10]
BA is now before us seeking the reversal of the Court of Appeals decision.
In essence, BA assails the award of compensatory damages and attorneys fees, as
well as the dismissal of its third-party complaint against PAL.[11]
44
Regarding the first assigned issue, BA asserts that the award of compensatory
damages in the separate sum of P7,000.00 for the loss of Mahtanis two pieces
of luggage was without basis since Mahtani in his complaint [12] stated the following as
the value of his personal belongings:
8. On said travel, plaintiff took with him the following items and its corresponding
value, to wit:
1. personal belonging - - - - - - - - - - - - - - P10,000.00
2. gifts for his parents and relatives - - - - - $5,000.00
Moreover, he failed to declare a higher valuation with respect to his luggage, a
condition provided for in the ticket, which reads:[13]
Liability for loss, delay, or damage to baggage is limited unless a higher value is
declared in advance and additional charges are paid:
1. For most international travel (including domestic corporations of international
journeys) the liability limit is approximately U.S. $9.07 per pound (U.S. $20.00) per
kilo for checked baggage and U.S. $400 per passenger for unchecked baggage.
Before we resolve the issues raised by BA, it is needful to state that the nature of an
airlines contract of carriage partakes of two types, namely: a contract to deliver a
cargo or merchandise to its destination and a contract to transport passengers to their
destination. A business intended to serve the travelling public primarily, it is imbued
with public interest, hence, the law governing common carriers imposes an exacting
standard.[14] Neglect or malfeasance by the carriers employees could predictably
furnish bases for an action for damages.[15]
In the instant case, it is apparent that the contract of carriage was between Mahtani
and BA. Moreover, it is indubitable that his luggage never arrived in Bombay on
time. Therefore, as in a number of cases[16] we have assessed the airlines culpability
in the form of damages for breach of contract involving misplaced luggage.
In determining the amount of compensatory damages in this kind of cases, it is vital
that the claimant satisfactorily prove during the trial the existence of the factual basis
of the damages and its causal connection to defendants acts.[17]
In this regard, the trial court granted the following award as compensatory damages:
Since plaintiff did not declare the value of the contents in his luggage and even failed
to show receipts of the alleged gifts for the members of his family in Bombay, the
most that can be expected for compensation of his lost luggage (2 suit cases) is
Twenty U.S. Dollars ($20.00) per kilo, or a combined value of Four Hundred
($400.00) U.S. Dollars for Twenty kilos representing the contents plus Seven
Thousand (P7,000.00) Pesos representing the purchase price of the two (2) suit
cases.
However, as earlier stated, it is the position of BA that there should have been no
separate award for the luggage and the contents thereof since Mahtani failed to
declare a separate higher valuation for the luggage, [18] and therefore, its liability is
limited, at most, only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a higher
value is needed to recover a greater amount. Article 22(1) of the Warsaw
Convention,[19] provides as follows:
xxxxxxxxx
(2) In the transportation of checked baggage and goods, the liability of the carrier
shall be limited to a sum of 250 francs per kilogram, unless the consignor has made,
at the time the package was handed over to the carrier, a special declaration of the
value at delivery and has paid a supplementary sum if the case so requires. In that
case the carrier will be liable to pay a sum not exceeding the declared sum, unless he
proves that the sum is greater than the actual value to the consignor at delivery.
American jurisprudence provides that an air carrier is not liable for the loss of
baggage in an amount in excess of the limits specified in the tariff which was filed with
the proper authorities, such tariff being binding on the passenger regardless of the
passengers lack of knowledge thereof or assent thereto. [20] This doctrine is
recognized in this jurisdiction.[21]
Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on
adhesion contracts where the facts and circumstances justify that they should be
disregarded.[22]
In addition, we have held that benefits of limited liability are subject to waiver such as
when the air carrier failed to raise timely objections during the trial when questions
and answers regarding the actual claims and damages sustained by the passenger
were asked.[23]
Given the foregoing postulates, the inescapable conclusion is that BA had waived the
defense of limited liability when it allowed Mahtani to testify as to the actual damages
he incurred due to the misplacement of his luggage, without any objection. In this
regard, we quote the pertinent transcript of stenographic notes of Mahtanis direct
testimony:[24]
Q - How much are you going to ask from this court?
A - P100,000.00.
Q - What else?
A - Exemplary damages.
45
Q - How much?
A - P100,000.00.
Q - What else?
A - The things I lost, $5,000.00 for the gifts I lost and my
personal belongings, P10,000.00.
Q - What about the filing of this case?
A - The court expenses and attorneys fees is 30%.
Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed
by counsel of the adverse party to be inadmissible for any reason, the latter has the
right to object.However, such right is a mere privilege which can be
waived. Necessarily, the objection must be made at the earliest opportunity, lest
silence when there is opportunity to speak may operate as a waiver of
objections.[25] BA has precisely failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely
objection, but even conducted his own cross-examination as well.[26] In the early case
of Abrenica v. Gonda,[27] we ruled that:
x x x (I)t has been repeatedly laid down as a rule of evidence that a protest or
objection against the admission of any evidence must be made at the proper time,
and that if not so made it will be understood to have been waived. The proper time to
make a protest or objection is when, from the question addressed to the witness, or
from the answer thereto, or from the presentation of proof, the inadmissibility of
evidence is, or may be inferred.
Needless to say, factual findings of the trial court, as affirmed by the Court of
Appeals, are entitled to great respect.[28] Since the actual value of the luggage
involved appreciation of evidence, a task within the competence of the Court of
Appeals, its ruling regarding the amount is assuredly a question of fact, thus, a finding
not reviewable by this Court.[29]
As to the issue of the dismissal of BAs third-party complaint against PAL, the Court of
Appeals justified its ruling in this wise, and we quote:[30]
Lastly, we sustain the trial courts ruling dismissing appellants third-party complaint
against PAL.
The contract of air transportation in this case pursuant to the ticket issued by
appellant to plaintiff-appellee was exclusively between the plaintiff Mahtani and
defendant-appellant BA. When plaintiff boarded the PAL plane from Manila to
Hongkong, PAL was merely acting as a subcontractor or agent of BA. This is shown
by the fact that in the ticket issued by appellant to plaintiff-appellee, it is specifically
provided on the Conditions of Contract, paragraph 4 thereof that:
4. x x x carriage to be performed hereunder by several successive carriers is
regarded as a single operation.
The rule that carriage by plane although performed by successive carriers is regarded
as a single operation and that the carrier issuing the passengers ticket is considered
the principal party and the other carrier merely subcontractors or agent, is a settled
issue.
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the Philippines v. Tempengko,[31] we
expounded on the nature of a third-party complaint thus:
The third-party complaint is, therefore, a procedural device whereby a third party who
is neither a party nor privy to the act or deed complained of by the plaintiff, may be
brought into the case with leave of court, by the defendant, who acts as third-party
plaintiff to enforce against such third-party defendant a right for contribution,
indemnity, subrogation or any other relief, in respect of the plaintiffs claim. The third-
party complaint is actually independent of and separate and distinct from the plaintiffs
complaint. Were it not for this provision of the Rules of Court, it would have to be filed
independently and separately from the original complaint by the defendant against the
third-party. But the Rules permit defendant to bring in a third-party defendant or so to
speak, to litigate his separate cause of action in respect of plaintiffs claim against a
third-party in the original and principal case with the object of avoiding circuitry of
action and unnecessary proliferation of law suits and of disposing expeditiously in one
litigation the entire subject matter arising from one particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in
view of their contract of carriage. Yet, BA adamantly disclaimed its liability and
instead imputed it to PAL which the latter naturally denies. In other words, BA and
PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation was
exclusively between Mahtani and BA, the latter merely endorsing the Manila to
Hongkong leg of the formers journey to PAL, as its subcontractor or agent. In fact, the
fourth paragraph of the Conditions of Contracts of the ticket[32] issued by BA to
Mahtani confirms that the contract was one of continuous air transportation from
Manila to Bombay.
4. x x x carriage to be performed hereunder by several successive carriers is
regarded as a single operation.
Prescinding from the above discussion, it is undisputed that PAL, in transporting
Mahtani from Manila to Hongkong acted as the agent of BA.
46
Parenthetically, the Court of Appeals should have been cognizant of the well-settled
rule that an agent is also responsible for any negligence in the performance of its
function[33] and is liable for damages which the principal may suffer by reason of its
negligent act.[34] Hence, the Court of Appeals erred when it opined that BA,
being the principal, had no cause of action against PAL, its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the International
Air Transport Association (IATA), wherein member airlines are regarded as agents of
each other in the issuance of the tickets and other matters pertaining to their
relationship.[35] Therefore, in the instant case, the contractual relationship between BA
and PAL is one of agency, the former being the principal, since it was the one which
issued the confirmed ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa
German Airlines v. Court of Appeals.[36] In that case, Lufthansa issued a confirmed
ticket to Tirso Antiporda covering five-leg trip aboard different airlines. Unfortunately,
Air Kenya, one of the airlines which was to carry Antiporda to a specific destination
bumped him off.
An action for damages was filed against Lufthansa which, however, denied any
liability, contending that its responsibility towards its passenger is limited to the
occurrence of a mishap on its own line. Consequently, when Antiporda transferred to
Air Kenya, its obligation as a principal in the contract of carriage ceased; from there
on, it merely acted as a ticketing agent for Air Kenya.
In rejecting Lufthansas argument, we ruled:
In the very nature of their contract, Lufthansa is clearly the principal in the contract of
carriage with Antiporda and remains to be so, regardless of those instances when
actual carriage was to be performed by various carriers. The issuance of confirmed
Lufthansa ticket in favor of Antiporda covering his entire five-leg trip
aboard successive carriers concretely attest to this.
Since the instant petition was based on breach of contract of carriage, Mahtani can
only sue BA alone, and not PAL, since the latter was not a party to the
contract. However, this is not to say that PAL is relieved from any liability due to any
of its negligent acts. In China Air Lines, Ltd. v. Court of Appeals,[37] while not exactly
in point, the case, however, illustrates the principle which governs this particular
situation. In that case, we recognized that a carrier (PAL), acting as an agent of
another carrier, is also liable for its own negligent acts or omission in the performance
of its duties.
Accordingly, to deny BA the procedural remedy of filing a third-party complaint
against PAL for the purpose of ultimately determining who was primarily at fault as
between them, is without legal basis. After all, such proceeding is in accord with the
doctrine against multiplicity of cases which would entail receiving the same or similar
evidence for both cases and enforcing separate judgments therefor. It must be borne
in mind that the purpose of a third-party complaint is precisely to avoid delay and
circuity of action and to enable the controversy to be disposed of in one suit.[38] It is
but logical, fair and equitable to allow BA to sue PAL for indemnification, if it is proven
that the latters negligence was the proximate cause of Mahtanis unfortunate
experience, instead of totally absolving PAL from any liability.

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-
G.R. CV No. 43309 dated September 7, 1995 is hereby MODIFIED, reinstating the
third-party complaint filed by British Airways dated November 9, 1990 against
Philippine Airlines. No costs.

SO ORDERED.

47