[G.R. No. 167552. April 23, 2007.

]
EUROTECH
INDUSTRIAL
TECHNOLOGIES,
INC., petitioner, vs.
EDWIN CUIZON and ERWIN CUIZON,respondents.

DECISION
CHICO-NAZARIO, J p:
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 2002 rendered by Judge
Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party
defendant in Civil Case No. CEB-19672. aSTAIH
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; IDCcEa
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,
petitioner's 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
attorney's fees. 11 Because of respondents' failure to abide by said final demand letter,
petitioner instituted a complaint for sum of money, damages, with application for preliminary
attachment against herein respondents before the Regional Trial Court of Cebu City. 12
On 8 January 1997, the trial court granted petitioner's prayer for the issuance of writ of
preliminary attachment. 13
On 25 June 1997, respondent EDWIN filed his Answer 14 wherein he admitted petitioner's
allegations with respect to the sale transactions entered into by Impact Systems and
petitioner between January and April 1995. 15 He, however, disputed the total amount of
Impact Systems' indebtedness to petitioner which, according to him, amounted to only
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 petitioner's Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of
Cebu City. He is the proprietor of a single proprietorship business known
as Impact Systems Sales ("Impact Systems" for brevity), with office
located at 46-A del Rosario Street, Cebu City, where he may be served
summons and other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a
resident of Cebu City. He is the Sales Manager of Impact Systems and is
sued in this action in such capacity. 17
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion
for Summary Judgment. The trial court granted petitioner's motion to declare respondent
ERWIN in default "for his failure to answer within the prescribed period despite the
opportunity granted" 18 but it denied petitioner's motion for summary judgment in its Order
of 31 August 2001 and scheduled the pre-trial of the case on 16 October 2001. 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 EDWIN's Memorandum 21 in support of his special and
affirmative defenses and petitioner's 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
Petitioner's motion for reconsideration was denied by the appellate court in its Resolution
promulgated on 17 March 2005. Hence, the present petition raising, as sole ground for its
allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT
RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT
SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE
HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID
HE PARTICIPATE IN THE PERPETUATION OF A FRAUD. 25
To support its argument, petitioner points to Article 1897 of the New Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the party
with whom he contracts, unless he expressly binds himself or exceeds
the limits of his authority without giving such party sufficient notice of his
powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWIN's act of
collecting the receivables from the Toledo Power Corporation notwithstanding the existence of
the Deed of Assignment signed by EDWIN on behalf of Impact Systems. While said collection
did not revoke the agency relations of respondents, petitioner insists that ERWIN's action
repudiated EDWIN's power to sign the Deed of Assignment. As EDWIN did not sufficiently
notify it of the extent of his powers as an agent, petitioner claims that he should be made
personally liable for the obligations of his principal. 26
Petitioner also contends that it fell victim to the fraudulent scheme of respondents who
induced it into selling the one unit of sludge pump to Impact Systems and signing the Deed of
Assignment. Petitioner directs the attention of this Court to the fact that respondents are
bound not only by their principal and agent relationship but are in fact full-blooded brothers
whose successive contravening acts bore the obvious signs of conspiracy to defraud
petitioner. 27
In his Comment, 28 respondent EDWIN again posits the argument that he is not a real party
in interest in this case and it was proper for the trial court to have him dropped as a
defendant. He insists that he was a mere agent of Impact Systems which is owned by ERWIN
and that his status as such is known even to petitioner as it is alleged in the Complaint that
he is being sued in his capacity as the sales manager of the said business venture. Likewise,
respondent EDWIN points to the Deed of Assignment which clearly states that he was acting
as a representative of Impact Systems in said transaction.
We do not find merit in the petition. ATSIED
In a contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another with the latter's consent. 29 The underlying principle
of the contract of agency is to accomplish results by using the services of others to do a

great variety of things like selling, buying, manufacturing, and transporting. 30 Its purpose is
to extend the personality of the principal or the party for whom another acts and from whom
he or she derives the authority to act. 31 It is said that the basis of agency is representation,
that is, the agent acts for and on behalf of the principal on matters within the scope of his
authority and said acts have the same legal effect as if they were personally executed by the
principal. 32 By this legal fiction, the actual or real absence of the principal is converted into
his legal or juridical presence qui facit per alium facit per se. 33
The elements of the contract of agency are: (1) consent, express or implied, of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a third
person; (3) the agent acts as a representative and not for himself; (4) the agent acts within
the scope of his authority. 34
In this case, the parties do not dispute the existence of the agency relationship between
respondents ERWIN as principal and EDWIN as agent. The only cause of the present dispute is
whether respondent EDWIN exceeded his authority when he signed the Deed of Assignment
thereby binding himself personally to pay the obligations to petitioner. Petitioner firmly
believes that respondent EDWIN acted beyond the authority granted by his principal and he
should therefore bear the effect of his deed pursuant to Article 1897 of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally
liable to the party with whom he contracts. The same provision, however, presents two
instances when an agent becomes personally liable to a third person. The first is when he
expressly binds himself to the obligation and the second is when he exceeds his authority. In
the last instance, the agent can be held liable if he does not give the third party sufficient
notice of his powers. We hold that respondent EDWIN does not fall within any of the
exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales
manager of Impact Systems. As discussed elsewhere, the position of manager is unique in
that it presupposes the grant of broad powers with which to conduct the business of the
principal, thus:
The powers of an agent are particularly broad in the case of one acting as
a general agent or manager; such a position presupposes a degree of
confidence reposed and investiture with liberal powers for the exercise of
judgment and discretion in transactions and concerns which are
incidental or appurtenant to the business entrusted to his care and
management. In the absence of an agreement to the contrary, a
managing agent may enter into any contracts that he deems reasonably
necessary or requisite for the protection of the interests of his principal
entrusted to his management. . . . 35
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his
authority when he signed the Deed of Assignment. To recall, petitioner refused to deliver the
one unit of sludge pump unless it received, in full, the payment for Impact Systems'
indebtedness. 36 We may very well assume that Impact Systems desperately needed the
sludge pump for its business since after it paid the amount of fifty thousand pesos
(P50,000.00) as down payment on 3 March 1995, 37 it still persisted in negotiating with
petitioner which culminated in the execution of the Deed of 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
EDWIN's participation in the Deed of Assignment was "reasonably necessary" or was required
in order for him to protect the business of his principal. Had he not acted in the way he did,

the business of his principal would have been adversely affected and he would have violated
his fiduciary relation with his principal. ICHcTD
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.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.

SYNOPSIS
After the death of his principal and with full knowledge of such death, the attorney-in-fact
sold his principal's undivided share in a parcel of land pursuant to a special power of attorney
which the principal had executed in his favor. The administrator of the estate of the deceased
principal went to court to have the sale declared unenforceable and to recover the disposed
share. The trial court granted the relief prayed for, but on appeal, the Court of Appeals
upheld the validity of the sale and dismissed the complaint.
On review the Supreme Court held that the sale was null and void because, although the
buyer may have been a purchaser in good faith, said sale was made with the agent's
knowledge of his principal's death. The general rule is that death of the principal or the agent

extinguishes the agency and this case does not fall under any of the exceptions to the
general rule.
Appealed decision set aside and judgment of the lower court affirmed on toto.

SYLLABUS
1. AGENCY; DEFINED. Agency is a relationship between two parties whereby one party,
called the principal, authorizes another, called the agent, to act for and in his behalf on
transactions with third persons.
2. ID.; ELEMENTS. 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 agent acts as a representative and not for
himself; and (4) the agent acts within the scope of his authority.
3. ID.; DEATH AS MODE OF EXTINGUISHMENT; EXCEPTIONS. By reason of the very nature of
the relationship between principal and agent, agency is extinguished by the death of the
principal or of the agent and any act of an agent after the death of his principal is void ab
initio, except as explicitly provided for in the New Civil Code: (1) when the agency is coupled
with an interest (Art. 1930); and (2) when the agent performed an act for the principal
without knowledge of the principal's death and the third person who contracted with him
acted in good faith. (Art. 1931)
4. ID.; REVOCATION BY PRINCIPAL DISTINGUISHED FROM REVOCATION BY OPERATION OF LAW.
Although a revocation of a power of attorney to be effective must be communicated to the
parties concerned, yet a revocation by operation of law, such as 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." With death, the principal's will
ceases or is terminated; the source of authority is extinguished.
5. ID.; AGENT'S HEIRS MUST NOTIFY PRINCIPAL OF AGENT'S DEATH. The heirs of the agent
who dies must notify the principal of his death and in the meantime adopt such measures as
circumstances may demand in the interest of the latter, but the heirs of the principal are not
duty-bound to give notice of the principal's death to the agent.

DECISION
MUOZ PALMA, J p:
This is a case of an attorney-in-fact, Simeon Rallos, who after the death of his principal,
Concepcion Rallos, sold the latter's undivided share in a parcel of Land pursuant to a special
power of attorney which the principal had executed in his favor. The administrator of the
estate of the deceased principal went to court to have the sale declared unenforceable and to
recover the disposed share. The trial court granted the relief prayed for, but upon appeal, the
Court of Appeals upheld the validity of the sale and dismissed the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were
sisters and registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral
Survey of Cebu covered by Transfer Certificate of Title No. 11118 of the Registry of Cebu. On
April 21, 1954, the sisters executed a special power of attorney in favor of their brother,
Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. On March 3, 1955,
Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the undivided shares of
his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation

for the sum of P10,686.90. The deed of sale was registered in the Registry of Deeds of Cebu,
TCT No. 11118 was cancelled, and a new Transfer Certificate of Title No. 12989 was issued in
the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos
filed a complaint docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu,
praying (1) that the sale of the undivided share of the deceased Concepcion Rallos in lot 5983
be declared unenforceable, and said share be reconveyed to her estate; (2) that the
Certificate of Title issued in the name of Felix Go Chan & Sons Realty Corporation be
cancelled and another title be issued in the names of the corporation and the "Intestate
estate of Concepcion Rallos" in equal undivided shares; and (3) that plaintiff be indemnified
by way of attorney's fees and payment of costs of suit. Named party defendants were Felix
Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but
subsequently, the latter dropped from the complaint. The complaint was amended twice;
defendant Corporation's Answer contained a cross-claim against its co-defendant, Simeon
Rallos, while the latter filed third-party complaint against his sister, Gerundia Rallos. While
the case was pending in the trial court, both Simeon and his sister Gerundia died and they
were substituted by the respective administrators of their estates.
After trial, the court a quo rendered judgment with the following dispositive portion:
"A. On Plaintiff's Complaint
(1) Declaring the deed of sale, Exh. 'C', null and void
insofar as the one-half pro-indiviso share of Concepcion Rallos in
the property in question, - Lot 5983 of the Cadastral Survey of
Cebu is concerned;
(2) Ordering the Register of Deeds of Cebu City to
cancel Transfer Certificate of Title No. 12989 covering Lot 5983
and to issue in lieu thereof another in the names of FELIX Go
CHAN & SONS REALTY CORPORATION and the Estate of
Concepcion Rallos in the proportion of one-half (1/2) share each
pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation
to deliver the possession of an undivided one-half (1/2) share of
Lot 5983 to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to pay to plaintiff in
concept of reasonable attorney's fees the sum of P1,000.00; and
(5) Ordering both defendants to pay the costs jointly
and severally.
"B. On GO CHAN'S Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo
administrator of the Estate of Simeon Rallos; to pay to
defendant Felix Go Chan & Sons Realty Corporation the sum of
P5,343.45, representing the price of one-half (1/2) share of lot
5983;
(2) Ordering
co-defendant
Juan
T.
Borromeo,
administrator of the Estate of Simeon Rallos, to pay in concept
of reasonable attorney's fees to Felix Go Chan & Sons Realty
Corporation the sum of P500.00.
"C. On Third-Party Complaint of defendant Juan T. Borromeo administrator
of Estate of Simeon Rallos, against Josefina Rallos, special administratrix
of the Estate of Gerundia Rallos:

(1) Dismissing the third-party complaint without

prejudice to filing either a complaint against the regular
administrator of the Estate of Gerundia Rallos or a claim in the
Intestate of Gerundia Rallos, covering the same subject-matter
of the third-party complaint, at bar." (pp. 98-100, Record on
Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from
the foregoing judgment insofar as it set aside the sale of the one half (1/2) share of
Concepcion Rallos. The appellate tribunal, as adverted to earlier, resolved the appeal on
November 20, 1964 in favor of the appellant corporation sustaining the sale in
question. 1 The appellee-administrator, Ramon Rallos, moved for a reconsideration of the
decision but the same was denied in a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his principal?
Applied more particularly to the instant case, We have the query: is the sale of the undivided
share of Concepcion Rallos in lot 5983 valid although it was executed by the agent after the
death of his principal? What is the law in this jurisdiction as to the effect of the death of the
principal on the authority of the agent to act for and in behalf of the latter? Is the fact of
knowledge of the death of the principal a material factor in determining the legal effect of an
act performed after such death?
Before proceeding to the issues, We shall briefly restate certain principles of law relevant to
the matter under consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the
name of another without being authorized by the latter, or unless he has by law a right to
represent him. 3 A contract entered into in the name of another by one who has no authority
or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it
is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before
it is revoked by the other contracting party. 4Article 1403 (1) of the same also provides:
"ART. 1403. The following contracts are unenforceable, unless they are
justified:
"(1) Those entered into in the name of another person by one who has
been given no authority or legal representation or who has acted beyond
his powers; . . . ."
Out of the above given principles, sprung the creation an acceptance of the relationship of
agency whereby one party, called the principal (mandante), authorizes another, called the
agent (mandatario), to act for find in his behalf in transactions with third persons. The
essential elements of agency are: (1) there is consent, express or implied, of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a third
person; (3) the agents acts as a representative and not for himself; and (4) the agent acts
within the scope of his authority. 5
Agency is basically personal, representative, and derivative in nature. The authority of the
agent to act emanates from the powers granted to him by his principal; his act is the act of
the principal if done within the scope of the authority. Qui facit per alium facit per se. "He who
acts through another acts himself." 6
2. There are various ways of extinguishing agency, 7 but here We are concerned only with
one cause death of the principal: Paragraph 3 of Art. 1919 of the Civil Code which was
taken from Art. 1709 of the Spanish Civil Code provides:
"ART. 1919. Agency is extinguished:
"xxx xxx xxx

"3. By the death, civil interdiction, insanity or insolvency of the principal

or of the agent; . . . ." (Underline supplied)
By reason of the very nature of the relationship between principal and agent, agency is
extinguished by the death of the principal or the agent. This is the law in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for
the law is found in the juridical basis of agency which is representation. There being an
integration of the personality of the principal into that of the agent it is not possible for the
representation to continue to exist once the death of either is establish. Pothier agrees with
Manresa that by reason of the nature of agency, death is a necessary cause for its
extinction. Laurent says that the juridical tie between the principal and the agent is
severed ipso jure upon the death of either without necessity for the heirs of the principal to
notify the agent of the fact of death of the former. 9
The same rule prevails at common law the death of the principal effects instantaneous and
absolute revocation of the authority of the agent unless the power be coupled with an
interest. 10 This is the prevalent rule in American Jurisprudence where it is well-settled that a
power without an interest conferred upon an agent is dissolved by the principal's death, and
any attempted execution of the power afterwards is not binding on the heirs or
representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of the
agent extinguishes the agency, subject to any exception, and if so, is the instant case within
that exception? That is the determinative point in issue in this litigation. It is the contention of
respondent corporation which was sustained by respondent court that notwithstanding the
death of the principal, Concepcion Rallos, the act of the attorney-in-fact, Simeon Rallos, in
selling the former's share in the property is valid and enforceable inasmuch as the
corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule
aforementioned.
ART. 1930. The agency shall remain in full force and effect even after the
death of the principal, if it has been constituted in the common interest
of the latter and of the agent, or in the interest of a third person who has
accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge the death of
the principal or of any other cause which extinguishes the agency, is
valid and shall be fully effective with respect to third persons who may
have contracted with him in good faith.
Article 1930 is not involved because admittedly the special power of attorney executed in
favor of Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the
death of his principal is valid and effective only under two conditions, viz: (1) that the agent
acted without knowledge of the death of the principal, and (2) that the third person who
contracted with the agent himself acted in good faith. Good faith here means that the third
son was not aware of the death of the principal at the time he contracted with said
agent. These two requisites must concur: the absence of one will render the act of the agent
invalid unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death
of his principal at the time he sold the latter's share in Lot No. 5983 to respondent
corporation. The knowledge of the death is clearly to be inferred from the pleadings filed by
Simeon Rallos before the trial court. 12 That Simeon Rallos knew of the death of his sister
Concepcion is also a finding of fact of the court a quo 13 and of respondent appellate court
when the latter stated that Simeon Rallos "must have known of the death of his sister, and

yet he proceeded with the sale of the lot in the name of both his sisters Concepcion and
Gerundia Rallos without informing appellant (the realty corporation) of the death of the
former." 14
On the basis of the established knowledge of Simeon Rallos concerning the death of his
principal, Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly
requires for its application lack of knowledge on the part of the agent of the death of his
principal; it is not enough that the third person acted in good faith. Thus in Buason & Reyes v.
Panuyas, the Court applying Article 1738 of the old Civil Code now Art. 1931 of the new Civil
Code sustained the validity of a sale made after the death of the principal because it was not
shown that the agent knew of his principal's demise. 15 To the same effect is the case
ofHerrera, et al. v. Luy Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera the
Court stated:
". . . even granting arguendo that Luis Herrera did die in 1936 plaintiffs
presented no proof and there is no indication in the record, that the agent
Luy Kim Guan was aware of the death of his principal at the time he sold
the property. The death of the principal does not render the act of an
agent unenforceable, where the latter had no knowledge of such
extinguishment of the agency." (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent corporation, the Court of Appeals
reasoned out that there is no provision in the Code which provides that whatever is done by
an agent having knowledge of the death of his principal is void even with respect to third
persons who may have contracted with him in good faith and without knowledge of the death
of the principal. 16
We cannot see the merits of the foregoing argument as it is ignores the existence of the
general rule enunciated in Article 1919 that the death of the principal extinguishes the
agency. That being the general rule it follows a fortiori that any act o an agent after the death
of his principal is void ab initio unless the same falls under the exceptions provided for in the
aforementioned Articles 1930 and 1931. Article 1931, being an exception to the general rule,
is to be strictly construed; it is not to be given an interpretation or application beyond the
clear import of its terms for otherwise the courts will be involved in a process of legislation
outside of their judicial function.
5. Another argument advanced by respondent court is that the vendee acting in good faith
relied on the power of attorney which was duly registered on the original certificate of title
recorded in the Register of Deeds of the Province of Cebu, that no notice of the death was
ever annotated on said certificate of title by the heirs of the principal and accordingly they
must suffer the consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries which
We quote:
"If the agency has been granted for the purpose of contracting with
certain persons, the revocation must be made known to them. But if the
agency is general in nature, without reference to particular person with
whom the agent is to contract, it is sufficient that the principal exercise
due diligence to make the revocation of the agency publicly known.
"In case of a general power which does not specify the persons to whom
representation should be made, it is the general opinion that all acts
executed with third persons who contracted in good faith, without
knowledge of the revocation, are valid. In such case, the principal may
exercise his right against the agent, who, knowing of the revocation,
continued to assume a personality which he no longer had." (Manresa,
Vol. 11, pp. 561 and 575; pp. 15-16, rollo)

The above discourse, however, treats of revocation by an act of the principal as a mode of
terminating an agency which is to be distinguished from revocation by operation of law such
as death of the principal which obtains in this case. On page six of this Opinion We stressed
that by reason of the very nature of the relationship between principal and agent, agency is
extinguished ipso jure upon the death of either principal or agent. Although a revocation of a
power of attorney to be effective must be communicated to the parties concerned, 18 yet a
revocation by operation of law, such as by death of the principal is, as a rule, instantaneously
effective inasmuch as "by legal fiction the agent's exercise of authority is regarded as an
execution of the principal's continuing will." 19 With death, the principal's will ceases or is
terminated; the source of authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death of the
principal. What the Code provides in Article 1932 is that, if the agent dies, his heirs must
notify the principal thereof, and in the meantime adopt such measures as the circumstances
may demand in the interest of the latter. Hence, the fact that no notice of the death of the
principal was registered on the certificate of title of the property in the Office of the Register
of Deeds, is not fatal to the cause of the estate of the principal.
6. Holding that the good faith of a third person in dealing with an agent affords the former
sufficient protection, respondent court drew a "parallel" between the instant case and that of
an innocent purchaser for value of a registered land, stating that if a person purchases a
registered land from one who acquired it in bad faith even to the extent of foregoing or
falsifying the deed of sale in his favor the registered owner has no recourse against such
innocent purchaser for value but only against the forger.20
To support the correctness of this "parallelism", respondent corporation, in its brief, cites the
case of Blondeau, et al. v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:
"In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630,
one Vallejo was a co-owner of lands with Agustin Nano. The latter had a
power of attorney supposedly executed by Vallejo in his favor. Vallejo
delivered to Nano his land titles. The power was registered in the Office
of the Register of Deeds. When the lawyer-husband of Angela Blondeau
went to that Office, he found all in order including the power of attorney.
But Vallejo denied having executed the power. The lower court sustained
Vallejo and the plaintiff Blondeau appealed. Reversing the decision of the
court a quo, the Supreme Court, quoting the ruling in the case of Eliason
v. Wilborn, 261 U.S. 457, held:
'But there is a narrower ground on which the defenses
of the 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
Cantera, a member of the Philippine Bar and the husband of
Angela Blondeau, the principal plaintiff, searched the
registration record, he found them in due form including the
power of attorney of Vallejo in favor of Nano. If this had not been
so and if thereafter the proper notation of the encumbrance
could not have been made, Angela Blondeau would not have,
lent P12,000.00 to the defendant Vallejo.' An executed transfer
of registered lands placed by the registered owner thereof in the
hands of another operates as a representation to a third party

that the holder of the transfer is authorized to deal with the

land.
'As between two innocent persons, one of whom must
suffer the consequence of a breach of trust, the one who made
it possible by his act of confidence bear the loss.'" (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because here We
are confronted with one who admittedly was an agent of his sister and who sold the property
of the latter after her death with full knowledge of such death. The situation is expressly
covered by a provision of law on agency the terms of which are clear and unmistakable
leaving no room for an interpretation contrary to its tenor, in the same manner that the ruling
in Blondeau and the cases cited therein found a basis in Section 55 of the Land Registration
Law which in part provides:
"xxx xxx xxx
"The production of the owner's duplicate certificate whenever any
voluntary instrument is presented for registration shall be conclusive
authority from the registered owner to the register of deeds to enter a
certificate or to make a memorandum of registration in accordance with
such instruments, and the new certificate or memorandum shall be
binding upon the registered owner and upon all persons claiming under
him in favor of every purchaser for value and in good faith: Provided,
however, That in all cases of registration procured by fraud, the owner
may pursue all his legal and equitable remedies against the parties to
such fraud, without prejudice, however, to the rights of any innocent
holder for value of a certificate of title. . . . " (Act No. 496 as amended)
7. One last point raised by respondent corporation in support of the appealed decision is an
1842 ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments
made to an agent after the death of the principal were held to be "good", "the parties being
ignorant of the death". Let us take note that the Opinion of Justice Rogers was premised on
the statement that the parties were ignorant of the death of the principal. We quote from that
decision the following:
". . . Here the precise point is, whether a payment to an agent when the
parties are ignorant of the death is a good payment. In addition to the
case in Campbell before cited, the same judge Lord Ellenborough, has
decided in 5 Esp. 117, the general question that a payment after the
death of principal is not good. Thus, a payment of sailor's wages to a
person having a power of attorney to receive them, has been held void
when the principal was dead at the time of the payment. If, by this case,
it is meant merely to decide the general proposition that by operation of
law the death of the principal is a revocation of the powers of the
attorney, no objection can be taken to it. But if it intended to say that his
principle applies where there was no notice of death, or opportunity of
notice, I must be permitted to dissent from it.
". . . That a payment may be good today, or bad tomorrow, from the
accidental circumstance of the death of the principal, which he did not
know, and which by no possibility could he know? It would be unjust to
the agent and unjust to the debtor. In the civil law, the acts of the agent,
done bona fide in ignorance of the death of his principal, are held valid
and binding upon the heirs of the latter. The same rule holds in the
Scottish law, and I cannot believe the common law is so
unreasonable. . . . " (39 Am. Dec. 76. 80, 81; 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 AmD
76, where, in an elaborate opinion, this view is broadly announced. It is
referred to, and seems to have been followed, in the case of Dick v. Page,
17 Mo. 234, 57 AmD 267; but in this latter case it appeared that the
estate of the deceased principal had received the benefit of the money
paid, and therefore the representative of the estate might well have been
held to be estopped from suing for it again. . . . These cases, in so far, at
least, as they announce the doctrine under discussion, are exceptional.
The Pennsylvania Case supra (Cassiday v. McKenzie, 4 Watts & S. 282, 39
AmD 76), is believed to stand almost, if not quite, alone in announcing
the principal in its broadest scope.'" (52 Misc. 353, 357, cited in 2 C.J.
549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the
opinion, except so far as it related to the particular facts, was a mere dictum, Baldwin, J. said:
"'The opinion, therefore, of the learned Judge may be regarded more as
an extrajudicial indication of his views on the general subject, than as the
adjudication of the Court upon the point in question. But accordingly all
proper weight to this opinion, as the judgment of a Court of great
respectability, it stands alone among common law authorities, and is
opposed by an array too formidable to permit us to follow it.'" (15 Cal. 12,
17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American
jurisprudence, no such conflict exists in our own for the simple reason that our statute, the
Civil Code, expressly provides for two exceptions to the general rule that death of the
principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with an interest
(Art. 1930), and (2) that the act of the agent was executed without knowledge of the death of
the principal and the third person who contracted with the agent acted also in good faith (Art.
1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress the
indispensable requirement - that the agent acted without knowledge or notice of the death of
the principal. In the case before Us the agent Ramon Rallos executed the sale
notwithstanding notice of the death of his principal. Accordingly, the agent's act is
unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the decision of respondent appellate court,
and We affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the Court of
First Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs against respondent
realty corporation at all instances.
So Ordered.

[G.R. No. 76969. June 9, 1997.]

INLAND REALTY INVESTMENT SERVICE, INC. and ROMAN M. DE

LOS REYES, petitioners, vs. HON. COURT OF APPEALS, GREGORIO
ARANETA, INC. and J. ARMANDO EDUQUE, respondents.
Antonio P. Barredo for petitioners.
Mario R. Bihag, Jr. for private respondents.

SYLLABUS
1. REMEDIAL LAW; SPECIAL CIVIL ACTIONS; CONTEMPT; BLATANT ATTEMPT TO MISLEAD
COURT, A CASE OF, CASE AT BAR. Petitioners take exception to the finding of the
respondent Court of Appeals that their contract of agency and authority to sell expired thirty
(30) days from its last renewal on December 2, 1975. They insist that, in the Letter dated
October 28, 1976, Gregorio Araneta III, in behalf of Araneta, Inc., renewed petitioner Inland
Realty's authority to act as agent to sell the former's 9,800 shares in Architects' for another
thirty (30) days from same date. This Letter dated October 28, 1976, petitioners claim, was
marked as Exhibit "L" during the trial proceedings before the trial court. This claim is a
blatant lie. In the first place petitioners have conspicuously failed to attach a certified copy of
this Letter dated October 28, 1976. They have, in fact, not attached even a machine copy
thereof. All they gave this court is their word that said Letter dated October 28, 1976 does
exist, and on that basis, they expect us to accordingly rule in their favor. Such naivety, this
court will not tolerate. We will not treat lightly petitioners' attempt to mislead this court by
claiming that the Letter dated October 28, 1976 was marked as Exhibit "L" by the trial court,
when the truth is that the trial court marked as Exhibit "L", and the respondent Court of
Appeals considered as Exhibit "L", private respondent Araneta, Inc.'s Letter dated October 28,
1975, not 1976. Needless to say, this blatant attempt to mislead this court, is contemptuous
conduct that we sternly condemn. STECAc
2. ID.; EVIDENCE; WEIGHT AND SUFFICIENCY; PROBATIVE VALUE; SELF-SERVING DOCUMENT
HAS NO EVIDENTIARY VALUE; CASE AT BENCH. The Letter dated November 16, 1976,
claimed by petitioners to have been marked as Exhibit "M", has no probative value,
considering that its very existence remains under a heavy cloud of doubt and that
hypothetically assuming its existence, its alleged content, namely, a listing of four (4) other
prospective buyers, does not at all prove that the agency contract and authority to sell in
favor of petitioners was renewed or revived after it expired on January 1, 1976. As in the case
of the Letter dated October 28, 1976, petitioners have miserably failed to attach any copy of
the Letter dated November 16, 1976. A copy thereof would not help petitioners' failing cause,
anyway especially considering that said letter was signed by petitioner De los Reyes and
would therefore take on the nature of a self-serving document that has no evidentiary value
insofar as petitioners are concerned.
3. CIVIL LAW; AGENCY; COMMISSION; WHEN BROKER IS ENTITLED THERETO; CASE AT BAR.
The Court of Appeals cannot be faulted for emphasizing the lapse of more than one (1) year
and five (5) months between the expiration of petitioners' authority to sell and the
consummation of the sale to Stanford, to be a significant index of petitioners' nonparticipation in the really critical events leading to the consummation of said sale, i.e., the
negotiations to convince Stanford to sell at Araneta, Inc.'s asking price, the finalization of the
terms and conditions of the sale, the drafting of the deed of sale, the processing of pertinent
documents, and the delivery of the shares of stock to Stanford. Certainly, when the lapse of
the period of more than one (1) year and five (5) months between the expiration of
petitioners' authority to sell and the consummation of the sale, is viewed in the context of the
utter lack of evidence of petitioners' involvement in the negotiations between Araneta, Inc.

and Stanford during that period and in the subsequent processing of the documents pertinent
to said sale, it becomes undeniable that the respondent Court of Appeals did not at all err in
affirming the trial court's dismissal of petitioners' claim for unpaid brokerage commission.
Petitioners were not the efficient procuring cause in bringing about the sale in question on
July 8, 1977 and are, therefore, not entitled to the stipulated broker's commission of "5% on
the total price." IEHSDA

DECISION
HERMOSISIMA, JR., J p:
Herein petitioners Inland Realty Investment Service, Inc. (hereafter, "Inland Realty") and
Roman M. de los Reyes seek the reversal of the Decision 1 of the Intermediate Appellate
Court (now Court of Appeals) 2 which affirmed the trial court's dismissal 3 of petitioners'
claim for unpaid agent's commission for brokering the sales transaction involving 9,800
shares of stock in Architects' Bldg., Inc. (hereafter, "Architects'") between private respondent
Gregorio Araneta, Inc. (hereafter, "Araneta, Inc.") as seller and Stanford Microsystems, Inc.
(hereafter, "Stanford") as buyer.
Petitioners come to us with a two-fold agenda: (1) to obtain from us a declaration that the
trial court and the respondent appellate court gravely erred when appreciating the facts of
the case by disregarding Exhibits "L," a Letter dated October 28, 1976 signed by Gregorio
Araneta II, renewing petitioners' authority to act as sales agent for a period of thirty (30) days
from same date, and Exhibit "M," a Letter dated November 16, 1976 signed by petitioner de
los Reyes, naming four (4) other prospective buyers, respectively; and (2) to obtain from us a
categorical ruling that a broker is automatically entitled to the stipulated commission merely
upon securing for, and introducing to, the seller the particular buyer who ultimately
purchases from the former the object of the sale, regardless of the expiration of the broker's
contract of agency and authority to sell.
Before we proceed to address petitioners' objectives, there is a need to unfold the facts of the
case. For that purpose, we quote hereunder the findings of fact of the Court of Appeals with
which petitioners agree, except as to the respondent appellate court's non-inclusion of the
aforementioned Exhibits "L" and "M":
"From the evidence, the following facts appear undisputed: On
September 16, 1975, defendant corporation thru its co-defendant
Assistant General Manager J. Armando Eduque, granted to plaintiffs a 30day authority to sell its . . . 9,800 shares of stock in Architects' Bldg., Inc.
as follows:
'September 16, 1975
TO WHOM IT MAY CONCERN:
This is to authorize Mr. R.M. de los Reyes, representing Inland
Realty, to sell on a first come first served basis the total holdings
of Gregorio Araneta, Inc. in Architects' [Bldg.], Inc. equivalent to
98% or 9,800 shares of stock at the price of P1,500.00 per share
for a period of 30 days.
(SGD.) J. ARMANDO EDUQUE
Asst. General Manager'
Plaintiff Inland Realty Investment Service, Inc. (Inland Realty for short) is
a corporation engaged [in], among other . . . the real estate business
[and] brokerages, duly licensed by the Bureau of Domestic Trade . . .

[Inland Realty] planned their sales campaign, sending proposal letters to

prospective buyers. One such prospective buyer to whom a proposal
letter was sent to was Stanford Microsystems, Inc. . . . [that] counterproposed to buy 9,800 shares offered at P1,000.00 per share or for a
total of P9,800,000.00, P4,900.000.00 payable in five years at 12% per
annum interest until fully paid.
Upon plaintiffs' receipt of the said counter-proposal, it immediately [sic]
wrote defendant a letter to register Stanford Microsystems, Inc. as one of
its prospective buyers . . . Defendant Araneta, Inc., thru its Assistant
General Manager J. Armando Eduque, replied that the price offered by
Stanford was too low and suggested that plaintiffs see if the price and
terms of payment can be improved upon by Stanford . . . Other
prospective buyers were submitted to defendants among whom were
Atty. Maximo F. Belmonte and Mr. Joselito Hernandez. The authority to sell
given to plaintiffs by defendants was extended several times: the first
being on October 2, 1975, for 30 days from said date (Exh. 'J'), the
second on October 28, 1975 for 30 days from said date (Exh. 'L') and on
December 2, 1975 for 30 days from said date (Exh. 'K').
Plaintiff Roman de los Reyes, manager of Inland Realty's brokerage
division, who by contract with Inland Realty would be entitled to 1/2 of
the claim asserted herein, testified that when his company was initially
granted the authority to sell, he asked for an exclusive authority and for
a longer period but Armando Eduque would not give, but according to
this witness, the life of the authority could always be extended for the
purpose of negotiation that would be continuing.
On July 8, 1977, plaintiffs finally sold the 9,800 shares of stock [in]
Architects'
[Bldg.],
Inc.
to
Stanford
Microsystems,
Inc.
for
P13,500,000.00 . . .
On September 6, 1977, plaintiffs demanded formally [from] defendants,
through a letter of demand, for payment of their 5% broker['s]
commission at P13,500,000.00 or a total amount of P675,000.00 . . .
which was declined by [defendants] on the ground that the claim has no
factual or legal basis." 4
Ascribing merit to private respondents' defense that, after their authority to sell expired thirty
(30) days from December 2, 1975, or on January 1, 1976, petitioners abandoned the sales
transaction and were no longer privy to the consummation and documentation thereof, the
trial court dismissed petitioners' complaint for collection of unpaid broker's commission.
Petitioners appealed, but the Court of Appeals was unswayed in the face of evidence of the
expiration of petitioners' agency contract and authority to sell on January 1, 1976 and the
consummation of the sale to Stanford on July 8, 1977 or more than one (1) year and five (5)
months after petitioners' agency contract and authority to sell expired. Respondent appellate
court dismissed petitioners' appeal in this wise:
". . . The resolution would seem to hinge on the question of whether
plaintiff was instrumental in the final consummation of the sale to
Stanford which was the same name of the company submitted to
defendants as a prospective buyer although their price was considered
by defendant to be too low and defendants wrote to plaintiff if the price
may be improved upon by Stanford . . . This was on October 13, 1975.
After that, there was an extension for 30 days from October 28, 1975 of

the authority (Exh. 'L') and another on December 2, 1975 for another 30
days from the said date . . . There is nothing in the record or in the
testimonial evidence that the authority extended 30 days from the last
date of extension was ever reserved nor extended, nor has there been
any communication made to defendants that the plaintiff was actually
negotiating with Stanford a better price than what was previously offered
by it . . .
In fact there was no longer any agency after the last extension. Certainly,
the length of time which had transpired from the date of last extension of
authority to the final consummation of the sale with Stanford of about
one (1) year and five (5) months without any communication at all from
plaintiffs to defendants with respect to the suggestion of defendants that
Stanford's offer was too low and suggested if plaintiffs may make it
better. We have a case of proposal and counter-proposal which would not
constitute a definite closing of the transaction just because it was plaintiff
who solely suggested to defendants the name of Stanford as buyer . . ." 5
Unable to accept the dismissal of its claim for unpaid broker's commission, petitioners filed
the instant petition for review asking us (1) to pass upon the factual issue of the alleged
extension of their agency contract and authority to sell and (2) to rule in favor of a broker's
automatic entitlement to the stipulated commission merely upon securing for, and
introducing to, the seller, the particular buyer who ultimately purchases from the former the
object of the sale, regardless of the expiration of the broker's contract of agency and
authority to sell. cdasia
We find for private respondents.
I
Petitioners take exception to the finding of the respondent Court of Appeals that their
contract of agency and authority to sell expired thirty (30) days from its last renewal on
December 2, 1975. They insist that, in the Letter dated October 28, 1976, Gregorio Araneta
III, in behalf of Araneta, Inc., renewed petitioner Inland Realty's authority to act as agent to
sell the former's 9,800 shares in Architects' for another thirty (30) days from same date. This
Letter dated October 28, 1976, petitioners claim, was marked as Exhibit "L" during the trial
proceedings before the trial court.
This claim is a blatant lie. In the first place, petitioners have conspicuously failed to attach a
certified copy of this Letter dated October 28, 1976. They have, in fact, not attached even a
machine copy thereof. All they gave this court is their word that said Letter dated October 28,
1976 does exist, and on that basis, they expect us to accordingly rule in their favor.
Such naivety, this court will not tolerate. We will not treat lightly petitioners' attempt to
mislead this court by claiming that the Letter dated October 28, 1976 was marked as Exhibit
"L" by the trial court, when the truth is that the trial court marked as Exhibit "L", and the
respondent Court of Appeals considered as Exhibit "L," private respondent Araneta, Inc.'s
Letter dated October 28,1975, not 1976. Needless to say, this blatant attempt to mislead this
court, is contemptuous conduct that we sternly condemn.
II
The Letter dated November 16, 1976, claimed by petitioners to have been marked as Exhibit
"M", has no probative value, considering that its very existence remains under a heavy cloud
of doubt and that hypothetically assuming its existence, its alleged content, namely, a listing
of four (4) other prospective buyers, does not at all prove that the agency contract and
authority to sell in favor of petitioners was renewed or revived after it expired on January 1,

1976. As in the case of the Letter dated October 28, 1976, petitioners have miserably failed
to attach any copy of the Letter dated November 16, 1976. A copy thereof would not help
petitioners' failing cause, anyway, especially considering that said letter was signed by
petitioner De los Reyes and would therefore take on the nature of a self-serving document
that has no evidentiary value insofar as petitioners are concerned.
III
Finally, petitioners asseverate that, regardless of whether or not their agency contract and
authority to sell had expired, they are automatically entitled to their broker's commission
merely upon securing for and introducing to private respondent Araneta, Inc. the buyer in the
person of Stanford which ultimately acquired ownership over Araneta, Inc.'s 9,800 shares in
Architects'.
Petitioners' asseverations are devoid of merit.
It is understandable, though, why petitioners have resorted to a campaign for an automatic
and blanket entitlement to brokerage commission upon doing nothing but submitting to
private respondent Araneta, Inc., the name of Stanford as prospective buyer of the latter's
shares in Architects'. Of course petitioners would advocate as such because precisely
petitioners did nothing but submit Stanford's name as prospective buyer. Petitioners did not
succeed in outrightly selling said shares under the predetermined terms and conditions set
out by Araneta, Inc., e.g., that the price per share is P1,500.00. They admit that they could
not dissuade Stanford from haggling for the price of P1,000.00 per share with the balance of
50% of the total purchase price payable in five (5) years at 12% interest per annum. From
September 16, 1975 to January 1, 1976, when petitioners' authority to sell was subsisting, if
at all, petitioners had nothing to show that they actively served their principal's interests,
pursued to sell the shares in accordance with their principal's terms and conditions, and
performed substantial acts that proximately and causatively led to the consummation of the
sale to Stanford of Araneta, Inc.'s 9,800 shares in Architects'.
The Court of Appeals cannot be faulted for emphasizing the lapse of more than one (1) year
and five (5) months between the expiration of petitioners' authority to sell and the
consummation of the sale to Stanford, to be a significant index of petitioners' nonparticipation in the really critical events leading to the consummation of said sale, i.e., the
negotiations to convince Stanford to sell at Araneta, Inc.'s asking price, the finalization of the
terms and conditions of the sale, the drafting of the deed of sale, the processing of pertinent
documents, and the delivery of the shares of stock to Stanford. Certainly, when the lapse of
the period of more than one (1) year and five (5) months between the expiration of
petitioners' authority to sell and the consummation of the sale, is viewed in the context of the
utter lack of evidence of petitioners' involvement in the negotiations between Araneta, Inc.
and Stanford during that period and in the subsequent processing of the documents pertinent
to said sale, it becomes undeniable that the respondent Court of Appeals did not at all err in
affirming the trial court's dismissal of petitioners' claim for unpaid brokerage commission.
Petitioners were not the efficient procuring cause 6 in bringing about the sale in question on
July 8, 1977 and are, therefore, not entitled to the stipulated broker's commission of "5% on
the total price."cdtech
WHEREFORE, the instant petition is HEREBY DISMISSED.
Costs against petitioners.
SO ORDERED.

[G.R. No. 149353. June 26, 2006.]

JOCELYN
B.
DOLES, petitioner, vs.
ANGELES, respondent.

MA.

AURA

TINA

DECISION
AUSTRIA-MARTINEZ, J p:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court
questioning the Decision 1 dated 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 Resolution 2 dated August 6, 2001 which denied
petitioner's Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for
Specific Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil
Case No. 97-82716. Respondent alleged that petitioner was indebted to the former in the
concept of a personal loan amounting to P405,430.00 representing the principal amount and
interest; that on October 5, 1996, by virtue of a "Deed of Absolute Sale", 3 petitioner, as
seller, ceded to respondent, as buyer, a parcel of land, as well as the improvements thereon,
with an area of 42 square meters, covered by Transfer Certificate of Title No. 382532, 4 and
located at a subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite, in
order to satisfy her personal loan with respondent; that this property was mortgaged to
National Home Mortgage Finance Corporation (NHMFC) to secure petitioner's loan in the sum
of P337,050.00 with that entity; that as a condition for the foregoing sale, respondent shall
assume the undue balance of the mortgage and pay the monthly amortization of P4,748.11
for the remainder of the 25 years which began on September 3, 1994; that the property was
at that time being occupied by a tenant paying a monthly rent of P3,000.00; that upon
verification with the NHMFC, respondent learned that petitioner had incurred arrearages
amounting to P26,744.09, inclusive of penalties and interest; that upon informing the
petitioner of her arrears, petitioner denied that she incurred them and refused to pay the
same; that despite repeated demand, petitioner refused to cooperate with respondent to
execute the necessary documents and other formalities required by the NHMFC to effect the
transfer of the title over the property; that petitioner collected rent over the property for the
month of January 1997 and refused to remit the proceeds to respondent; and that respondent
suffered damages as a result and was forced to litigate. cSCADE
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 defendantappellee to execute all necessary documents to effect transfer of subject
property to plaintiff-appellant with the arrearages of the former's loan
with the NHMFC, at the latter's expense. No costs. CcEHaI
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount
borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale was
supported by a valid consideration, which is the sum of money petitioner owed respondent
amounting to P405,430.00, representing both principal and interest.
The CA took into account the following circumstances in their entirety: the supposed friends
of petitioner never presented themselves to respondent and that all transactions were made
by and between petitioner and respondent; 7 that the money borrowed was deposited with
the bank account of the petitioner, while payments made for the loan were deposited by the
latter to respondent's bank account; 8 that petitioner herself admitted in open court that she

was "re-lending" the money loaned from respondent to other individuals for profit; 9 and that
the documentary evidence shows that the actual borrowers, the friends of petitioner,
consider her as their creditor and not the respondent. 10
Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate
consent, since the same is considered just or legal if made to enforce one's claim through
competent authority under Article 1335 11 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 petitioner's loan with the
NHMFC which respondent agreed to assume; and that the amount of P3,000.00 representing
the rental for January 1997 supposedly collected by petitioner, as well as the claim for
damages and attorney's fees, is denied for insufficiency of evidence. 13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that
respondent categorically admitted in open court that she acted only as agent or
representative of Arsenio Pua, the principal financier and, hence, she had no legal capacity to
sue petitioner; and that the CA failed to consider the fact that petitioner's father, who coowned the subject property, was not impleaded as a defendant nor was he indebted to the
respondent and, hence, she cannot be made to sign the documents to effect the transfer of
ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the
foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001,
petitioner filed the present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR
OF THE RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE
PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT
PAYMENT FROM THE DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A
CAUSE. 14
Although, as a rule, it is not the business of this Court to review the findings of fact made by
the lower courts, jurisprudence has recognized several exceptions, at least three of which are
present in the instant case, namely: when the judgment is based on a misapprehension of
facts; when the findings of facts of the courts a quo are conflicting; and when the CA
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, could justify a different conclusion. 15 To arrive at a proper judgment, therefore,
the Court finds it necessary to re-examine the evidence presented by the contending parties
during the trial of the case. ISTCHE
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale is supported by a valid
consideration.
1. Petitioner argues that since she is merely the agent or representative of the alleged
debtors, then she is not a party to the loan; and that the Deed of Sale executed between her
and the respondent in their own names, which was predicated on that pre-existing debt, is
void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of
a price certain in money 16 and that this sum indisputably pertains to the debt in issue. This

Court has consistently held that a contract of sale is null and void and produces no effect
whatsoever where the same is without cause or consideration. 17 The question that has to
be resolved for the moment is whether this debt can be considered as a valid cause or
consideration for the sale.
To restate, the CA cited four instances in the record to support its holding that petitioner "relends" the amount borrowed from respondent to her friends: first, the friends of petitioner
never presented themselves to respondent and that all transactions were made by and
between petitioner and respondent; 18 second; the money passed through the bank
accounts of petitioner and respondent; 19 third, petitioner herself admitted that she was "relending" the money loaned to other individuals for profit; 20 and fourth, the documentary
evidence shows that the actual borrowers, the friends of petitioner, consider her as their
creditor and not the respondent. 21
On the first, third, and fourth points, the CA cites the testimony of the petitioner, then
defendant, during her cross-examination: 22
Atty. Diza:
q. You also mentioned that you were not the one indebted to the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa
Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are your
friends?
witness:
a. Inocencio and Moraquin are my friends while [as to] Jacob and
Tomelden[,] they were just referred.
Atty. Diza:
q. And you have transact[ed] with the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. What is that transaction?
witness:
a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.
Atty. Diza:
q. Did the plaintiff personally see the transactions with your friends?
witness:
a. No, sir.
Atty. Diza:
q. Your friends and the plaintiff did not meet personally?
witness:
a. Yes, sir.
Atty. Diza:
q. You are intermediaries?
witness:
a. We are both intermediaries. As evidenced by the checks of the debtors
they were deposited to the name of Arsenio Pua because the
money came from Arsenio Pua.
xxx xxx xxx
Atty. Diza:

q. Did the plaintiff knew [sic] that you will lend the money to your friends
specifically the one you mentioned [a] while ago?
witness:
a. Yes, she knows the money will go to those persons.
Atty. Diza:
q. You are re-lending the money?
witness:
a. Yes, sir.
Atty. Diza:
q. What profit do you have, do you have commission?
witness:
a. Yes, sir.
Atty. Diza:
q. How much?
witness:
a. Two percent to Tomelden, one percent to Jacob and then Inocencio and
my friends none, sir.
Based on the foregoing, the CA concluded that petitioner is the real borrower, while the
respondent, the real lender.
But as correctly noted by the RTC, respondent, then plaintiff, made the following admission
during her cross examination: 23
Atty. Villacorta:
q. Who is this Arsenio Pua?
witness:
a. Principal financier, sir.
Atty. Villacorta:
q. So the money came from Arsenio Pua?
witness:
a. Yes, because I am only representing him, sir.
Other portions of the testimony of respondent must likewise be considered: 24
Atty. Villacorta:
q. So it is not actually your money but the money of Arsenio Pua?
witness:
a. Yes, sir.
Court:
q. It is not your money?
witness:
a. Yes, Your Honor.
Atty. Villacorta:
q. Is it not a fact Ms. Witness that the defendant borrowed from you to
accommodate somebody, are you aware of that?
witness:
a. I am aware of that.
Atty. Villacorta:
q. More or less she [accommodated] several friends of the defendant?
witness:
a. Yes, sir, I am aware of that.
xxx xxx xxx
Atty. Villacorta:

q. And these friends of the defendant borrowed money from you with the
assurance of the defendant?
witness:
a. They go direct to Jocelyn because I don't know them.
xxx xxx xxx
Atty. Villacorta:
q. And is it not also a fact Madam witness that everytime that the
defendant borrowed money from you her friends who [are] in
need of money issued check[s] to you? There were checks
issued to you? aSTECI
witness:
a. Yes, there were checks issued.
Atty. Villacorta:
q. By the friends of the defendant, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of your assistance, the friends of the defendant who are
in need of money were able to obtain loan to [sic] Arsenio Pua
through your assistance?
witness:
a. Yes, sir.
Atty. Villacorta:
q. So that occasion lasted for more than a year?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And some of the checks that were issued by the friends of the
defendant bounced, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of that Arsenio Pua got mad with you?
witness:
a. Yes, sir.
Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her
disclosed principal. She is also estopped to deny that petitioner acted as agent for the
alleged debtors, the friends whom she (petitioner) referred.
This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is
representation. 25 The question of whether an agency has been created is ordinarily a
question which may be established in the same way as any other fact, either by direct or
circumstantial evidence. The question is ultimately one of intention. 26 Agency may even be
implied from the words and conduct of the parties and the circumstances of the particular
case. 27 Though the fact or extent of authority of the agents may not, as a general rule, be
established from the declarations of the agents alone, if one professes to act as agent for
another, she may be estopped to deny her agency both as against the asserted principal and
the third persons interested in the transaction in which he or she is engaged. 28
In this case, petitioner knew that the financier of respondent is Pua; and respondent knew
that the borrowers are friends of petitioner.

The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the
actual borrowers, did not present themselves to [respondent]" as evidence that negates the
agency relationship it is sufficient that petitioner disclosed to respondent that the former
was acting in behalf of her principals, her friends whom she referred to respondent. For an
agency to arise, it is not necessary that the principal personally encounter the third person
with whom the agent interacts. The law in fact contemplates, and to a great degree,
impersonal dealings where the principal need not personally know or meet the third person
with whom her agent transacts: precisely, the purpose of agency is to extend the personality
of the principal through the facility of the agent. 29
In the case at bar, both petitioner and respondent have undeniably disclosed to each other
that they are representing someone else, and so both of them are estopped to deny the
same. It is evident from the record that petitioner merely refers actual borrowers and then
collects and disburses the amounts of the loan upon which she received a commission; and
that respondent transacts on behalf of her "principal financier", a certain Arsenio Pua. If their
respective principals do not actually and personally know each other, such ignorance does
not affect their juridical standing as agents, especially since the very purpose of agency is to
extend the personality of the principal through the facility of the agent. acCDSH
With respect to the admission of petitioner that she is "re-lending" the money loaned from
respondent to other individuals for profit, it must be stressed that the manner in which the
parties designate the relationship is not controlling. If an act done by one person in behalf of
another is in its essential nature one of agency, the former is the agent of the latter
notwithstanding he or she is not so called. 30 The question is to be determined by the fact
that one represents and is acting for another, and if relations exist which will constitute an
agency, it will be an agency whether the parties understood the exact nature of the relation
or not. 31
That both parties acted as mere agents is shown by the undisputed fact that the friends of
petitioner issued checks in payment of the loan in the name of Pua. If it is true that petitioner
was "re-lending", then the checks should have been drawn in her name and not directly paid
to Pua.
With respect to the second point, particularly, the finding of the CA that the disbursements
and payments for the loan were made through the bank accounts of petitioner and
respondent, suffice it to say that in the normal course of commercial dealings and for reasons
of convenience and practical utility it can be reasonably expected that the facilities of the
agent, such as a bank account, may be employed, and that a sub-agent be appointed, such
as the bank itself, to carry out the task, especially where there is no stipulation to the
contrary. 32
In view of the two agency relationships, petitioner and respondent are not privy to the
contract of loan between their principals. Since the sale is predicated on that loan, then the
sale is void for lack of consideration.
2. A further scrutiny of the record shows, however, that the sale might have been backed up
by another consideration that is separate and distinct from the debt: respondent averred in
her complaint and testified that the parties had agreed that as a condition for the
conveyance of the property the respondent shall assume the balance of the mortgage loan
which petitioner allegedly owed to the NHMFC. 33 This Court in the recent past has declared
that an assumption of a mortgage debt may constitute a valid consideration for a sale. 34
Although the record shows that petitioner admitted at the time of trial that she owned the
property described in the TCT, 35 the Court must stress that the Transfer Certificate of Title
No. 382532 36 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
thereon 38 and, with more reason, to effect the delivery of the object of the sale at the
consummation stage. 39 What is worse, there is a notation that the TCT itself has been
"cancelled." 40
In view of these anomalies, the Court cannot entertain the possibility that respondent agreed
to assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC,
especially since the record is bereft of any factual finding that petitioner was, in the first
place, endowed with any ownership rights to validly mortgage and convey the property. As
the complainant who initiated the case, respondent bears the burden of proving the basis of
her complaint. Having failed to discharge such burden, the Court has no choice but to declare
the sale void for lack of cause. And since the sale is void, the Court finds it unnecessary to
dwell on the issue of whether duress or intimidation had been foisted upon petitioner upon
the execution of the sale. cEASTa
Moreover, even assuming the mortgage validly exists, the Court notes respondent's
allegation that the mortgage with the NHMFC was for 25 years which began September 3,
1994. Respondent filed her Complaint for Specific Performance in 1997. Since the 25 years
had not lapsed, the prayer of respondent to compel petitioner to execute necessary
documents to effect the transfer of title is premature.
WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals are
REVERSED and SET ASIDE. The complaint of respondent in Civil Case No. 97-82716 is
DISMISSED.
SO ORDERED.
[G.R. No. L-8169. January 29, 1957.]
THE SHELL COMPANY OF THE PHILIPPINES, LTD., petitioner, vs.
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY
COMMERCIAL CASUALTY INSURANCE CO., SALVADOR SISON,
PORFIRIO DE LA FUENTE and THE COURT OF APPEALS (First
Division), respondents.
Ross, Selph, Carrascoso & Janda for petitioner.
J. A. Wolfson and Manuel Y. Macias for respondents.

SYLLABUS
1. PRINCIPAL AND AGENT; WHEN AGENCY EXISTS AND NOT AN INDEPENDENT
CONTRACTOR. Where the operator of a gasoline and service station owed his position
to the company and the latter could remove him or terminate his services at will; that
the service station belonged to the company and bore its tradename and the operator
sold only the products of the company; that the equipment used by the operator
belonged to the company and were just loaned to the operator and the company took
charge of their repair and maintenance; that an employee of the company supervised

the operator and conducted periodic inspection of the company's gasoline and service
station; that the price of the products sold by the operator was fixed by the company and
not by the operator; and that the receipts signed by the operator indicated that he was a
mere agent. Held: that the operator is an agent of the company and not an independent
contractor.
2. CONTRACTS; NATURE OF CONTRACT; COURTS NOT BOUND UPON THE NAME
GIVEN BY PARTIES. To determine the nature of a contracts courts do not have or are
not bound to rely upon the name or title given it by the contracting parties, should there
be a controversy as to what they really had intended to enter into, but the way the
contracting parties do or perform their respective obligations stipulated or agreed upon
may be shown and inquired into, and should such performance conflict with the name or
title given the contract by the parties, the former must prevail over the later.

PADILLA, J p:

DECISION

Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals

which reversed that of the Court of First Instance of Manila and sentenced ". . . the
defendants-appellees to pay, jointly and severally, the plaintiff-appellants the sum of
P1,651.38, with the legal interest from December 6, 1947 (Gutierrez vs. Gutierrez, 56
Phil., 177, 180), and the costs in both instances."
The Court of Appeals found the following:

reach that part, so the next thing to be done was to loosen the
lifter just a few feet lower. Then upon releasing the value to
make the car lower, a little bit lower . . .
Q. Who released the valve?
A. The greaseman, for the escape of the air. As the escape of the air is
too strong for my ear I faced backward. I faced toward Isaac
Peral Street, and covered my ear. After the escape of the air has
been finished, the air coming out from the valve, I turned to face
the car and I saw the ear swaying at that time, and just for a few
second the car fell. (t.s.n., pp. 22-23.)
The case was immediately reported to the Manila Adjustor Company, the
adjustor for the Firemen's Insurance Company and the Commercial Casualty Insurance,
Company, as the car was insured with these insurance companies. After having been
inspected by one Mr. Baylon, representative of the Manila Adjustors Company, the
damaged car was taken to the shops of the Philippine Motors, Incorporated, for repair
upon order of the Firemen's Insurance Company and the Commercial Casualty Company,
with the consent of Salvador R. Sison. The car was restored to running condition after
repairs amounting to P1,651.38, and was delivered to Salvador R. Sison, who, in turn
made assignment of his rights to recover damage in favor of the Firemen's Insurance
Company and the Commercial Casualty Insurance Company.
"On the other hand, the fall of the car from the hydraulic lifter
has been explained by Alfonse M. Adriano, a greaseman in the Shell
Gasoline and Service Station, as follows:

Inasmuch as both the Plaintiffs-Appellants and the DefendantAppellee, the Shell Company of the Philippine Islands, Ltd. accept the
statement of facts made by the trial court in its decision and appearing
on pages 23 to 37 of that Record on Appeal, we quote thereunder such
statement:

'Q. Were you able to lift the car on the hydraulic lifter on the
occasion, September 3, 1947?

""This is an action for recovery of sum of money, based on

alleged negligence of the defendants.

A. More or less five feet, sir.

"It is a fact that a Plymouth car owned by Salvador P. Sison was

brought, on September 3, 1947 to the Shell Gasoline and Service Station,
located at the corner of Marqus de Comillas and Isaac Peral Streets,
Manila, for washing, greasing and spraying. The operator of the station,
having agreed to do service upon payment of P8.00, the car was placed
on the hydraualic lifter under the direction of the personnel of the station.

A. Yes, sir.
Q. To what height did you raise more or less?
Q. After lifting that car that height, what did you do to the car?
A. I also washed it, sir.
Q. And after washing?
A. I greased it.

"What happened to the car is recounted by Perlito Sison, as follows:

Q. On that occasion, have you been able to finish greasing and

washing the car?

'Q. Will you please describe how they proceeded to do the work?

A. There is one point which I could not reach.

A. Yes, sir. The first thing that was done, as I saw, was to drive the car
over the lifter. Then by the aid of the two greasemen they raised
up my car up to six feet high, and then washing was done. After
washing the next step was greasing. Before greasing was
finished, there is a part near the shelf of the right fender, right
front fender, of my car to be greased, but the greasemen cannot

Q. And what did you do then?

A. I lowered the lifter in order to reach that point.
Q. After lowering it a little, what did you do then?
A. I pushed and pressed the valve in its gradual pressure.

Q. Were you able to reach the portion which you were not able
to reach while it was lower?
A. No more, sir.
Q. Why?
A. Because when I was lowering the lifter I saw that the car was
swinging and it fell.
THE COURT.
Why did the car swing and fall?
WITNESS:
'That is what I do not know, sir.' (t.s.n., p. 67.)"
The position of Defendant Porfirio de la Fuente is stated in his counterstatement of facts which is hereunder also reproduced:
"In the afternoon of September 3, 1947, an automobile
belonging to the plaintiff Salvador Sison was brought by his son, Perlito
Sison, to the gasoline and service station at the corner of Marqus de
Comillas and Isaac Peral Streets, City of Manila, Philippines owned by the
defendant The Shell Company of the Philippine Islands, Limited, but
operated by the defendant Porfirio de la Fuente, for the purpose of
having said car washed and greased for a consideration of P8.00. (t.s.n.,
pp. 19-20.) Said car was insured against loss or damage by Firemen's
Insurance Company of Newark, New Jersey, and Commercial Casualty
Insurance Company jointly for the sum of P10,000 (Exhibits "A", "B", and
"D").
"The job of washing and greasing was undertaken by defendant
Porfirio de la Fuente through his two employees, Alfonso M. Adriano, as
treaseman and one surnamed de los Reyes, a helper and washer (t.s.n.,
pp. 65-67). To perform the job the car was carefully and centrally placed
on the platform of the lifter in the gasoline and service station
aforementioned before raising up said platform to a height of about 5
feet and then the servicing job was started. After more than one hour of
washing and greasing, the job was about to be completed except for an
ungreased portion underneath the vehicle which could not be reached by
the greasemen. So, the lifter was lowered a little by Alfonso M. Adriano
and while doing so, the car for unknown reason accidentally fell and
suffered damage to the value of P1,651.88 (t.s.n., pp. 65-67).
"The insurance companies after paying the sum of P1,651.38 for
the damage and charging the balance of P100.00 to Salvador Sison in
accordance with the terms of the insurance contracts, have filed this
action together with said Salvador Sison for the recovery of the total
amount of the damage from the defendants on the ground of negligence
(Record on Appeal, pp. 1-6).
"The defendant Porfirio de la Fuente denied negligence in the
operation of the lifter in his separate answer and contended further that

the accidental fall of the car was caused by unforseen event (Record on
Appeal, pp. 17-19)."
The owner of the car forth with notified the insurers who ordered their adjustor, the
Manila Adjustors Company, to investigate the incident and after such investigation the
damaged car, upon order of the insurers and with the consent of the owner, was brought
to the shop of the Philippine Motors, Inc. The car was restored to running condition after
repairs thereon which amounted to P1,651.38 and returned to the owner who assigned
his right to collect the aforesaid amount to the Firemen's Insurance Company and the
Commercial Casualty Insurance Company.
On 6 December 1947 the insurers and the owner of the car brought an action in
the Court of First Instance of Manila against the Shell Company of the Philippines, Ltd.
and Porfirio de la Fuente to recover from them, jointly and severally, the sum of
P1,651.38, interest thereon at the legal rate from the filing of the complaint until fully
paid, and costs. After trial the Court dismissed the complaint. The plaintiffs appealed.
The Court of Appeals reversed the judgment and sentenced the defendant to pay the
amount sought to recovered, legal interest and costs, as stated at the beginning of this
opinion.
In arriving at the conclusion that on 3 September 1947 when the car was
bought to the station for servicing Porfirio de la Fuente, the operator of the gasoline and
service station, was an agent of the Shell Company of the Philippines, Ltd., the Court of
Appeals found that
. . . De la Fuente owed his position to the Shell Company which
could remove him or terminate his services at any time from the said
Company, and he undertook to sell the Shell Company's products
exclusively at the said Station. For this purpose, De la Fuente was placed
in possession of the gasoline and service station under consideration,
and was provided with all the equipments needed to operate it, by the
said Company, such as to tools and articles listed on Exhibit 2 which
included the hydraulic lifter (hoist) and accessories, from which Sison's
automobile fell on the date in question (Exhibits 1 and 2). These
equipments were delivered to De la Fuente on a so-called loan basis. The
Shell Company took charge of its care and maintenance and rendered to
the public or its customers at that station for the proper functioning of
the equipment. Witness Antonio Tiongson, who was sales superintendent
of the Shell Company, and witness Augusto Sawyer, foreman of the same
Company, supervised the operators and conducted periodic inspections
of the Company's gasoline and service stations, the service station in
question inclusive. Explaining his duties and responsibilities and the
reason for the loan, Tiongson said: "mainly on the supervision of sales or
(of) our dealers and routinary inspection of the equipment loaned by the
company" (t.s.n., 107); "we merely inquire about how the equipments
are, whether they have complaint, and whether if said equipments are in
proper order . . .", (t.s.n., 110); station equipments are "loaned for the
exclusive use of the dealer on condition that all supplies to be sold by
said dealer should be exclusively Shell, so as a concession we loan
equipments for their use . . .," "for the proper functioning of the
equipments, we answer and see to it that the equipments are in good

running order and usable condition . . .," "with respect to the public."
(t.s.n., 111-112). De la Fuente, as operator, was given special prices by
the Company for the gasoline products sold therein. Exhibit 1 Shell,
which was a receipt by Antonio Tiongson and signed by De la Fuente,
acknowledging the delivery of equipments of the gasoline and service
station in question was subsequently replaced by Exhibit 2 Shell, an
official form of the inventory of the equipment which De la Fuente signed
above the words: "Agent's signature". And the service station in question
had been marked "SHELL, and all advertisements therein bore the same
sign. . . .
. . . De la Fuente was the operator of the station "by grace" of
the Defendant Company which could and did remove him as it pleased;
that all the equipments needed to operate the station was owned by the
Defendant Company which took charge of their proper care and
maintenance, despite the fact that they were loaned to him; that the
Defendant company did not leave the fixing of price for gasoline to De la
Fuente; on the other hand, the Defendant company had complete control
thereof; and that Tiongson, the sales representative of the Defendant
Company, had supervision over De ka Fuente in the operation of the
station, and in the sale of Defendant Company's products therein. . . .
Taking into consideration the facts that the operator owed his position to the
company and the latter could remove him or terminate his services at will; that the
service station belonged to the company and bore its tradename and the operator sold
only the products of the company; that the equipment used by the operator belonged to
the company and were just loaned to the operator and the company took charge of their
repair and maintenance; that an employee of the company supervised the operator and
conducted periodic inspection of the company's gasoline and service station; that the
price of the products sold by the operator was fixed by the company and not by the
operator; and that he was a mere agent, the finding of the Court of Appeals that the
operator was an agent of the company and not an independent contractor should be
disturbed.
To determine the nature of a contract courts do not have or are not bound to
rely upon the name or title give it by the contracting parties, should there be a
controversy as to what they really had intended to enter into, but the way the
contracting parties do or perform their respective obligations stipulated or agreed upon
may be shown and inquired into, and should such performance conflict with the name or
title given the contract by the parties, the former must prevail over the latter.
It was admitted by the operator of the gasoline and service station that "the car
was carefully and centrally placed on the platform of the lifter . . ." and the Court of
Appeals found that
. . . the fall of Appellant Sison's car from the hydraulic lift and
the damage caused therefor, were the result of the jerking and swaying
of the lift when the valve was released, and that the jerking was due to
some accident and unforeseen shortcoming of the mechanism itself,
which caused its faulty or defective operation or functioning,

and that
. . . the servicing job on Appellant Sison's automobile was
accepted by De la Fuente in the normal and ordinary conduct of his
business as operator of his co-appellees's service station, and that the
jerking and swaying of the hydraulic lift which caused the fall of the
subject car were due to its defective condition, resulting in its faulty
operation.
As the act of the agent or his employees acting within the scope of his authority
is the act of the principal, the breach of the undertaking by the agent is one for which
the principal is answerable. Moreover, the company undertook to "answer and see to it
that the equipments are in good running order and usable condition;" and the Court of
Appeals found that the Company's mechanic failed to make a thorough check up of the
hydraulic lifter and the check up made by its mechanic was "merely routine" by raising
"the lifter once or twice and after observing that the operation was satisfactory, he (the
mechanic) left the place." The latter was negligent and the company must answer for the
negligent act of its mechanic which was the cause of the fall of the car from the hydraulic
lifter.
The judgment under review is affirmed, with costs against the petitioner.
|||
[G.R. No. 11491. August 23, 1918.]
ANDRES QUIROGA, plaintiff-appellant, vs. PARSONS HARDWARE
CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza, for appellant.
Crossfield & O'Brien, for appellee.

SYLLABUS
1. SALES; INTERPRETATION OF CONTRACT. For the classification of contracts,
due regard must be paid to their essential clauses. In the contract in the instant case,
what was essential, constituting its cause and subject matter, was that the plaintiff was
to furnish the defendant with the beds which the latter might order, at the stipulated
price, and that the defendant was to pay this price in the manner agreed upon. These
are precisely the essential features of a contract of purchase and sale. There was the
obligation on the part of the plaintiff to supply the beds, and, on that of the defendant, to
pay their price. These features exclude the legal conception of an agency or older to sell
whereby the mandatary or agent receives the thing to sell it, and does not pay its price,
but delivers to the principal the price he obtains from the sale of the thing to a third
person, and if he does not succeed in selling it, he returns it, Held: That this contract is
one of purchase and sale, and not of commercial agency.
2. ID., ID. The testimony of the person who drafted this contract, to the effect
that his purpose was to be an agent for the beds and to collect a commission on the
sales, is of no importance to prove that the contract was one of agency, inasmuch as the
agreements contained in the contract constitute, according to law, covenants of

purchase and sale, and not of commercial agency. It must be understood that a contract
is what the law defines it to be, and not what it is called by the contracting parties.

payment, and as such a deduction of 2 per cent shall be made from the
amount of the invoice.

3. ID.; ID. The fact that the contracting parties did not perform the contract in
accordance with its terms, only shows mutual tolerance and gives no right to have the
contract considered, not as the parties stipulated it, but as they performed it.

"The same discount shall be made on the amount of any invoice

which Mr. Parsons may deem convenient to pay in cash.

4. ID.; ID. Only the acts of the contracting parties, subsequent to and in
connection with, the performance of the contract must be considered in the
interpretation of the contract when such interpretation is necessary, but not when, as in
the instant case its essential agreements are clearly set forth and plainly show that the
contract belongs to a certain kind and not to another
5. ID.; ID. The defendant obligated itself to order the beds from the plaintiff
by the dozen. Held: That the effect of a breach of this clause by the defendant would
only entitle the plaintiff to disregard the orders which the defendant might place under
other conditions, but if the plaintiff consents to fill them, he waives his right and cannot
complain for having acted thus at his own free will.

DECISION
AVANCEA, J p:
On January 24, 1911, in this city of Manila, a contract in the following tenor was
entered into by and between the plaintiff, as party of the first part, and J. Parsons (to
whose rights and obligations the present defendant later subrogated itself), as party of
the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND
J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA FOR THE
EXCLUSIVE SALE OF QUIROGA BEDS IN THE VISAYAN ISLANDS.
"ARTICLE 1. Don Andres Quiroga grants the exclusive right to
sell his beds in the Visayan Islands to J. Parsons under the following
conditions:
"(A) Mr. Quiroga shall furnish beds of his manufacture to Mr.
Parsons for the latter's establishment in Iloilo, and shall invoice them at
the same price he has fixed for sales, in Manila, and, in the invoices, shall
make an allowance of a discount of 25 per cent of the invoiced prices, as
commission on the sales; and Mr. Parsons shall order the beds by the
dozen, whether of the same or of different styles.
"(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds
received, within a period of sixty days from the date of their shipment.
"(C) The expenses for transportation and shipment shall be
borne by M. Quiroga, and the freight, insurance, and cost of unloading
from the vessel at the point where the beds are received, shall be paid by
Mr. Parsons.
"(D) If, before an invoice falls due, Mr. Quiroga should request its
payment, said payment when made shall be considered as a prompt

"(E) Mr. Quiroga binds himself to give notice at least fifteen days
before hand of any alteration in price which he may plan to make in
respect to his beds, and agrees that if on the date when such alteration
takes effect he should have any order pending to be served to Mr.
Parsons, such order shall enjoy the advantage of the alteration if the
price thereby be lowered, but shall not be affected by said alteration if
the price thereby be increased, for, in this latter case, Mr. Quiroga
assumed the obligation to invoice the beds at the price at which the
order was given.
"(F) Mr. Parsons binds himself not to sell any other kind except
the 'Quiroga' beds.
"ART. 2. In compensation for the expenses of advertisement
which, for the benefit of both contracting parties, Mr. Parsons may find
himself obliged to make, Mr. Quiroga assumes the obligation to offer and
give the preference to Mr. Parsons in case anyone should apply for the
exclusive agency for any island not comprised within the Visayan group.
"ART. 3. Mr. Parsons may sell, or establish branches of his
agency for the sale of 'Quiroga' beds in all the towns of the Archipelago
where there are no exclusive agents, and shall immediately report such
action to Mr. Quiroga for his approval.
"ART. 4. This contract is made for an unlimited period, and may
be terminated by either of the contracting parties on a previous notice of
ninety days to the other party "
Of the three causes of action alleged by the plaintiff in his complaint, only two
of them constitute the subject matter of this appeal and both substantially amount to the
averment that the defendant violated the following obligations: not to sell the beds at
higher prices than those of the invoices; to have an open establishment in Iloilo; itself to
conduct the agency; to keep the beds on public exhibition, and to pay for the
advertisement expenses for the same; and to order the beds by the dozen and in no
other manner. As may be seen, with the exception of the obligation on the part of the
defendant to order the beds by the dozen and in no other manner, none of the
obligations imputed to the defendant in the two causes of action are expressly set forth
in the contract. But the plaintiff alleged that the defendant was his agent for the sale of
his beds in Iloilo, and that said obligations are implied in a contract of commercial
agency. The whole question, therefore, reduces itself to a determination as to whether
the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or an
agent of the plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses.
In the contract in question, what was essential, as constituting its cause and subject
matter, is that the plaintiff was to furnish the defendant with the beds which the latter
might order, at the price stipulated) and that the defendant was to pay the price in the

manner stipulated. The price agreed upon was the one determined by the plaintiff for the
sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their
class. Payment was to be made at the end of sixty days, or before, at the plaintiff's
request, or in cash, if the defendant so preferred, and in these last two cases an
additional discount was to be allowed for prompt payment. These are precisely the
essential features of a contract of purchase and sale. There was the obligation on the
part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their
price. These features exclude the legal conception of an agency or order to sell whereby
the mandatory or agent received the thing to sell it, and does not pay its price, but
delivers to the principal the price he obtains from the sale of the thing to a third person,
and if he does not succeed in selling it, he returns it. By virtue of the contract between
the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged
to pay their price within the term fixed, without any other consideration and regardless
as to whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the
defendant and the plaintiff is one of purchase and sale, in order to show that it was not
one made on the basis of a commission on sales, as the plaintiff claims it was, for these
contracts are incompatible with each other. But, besides, examining the clauses of this
contract, none of them is found that substantially supports the plaintiff's contention. Not
a single one of these clauses necessarily conveys the idea of an agency. The
words commission on sales used in clause (A) of article 1 mean nothing else, as stated in
the contract itself, than a mere discount on the invoice price. The word agency, also used
in articles 2 and 3, only expresses that the defendant was the only one that could sell the
plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least
that can be said is that they are not incompatible with the contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vicepresident of the defendant corporation and who established and managed the latter's
business in Iloilo. It appears that this witness, prior to the time of his testimony, had
serious trouble with the defendant, had maintained a civil suit against it, and had even
accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he
who drafted the contract Exhibit A, and when questioned as to what was his purpose in
contracting with the plaintiff, replied that it was to be an agent for his beds and to collect
a commission on sales. However, according to the defendant's evidence, it was Mariano
Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even supposing
that Ernesto Vidal has stated the truth, his statement as to what was his idea in
contracting with the plaintiff is of no importance, inasmuch as the agreements contained
in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of
purchase and sale, and not one of commercial agency. This only means that Ernesto
Vidal was mistaken in his classification of the contract. But it must be understood that a
contract is what the law defines it to be, and not what it is called by the contracting
parties.
The plaintiff also endeavored to prove that the defendant had returned beds
that it could not sell; that, without previous notice, it forwarded to the defendant the
beds that it wanted; and that the defendant received its commission for the beds sold by
the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on the
part of both of them, there was mutual tolerance in the performance of the contract in

disregard of its terms; and it gives no right to have the contract considered, not as the
parties stipulated it, but as they performed it. Only the acts of the contracting parties,
subsequent to, and in connection with, the execution of the contract, must be considered
for the purpose interpreting the contract, when such interpretation is necessary, but not
when, as in the instant case, its essential agreements are clearly set forth and plainly
show that the contract belongs to a certain kind and not to another. Furthermore, the
return made was of certain brass beds, and was not effected in exchange for the price
paid for them, but was for other beds of another kind; and for the purpose of making this
return, the defendant, in its letter Exhibit L-1, requested the plaintiff's prior consent with
respect to said beds, which shows that it was not considered that the defendant had a
right, by virtue of the contract, to make this return. As regards the shipment of beds
without previous notice, it is insinuated in the record that these brass beds were
precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their
return. And with respect to the so-called commissions, we have said that they merely
constituted a discount on the invoice price, and the reason for applying this benefit to
the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant
obligated itself in the contract to incur the expenses of advertisement of the plaintiff's
beds, such sales were to be considered as a result of that advertisement.
In respect to the defendant's obligation to order by the dozen, the only one
expressly imposed by the contract, the effect of its breach would only entitle the plaintiff
to disregard the orders which the defendant might place under other conditions; but if
the plaintiff consents to fill them, he waives his right and cannot complain for having
acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between
the plaintiff and the defendant was one of purchase and sale, and that the obligations
the breach of which is alleged as a cause of action are not imposed upon the defendant,
either by agreement or by law. The judgment appealed from is affirmed, with costs
against the appellant. So ordered.
[G.R. No. 75198. October 18, 1988.]
SCHMID
&
OBERLY,
INC., petitioner, vs. RJL
CORPORATION, respondent.
Sycip, Salazar, Hernandez & Gatmaitan Law Office for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for respondent.

MARTINEZ

FISHING

SYLLABUS
1.REMEDIAL LAW; JUDGMENT; FACTUAL FINDINGS OF THE COURT OF APPEALS; CONCLUSIVE;
EXCEPTION; CASE AT BAR. Ordinarily, the Court will not disturb the findings of fact of the
Court of Appeals in petitions to review the latter's decisions under Rule 45 of the Revised
Rules of Court, the scope of the Court's inquiry being limited to a review of the imputed errors
of law. However, when, as in this case, it is the petitioner's position that the appealed
judgment is premised on a misapprehension of facts, the Court is compelled to review the
Court of Appeal's factual findings. Respondent RJL MARTINEZ FISHING CORP. purchased
fifteen (15) "Nagata" brand generators, three by direct purchase from petitioner SCHMID &
OBERLY, INC. and twelve by indent order from NAGATA CO. through SCHMID. RJL MARTINEZ

paid NAGATA CO, for the twelve generators, which the latter invoiced and shipped directly to
the former. SCHMID acted as intermediary by processing an order from RJL MARTINEZ and
forwarding it to NAGATA for which SCHMID received a commission. The three Nagata
generators which SCHMID sold directly to RJL MARTINEZ came from the former's own stock
(which it had earlier imported from NAGATA) and for which SCHMID issued its own invoice and
collected payment. RJL MARTINEZ sough a refund of the purchase price of the twelve NAGATA
generators obtained by indent order and found to be factory defective, plus damages and
attorneys fees from SCHMID.
2.CIVIL LAW; CONTRACTS; NATURE THEREOF DEFINED BY LAW. A contract is what the law
defines it to be, considering its essential elements, and not what it is called by the
contracting parties [Quiroga v. Parsons Hardware Co., 38 Phil. 501 (1918).]
3.ID.; SALE; ART. 1458, CIVIL CODE; NATURE AND ESSENCE. The Civil Code defines a
contract of sale, thus: By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent. (Art. 1458). It has been said that the essence of
the contract of sale is transfer of title or agreement to transfer it for a price paid or promised.
"If such transfer puts the transferee in the attitude or position of an owner and makes him
liable to the transferor as a debtor for the agreed price, and not merely as an agent who must
account for the proceeds of a resale, the transaction is a sale." [Commissioner of Internal
Revenue v. Constantino, G.R. No. L- 25926, February 27, 1970, 31 SCRA 779, 785, citing
Salisbury v. Brooks, 94 SE 117, 118-19.]
4.MERCANTILE LAW; OMNIBUS INVESTMENT CODE (PD. 1789); "INDENTORS"; DEFINED.
There is no statutory definition of "indent" in this jurisdiction. However, the Rules and
Regulations to Implement Presidential Decree No. 1789 (the Omnibus Investments Code)
lumps "indentors" together with "commercial brokers" and "commission merchants" in this
manner: . . . A foreign firm which does business through the 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 [Part
I, Rule 1, Section 1, par. g (1).] Therefore, an indentor is a middleman in the same class as
commercial brokers and commission merchants. Thus, the chief feature of a commercial
broker and a commercial merchant is that in effecting a sale, they are merely intermediaries
or middlemen, and act in a certain sense as the agent of both parties to the transaction.
Indent is defined as "a purchase order for goods especially when sent from a foreign country."
[Webster's Ninth New Collegiate Dictionary 612 (1986).] It would appear that there are three
parties to an indent transaction, namely, the buyer, the indentor, and the supplier who is
usually a nonresident manufacturer residing in the country where the goods are to be bought
[Commissioner of Internal Revenue v. Cadwallader Pacific Company, G.R. No. L-20343,
September 29, 1976, 73 SCRA 59.] An indentor may therefore be best described as one who,
for compensation, acts as a middleman in bringing about a purchase and sale of goods
between a foreign supplier and a local purchaser.
5.ID.; CORPORATION LAW; SECTION 69; PURPOSE; DOES NOT COVER "INDENTORS"; CASE AT
BAR. Sec. 69 of the old Corporation Law which penalizes any office or agent of a
corporation or any person transacting business for any foreign corporation not licensed to do
business in the Philippines, finds no application to SCHMID and its officers and employees
relative to the transactions in the instant case. What the law seeks to prevent, through said
provision, is the circumvention by foreign corporations of licensing requirements through the
device of employing local representatives. An indentor, acting in his own name, is not,
however, covered by the above-quoted provision. In fact, the provision of the Rules and
Regulations implementing the Omnibus Investments Code quoted above, which was copied

from the Rules implementing Republic Act No. 5455, recognizes the distinct role of an
indentor, such that when a foreign corporation does business through such indentor, the
foreign corporation is not deemed doing business in the Philippines.
6.CIVIL LAW; SALE; ART. 1561, CIVIL CODE; WARRANTY FOR HIDDEN DEFECTS; NOT
APPLICABLE TO "INDENTORS"; CASE AT BAR. In view of the above considerations, this
Court rules that SCHMID was merely acting as an indentor in the purchase and sale of the
twelve (12) generators subject of the second transaction. Not being the vendor, SCHMID
cannot be held liable for the implied warranty for hidden defects under the Civil Code [Art.
1561, et seq.].
7.ID.; AGENCY; ART. 1897, CIVIL CODE; AGENT MAY UNDERTAKE THE OBLIGATIONS OF HIS
PRINCIPAL; CASE AT BAR. However, even as SCHMID was merely an indentor, there was
nothing to prevent it from voluntarily warranting that twelve (12) generators subject of the
second transaction are free from any hidden defects. In other words, SCHMID may be held
answerable for some other contractual obligation, if indeed it had so bound itself. As stated
above, an indentor is to some extent an agent of both the vendor and the vendee. As such
agent, therefore, he may expressly obligate himself to undertake the obligations of his
principal [See Art. 1897, Civil Code.]
8.REMEDIAL LAW; PAROL EVIDENCE; EXTRINSIC PAROL EVIDENCE UNAVAILING. The
Quotation [Exhibit "A"] is in writing. It is the repository of the contract between RJL MARTINEZ
and SCHMID. Notably, nowhere is it stated therein that SCHMID did bind itself to answer for
the defects of the things sold. There being no allegation nor any proof that the Quotation
does not express the true intent and agreement of the contracting parties, extrinsic parol
evidence of warranty will be to no avail [See Rule 130, Sec. 7.]
9.CIVIL LAW; SALE; WARRANTY; EXPRESSION OF OPINION, NOT A WARRANTY; CASE AT BAR.
Moreover, a closer examination of the statements allegedly made by the representative of
SCHMID reveals that they merely constituted an expression of opinion which cannot by any
means be construed as a warranty [See Art. 1546, Civil Code.]

DECISION
CORTES, J p:
Petitioner seeks reversal of the decision and the resolution of the Court of Appeals, ordering
Schmid & Oberly, Inc. (hereafter to be referred to simply as "SCHMID") to refund the purchase
price paid by RJL Martinez Fishing Corporation (hereafter to be referred to simply as "RJL
MARTINEZ") to D. Nagata Co., Ltd. of Japan (hereafter to be referred to simply as NAGATA
CO.") for twelve (12) defective "Nagata"- brand generators, plus consequential damages and
attorneys' fees. cdrep
The facts as found by the Court of Appeals, are as follows:
The findings of facts by the trial court (Decision, pp. 21-28, Record on
Appeal) shows: that the plaintiff RJL Martinez Fishing Corporation is
engaged in deep-sea fishing, and in the course of its business, needed
electrical generators for the operation of its business; that the defendant
sells electrical generators with the brand of "Nagata", a Japanese
product; that the supplier is the manufacturer, the D. Nagata Co. Ltd., of
Japan, that the defendant Schmid & Oberly, Inc. advertised the 12
Nagata generators for sale; that the plaintiff purchased 12 brand new
Nagata generators, as advertised by herein defendant; that through an
irrevocable line of credit, the D. Nagata Co., Ltd., shipped to the plaintiff

12 electric generators, and the latter paid the amount of the purchase
price; that the 12 generators were found to be factory defective; that the
plaintiff informed the defendant herein that it shall return the 12
generators as in fact three of the 12 were actually returned to the
defendant; that the plaintiff sued the defendant on the warranty, asking
for rescission of the contract; that the defendant be ordered to accept
the generators and be ordered to pay back the purchase money; and that
the plaintiff asked for damages. (Record on Appeal, pp. 27-28) [CA
Decision, pp. 34; Rollo, pp. 47-48.] LibLex
On the basis thereof, the Court of Appeals affirmed the decision of the trial court ordering
petitioner to refund to private respondent the purchase price for the twelve (12) generators
and to accept delivery of the same and to pay damages and attorney's fees, with a slight
modification as to the amount to be refunded. In its resolution of the motion for
reconsideration, the Court of Appeals further modified the trial court's decision as to the
award of consequential damages.
Ordinarily, the Court will not disturb the findings of fact of the Court of Appeals in petitions to
review the latter's decisions underRule 45 of the Revised Rules of Court, the scope of the
Court's inquiry being limited to a review of the imputed errors of law [Chan v. Court of
Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 77; Tiongco v. De la Merced, G.R. No. L24426, July 25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. 62482, April 28, 1983,
121 SCRA 865; Baniqued v. Court of Appeals, G.R. No. L-47531, January 30, 1984, 127 SCRA
596.] However, when, as in this case, it is the petitioner's position that the appealed
judgment is premised on a misapprehension of facts, * the Court is compelled to review the
Court of Appeal's factual findings [De la Cruz v. Sosing, 94 Phil. 26 (1953); Castillo v. Court of
Appeals, G.R. No. L-48290, September 29, 1983, 124 SCRA 808.]
Considering the sketchiness of the respondent court's narration of facts, whether or not the
Court of Appeals indeed misapprehended the facts could not be determined without a
thorough review of the records.
Thus, after a careful scrutiny of the records, the Court has found the appellate court's
narration of facts incomplete. It failed to include certain material facts.
The facts are actually as follows:
RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ needed
electric generators for some of its boats and SCHMID sold electric generators of different
brands, negotiations between them for the acquisition thereof took place. The parties had
two separate transactions over "Nagata"-brand generators.
The first transaction was the sale of three (3) generators. In this transaction, it is not disputed
that SCHMID was the vendor of the generators. The company supplied the generators from
its stockroom; it was also SCHMID which invoiced the sale.
The second transaction, which gave rise to the present controversy, involves twelve (12)
"Nagata"-brand generators. These are the facts surrounding this particular transaction:
As RJL MARTINEZ was canvassing for generators, SCHMID gave RJL MARTINEZ its Quotation
dated August 19, 1975 [Exhibit "A"] for twelve (12) "Nagatan-brand generators with the
following specifications:
"NAGATA" Single phase AC Alternators, 110/220 V, 60 cycles, 1800 rpm,
unity power factor, rectifier type and radio suppressor, 5KVA
(5KW) $546.75 @

It was stipulated that payment would be made by confirming an irrevocable letter of

credit in favor of NAGATA CO. Furthermore, among the General Conditions of Sale
appearing on the dorsal side of the Quotation is the following:
Buyer will, upon request, promptly open Irrevocable Letter of Credit in
favor of Seller, in the amount stated on the face of this memorandum,
specifying shipment from any Foreign port to Manila or any safe
Philippine port, permitting partial shipments and providing that in the
event the shippers are unable to ship within the specified period due to
strikes, lack of shipping space or other circumstances beyond their
reasonable control, Buyer agrees to extend the said Letter of Credit for
later shipment. The Letter of Credit shall otherwise be subject to the
conditions stated in this memorandum of contract. [Emphasis supplied.]
Agreeing with the terms of the Quotation, RJL MARTINEZ opened a letter of credit in favor of
NAGATA CO. Accordingly, on November 20, 1975, SCHMID transmitted to NAGATA CO. an
order [Exhibit "4"] for the twelve (12) generators to be shipped directly to RJL MARTINEZ.
NAGATA CO. thereafter sent RJL MARTINEZ the bill of lading and its own invoice (Exhibit "B")
and, in accordance with the order, shipped the generators directly to RJL MARTINEZ. The
invoice states that "one (1) case of 'NAGATA' AC Generators" consisting of twelve sets was
bought by order and for account risk of Messrs. RJL Martinez
Fishing Corporation.
For its efforts, SCHMID received from NAGATA CO. a commission of $1,752.00 for the sale of
the twelve generators to RJL MARTINEZ. [Exhibits "9", "9-A", "9-B" and "9-C".]
All fifteen (15) generators subject of the two transactions burned out after continuous use.
RJL MARTINEZ informed SCHMID about this development. In turn, SCHMID brought the matter
to the attention of NAGATA CO. In July 1976, NAGATA CO. sent two technical representatives
who made an ocular inspection and conducted tests on some of the burned-out generators,
which by then had been delivered to the premises of SCHMID.
The tests revealed that the generators were overrated. As indicated both in the quotation and
in the invoice, the capacity of a generator was supposed to be 5 KVA (kilovolt amperes).
However, it turned out that the actual capacity was only 4 KVA.
SCHMID replaced the three (3) generators subject of the first sale with generators of a
different brand.
As for the twelve (12) generators subject of the second transaction, the Japanese technicians
advised RJL MARTINEZ to ship three (3) generators to Japan, which the company did. These
three (3) generators were repaired by NAGATA CO. itself and thereafter returned to RJL
MARTINEZ; the remaining nine (9) were neither repaired nor replaced. NAGATA CO., however,
wrote SCHMID suggesting that the latter check the generators, request for spare parts for
replacement free of charge, and send to NAGATA CO. SCHMID's warranty claim including the
labor cost for repairs [Exhibit "I".] In its reply letter, SCHMID indicated that it was not
agreeable to these terms [Exhibit "10".]
As not all of the generators were replaced or repaired, RJL MARTINEZ formally demanded that
it be refunded the cost of the generators and paid damages. SCHMID in its reply maintained
that it was not the seller of the twelve (12) generators and thus refused to refund the
purchase price therefor. Hence, on February 14, 1977, RJL MARTINEZ brought suit against
SCHMID on the theory that the latter was the vendor of the twelve (12) generators and, as
such vendor, was liable under its warranty against hidden defects.
Both the trial court and the Court of Appeals upheld the contention of RJL MARTINEZ that
SCHMID was the vendor in the second transaction and was liable under its warranty.

Accordingly, the courts a quo rendered judgment in favor of RJL MARTINEZ. Hence, the instant
recourse to this Court.
In this petition for review, SCHMID seeks reversal on the following grounds:
(i)Schmid was merely the indentor in the sale [of the twelve (12)
generators] between Nagata Co., the exporter and RJL Martinez, the
importer;
(ii)as mere indentor, Schmid is not liable for the seller's implied warranty
against hidden defects, Schmid not having personally assumed any such
warranty;
(iii)in any event, conformably with Article 1563 of the Civil Code, there
was no implied warranty against hidden defects in the sale of these
twelve (12) generators because these were sold under their tradename
"Nagata"; and
(iv)Schmid, accordingly, is not liable for the reimbursement claimed by
RJL Martinez nor for the latter's unsubstantiated claim of P110.33
operational losses a day nor for exemplary damages, attorney's fees and
costs. [Petition, p. 6.]
1.As may be expected, the basic issue confronting this Court is whether the second
transaction between the parties was a sale or an indent transaction. SCHMID maintains that it
was the latter; RJL MARTINEZ claims that it was a sale.
At the outset, it must be understood that a contract is what the law defines it to be,
considering its essential elements, and not what it is called by the contracting parties
[Quiroga v. Parsons Hardware Co., 38 Phil. 501 (1918).]
The Civil Code defines a contract of sale, thus:
ART. 458.By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent.
It has been said that the essence of the contract of sale is transfer of title or agreement to
transfer it for a price paid or promised [Commissioner of Internal Revenue v. Constantino,
G.R. No. L- 25926, February 27, 1970, 31 SCRA 779, 785, citing Salisbury v. Brooks, 94 SE
117, 118-19.] "If such transfer puts the transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the agreed price, and not merely as an
agent who must account for the proceeds of a resale, the transaction is a sale." [Ibid.]
On the other hand, there is no statutory definition of "indent" in this jurisdiction. However,
the Rules and Regulations to Implement Presidential Decree No. 1789 (the Omnibus
Investments Code) lumps "indentors" together with "commercial brokers" and "commission
merchants" in this manner:
. . . A foreign firm which does business through the 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 [Part I, Rule 1,
Section 1, par. g (1).]
Therefore, an indentor is a middleman in the same class as commercial brokers and
commission merchants. To get an idea of what an indentor is, a look at the definition of those
in his class may prove helpful.
A broker is generally defined as one who is engaged, for others, on a
commission, negotiating contracts relative to property with the custody
of which he has no concern; the negotiator between other parties, never
acting in his own name but in the name of those who employed him; he

is strictly a middleman and for some purpose the agent of both parties.
(19 Cyc., 186; Henderson vs. The State, 50 Ind., 234; Black's Law
Dictionary.) A broker is one whose occupation it is to bring parties
together to bargain, or to bargain for them, in matters of trade,
commerce or navigation. (Mechem on Agency, sec. 13; Wharton on
Agency, sec. 695.) Judge Storey, in his work on Agency, defines a broker
as an agent employed to make bargains and contracts between other
persons, in matters of trade, commerce or navigation, for compensation
commonly called brokerage. (Storey on Agency, sec. 28.) [Behn, Meyer
and Co., Ltd. v. Nolting and Garcia, 35 Phil. 274, 279-280 (1916).]
A commission merchant is one engaged in the purchase or sale for
another of personal property which, for this purpose, is placed in his
possession and at his disposal. He maintains a relation not only with his
principal and the purchasers or vendors, but also with the property which
is subject matter of the transaction. [Pacific Commercial Co. v. Yatco, 68
Phil. 398, 401 (1939).]
Thus, the chief feature of a commercial broker and a commercial merchant is that in effecting
a sale, they are merely intermediaries or middlemen, and act in a certain sense as the agent
of both parties to the transaction.
Webster defines an indent as "a purchase order for goods especially when sent from a foreign
country." [Webster's Ninth New Collegiate Dictionary 612 (1986).] It would appear that there
are three parties to an indent transaction, namely, the buyer, the indentor, and the supplier
who is usually a non-resident manufacturer residing in the country where the goods are to be
bought [Commissioner of Internal Revenue v. Cadwallader Pacific Company, G.R. No. L20343, September 29, 1976, 73 SCRA 59.] An indentor may therefore be best described as
one who, for compensation, acts as a middleman in bringing about a purchase and sale of
goods between a foreign supplier and a local purchaser.
Coming now to the case at bar, the admissions of the parties and the facts appearing on
record more than suffice to warrant the conclusion that SCHMID was not a vendor, but was
merely an indentor, in the second transaction.
In its complaint, RJL MARTINEZ admitted that the generators were purchased "through indent
order" [Record on Appeal, p. 6.] In the same vein, it admitted in its demand letter previously
sent to SCHMID that twelve (12) of fifteen (15) "Nagata"-brand generators "were purchased
through your company (SCHMID), by indent order and three (3) by direct purchase." [Exhibit
"D".] The evidence also show that RJL MARTINEZ paid directly NAGATA CO, for the generators,
and that the latter company itself invoiced the sale [Exhibit "B"], and shipped the generators
directly to the former. The only participation of SCHMID was to act as an intermediary or
middleman between NAGATA CO. and RJL MARTINEZ, by procuring an order from RJL
MARTINEZ and forwarding the same to NAGATA CO. for which the company received a
commission from NAGATA CO. [Exhibits "9", "9-A", "9-B" and "9-C".]
The above transaction is significantly different from the first transaction wherein SCHMID
delivered the goods from its own stock (which it had itself imported from NAGATA CO.), issued
its own invoice, and collected payment directly from the purchaser.
These facts notwithstanding, RJL MARTINEZ insists that SCHMID was the vendor of the twelve
generators on the following grounds:
First, it is contended that the Quotation and the General Conditions of Sale on the dorsal side
thereof do not necessarily lead to the conclusion that NAGATA CO., and not SCHMID, was the
real seller in the case of the twelve (12) generators in that:

(i)the signing of the quotation, which was under SCHMID's letterhead,

perfected the contract of sale (impliedly, as between the signatories
thereto i.e., RJL MARTINEZ and SCHMID);
(ii)the qualification that the letter of credit shall be in favor of NAGATA
CO. constituted simply the manner of payment requested by SCHMID
(implying that SCHMID, as seller, merely chose to waive direct payment,
stipulating delivery of payment instead to NAGATA CO. as supplier);
Second, it is asserted that the acts of SCHMID after it was informed of the defect in the
generators were indicative of its awareness that it was the vendor and acknowledgement of
its liability as such vendor. Attention is called to these facts: When RJL MARTINEZ complained
to SCHMID that the generators were defective, SCHMID immediately asked RJL MARTINEZ to
send the defective generators to its shop to determine what was wrong. SCHMID likewise
informed NAGATA CO. about the complaint of RJL MARTINEZ. When the Japanese technicians
arrived, SCHMID made available its technicians, its shop and its testing equipment. After the
generators were found to have factory defects, SCHMID facilitated the shipment of three (3)
generators to Japan and, after their repair, back to the Philippines [Memorandum for the
Respondent, p. 8.]
Third, it is argued that the contents of the letter from NAGATA CO. to SCHMID regarding the
repair of the generators indicated that the latter was "within the purview of a seller." [Ibid.]
Fourth, it is argued that if SCHMID is considered as a mere agent of NAGATA CO., a foreign
corporation not licensed to do business in the Philippines, then the officers and employees of
the former may be penalized for violation of the old Corporation Law which provided:
Sec. 69.. . . Any officer or agent of the corporation or any person
transacting business for any foreign corporation not having the license
prescribed shall be punished by imprisonment for not less than six
months nor more than two years or by a fine of not less than two
hundred pesos nor more than one thousand pesos or both such
imprisonment and fine, in the discretion of the Court.
The facts do not bear out these contentions.
The first contention disregards the circumstances surrounding the second transaction as
distinguished from those surrounding the first transaction, as noted above.
Neither does the solicitous manner by which SCHMID responded to RJL MARTINEZ's complaint
prove that the former was the seller of the generators. As aptly stated by counsel, no
indentor will just fold its hands when a client complains about the goods it has bought upon
the indentor's mediation. In its desire to promote the product of the seller and to retain the
goodwill of the buyer, a prudent indentor desirous of maintaining his business would have to
act considerably towards his clients.
Note that in contrast to its act of replacing the three (3) generators subject of the first
transaction, SCHMID did not replace any of the twelve (12) generators, but merely rendered
assistance to both RJL MARTINES and NAGATA CO. so that the latter could repair the defective
generators.
The proposal of NAGATA CO. rejected by SCHMID that the latter undertake the repair of the
nine (9) other defective generators, with the former supplying the replacement parts free of
charge and subsequently reimbursing the latter for labor costs [Exhibit "I"], cannot support
the conclusion that SCHMID is vendor of the generators of the second transaction or was
acting "within the purview of a seller."
Finally, the afore-quoted penal provision in the Corporation Law finds no application to
SCHMID and its officers and employees relative to the transactions in the instant case. What
the law seeks to prevent, through said provision, is the circumvention by foreign corporations
of licensing requirements through the device of employing local representatives. An indentor,

acting in his own name, is not, however, covered by the above-quoted provision. In fact, the
provision of the Rules and Regulations implementing the Omnibus Investments Code quoted
above, which was copied from the Rules implementing Republic Act No. 5455, recognizes the
distinct role of an indentor, such that when a foreign corporation does business through such
indentor, the foreign corporation is not deemed doing business in the Philippines. LLpr
In view of the above considerations, this Court rules that SCHMID was merely acting as an
indentor in the purchase and sale of the twelve (12) generators subject of the second
transaction. Not being the vendor, SCHMID cannot be held liable for the implied warranty for
hidden defects under the Civil Code [Art. 1561, et seq.].
2.However, even as SCHMID was merely an indentor, there was nothing to prevent it from
voluntarily warranting that twelve (12) generators subject of the second transaction are free
from any hidden defects. In other words, SCHMID may be held answerable for some other
contractual obligation, if indeed it had so bound itself. As stated above, an indentor is to
some extent an agent of both the vendor and the vendee. As such agent, therefore, he may
expressly obligate himself to undertake the obligations of his principal [See Art. 1897, Civil
Code.]
The Court's inquiry, therefore, shifts to a determination of whether or not SCHMID expressly
bound itself to warrant that the twelve (12) generators are free of any hidden defects.
Again, we consider the facts.
The Quotation [Exhibit "A"] is in writing. It is the repository of the contract between RJL
MARTINEZ and SCHMID. Notably, nowhere is it stated therein that SCHMID did bind itself to
answer for the defects of the things sold. There being no allegation nor any proof that the
Quotation does not express the true intent and agreement of the contracting parties,
extrinsic parol evidence of warranty will be to no avail [See Rule 123, Sec. 22.]
The trial court, however, relied on the testimony of Patrocinio Balagtas, the head of the
Electrical Department of RJL MARTINEZ, to support the finding that SCHMID did warrant the
twelve (12) generators against defects.
Upon careful examination of Balagtas' testimony, what is at once apparent is that Balagtas
failed to disclose the nature or terms and conditions of the warranty allegedly given by
SCHMID. Was it a warranty that the generators would be fit for the fishing business of the
buyer? Was it a warranty that the generators to be delivered would meet the specifications
indicated in the Quotation? Considering the different kinds of warranties that may be
contracted, unless the nature or terms and conditions of the warranty are known, it would not
be possible to determine whether there has been a breach thereof. LLpr
Moreover, a closer examination of the statements allegedly made by the representative of
SCHMID reveals that they merely constituted an expression of opinion which cannot by any
means be construed as a warranty [See Art. 1546, Civil Code.]
We quote from Balagtas' testimony:
ATTY. CATRAL:
QDid you not say at the start of your cross examination, Mr.
Balagtas, that the only participation you had in the
acquisition of those twelve (12) units [of] generators was
your having issued a purchase order to your own
company for the purchase of the units?
ATTY. AQUINO:
Misleading, your Honor.
ATTY. CATRAL:
I am asking the witness.
COURT:

He has the right to ask that question because he is on

cross. Moreover, if I remember, he mentioned something
like that. Witness may answer.
AYes, sir. Before I submitted that, we negotiated with Schmid and
Oberly the best generators they can recommend because
we are looking for generators. The representative of
Schmid and Oberly said that Nagata is very good. That is
why I recommended that to the management. [t.s.n.,
October 14, 1977, pp. 23-25.]
At any rate, when asked where SCHMID's warranty was contained, Balagtas testified initially
that it was in the receipts covering the sale. (At this point, it may be stated that the invoice
[Exhibit "B"] was issued by NAGATA CO. and nowhere is it stated therein that SCHMID
warranted the generators against defects.) When confronted with a copy of the invoice issued
by NAGATA CO., he changed his assertion and claimed that what he meant was that the date
of the commencement of the period of SCHMID's warranty would be based on the date of the
invoice. On further examination, he again changed his mind and asserted that the warranty
was given verbally [TSN, October 14, 1977, pp. 19-22.] But then again, as stated earlier, the
witness failed to disclose the nature or terms and conditions of the warranty allegedly given
by SCHMID. prLL
On the other hand, Hernan Adad, SCHMID's General Manager, was categorical that the
company does not warrant goods bought on indent and that the company warrants only the
goods bought directly from it, like the three generators earlier bought by RJL MARTINEZ itself
[TSN, December 19, 1977, pp. 63-64.] It must be recalled that SCHMID readily replaced the
three generators from its own stock.
In the face of these conflicting testimonies, this Court is of the view that RJL MARTINEZ has
failed to prove that SCHMID had given a warranty on the twelve (12) generators subject of
the second transaction. Even assuming that a warranty was given, there is no way to
determine whether there has been a breach thereof, considering that its nature or terms and
conditions have not been shown.
3.In view of the foregoing, it becomes unnecessary to pass upon the other issues.
WHEREFORE, finding the Court of Appeals to have committed a reversible error, the petition
is GRANTED and the appealed Decision and Resolution of the Court of Appeals are REVERSED.
The complaint of RJL Martinez Fishing Corporation is hereby DISMISSED. No costs.
SO ORDERED.

[G.R. No. 19001. November 11, 1922.]

HARRY E. KEELER ELECTRIC CO., INC., plaintiff-appellant, vs.
DOMINGO RODRIGUEZ, defendant-appellee.
Hartford Beaumont for appellant.
Ross & Lawrence and Antonio T. Carrascoso, jr., for appellee.

SYLLABUS
1. BURDEN OF PROOF. The defendant, having alleged that the plaintiff sold
and delivered the plant to him, and that he paid the purchase price to the plaintiff, it
devolved upon him to prove such payment by a preponderance of the evidence.
2. TO WHOM PAYMENT SHOULD BE MADE. Payment must be made to the
person in whose favor the obligation is constituted, or to another authorized to receive it
in his name. (Article 1162, Civil Code.)
3. ID. The repayment of a debt must be made to the person in whose favor
the obligation is constituted, to another expressly authorized to receive the payment, in
his name. (Ormachea Tin-Congco vs. Trillana, 13 Phil., 194.)
4. DUTIES OF PERSONS DEALING WITH AN ASSUMED AGENT. Persons dealing
with an assumed agent, whether the assumed agency be a general or special one, rare
bound at their peril, if they would, if they would hold the principal, to ascertain not only
the fact of the agency but the nature and extent of the authority, and in case either is
controverted, the burden of proof is upon them to establish it.
5. AGENT ALONE CANNOT ENLARGE HIS AUTHORITY. The agent alone remove
limitations or waive conditions imposed by his principal. To charge the principal in such a
case, the principal's consent or concurrence must be shown.
6. PAYMENT AT OWN RISK. Where a person in making payment solely relied
upon the representation of an agent a to his authority to receive and receipt for the
money, such payment is made at his won risk, and where the agent was not so
authorized, such payment is not a valid defense against the principal.

DECISION
STATEMENT
The plaintiff is domestic corporation with its principal office in the city of Manila
and engaged in the electrical business, and among other things in the sale of what is
know, as the "Matthews" electric plant, and the defendant is a resident of Talisay,
Occidental Negros, and A. C. Montelibano was a resident of Iloilo.
Having this information, Montelibano approached plaintiff at its Manila office,
claiming that he was from Iloilo and lived with Governor Yulo; that he was from Iloilo and

lived with Governor Yulo; that he could find purchasers for the "Matthews" plant, and was
told by the plaintiff that for any plant that he could sell or any customer that he could
find he would be paid a commission of 10 percent for his services, if the sale was
consummated. Among other persons, Montelibano interviewed the defendant, and,
through his efforts, one of the "Matthews" plants was sold by the plaintiff to the
defendant, and was shipped from Manila to Iloilo, and later installed on defendant's
premises after which, without the knowledge of the plaintiff, the defendant paid the
purchase price to Montelibano. As a result, plaintiff commenced this action against the
defendant, alleging that about August 18, 1920 it sold and delivered to the defendant
the electric plant at the agreed price of P2,513.55 no part of which has been paid, and
demands judgment for the amount with interest from October 20, 1920.
For answer, the defendant admits the corporation of the plaintiff, and denies all
other material allegations of the complaint, and, as an affirmative defense, alleges "that
on or about the 18th of August, 1920, the plaintiff sold and delivered to the defendant a
certain electric plant and that the defendant paid the plaintiff the value of said electric
plant, to writ: P2,513.55."

account, and that he gave to him , and the defendant said, "he was going to keep it." I
said that was all right "if your want." "I made no effort at all to collect the amount from
him because Mr. Rodriguez told me he was going to pay for the plant here in Manila."
That after the was installed and approved, he delivered it to the defendant and returned
to Manila.
The only testimony on the part of the defendant is that of himself in the form of
a deposition in which he says that Montelibano sold and delivered the plant to him, and
"was the one who ordered the installation of that electrical plant," and he introduced as
part of his deposition a statement and receipt which Montelibano signed to whom he
paid the money. When asked why he paid the money to Montelibano, the witness says:
"Because he was the one who sold, delivered, and installed the
electrical plant, and he presented to me the account, Exhibits A and A-1,
and he assured me that he was duly authorized to collect the value to
collect the value of the electrical plant."
The receipt offered in evidence is headed:

Upon such issues the testimony was taken, and the lower court rendered the
judgment for the defendant, from which the plaintiff appeals, claiming that the court
erred in holding that the payment to A. C. Montelibano would discharge the debt of
defendant, and in holding that the bill was given to Montelibano for collection purposes,
and that the plaintiff had held out Montelibano to the defendant as an agent authorized
to collect, and in rendering judgment for the defendant, and in not rendering judgment
for the plaintiff.
JOHNS, J p:
The testimony is conclusive that the defendant paid the amount of plaintiff's
claim to Montelibano, and that no part of the money was paid to the plaintiff. The
defendant, having alleged that the plaintiff sold and delivered the plant to him, and that
he paid the plaintiff the purchase price, it devolved upon the defendant to prove the
payment to the plaintiff by a preponderance of the evidence.
It appears from the testimony of H. E. Keeler that he was president of the
plaintiff and that the plant in question was shipped from Manila to Iloilo and consigned to
the plaintiff itself, and that at the time of the shipment the plaintiff it sent Juan Cenar,
one of its employees, with the shipment, for the purpose of installing the plant on
defendant's premises. That plaintiff gave Cenar a statement of the account, including
some extras and the expenses of the mechanic, making a total of P2,563.95. That
Montelibano had no authority from the plaintiff to receive or receipt for money. That in
truth and in fact his services were limited and confined to the finding of purchasers for
the "Matthews" plant to whom the plaintiff would later make and consummate the sale.
That Montelibano was not an electrician, could not install the plant and did not know
anything about its mechanism.
Cenar, as a witness for the plaintiff, testified that he went with the shipment of
the plant from Manila to Iloilo, for the purpose of installing, testing it, and to see that
everything was satisfactory. That he was there about nine days, and that he installed the
plant, and that it was tested and approved by the defendant. He also says that he
personally took with him the statement of account of the plaintiff against the defendant,
and that after he was there a few day, the defendant asked to see the statement of

"STATEMENT Folio No. 2494

"Mr. DOMINGO RODRIGUEZ,
"Iloilo, Iloilo, P. I.
"In account with
"HARRY E. KEELER ELECTRIC COMPANY, Inc.
"221 Calle Echague, Quiapo, Manila, P. I.
"Manila, P. I., August
1920."

18,

The answer alleges and the receipt shows upon its face that the plaintiff sold
the plant to the defendant, and that be bought it from the plaintiff. The receipt is signed
as follows:
"Received payment
"HARRY E. KEELER ELECTRIC CO. Inc.,
"Recibi
(Sgd.) "A. C. MONTELIBANO."
There is nothing of the face of this receipt to show that Montelibano was the
agent of, or that he was acting for, the plaintiff. It is his own personal receipt and his own
personal signature. Outside of the fact that Montelibano received the money and signed
this receipt, there is no evidence that he had any authority, real or apparent, to receive
or receipt for the money. Neither is there any evidence that the plaintiff ever delivered
the statement to Montelibano, or authorized anyone to deliver it to him, and it is very
apparent that the statement in question is the one which was delivered by the plaintiff to
Cenar, and is the one which Cenar delivered to the defendant at the request of the
defendant.
The evidence of the defendant that Montelibano was the one who sold him the
plant is in direct conflict with his own pleading and the receipted statement which he
offered in evidence. This statement also shows upon its face that P81.60 of the bill is for:
"To Passage round trip, 1st Class @
P40.80 a trip P81.60."
and

"Plus Labor @ P5.00 per day

"Machine's transportation P9.85."
This claim must be for the expenses of Cenar in going to Iloilo from Manila and
return, to install the plant, and is strong evidence that it was Cenar and not Montelibano
who installed the plant. If Montelibano installed the plant, as defendant claims, there
would not have been any necessity for Cenar to make this trip at the expenses of the
defendant. After Cenar's return to Manila, the plaintiff wrote a letter to the defendant
requesting the payment of its account, in answer to which the defendant on September
24 sent the following telegram:
"Electric plant accessories and installation are paid
Montelibano about weeks Keeler Company did not present bill."

to

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

"The repayment of a debt must be made to the person in whose

favor the obligation is constituted, or to another expressly authorized to
receive the payment to his name."
Mechem on Agency, volume I, section 743 says:
"In approaching the consideration of the inquiry whether an
assumed authority exists in a given case, there are certain fundamental
principles which must not be overlooked. Among these are, as has been
seen, (1) that the law indulges in no bare presumptions that an agency
exists: it must be proved or presumed from facts; (2) that the agent
cannot establish his own authority, either by the representations or by
assuming to exercise it; (3) that an authority cannot be established by
mere rumor or general reputation; (4) that even a general authority is not
an unlimited one; and (5) that every authority must find its ultimate
source in some act or omission of the principal. An assumption of
authority to act as agent to act as agent for another of itself challenges
inquiry. Like a railroad crossing, it should be in itself a sign of danger and
suggest the duty to 'stop, look, and listen.' It is therefore declared to be a
fundamental rule, never to be lost sight of and not easily to be
overestimated, that persons dealing with an assumed agent, whether the
assumed be a general or special one, are bound at their peril, if they hold
the principal, to ascertain not only the fact of the agency but the nature
and extent of the authority, and in case either is controverted, the
burden of proof is upon them to establish it."

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

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

There is no evidence that the plaintiff ever delivered any statement to

Montelibano, or that he was authorized to receive or receipt for the money, and
defendant's own telegram shows that the plaintiff "did not present bill" to defendant. He
now claims that at the very time this telegram was sent, he had the receipt of
Montelibano for the money upon the identical statement of account which it is admitted
the plaintiff did render to the defendant.

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

Article 1162 of the Civil Code provides:

"Payment must be made to the person in whose favor the
obligation is constituted, or to another authorized to receive to in his
name."
And article 1727 provides:
"The principal shall be liable as to matters with respect to which
the agent has exceeded his authority only when he ratifies the same
expressly or by implication."
In the case of Ormachea Tin-Congco vs. Trillana (13 Phil., 194), this court held:

"And not only must the person dealing with the agent ascertain
the existence of the conditions, but he must also, as in other cases, be
able to trace the source of his reliance to some word or act of the
principal himself if the latter is to be held responsible. As has often been
pointed out, the agent alone cannot enlarge or extend his authority by
his own acts or statements, nor can he alone remove limitations or waive

condition imposed by his principal's consent or concurrence must be

shown." (Mechem on Agency, vol. I, section 757.)
This was a single transaction between the plaintiff and the defendant.
Applying the above rules, the testimony is conclusive that the plaintiff never
authorized Montelibano to receive or receipt for money in its behalf, and that the
defendant had no right to assume by any act or deed of the plaintiff that Montelibano
was authorized to receive the money, and that the defendant made the payment at his
own risk and on the sole representations of Montelibano that he was authorized to
receipt for the money.
The judgment of the lower court is reversed, and one will be entered here in
favor of the plaintiff and against the defendant for the sum of P2,513.55, with interest at
the legal rate from January 10, 1921, with costs in favor of the appellant. So ordered.
[G.R. No. L-18616. March 31, 1964.]
VICENTE M. COLEONGCO, plaintiff-appellant, vs.
CLAPAROLS, defendant-appellee.
San Juan, Africa & Benedicto for plaintiff-appellant.
Alberto Jamir for defendant-appellee.

EDUARDO

L.

SYLLABUS
1. PARTNERSHIP; POWER OF ATTORNEY COUPLED WITH INTEREST REVOCABLE FOR CAUSE.
A power of attorney although coupled with interest in a partnership can be revoked for a just
cause, such as when the attorney-in-fact betrays the interest of the principal as happened in
the case at bar.
2. DAMAGES; MORAL DAMAGES FOR MALICIOUSLY UNDERMINING PLAINTIFF'S BANK CREDIT.
Material, moral and exemplary damages may be awarded a plaintiff for a defendant's acts
in maliciously undermining said plaintiff's credit that led the bank to secure an unwarranted
writ of execution against said plaintiff.

REYES, J.B.L., J p:

DECISION

Appeal by plaintiff Vicente Coleongco from a decision of the Court of First

Instance of Negros Occidental (in its Civil Case No. 4170) dismissing plaintiff's action for
damages, and ordering him to pay defendant Eduardo Claparols the amount of
P81,387.27 plus legal interest from the filing of the counterclaim till payment thereof;
P50,000 as moral and compensatory damages suffered by defendant; and costs.
A writ of preliminary attachment for the sum of P100,000 was subsequently issued against
plaintiff's properties, in spite of opposition thereto.
Plaintiff Coleongco, not being in conformity with the judgment, appealed to this Court
directly, the claims involved being in excess of P200,000.
The antecedent facts, as found by the trial court and shown by the records, are as follows:

Since 1951, defendant-appellee, Eduardo L. Claparols, operated a factory for the manufacture
of nails in Talisay, Occidental Negros, under the style of "Claparols Steel & Nail Plant". The
raw material, nail wire, was imported from foreign sources, specially from Belgium; and
Claparols had a regular dollar allocation therefor, granted by the Import Control Commission
and the Central Bank. The marketing of the nails was handled by the "ABCD Commercial" of
Bacolod, which was owned by a chinaman named Kho To.
Losses compelled Claparols in 1953 to look for someone to finance his imports of nail wire. At
first, Kho To agreed to do the financing, but on April 25, 1953, the Chinaman introduced his
compadre, appellant Vicente Coleongco, to the appellee, recommending said appellant to be
the financier in the stead of Kho To. Claparols agreed, and on April 25 of that year a contract
(Exhibit B) was perfected between them whereby Coleongco undertook to finance and put up
the funds required for the importation of the nail wire, which Claparols bound himself to
convert into nails at his plant. It was agreed that Coleongco would have the exclusive
distribution of the product, and the "absolute care in the marketing of these nails and the
promotion of sales all over the Philippines", except the Davao Agency; that Coleongco would
"share the control of all the cash" from sales or deposited in banks; that he would have a
representative in the management; that all contracts and transactions should be jointly
approved by both parties; that proper books would be kept and annual accounts rendered;
and that profits and losses would be shared "on a 50-50 basis". The contract was renewed
from year to year until 1958, and Coleongco's share subsequently increased by 5% of the net
profit of the factory (Exhibit D, E, F).
Two days after the execution of the basic agreement, Exhibit "B", on April 27, 1953, Claparols
executed in favor of Coleongco, at the latter's behest, a special power of attorney (Exhibit C)
to open and negotiate letters of credit, to sign contracts, bills of lading, invoices, and papers
covering transactions; to represent appellee and the nail factory; and to accept payments
and cash advances from dealers and distributors. Thereafter, Coleongco also became the
assistant manager of the factory, and took over its business transactions, while Claparols
devoted most of his time to the nail manufacture processes.
Around mid-November of 1956, appellee Claparols was disagreeably surprised by service of
an alias writ of execution to enforce a judgment obtained against him by the Philippine
National Bank, despite the fact that on the preceding September he had submitted an
amortization plan to settle the account. Worried and alarmed, Claparols immediately left for
Manila to confer with the bank authorities. Upon arrival, he learned to his dismay that the
execution had been procured because of derogatory information against appellee that had
reached the bank from his associate, appellant Coleongco. On July 6, 1956, the latter, without
appellee's knowledge, had written to the bank
"in connection with the verbal offer for the acquisition by me of the
whole interest of Mr. Eduardo L. Claparols in the Claparols Steel and Nail
Plant and the Claparols Hollow Blocks Factory" (Exhibit 36);
and later, on October 29, 1956, Coleongco had written to the bank another letter (Exhibit
35), also behind the back of appellee, wherein Coleongco charged Claparols with taking
machines mortgaged to the bank, and added
"In my humble personal opinion I presume that Mr. Eduardo L. Claparols
is not serious in meeting his obligations with your bank, otherwise he had
not taken these machines and equipments a sign of bad faith since the
factory is making a satisfactory profit of my administration."
Fortunately, Claparols managed to arrange matters with the bank and to have the execution
levy lifted. Incensed at what he regarded as disloyalty of his attorney-in-fact, he consulted
lawyers. The upshot was that appellee revoked the power of attorney (Exhibit "C"), and

informed Coleongco thereof (Exhibits T, T-1), by registered mail, demanding a full accounting
at the same time. Coleongco, as would be expected, protested these acts of Claparols, but
the latter insisted, and on the first of January, 1957 wrote a letter to Coleongco dismissing
him as assistant manager of the plant and asked C. Miller & Company, auditors, to go over
the books and records of the business with a view to adjusting the accounts of the associates.
These last steps were taken in view of the revelation made by his machinery superintendent,
Romulo Agsam, that in the course of the preceding New Year celebrations, Coleongco had
drawn Agsam aside and proposed that the latter should pour acid on the machinery to
paralyze the factory. The examination by the auditors, summarized in Exhibits 80 and 87,
found that Coleongco owed the Claparols Nail Factory the amount of P81,387.37, as of June
30, 1957.
In the meantime, Claparols had found in the factory files certain correspondence in February,
1955 between Coleongco and the nail dealer Kho To whereby the former proposed to Kho that
the latter should cut his monthly advances to Claparols from P2,000 to P1,000 a month,
because
"I think it is time that we do our plan to take advantage of the difficulties
of Eddie with the banks for our benefit. If we can squeeze him more, I am
sure that we can extend our contract with him before it ends next year,
and perhaps on better terms. If we play well our cards we might yet own
his factory" (Exhibit 32);
and conformably to Coleongco's proposal, Kho To had written to Claparols that "due to
present business conditions" the latter could only be allowed to draw P1,000 a month
beginning April, 1955 (Exhibit 33).
As the parties could not amicably settle their accounts, Coleongco filed a suit against
Claparols charging breach of contract, asking for accounting, and praying for P528,762.19 as
damages, and attorney's fees, to which Claparols answered, denying the charge, and
counterclaiming for the rescission of the agreement with Coleongco for P561,387.39 by way
of damages. After trial, the court rendered judgment, as stated at the beginning of this
opinion.
In this appeal, it is first contended by the appellant Coleongco that the power of attorney
(Exhibit "C") was made to protect his interest under the financing agreement (Exhibit "B"),
and was one coupled with an interest that the appellee Claparols had no legal power to
revoke. This point can not be sustained. The financing agreement itself already contained
clauses for the protection of appellant's interest, and did not call for the execution of any
power of attorney in favor of Coleongco. But granting appellant's view, it must not be
forgotten that a power of attorney can be made irrevocable by contract only in the sense that
the principal may not recall it at his pleasure; but coupled with interest or not, the authority
certainly can be revoked for a just cause, such as when the attorney- in-fact betrays the
interest of the principal, as happened in this case. It is not open to serious doubt that the
irrevocability of the power of attorney may not be used to shield the perpetration of acts in
bad faith, breach of confidence, or betrayal of trust, by the agent, for that would amount to
holding that a power, coupled with an interest authorizes the agent to commit frauds against
the principal.
Our new Civil Code, in Article 1172, expressly provides the contrary in prescribing that
responsibility arising from fraud is demandable in all obligations, and that any waiver of
action for future fraud is void. It is also on this principle that the Civil Code, in its Article 1800,
declares that the powers of a partner, appointed as manager, in the articles of copartnership
are irrevocable without just or lawful cause; and an agent with power coupled with an interest

can not stand on better ground than such a partner in so far as irrevocability of the power is
concerned.
That the appellant Coleongco acted in bad faith towards his principal Claparols is, on the
record, unquestionable. His letters to the Philippine National Bank (Exhibits 35 and 36)
attempting to undermine the credit of the principal and to acquire the factory of the latter,
without the principal's knowledge; Coleongco's letter to his cousin, Kho To (Exhibit 32),
instructing the latter to reduce to one-half the usual monthly advances to Claparols on
account of nail sales in order to squeeze said appellee and compel him to extend the contract
entitling Coleongco to share in the profits of the nail factory in better terms, and ultimately
"own his factory", a plan carried out by Kho's letter, Exhibit "33", reducing the advances to
Claparols; Coleongco's attempt to have Romulo Agsam pour acid on the machinery; his illegal
diversion of the profits of the factory to his own benefit; and the surreptitious disposition of
the Yates band resaw machine in favor of his cousin's Hong Shing Lumber Yard, made while
Claparols was in Baguio in July and August of 1956, are plain acts of deliberate sabotage by
the agent that fully justified the revocation of the power of attorney (Exhibit "C") by Claparols
and his demand for an accounting from his agent Coleongco.
Appellant attempts to justify his letters to the Philippine National Bank (Exhibits 35 and 36),
claiming that Claparols mal-administration of the business endangered the security for the
advances that he had made under the financing contract (Exhibit "B"). But if that were the
case, it is to be expected that Coleongco would have first protested to Claparols himself,
which he never did. Appellant likewise denies the authorship of the letter to Kho (Exhibit 32)
as well as the attempt to induce Agsam to damage the machinery of the factory. Between the
testimony of Agsam and Claparols and that of Coleongco, the court below chose to believe
the former, and we see no reason to alter the lower court's conclusion on the value of the
evidence before it, considering that Kho's letter to Claparols (Exhibit 33) plainly corroborates
and dovetails with the plan outlined in Coleongco's own letter (Exhibit 32), signed by him,
and that the credibility of Coleongco is affected adversely by his own admission of his having
been previously convicted of estafa (t.s.n., p. 139, 276), a crime that implies moral turpitude.
Even disregarding Coleongco's letter to his son-in-law (Exhibit 82) that so fully reveals
Coleongco's lack of business scruples, the clear preponderance of evidence is against
appellant.
The same remarks apply to the finding of the trial court that it was appellant Coleongco, and
not Claparols, who disposed of the band resawing equipment, since said machine was
received in July, 1956 and sold in August of that year to the Hong Shing Lumber Co.,
managed by appellant's cousin, Vicente Kho. The untruth of Coleongco's charge that
Claparols, upon his return from Baguio in September, 1956, admitted having sold the
machines behind his associate's back is further evidenced by (a) Coleongco's letter, Exhibit
"V", dated October 29, 1956, inquiring the whereabouts of the resaw equipment from
Claparols (an inquiry incompatible with Claparols previous admission); (b) by the undenied
fact that the appellee was in Baguio and Coleongco was acting for him during the months of
July and August when the machine was received and sold; and (c) the fact that as between
the two it is Coleongco who had a clear interest in selling the sawing machine to his cousin
Kho To's lumber yard. If Claparols wished to sell the machine without Coleongco's knowledge,
he would not have picked the latter's cousin for a buyer.
The action of plaintiff-appellant for damages and lost profits due to the discontinuance of the
financing agreement, Exhibit "B", may not prosper, because the record shows that the
appellant likewise breached his part of the contract. It will be recalled that under paragraph 2
of the contract, Exhibit "B", it was stipulated:

"That the Party of the Second Part (Coleongco) has agreed to finance and
put up all the necessary money which may be needed to pay for the
importation of the raw material needed by such nail factory and allocated
by the ICC from time to time either in cash or with whatever suitable
means which the Party of the Second Part may be able to make by
suitable arrangements with any well known banking institution
recognized by the Central Bank of the Philippines."
Instead of putting up all the necessary money needed to finance the imports of raw
material, Coleongco merely advanced 25% in cash on account of the price and had the
balance covered by surety agreements executed by Claparols and others as solidary
(joint and several) guarantors (see Exhibits G, H, I). The upshot of this arrangement was
that Claparols was made to shoulder 3/4 of the payment for the imports, contrary to the
financing agreement. Paragraph 11 of the latter expressly denied Coleongco any power
or authority to bind Claparols without previous consultation and authority. When the
balances for the cost of the importations became due, Coleongco in some instances, paid
it with the dealers' advances to the nail factory against future sales without the
knowledge of Claparols (Exhibits "K" to K-11, K-13). Under paragraphs 8 and 11 of the
financing agreement, Coleongco was to give preference to the operating expenses
before sharing profits, so that until the operating costs were provided for, Coleongco had
no right to apply the factory's income to pay his own obligations.
Again, the examination of the books by accountant Atienza of C. Miller and Co., showed that
from 1954 onwards Coleongco (who had the control of the factory's cash and bank deposits,
under paragraph 11 of Exhibit "B") never liquidated and paid in full to Claparols his half of the
profits, so that by the end of 1956 there was due to Claparols P38,068.41 on this account
(Exhibit 91). For 1957 to 1958 Claparols financed the imports of nail wire without the help of
appellant, and in view of the latter's infringement of his obligations, his acts of disloyalty
previously discussed, and his diversions of factory funds (he even bought two motor vehicles
with them), we find no justification for his insistence in sharing in the factory's profit for these
years, nor for the restoration of the revoked power of attorney.
The accountant's reports and testimony (specially Exhibits 80 and 87) prove that as of June
30, 1957, Coleongco owed to Claparols the sum of P83,466.34 that after some adjustment
was reduced to P81,387.37, practically accepted even by appellant's auditor. The alleged
discrepancies between the general ledger and the result thus arrived at was satisfactorily
explained by accountant Atienza in his testimony (t.s.n., 1173-1178).
No error was, therefore, committed by the trial court in declaring the financing contract (Exh.
B) properly resolved by Claparols or in rendering judgment against appellant in favor of
appellee for the said amount of P81,387.37. The basic rule of contracts requires parties to act
loyally toward each other, in the pursuit of the common end, and appellant clearly violated
the rule of good faith prescribed by Art. 1315 of the new Civil Code.
The lower court also allowed Claparols P50,000 for damages, material, moral and exemplary,
caused by the appellant Coleongco's acts in maliciously undermining appellee's credit that
led the Philippine National Bank to secure a writ of execution against Claparols. Undeniably,
the attempts of Coleongco to discredit and "squeeze" Claparols out of his own factory and
business could not but cause the latter mental anguish and serious anxiety, as found by the
court below, for which he is entitled to compensation; and the malevolence that lay behind
appellee's actions justified also the imposition of exemplary or deterrent damages (Civ. Code,
Art. 2232). While the award could have been made larger without violating the canons of
justice, the discretion in fixing such damages primarily lay in the trial court, and we feel that
the same should be respected.

IN VIEW OF THE FOREGOING, the decision appealed from is affirmed. Costs against appellant
Vicente Coleongco.
SPANISH NI ANG MOST PART ANI..
[G.R. No. 46667. Junio 20, 1940.]
KERR
&
COMPANY,
LTD., demandante-apelante, contra EL
ADMINISTRADOR DE RENTAS INTERNAS,demandado-apelado.
Sres. Ross, Lawrence, Selph y Carrascoso y D. Robert Janda en representacion
de la apelante.
El Procurador General Sr. Ozaetay los Auxiliares del Procurador General Sres.
Concepcion y Amparo en representacion del apelado.

SYLLABUS
1. IMPUESTO DE COMERCIANTE; DISTINCION ENTRE UN CORREDOR Y UN
COMERCIANTE. El corredor nunca contrata en nombre propio, sino en el de su
mandante. En el presente caso, Kerr & Company al contratar con Shaw, Wallace &
Company ofreciendo comprar ciertas mercancias a un precio que ha ofrecido y qun
Shaw, Wallace & Company ha aceptado, o a un precio que Shaw, Wallace & Company ha
cotizado y que Kerr & Company ha aceptado, ha celebrado un contrato de compraventa
perfecto. (Art. 1460 del Codigo Civil.)
2. ID.; ID. El corredor efectua la transaccion con un tercero a nombre de su
mandante, a base de una comision fija y determinada. En el presente caso, Kerr &
Company y Shaw, Wallace & Company en ningun tiempo habian fijado una comision a
base de la cual Kerr & Company efectuaria la venta de mercancias a los comerciantes
locales.
3. ID.; ID. El corredor no garantiza el pago de las mercancias que vende a un
tercero, porque solamente es un mediador que se ocupa en hacer que las partes
interesadas se entiendan en un negocio o negocios en asuntos mercantiles o de
navegacion. (Behn, Meyer & Co. contra Nolting y Garcia, 35 Jur. Fil., 284; Pacific
Commercial Company contra Yatco, R.G. No. 45976, julio 20, 1939.) En el presente caso,
Kerr & Company garantizo a Shaw, Wallace & Company el pago de la letra girada por
esta compaia contra 108 compradores locales.

CONCEPCION, M p:

DECISION

Esta es una apelacion que tiene por objeto determinar si un impuesto de

comerciante pagado por la apelante, bajo protesta, era o no legalmente exigible segun
los hechos que en la decision apelada se relacionan como sigue:
"It appears from the stipulation of facts that in effecting the
sales under consideration the plaintiff sent a cable to Shaw, Wallace &
Co. of Calcutta, India, offering a price for certain merchandise or asking

for quotation. The Calcutta firm either accepted the offer or gave its
quotation of the price. After the price was thus agreed upon, plaintiff
entered into a contract of sale with local buyers quoting a price higher
than that agreed upon or fixed by the Calcutta firm; and the price of the
merchandise for local buyers was fixed by the plaintiff. After the contract
of sale was thus entered into, plaintiff instructed the Calcutta firm to
send the goods to, and draw a draft on, the local buyers. This draft bore
the price agreed upon between the plaintiff and local buyers, and was
drawn against a local bank in accordance with the letter of guarantee
executed in the form of the local bank by the buyer and by the plaintiff.
After receiving the draft and shipping documents, the local bank released
the merchandise to the buyer against a trust receipt. In due course, the
draft was paid by the buyers to the local bank and after the proceeds of
the draft were received by the Calcutta firm, the latter paid the plaintiff
the difference between the price agreed upon between plaintiff and the
Calcutta firm, and the price for which the merchandise was actually sold
to the local buyers".
El Juzgado decidio el caso declarando que la apelante en las transacciones
arriba mencionadas debe ser considerado como comerciante, de acuerdo con las
provisiones del articulo 1459 del Codigo Administrativo Revisado que dispone:
"SEC. 1459. Percentage tax on merchants sales. All
merchants not herein specifically exempted shall pay a tax of one per
centum on the gross value in money of the commodities, goods, wares,
and merchandise sold, bartered, exchanged, or consigned abroad by
them, such tax to be based on the actual selling price or value of the
things in question at the time they are disposed of or consigned, whether
consisting of raw material or of manufactured or partially manufactured
products, and whether of domestic or foreign origin. The tax upon things
consigned abroad shall be refunded upon satisfactory proof of the return
thereof to the Philippine Islands unsold.
"The following shall be exempt from this tax:
(a) Persons engaged in public market in the sale of food
products at retail, and other small merchants whose gross quarterly sales
do not exceed two hundred pesos.
(b) Peddlers and sellers at fixed stands of fruit, produce, and
food, raw or otherwise, the total selling value whereof does not exceed
three pesos per day and who do not renew their stock oftener than once
every twenty-four hours.
(c) Producers of commodities of all classes working in their own
homes, consisting of parents and children living as one family, when the
value of each day's production by each person capable of working is not
in excess of one peso.
"Merchants, as here used, means a person engaged in the sale,
barter, or exchange of personal property of whatever character. Except
as specially provided, the term includes manufacturers who sell articles
of their own production, and commission merchants having

establishments of their own for the keeping and disposal of goods of

which sales or exchanges are effected, but does not include merchandise
brokers."
La apelante contiende que el Juzgado incurrio en error al declarar que ella habia
comprado las mercancias de Shaw, Wallace & Co. de Calcutta, India, y las habia vendido
a los compradores locales por su propia cuenta, y que actuo como comerciante en las
transacciones arriba mencionadas y que, como tal debia pagar el impuesto
correspondiente. La contencion de la apelante es que ella actuo en dichas transacciones
como un corredor de comercio. La cuestion a determinar en el presente caso es, pues, en
que capacidad la apelante efectuo las ventas de las mercancias en cuestion a los
compradores locales. Para resolver esta cuestion, debemos considerar no las relaciones
juridicas entre la apelante y los compradores locales sino las relaciones que mediaron
entre la apelante y Shaw, Wallace & Co.; porque las transacciones empezaron con dicha
firma y terminaron con la misma. Mas claro, hubo dos transacciones: la 1. a, entre Kerr &
Company y Shaw, Wallace & Co.; y la 2.a entre Kerr & Company y los compradores
locales; pero la actuacion de Kerr & Company no se termino con los compradores locales,
sino con Shaw, Wallace & Co.
En ultimo analasis, de los hechos, se hallan en la transaccion con la firma de
Calcutta ciertas circunstancias que son pruebas concluyentes de que la apelante obro en
el presente caso como un comerciante.
Ante todo conviene tener presente, que "al corredor se le define en terminos
generales como el que negocia para otros en contratos de comision relativos a fincas,
cuya custodia en nada le atane; el que negocia como intermediario de otros, sin negociar
jamas en nombre propio sino en el de aquellos que le utilizan; estrictamente hablando es
un mediador, y en cierto modo el mandatorio de ambas partes. (19 Cyc. 186;
Henderson vs. The State, 50 Ind., 234 Black's Law Dictionary.) El corredor es el que se
ocupa en hacer que los interesados se entiendan en un negocio o en negocios para ellos
en asuntos mercantiles o de navegacion. (Mechem on Agency, section 13, Wharton on
Agency, section 695.) El Juez Storey en su obra titulada Agency, define al corredor,
diciendo que es un mandatorio que se utiliza para realizar negocios y contratos con otras
personas, en asuntos mercantiles o de navegacion, mediante una compensacion que
generalmente se llama corretaje. (Storey on Agency, section 28.)" Behn, Meyer & Co.,
Ltd., contra Nolting y Garcia, 35 Jur. Fil., 284.
Desprendese de lo transcrito.
1. Que el corredor nunca contrata en nombre proplo, sino en el de su
mandante. En el presente caso, Kerr & Company al contratar con Shaw, Wallace &
Company ofreciendo comprar ciertas mercancias a un precio que ha ofrecido y que
Shaw, Wallace & Company ha aceptado, o a un precio que Shaw, Wallace & Company ha
cotizado y que Kerr & Company ha aceptado, ha celebrado un contrato de compra-venta
perfecto. (Art. 1450 del Codigo Civil.) No importa que las mercancias no hayan pasado a
la posesion de Kerr & Company porque la tradicion de la cosa comprada es necesaria
para la consumacioon del contrato de compra-venta, pero no para su perfeccion.
Despues de efectuado el contrato de compra-venta, Kerr & Company, en su propio
nombre, convino en vender a los comerciantes locales las mercancias que habia
comprado. Tan cierto es que Kerr & Company, contrato con los comerciantes locales en
nombre propio, independientemente y con posterioridad a la transaccion habida con

Shaw, Wallace & Company, que Kerr & Company fijo el precio de las ventas a los
compradores locales, precio que no era el precio convenido con Shaw, Wallace &
Company sino mayor al que habia ofrecido a Shaw, Wallace & Company, o que habia
sido aceptado por dicha compania.
2. El corredor efectua la transaccion con un tercero a nombre de su mandante,
a base de una comision fija y determinada. En el presente caso, Kerr & Company y Shaw,
Wallace & Company en ningun tiempo habian fijado una comision a base de la cual Kerr
& Company efectuaria la venta de mercancias a los comerciantes locales.
Kerr & Company despues de efectuada la venta de las mercancias a los
compradores locales por un precio mayor del que habia convenido con Shaw, Wallace &
Company, cobro la diferencia en su beneficio, diferencia que no puede conceptuarse
como una comision, porque, 1., las partes no convinieron en ninguna comision; y 2.,
porque la cantidad asi cobrada dependia unica y exclusivamente de Kerr & Company,
segun el precio que ella hubiese fijado a las mercancias por ella vendidas. La comision es
un tanto de dinero que se estipula entre el corredor y el mandante y se paga por este a
aquel, de su propio peculio, cosa que no ocurre en el presente caso, porque la diferencia
de precio que Kerr & Company cobra, no es dinero de Shaw, Wallace & Company.
3. El corredor no garantiza el pago de las mercancias que vende a un tercero,
porque solamente es un mediador que se ocupa en hacer que las partes interesadas se
entiendan en un negocio o negocios en asuntos mercantiles o de navegacion. (Behn,
Meyer & Co., Ltd. contra Nolting y Garcia, supra; Pacific Commercial
Company contra Alfredo L. Yatco, R.G. No. 45976, Julio 20,1939.) En el presente caso Kerr
& Company garantizo a Shaw, Wallace & Company el pago de la letra girada por esta
compania contra los compradores locales.
Se arguye por la apelante, que ella no era la compradora de las mercancias,
porque, si lo fuese, la letra se habria girado contra ella y no contra los compradores
locales, y ella no garantizaria el pago del importe de la letra. Este argumento, sin
embargo, no tiene peso, porque una vez compradas las mercancias por Kerr & Company,
ella podria ordenar que las mercancias fuesen enviadas a cualquier otra persona, puesto
que lo mas importante para Shaw, Wallace & Company es que se pague el importe de las
mercancias, y esta obligacion la ha asumido Kerr & Company para el caso de que los
compradores locales no pagasen la letra a su vencimiento.
El hecho de que en el contrato celebrado por Kerr y Company con el comprador
local Lim Ki Choa & Company, Kerr & Company, segun el Exhibit D, haya hecho constar
que en esta transaccion con Lim Ki Choa & Company ella actuaba en la capacidad de
corredor solamente y que ella no asume ninguna responsabilidad, no demuestra que
realmente Kerr & Company era un mero corredor cuando contrato con Lim Ki Choa &
Company, porque para determinar la naturaleza de la transaccion que Kerr & Company
tuvo con Shaw, Wallace & Company, y para juzgar si Kerr Company contrato en nombre
propio con la firma de Calcutta, o si contrato en nombre de Shaw, Wallace & Company y
con los compradores locales, no vamos a tener en cuenta lo que Kerr & Company haya
dicho o dejado de decir a Lim Ki Choa & Co., sino los terminos y condiciones del contrato
mismo que realmente se ha celebrado entre Shaw, Wallace & Company y Kerr &
Company.

Ademas, en el caso de incumplimiento de Kerr & Company del contrato

otorgado con los compradores locales, estos no tendrian accion alguna para dirigirse
contra Shaw, Wallace & Company para exigir de esta compania el cumplimiento del
contrato, puesto que ninguno han celebrado con Shaw, Wallace & Co., pues los hechos
revelan que Kerr & Company primero contrato en nombre propio con Shaw, Wallace &
Company, y despues contrato tambien en nombre propio con los compradores locales.
Todas las anteriores consideraciones demuestran una misma y una sola
proposicion: que Kerr & Company contrato en nombre propio y por cuenta propia con
Shaw, Wallace & Company como comerciante, y vendio en nombre propio como
comerciante; y por tanto esta sujeta al pago del impuesto de comerciante.
Se confirma la decision apelada, con las costas a la apelante. Asi se ordena.
[G.R. No. 144805. June 8, 2006.]
EDUARDO
V.
LITONJUA,
JR.
and
ANTONIO
K.
LITONJUA, petitioners, vs. ETERNIT CORPORATION (now ETERTON
MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and
FAR EAST BANK & TRUST COMPANY,respondents.

DECISION
CALLEJO, SR., J p:
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 EC's Board of Directors, to dispose of the eight
parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so that the
properties could be offered for sale to prospective buyers. Glanville later showed the
properties to Marquez.
Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B.
Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez

declared that he was authorized to sell the properties for P27,000,000.00 and that the terms
of the sale were subject to negotiation. 4
Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo
Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the
property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings' offer
and relayed the same to Delsaux in Belgium, but the latter did not respond. On October 28,
1986, Glanville telexed Delsaux in Belgium, inquiring on his position/counterproposal to the
offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to
Glanville stating that, based on the "Belgian/Swiss decision," the final offer was
"US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final
liquidation." 5
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr.
accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter
dated February 26, 1987, confirmed that the Litonjua siblings had accepted the counterproposal 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. EaSCAH
The Committee for Asia of our Group met recently (meeting every six
months) and examined the position as far as the Philippines are (sic)
concerned. Considering [the] new political situation since the
departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our

operations in Manila. In fact, production has started again last

week, and (sic) to recognize the participation in the Corporation.
We regret that we could not make a deal with you this time, but in case
the policy would change at a later state, we would consult you again.
xxx xxx xxx
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.) 11
When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding
payment for damages they had suffered on account of the aborted sale. EC, however,
rejected their demand.
The Litonjuas then filed a complaint for specific performance and damages against EC (now
the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC
in the RTC of Pasig City. An amended complaint was filed, in which defendant EC was
substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T.
Tan and Deogracias G. Eufemio were impleaded as additional defendants on account of their
purchase of ESAC shares of stocks and were the controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing
business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the
Board and stockholders of EC never approved any resolution to sell subject properties nor
authorized Marquez to sell the same; and the telex dated October 28, 1986 of Jack Glanville
was his own personal making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the
amended complaint. 12 The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton
Multi-Resources Corporation and Eteroutremer, S.A. is dismissed on the
ground that there is no valid and binding sale between the plaintiffs and
said defendants.
The complaint as against Far East Bank and Trust Company is likewise
dismissed for lack of cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources
Corporation and Eteroutremer, S.A. is also dismissed for lack of merit. 13
The trial court declared that since the authority of the agents/realtors was not in writing, the
sale is void and not merely unenforceable, and as such, could not have been ratified by the
principal. In any event, such ratification cannot be given any retroactive effect. Plaintiffs
could not assume that defendants had agreed to sell the property without a clear
authorization from the corporation concerned, that is, through resolutions of the Board of
Directors and stockholders. The trial court also pointed out that the supposed sale involves
substantially all the assets of defendant EC which would result in the eventual total cessation
of its operation. 14
The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in
concluding that the real estate broker in the instant case needed a written authority from
appellee corporation and/or that said broker had no such written authority; and (2) the lower
court committed grave error of law in holding that appellee corporation is not legally bound
for specific performance and/or damages in the absence of an enabling resolution of the
board of directors." 15 They averred that Marquez acted merely as a broker or go-between
and not as agent of the corporation; hence, it was not necessary for him to be empowered as
such by any written authority. They further claimed that an agency by estoppel was created
when the corporation clothed Marquez with apparent authority to negotiate for the sale of the

properties. However, since it was a bilateral contract to buy and sell, it was equivalent to a
perfected contract of sale, which the corporation was obliged to consummate. cSHIaA
In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind
it; neither were Glanville and Delsaux authorized by its board of directors to offer the
property for sale. Since the sale involved substantially all of the corporation's assets, it would
necessarily need the authority from the stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The
Litonjuas filed a motion for reconsideration, which was also denied by the appellate court.
The CA ruled that Marquez, who was a real estate broker, was a special agent within the
purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he
needed a special authority from EC's board of directors to bind such corporation to the sale of
its properties. Delsaux, who was merely the representative of ESAC (the majority stockholder
of EC) had no authority to bind the latter. The CA pointed out that Delsaux was not even a
member of the board of directors of EC. Moreover, the Litonjuas failed to prove that an
agency by estoppel had been created between the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PERFECTED CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING
THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT
ETERNIT BEFORE THE SALE CAN BE PERFECTED. CIcTAE
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND
DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT
PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY
RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT
AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING
POWER TO SELL THE SAID PROPERTIES. 17
Petitioners maintain that, based on the facts of the case, there was a perfected contract of
sale of the parcels of land and the improvements thereon for "US$1,000,000.00 plus
P2,500,000.00 to cover obligations prior to final liquidation." Petitioners insist that they had
accepted the counter-offer of respondent EC and that before the counter-offer was withdrawn
by respondents, the acceptance was made known to them through real estate broker
Marquez.
Petitioners assert that there was no need for a written authority from the Board of Directors
of EC for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was
not an ordinary agent because his authority was of a special and limited character in most
respects. His only job as a broker was to look for a buyer and to bring together the parties to
the transaction. He was not authorized to sell the properties or to make a binding contract to
respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was able to
communicate both the offer and counter-offer and their acceptance of respondent EC's
counter-offer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply shows that
Glanville, who was the President and General Manager of respondent EC, and Delsaux, who
was the Managing Director for ESAC Asia, had the necessary authority to sell the subject

property or, at least, had been allowed by respondent EC to hold themselves out in the public
as having the power to sell the subject properties. Petitioners identified such evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the
then President and General Manager of Eternit, to sell the properties of
said corporation to any interested party, which authority, as hereinabove
discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties
spanned SEVERAL MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its
properties to the Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternit's offer to sell the
properties as evidenced by the Petitioners' ACCEPTANCE of the counteroffer;
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00
with the Security Bank and that an ESCROW agreement was drafted over
the subject properties;
6. Glanville's telex to Delsaux inquiring "WHEN WE (Respondents) WILL
IMPLEMENT ACTION TO BUY AND SELL";
7. More importantly, Exhibits "G" and "H" of the Respondents, which
evidenced the fact that Petitioners' offer was allegedly REJECTED by
both Glanville and Delsaux. 18
Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to
petitioners' offer and thereafter reject such offer unless they were authorized to do so by
respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the properties in
his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to
proceed with the sale of the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six
months) and examined the position as far as the Philippines are (sic)
concerned. Considering the new political situation since the departure of
MR. MARCOS and a certain stabilization in the Philippines, the Committee
has decided not to stop our operations in Manila[.] [I]n fact production
started again last week, and (sic) to reorganize the participation in the
Corporation. SITCcE
We regret that we could not make a deal with you this time, but
in case the policy would change at a later stage we would
consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX 19
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were
knowingly permitted by respondent EC to sell the properties within the scope of an apparent
authority. Petitioners insist that respondents held themselves to the public as possessing
power to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are factual,
hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the petition,
respondents EC (now EMC) and ESAC reiterate their submissions in the CA. They maintain
that Glanville, Delsaux and Marquez had no authority from the stockholders of respondent EC

and its Board of Directors to offer the properties for sale to the petitioners, or to any other
person or entity for that matter. They assert that the decision and resolution of the CA are in
accord with law and the evidence on record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and
Delsaux, conformed to the written authority of Marquez to sell the properties. The authority
of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and
Delsaux negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1,
1997. Given the significance of their positions and their duties in respondent EC at the time
of the transaction, and the fact that respondent ESAC owns 90% of the shares of stock of
respondent EC, a formal resolution of the Board of Directors would be a mere ceremonial
formality. What is important, petitioners maintain, is that Marquez was able to communicate
the offer of respondent EC and the petitioners' acceptance thereof. There was no time that
they acted without the knowledge of respondents. In fact, respondent EC never repudiated
the acts of Glanville, Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues raised by
petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were
authorized by respondent EC to act as its agents relative to the sale of the properties of
respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In
the absence of express written terms creating the relationship of an agency, the existence of
an agency is a fact question. 20 Whether an agency by estoppel was created or whether a
person acted within the bounds of his apparent authority, and whether the principal is
estopped to deny the apparent authority of its agent are, likewise, questions of fact to be
resolved on the basis of the evidence on record. 21 The findings of the trial court on such
issues, as affirmed by the CA, are conclusive on the Court, absent evidence that the trial and
appellate courts ignored, misconstrued, or misapplied facts and circumstances of substance
which, if considered, would warrant a modification or reversal of the outcome of the case. 22
It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the
Rules of Court because the Court is not a trier of facts. It is not to re-examine and assess the
evidence on record, whether testimonial and documentary. There are, however, recognized
exceptions where the Court may delve into and resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations,
surmises, or conjectures; (2) when the inference made is manifestly
mistaken, absurd, or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and
the same is contrary to the admissions of both appellant and appellee;
(7) when the findings of the Court of Appeals are contrary to those of the
trial court; (8) when the findings of fact are conclusions without citation
of specific evidence on which they are based; (9) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different conclusion;
and (10) when the findings of fact of the Court of Appeals are premised
on the absence of evidence and are contradicted by the evidence on
record. 23
We have reviewed the records thoroughly and find that the petitioners failed to establish that
the instant case falls under any of the foregoing exceptions. Indeed, the assailed decision of
the Court of Appeals is supported by the evidence on record and the law. DAaIEc

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 bylaws 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:
xxx xxx xxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such real and personal property,
including securities and bonds of other corporations, as the transaction of
a lawful business of the corporation may reasonably and necessarily
require, subject to the limitations prescribed by the law and the
Constitution.
The property of a corporation, however, is not the property of the stockholders or members,
and as such, may not be sold without express authority from the board of
directors. 27 Physical acts, like the offering of the properties of the corporation for sale, or
the acceptance of a counter-offer of prospective buyers of such properties and the execution
of the deed of sale covering such property, can be performed by the corporation only by
officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of
the board of directors. 28 Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but not in the
course of, or connected with, the performance of authorized duties of such director, are not
binding on the corporation. 29
While a corporation may appoint agents to negotiate for the sale of its real properties, the
final say will have to be with the board of directors through its officers and agents as
authorized by a board resolution or by its by-laws. 30 An unauthorized act of an officer of the
corporation is not binding on it unless the latter ratifies the same expressly or impliedly by its
board of directors. Any sale of real property of a corporation by a person purporting to be an
agent thereof but without written authority from the corporation is null and void. The

declarations of the agent alone are generally insufficient to establish the fact or extent of
his/her authority. 31
By the contract of agency, a person binds himself to render some service or to do something
in representation on behalf of another, with the consent or authority of the latter. 32 Consent
of both principal and agent is necessary to create an agency. The principal must intend that
the agent shall act for him; the agent must intend to accept the authority and act on it, and
the intention of the parties must find expression either in words or conduct between
them. 33
An agency may be expressed or implied from the act of the principal, from his silence or lack
of action, or his failure to repudiate the agency knowing that another person is acting on his
behalf without authority. Acceptance by the agent may be expressed, or implied from his acts
which carry out the agency, or from his silence or inaction according to the
circumstances. 34 Agency may be oral unless the law requires a specific form. 35 However,
to create or convey real rights over immovable property, a special power of attorney is
necessary. 36 Thus, when a sale of a piece of land or any portion thereof is through an agent,
the authority of the latter shall be in writing, otherwise, the sale shall be void. 37
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of
the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its
agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned by
respondent EC including the improvements thereon. The bare fact that Delsaux may have
been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1,
1997, cannot be used as basis for petitioners' claim that he had likewise been authorized by
respondent EC to sell the parcels of land. CIAHDT
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 counteroffer of respondent ESAC, respondent EC was not a party to the transaction between them;
hence, EC was not bound by such acceptance.
While Glanville was the President and General Manager of respondent EC, and Adams and
Delsaux were members of its Board of Directors, the three acted for and in behalf of
respondent ESAC, and not as duly authorized agents of respondent EC; a board resolution
evincing the grant of such authority is needed to bind EC to any agreement regarding the
sale of the subject properties. Such board resolution is not a mere formality but is a
condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90% of
the shares of stocks of respondent EC; however, the mere fact that a corporation owns a

majority of the shares of stocks of another, or even all of such shares of stocks, taken alone,
will not justify their being treated as one corporation. 43
It bears stressing that in an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes
the principal, authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must not, in any
way, be compelled by law or by any court. 44
The petitioners cannot feign ignorance of the absence of any regular and valid authority of
respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale and to
sell the said properties to the petitioners. A person dealing with a known agent is not
authorized, under any circumstances, blindly to trust the agents; statements as to the extent
of his powers; such person must not act negligently but must use reasonable diligence and
prudence to ascertain whether the agent acts within the scope of his authority. 45 The
settled rule is that, persons dealing with an assumed agent are bound at their peril, and if
they would hold the principal liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is controverted, the burden of proof is upon
them to prove it. 46 In this case, the petitioners failed to discharge their burden; hence,
petitioners are not entitled to damages from respondent EC. cCEAHT
It appears that Marquez acted not only as real estate broker for the petitioners but also as
their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he
confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell
the land and the improvements thereon. However, we agree with the ruling of the appellate
court that Marquez had no authority to bind respondent EC to sell the subject properties. A
real estate broker is one who negotiates the sale of real properties. His business, generally
speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the
owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an
authority to find a purchaser of real property does not include an authority to sell. 47
Equally barren of merit is petitioners' contention that respondent EC is estopped to deny the
existence of a principal-agency relationship between it and Glanville or Delsaux. For an
agency by estoppel to exist, the following must be established: (1) the principal manifested a
representation of the agent's authority or knowlingly allowed the agent to assume such
authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon
such representation, such third person has changed his position to his detriment. 48 An
agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of
reliance upon the representations, and that, in turn, needs proof that the representations
predated the action taken in reliance. 49Such 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. 171460. July 27, 2007.]

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN

MERCADO, JR., represented by their Attorney-In-Fact, ALFREDO
M.
PEREZ, petitioners, vs.
ALLIED
BANKING
CORPORATION, respondent.

DECISION
CHICO-NAZARIO, J p:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of
Court, filed by petitioners Lillian N. Mercado, Cynthia M. Fekaris and Julian Mercado, Jr.,
represented by their Attorney-In-Fact, Alfredo M. Perez, seeking to reverse and set aside the
Decision 1 of the Court of Appeals dated 12 October 2005, and its Resolution 2 dated 15
February 2006 in CA-G.R. CV No. 82636. The Court of Appeals, in its assailed Decision and
Resolution, reversed the Decision 3 of the Regional Trial Court (RTC) of Quezon City, Branch
220 dated 23 September 2003, declaring the deeds of real estate mortgage constituted on
TCT No. RT-18206 (106338) null and void. The dispositive portion of the assailed Court of
Appeals Decision thus reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a
new judgment is hereby entered dismissing the [petitioners] complaint. 4
Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned several
pieces of real property situated in different provinces of the Philippines.
Respondent, on the other hand, is a banking institution duly authorized as such under the
Philippine laws.
On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her husband,
Julian D. Mercado (Julian) over several pieces of real property registered under her name,
authorizing the latter to perform the following acts:
1. To act in my behalf, to sell, alienate, mortgage, lease and deal
otherwise over the different parcels of land described
hereinafter, to wit:
a) Calapan, Oriental Mindoro Properties covered by Transfer
Certificates of Title Nos. T-53618 3,522 Square
Meters, T-46810 3,953 Square Meters, T-53140
177 Square Meters, T-21403 263 Square Meters, T46807 39 Square Meters of the Registry of Deeds of
Oriental Mindoro;
b) Susana Heights, Muntinlupa covered by Transfer Certificates
of Title Nos. T-108954 600 Square Meters and RT106338 805 Square Meters of the Registry of
Deeds of Pasig (now Makati);
c) Personal property 1983 Car with Vehicle Registration No. R16381; Model 1983; Make Toyota; Engine No. T2464. IECcAT
2. To sign for and in my behalf any act of strict dominion or ownership
any sale, disposition, mortgage, lease or any other transactions
including quit-claims, waiver and relinquishment of rights in and
over the parcels of land situated in General Trias, Cavite,
covered by Transfer Certificates of Title Nos. T-112254 and T-

112255 of the Registry of Deeds of Cavite, in conjunction with

his co-owner and in the person ATTY. AUGUSTO F. DEL ROSARIO;
3. To exercise any or all acts of strict dominion or ownership over the
above-mentioned properties, rights and interest therein.
(Emphasis supplied.)
On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a loan from the
respondent in the amount of P3,000,000.00, secured by real estate mortgage constituted
on TCT No. RT-18206 (106338) which covers a parcel of land with an area of 805 square
meters, registered with the Registry of Deeds of Quezon City (subject property). 5
Still using the subject property as security, Julian obtained an additional loan from the
respondent in the sum of P5,000,000.00, evidenced by a Promissory Note 6 he executed on 5
February 1997 as another real estate mortgage (REM).
It appears, however, that there was no property identified in the SPA as TCT No. RT-18206
(106338) and registered with theRegistry of Deeds of Quezon City. What was identified
in the SPA instead was the property covered by TCT No. RT-106338registered with
the Registry of Deeds of Pasig.
Subsequently, Julian defaulted on the payment of his loan obligations. Thus, respondent
initiated extra-judicial foreclosure proceedings over the subject property which was
subsequently sold at public auction wherein the respondent was declared as the highest
bidder as shown in the Sheriff's Certificate of Sale dated 15 January 1998. 7
On 23 March 1999, petitioners initiated with the RTC an action for the annulment of REM
constituted over the subject property on the ground that the same was not covered by the
SPA and that the said SPA, at the time the loan obligations were contracted, no longer had
force and effect since it was previously revoked by Perla on 10 March 1993, as evidenced by
the Revocation of SPA signed by the latter. 8
Petitioners likewise alleged that together with the copy of the Revocation of SPA, Perla, in a
Letter dated 23 January 1996, notified the Registry of Deeds of Quezon City that any attempt
to mortgage or sell the subject property must be with her full consent documented in the
form of an SPA duly authenticated before the Philippine Consulate General in New York. 9
In the absence of authority to do so, the REM constituted by Julian over the subject property
was null and void; thus, petitioners likewise prayed that the subsequent extra-judicial
foreclosure proceedings and the auction sale of the subject property be also nullified.
In its Answer with Compulsory Counterclaim, 10 respondent averred that, contrary to
petitioner's allegations, the SPA in favor of Julian included the subject property, covered by
one of the titles specified in paragraph 1 (b) thereof, TCT No. RT-106338registered with
the Registry of Deeds of Pasig (now Makati). The subject property was purportedly
registered previously underTCT No. T-106338, and was only subsequently reconstituted
as TCT RT-18206 (106338). Moreover, TCT No. T-106338 was actually registered with
the Registry of Deeds of Quezon City and not before the Registry of Deeds of Pasig
(now Makati). Respondent explained that the discrepancy in the designation of the Registry
of Deeds in the SPA was merely an error that must not prevail over the clear intention of Perla
to include the subject property in the said SPA. In sum, the property referred to in the SPA
Perla executed in favor of Julian as covered by TCT No. 106338 of the Registry of Deeds
of Pasig (now Makati) and the subject property in the case at bar, covered by RT-18206
(106338) of the Registry of Deeds of Quezon City, are one and the same. CaAIES
On 23 September 2003, the RTC rendered a Decision declaring the REM constituted over the
subject property null and void, for Julian was not authorized by the terms of the SPA to
mortgage the same. The court a quo likewise ordered that the foreclosure proceedings and
the auction sale conducted pursuant to the void REM, be nullified. The dispositive portion of
the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor

of the [herein petitioners] and against the [herein respondent] Bank:
1. Declaring the Real Estate Mortgages constituted and registered under
Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT No.
RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL and
VOID;
2. Declaring the Sheriff's Sale and Certificate of Sale under FRE No. 2217
dated January 15, 1998 over the property covered by TCT No. RT-18206
(106338) of the Registry of Deeds of Quezon City as NULL and VOID;
3. Ordering the defendant Registry of Deeds of Quezon City to cancel the
annotation of Real Estate Mortgages appearing on Entry Nos. PE-4543/RT18206 and 2012/RT-18206 on TCT No. RT-18206 (106338) of the Registry
of Deeds of Quezon City;
4. Ordering the [respondent] Bank to deliver/return to the [petitioners]
represented by their attorney-in-fact Alfredo M. Perez, the original
Owner's Duplicate Copy of TCT No. RT-18206 (106338) free from the
encumbrances referred to above; and
5. Ordering the [respondent] Bank to pay the [petitioners] the amount of
P100,000.00 as for attorney's fees plus cost of the suit.
The other claim for damages and counterclaim are hereby DENIED for
lack of merit. 11
Aggrieved, respondent appealed the adverse Decision before the Court of Appeals.
In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC Decision and
upheld the validity of the REM constituted over the subject property on the strength of the
SPA. The appellate court declared that Perla intended the subject property to be included in
the SPA she executed in favor of Julian, and that her subsequent revocation of the said SPA,
not being contained in a public instrument, cannot bind third persons.
The Motion for Reconsideration interposed by the petitioners was denied by the Court of
Appeals in its Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision and Resolution rendered by the Court of
Appeals raising several issues, which are summarized as follows:
I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER
SUBJECT PROPERTY.
II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.
III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN-GOOD
FAITH.
For a mortgage to be valid, Article 2085 of the Civil Code enumerates the following essential
requisites:
Art. 2085. The following requisites are essential to the contracts of
pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal
obligation; aIAEcD
(2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be
legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure
the latter by pledging or mortgaging their own property.

In the case at bar, it was Julian who obtained the loan obligations from respondent which he
secured with the mortgage of the subject property. The property mortgaged was owned by
his wife, Perla, considered a third party to the loan obligations between Julian and
respondent. It was, thus, a situation recognized by the last paragraph of Article 2085 of the
Civil Code afore-quoted. However, since it was not Perla who personally mortgaged her own
property to secure Julian's loan obligations with respondent, we proceed to determining if she
duly authorized Julian to do so on her behalf.
Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases where
real rights over immovable property are created or conveyed. 12 In the SPA executed by
Perla in favor of Julian on 28 May 1992, the latter was conferred with the authority to "sell,
alienate, mortgage, lease and deal otherwise" the different pieces of real and personal
property registered in Perla's name. The SPA likewise authorized Julian "[t]o exercise any
or all acts of strict dominion or ownership" over the identified properties, and rights and
interest therein. The existence and due execution of this SPA by Perla was not denied or
challenged by petitioners.
There is no question therefore that Julian was vested with the power to mortgage the pieces
of property identified in the SPA. However, as to whether the subject property was among
those identified in the SPA, so as to render Julian's mortgage of the same valid, is a question
we still must resolve.
Petitioners insist that the subject property was not included in the SPA, considering that it
contained an exclusive enumeration of the pieces of property over which Julian had authority,
and these include only: (1) TCT No. T-53618, with an area of 3,522 square meters, located at
Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (2)
TCT No. T-46810, with an area of 3,953 square meters, located at Calapan, Oriental Mindoro,
and registered with the Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140, with an
area of 177 square meters, located at Calapan, Oriental Mindoro, and registered with the
Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403, with an area of 263 square
meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of
Oriental Mindoro; (5) TCT No. T-46807, with an area of 39 square meters, located at Calapan,
Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No. T108954, with an area of 690 square meters and located at Susana Heights, Muntinlupa;
(7) RT-106338 805 Square Meters registered with theRegistry of Deeds of Pasig (now
Makati); and (8) Personal Property consisting of a 1983 Car with Vehicle Registration No. R16381, Model 1983, Make Toyota, and Engine No. T-2464. Nowhere is it stated in the SPA
that Julian's authority extends to the subject property covered by TCT No. RT-18206
(106338) registered with the Registry of Deeds of Quezon City. Consequently, the act of
Julian of constituting a mortgage over the subject property is unenforceable for having been
done without authority.
Respondent, on the other hand, mainly hinges its argument on the declarations made by the
Court of Appeals that there was no property covered by TCT No. 106338 registered with
the Registry of Deeds of Pasig (now Makati); but there exists a property, the subject
property herein, covered by TCT No. RT-18206 (106338) registered with the Registry of
Deeds of Quezon City. Further verification would reveal that TCT No. RT-18206 is merely
a reconstitution of TCT No. 106338, and the property covered by both certificates of title is
actually situated in Quezon City and not Pasig. From the foregoing circumstances, respondent
argues that Perla intended to include the subject property in the SPA, and the failure of the
instrument to reflect the recent TCT Number or the exact designation of the Registry of
Deeds, should not defeat Perla's clear intention. EcHTDI

After an examination of the literal terms of the SPA, we find that the subject property was not
among those enumerated therein. There is no obvious reference to the subject property
covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City.
There was also nothing in the language of the SPA from which we could deduce the intention
of Perla to include the subject property therein. We cannot attribute such alleged intention to
Perla who executed the SPA when the language of the instrument is bare of any indication
suggestive of such intention. Contrariwise, to adopt the intent theory advanced by the
respondent, in the absence of clear and convincing evidence to that effect, would run afoul of
the express tenor of the SPA and thus defeat Perla's true intention.
In cases where the terms of the contract are clear as to leave no room for interpretation,
resort to circumstantial evidence to ascertain the true intent of the parties, is not
countenanced. As aptly stated in the case of JMA House, Incorporated v. Sta. Monica
Industrial and Development Corporation, 13 thus:
[T]he law is that if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its
stipulation shall control. When the language of the contract is explicit,
leaving no doubt as to the intention of the drafters, the courts may not
read into it [in] any other intention that would contradict its main import.
The clear terms of the contract should never be the subject matter of
interpretation. Neither abstract justice nor the rule on liberal
interpretation justifies the creation of a contract for the parties which
they did not make themselves or the imposition upon one party to a
contract or obligation not assumed simply or merely to avoid seeming
hardships. The true meaning must be enforced, as it is to be presumed
that the contracting parties know their scope and effects. 14
Equally relevant is the rule that a power of attorney must be strictly construed and pursued.
The instrument will be held to grant only those powers which are specified therein, and the
agent may neither go beyond nor deviate from the power of attorney. 15Where powers and
duties are specified and defined in an instrument, all such powers and duties are limited and
are confined to those which are specified and defined, and all other powers and duties are
excluded. 16 This is but in accord with the disinclination of courts to enlarge the authority
granted beyond the powers expressly given and those which incidentally flow or derive
therefrom as being usual and reasonably necessary and proper for the performance of such
express powers. 17
Even the commentaries of renowned Civilist Manresa 18 supports a strict and limited
construction of the terms of a power of attorney:
The law, which must look after the interests of all, cannot permit a man
to express himself in a vague and general way with reference to the right
he confers upon another for the purpose of alienation or hypothecation,
whereby he might be despoiled of all he possessed and be brought to
ruin, such excessive authority must be set down in the most formal and
explicit terms, and when this is not done, the law reasonably presumes
that the principal did not mean to confer it.
In this case, we are not convinced that the property covered by TCT No. 106338 registered
with the Registry of Deeds of Pasig (now Makati) is the same as the subject property covered
by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. The
records of the case are stripped of supporting proofs to verify the respondent's claim that the
two titles cover the same property. It failed to present any certification from the Registries of
Deeds concerned to support its assertion. Neither did respondent take the effort of submitting
and making part of the records of this case copies of TCTs No. RT-106338 of the Registry of

Deeds of Pasig (now Makati) and RT-18206 (106338) of the Registry of Deeds of Quezon City,
and closely comparing the technical descriptions of the properties covered by the said TCTs.
The bare and sweeping statement of respondent that the properties covered by the two
certificates of title are one and the same contains nothing but empty imputation of a fact that
could hardly be given any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not conferred by Perla with the authority to
mortgage the subject property under the terms of the SPA, the real estate mortgages Julian
executed over the said property are therefore unenforceable. DIHETS
Assuming arguendo that the subject property was indeed included in the SPA executed by
Perla in favor of Julian, the said SPA was revoked by virtue of a public instrument executed by
Perla on 10 March 1993. To address respondent's assertion that the said revocation was
unenforceable against it as a third party to the SPA and as one who relied on the same in
good faith, we quote with approval the following ruling of the RTC on this matter:
Moreover, an agency is extinguished, among others, by its revocation
(Article 1999, New Civil Code of the Philippines). The principal may
revoke the agency at will, and compel the agent to return the document
evidencing the agency. Such revocation may be express or implied
(Article 1920, supra).
In this case, the revocation of the agency or Special Power of Attorney is
expressed and by a public document executed on March 10, 1993.
The Register of Deeds of Quezon City was even notified that any attempt
to mortgage or sell the property covered by TCT No. [RT-18206] 106338
located at No. 21 Hillside Drive, Blue Ridge, Quezon City must have the
full consent documented in the form of a special power of attorney duly
authenticated at the Philippine Consulate General, New York City, N.Y.,
U.S.A.
The non-annotation of the revocation of the Special Power of Attorney on
TCT No. RT-18206 is of no consequence as far as the revocation's
existence and legal effect is concerned since actual notice is always
superior to constructive notice. The actual notice of the revocation
relayed to defendant Registry of Deeds of Quezon City is not denied by
either the Registry of Deeds of Quezon City or the defendant Bank. In
which case, there appears no reason why Section 52 of theProperty
Registration Decree (P.D. No. 1529) should not apply to the situation. Said
Section 52 of P.D. No. 1529 provides:
"Section 52. Constructive notice upon registration. Every
conveyance, mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting registered land
shall, if registered, filed or entered in the Office of the Register
of Deeds for the province or city where the land to which it
relates lies, be constructive notice to all persons from the
time of such registering, filing or entering. (Pres. Decree No.
1529, Section 53) (emphasis ours)
It thus developed that at the time the first loan transaction with
defendant Bank was effected on December 12, 1996, there was on record
at the Office of the Register of Deeds of Quezon City that the special
power of attorney granted Julian, Sr. by Perla had been revoked. That
notice, works as constructive notice to third parties of its being filed,
effectively rendering Julian, Sr. without authority to act for and in behalf

of Perla as of the date the revocation letter was received by the Register
of Deeds of Quezon City on February 7, 1996. 19
Given that Perla revoked the SPA as early as 10 March 1993, and that she informed the
Registry of Deeds of Quezon City of such revocation in a letter dated 23 January 1996
and received by the latter on 7 February 1996, then third parties to the SPA are
constructively notified that the same had been revoked and Julian no longer had any
authority to mortgage the subject property. Although the revocation may not be
annotated on TCT No. RT-18206 (106338), as the RTC pointed out, neither the Registry of
Deeds of Quezon City nor respondent denied that Perla's 23 January 1996 letter was
received by and filed with the Registry of Deeds of Quezon City. Respondent would have
undoubtedly come across said letter if it indeed diligently investigated the subject
property and the circumstances surrounding its mortgage.
The final issue to be threshed out by this Court is whether the respondent is a mortgagee-ingood faith. Respondent fervently asserts that it exercised reasonable diligence required of a
prudent man in dealing with the subject property. SHaIDE
Elaborating, respondent claims to have carefully verified Julian's authority over the subject
property which was validly contained in the SPA. It stresses that the SPA was annotated at the
back of the TCT of the subject property. Finally, after conducting an investigation, it found
that the property covered by TCT No. 106338, registered with the Registry of Deeds of Pasig
(now Makati) referred to in the SPA, and the subject property, covered by TCT No. 18206
(106338) registered with the Registry of Deeds of Quezon City, are one and the same
property. From the foregoing, respondent concluded that Julian was indeed authorized to
constitute a mortgage over the subject property.
We are unconvinced. The property listed in the real estate mortgages Julian executed in favor
of PNB is the one covered by "TCT#RT-18206 (106338)." On the other hand, the Special
Power of Attorney referred to TCT No. "RT-106338 805 Square Meters of the Registry of
Deeds of Pasig now Makati". The palpable difference between the TCT numbers referred to in
the real estate mortgages and Julian's SPA, coupled with the fact that the said TCTs are
registered in the Registries of Deeds of different cities, should have put respondent on guard.
Respondent's claim of prudence is debunked by the fact that it had conveniently or otherwise
overlooked the inconsistent details appearing on the face of the documents, which it was
relying on for its rights as mortgagee, and which significantly affected the identification of the
property being mortgaged. In Arrofo v. Quio, 20 we have elucidated that:
[Settled is the rule that] a person dealing with registered lands [is not
required] to inquire further than what the Torrens title on its face
indicates. This rule, however, is not absolute but admits of
exceptions. Thus, while it is true, . . . that a person dealing with
registered lands need not go beyond the certificate of title, it is
likewise a well-settled rule that a purchaser or mortgagee cannot
close his eyes to facts which should put a reasonable man on his
guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor or
mortgagor. His mere refusal to face up the fact that such defect exists,
or his willful closing of his eyes to the possibility of the existence of a
defect in the vendor's or mortgagor's title, will not make him an innocent
purchaser for value, if it afterwards develops that the title was in fact
defective, and it appears that he had such notice of the defect as would
have led to its discovery had he acted with the measure of precaution
which may be required of a prudent man in a like situation.

By putting blinders on its eyes, and by refusing to see the patent defect in the scope of
Julian's authority, easily discernable from the plain terms of the SPA, respondent cannot now
claim to be an innocent mortgagee.
Further, in the case of Abad v. Guimba, 21 we laid down the principle that where the
mortgagee does not directly deal with the registered owner of real property, the law requires
that a higher degree of prudence be exercised by the mortgagee, thus:
While [the] one who buys from the registered owner does not need to
look behind the certificate of title, one who buys from [the] one who is
not [the] registered owner is expected to examine not only the certificate
of title but all factual circumstances necessary for [one] to determine if
there are any flaws in the title of the transferor, or in [the] capacity to
transfer the land. Although the instant case does not involve a sale but
only a mortgage, the same rule applies inasmuch as the law itself
includes a mortgagee in the term "purchaser". 22
This principle is applied more strenuously when the mortgagee is a bank or a banking
institution. Thus, in the case of Cruz v. Bancom Finance Corporation, 23 we ruled:
Respondent, however, is not an ordinary mortgagee; it is a mortgageebank. As such, unlike private individuals, it is expected to exercise
greater care and prudence in its dealings, including those involving
registered lands. A banking institution is expected to exercise due
diligence before entering into a mortgage contract. The ascertainment of
the status or condition of a property offered to it as security for a loan
must be a standard and indispensable part of its operations. 24 SHTaID
Hence, considering that the property being mortgaged by Julian was not his, and there are
additional doubts or suspicions as to the real identity of the same, the respondent bank
should have proceeded with its transactions with Julian only with utmost caution. As a bank,
respondent must subject all its transactions to the most rigid scrutiny, since its business is
impressed with public interest and its fiduciary character requires high standards of integrity
and performance. 25 Where respondent acted in undue haste in granting the mortgage loans
in favor of Julian and disregarding the apparent defects in the latter's authority as agent, it
failed to discharge the degree of diligence required of it as a banking corporation.
Thus, even granting for the sake of argument that the subject property and the one identified
in the SPA are one and the same, it would not elevate respondent's status to that of an
innocent mortgagee. As a banking institution, jurisprudence stringently requires that
respondent should take more precautions than an ordinary prudent man should, to ascertain
the status and condition of the properties offered as collateral and to verify the scope of the
authority of the agents dealing with these. Had respondent acted with the required degree of
diligence, it could have acquired knowledge of the letter dated 23 January 1996 sent by Perla
to the Registry of Deeds of Quezon City which recorded the same. The failure of the
respondent to investigate into the circumstances surrounding the mortgage of the subject
property belies its contention of good faith.
On a last note, we find that the real estate mortgages constituted over the subject property
are unenforceable and not null and void, as ruled by the RTC. It is best to reiterate that the
said mortgage was entered into by Julian on behalf of Perla without the latter's authority and
consequently, unenforceable under Article 1403 (1) of the Civil Code. Unenforceable
contracts are those which cannot be enforced by a proper action in court, unless they are
ratified, because either they are entered into without or in excess of authority or they do not
comply with the statute of frauds or both of the contracting parties do not possess the
required legal capacity. 26 An unenforceable contract may be ratified, expressly or impliedly,
by the person in whose behalf it has been executed, before it is revoked by the other

contracting party. 27 Without Perla's ratification of the same, the real estate mortgages
constituted by Julian over the subject property cannot be enforced by any action in court
against Perla and/or her successors in interest.
In sum, we rule that the contracts of real estate mortgage constituted over the subject
property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of
Quezon City are unenforceable. Consequently, the foreclosure proceedings and the auction
sale of the subject property conducted in pursuance of these unenforceable contracts are null
and void. This, however, is without prejudice to the right of the respondent to proceed
against Julian, in his personal capacity, for the amount of the loans.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The Decision
dated 12 October 2005 and its Resolution dated 15 February 2006 rendered by the Court of
Appeals in CA-G.R. CV No. 82636, are hereby REVERSED. The Decision dated 23 September
2003 of the Regional Trial Court of Quezon City, Branch 220, in Civil Case No. Q-99-37145, is
hereby REINSTATED and AFFIRMED with modification that the real estate mortgages
constituted over TCT No. RT-18206 (106338) are not null and void but UNENFORCEABLE.
No costs.
SO ORDERED.
[G.R. Nos. 148404-05. April 11, 2002.]
NELITA M. BACALING, represented by her attorney-in-fact JOSE
JUAN
TONG,
and
JOSE
JUAN
TONG,
in
his
personal
capacity, petitioners, vs.
FELOMINO
MUYA,
CRISPIN
AMOR,
WILFREDO
JEREZA,
RODOLFO
LAZARTE
and
NEMESIO
TONOCANTE, respondents.
Eugenio S. Hautea and Santiago A.R. Kapunan for petitioners.
Daril P. Venus, Nicolas P. Sonalan, Salvador A. Cabaluna, Jr. and Dennis D. Juanon for private
respondents.

SYNOPSIS
Petitioner Tong, who bought the subject lots and by virtue of an irrevocable
special power of attorney executed by petitioner Bacaling, filed an action against
respondents for allegedly having clandestinely entered and occupied the lots.
Respondents in their answer alleged that they were instituted as tenant-tillers before the
property was subdivided into 110 sub-lots and that they have in their possession
certificates of land transfer. During the pendency of the appeal with the Court of Appeals,
Bacaling revoked the special power of attorney and admitted the status of respondents
as her tenants. The appellate court, without ruling on the lack of material interest in the
case, validated the certificates of land transfer of respondents. Motion for its
reconsideration was denied.
It was held that a transferee of the lots, petitioner Tong, has material interest in
the action as he stands to be benefited of injured by the judgment in the instant case as
well as the orders and decisions in the proceedings a quo; and that a certificate of land
transfer is not an absolute evidence of ownership. The Petition for Review was granted.

SYLLABUS
1. REMEDIAL LAW; ACTIONS; "INTEREST," DEFINED; CASE AT BAR. Under our rules of
procedure, interest means material interest, that is, an interest in issue and to be affected by
the judgment, while a real party-in-interest is the party who would be benefited or injured by
the judgment or the party entitled to the avails of the suit. There should be no doubt that as
transferee of the one hundred ten (110) sub-lots through a contract of sale and as the
attorney-in-fact of Nelita Bacaling, former owner of the subject lots, under an irrevocable
special power of attorney, petitioner Tong stands to be benefited or injured by the judgment
in the instant case as well as the orders and decisions in the proceedings a quo. The deed of
sale categorically states that petitioner Tong and his co-sellers have fully paid for the subject
parcels of land. The said payment has been duly received by Bacaling. Hence, it stands to
reason that he has adequate and material interest to pursue the present petition to
finality. aSCHIT
2. ID.; ID.; PARTY, NOT PERMITTED TO CHANGE HIS THEORY ON APPEAL. It is a matter of
law that when a party adopts a certain theory in the court below, he will not be permitted to
change his theory on appeal, for to permit him to do so would not only be unfair to the other
party but it would also be offensive to the basic rules of fair play, justice and due process.
3. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; PARTY CANNOT REVOKE AGENCY
COUPLED WITH INTEREST; CASE AT BAR. Substantively, we rule that Bacaling cannot
revoke at her whim and pleasure the irrevocable special power of attorney which she had
duly executed in favor of petitioner Jose Juan Tong and duly acknowledged before a notary
public. The agency, to stress, is one coupled with interest which is explicitly irrevocable since
the deed of agency was prepared and signed and/or accepted by petitioner Tong and
Bacaling with a view to completing the performance of the contract of sale of the one
hundred ten (110) sub-lots. It is for this reason that the mandate of the agency constituted
Tong as the real party-in-interest to remove all clouds on the title of Bacaling and that, after
all these cases are resolved, to use the irrevocable special power of attorney to ultimately
"cause and effect the transfer of the aforesaid lots in the name of the vendees [Tong with two
(2) other buyers] and execute and deliver document/s or instrument of whatever nature
necessary to accomplish the foregoes acts and deeds." The fiduciary relationship inherent in
ordinary contracts of agency is replaced by material consideration which in the type of
agency herein established bars the removal or dismissal of petitioner Tong as Bacaling's
attorney-in-fact on the ground of alleged loss of trust and confidence.
4. ID.; ID.; ID.; FRAUD; MUST BE DULY PROVED TO SUPPORT REVOCATION; CASE AT BAR.
While Bacaling alleges fraud in the performance of the contract of agency to justify its
revocation, it is significant to note that allegations are not proof, and that proof requires the
intervention of the courts where both petitioners Tong and Bacaling are heard. Stated
otherwise, Bacaling cannot vest in herself just like in ordinary contracts the unilateral
authority of determining the existence and gravity of grounds to justify the rescission of the
irrevocable special power of attorney. The requirement of a judicial process all the more
assumes significance in light of the dismissal with prejudice, hence, res judicata, of Bacaling's
complaint to annul the contract of sale which in turn gave rise to the irrevocable special
power of attorney. It is clear that prima facie there are more than sufficient reasons to deny
the revocation of the said special power of attorney which is coupled with interest. Inasmuch
as no judgment has set aside the agency relationship between Bacaling and Tong, we rule
that petitioner Tong maintains material interest to prosecute the instant petition with or
without the desired cooperation of Bacaling. The requirement of a judicial process all the
more assumes significance in light of the dismissal with prejudice, hence, res judicata, of
Bacaling's complaint to annul the contract of sale which in turn gave rise to the irrevocable
special power of attorney. It is clear that prima facie there are more than sufficient reasons to

deny the revocation of the said special power of attorney which is coupled with interest.
Inasmuch as no judgment has set aside the agency relationship between Bacaling and Tong,
we rule that petitioner Tong maintains material interest to prosecute the instant petition with
or without the desired cooperation of Bacaling. TCDHIc
5. LABOR AND SOCIAL LEGISLATION; LABOR LAWS; AGRICULTURAL LEASEHOLD
RELATIONSHIP; REQUISITES. The requisites in order to have a valid agricultural leasehold
relationship are: (1) The parties are the landowner and the tenant or agricultural lessee; (2)
The subject matter of the relationship is agricultural land; (3) There is consent between the
parties to the relationship; (4) the purpose of the relationship is to bring about agricultural
production; (5) There is personal cultivation on the part of the tenant or agricultural lessee;
and (6) The harvest is shared between the landowner and the tenant or agricultural lessee.
6. CIVIL LAW; OBLIGATIONS AND CONTRACTS; REAL ESTATE MORTGAGE; JUDICIAL
FORECLOSURE; NO RIGHT OF REDEMPTION AFTER CONFIRMATION OF PUBLIC AUCTION.
There was no longer any right of redemption in a judicial foreclosure proceeding after the
confirmation of the public auction. Only foreclosures of mortgages in favor of banking
institutions and those made extrajudicially are subject to legal redemption. Since GSIS is not
a banking institution and the procedure of the foreclosure is not extrajudicial in nature, no
right of redemption exists after the judicial confirmation of the public auction sale of the said
lots.
7. REMEDIAL LAW; EVIDENCE; CERTIFICATE OF LAND TRANSFER, NOT ABSOLUTE EVIDENCE
OF OWNERSHIP. It is well settled that the certificates of land transfer are not absolute
evidence of ownership of the subject lots and consequently do not bar the finding that their
issuance is void from inception since they cover residential lands contrary to the mandate
of P.D. No. 27. It follows from the fact of nullity of the certificates of land transfer in
respondents' names that the respondents are not entitled to occupy and possess the one
hundred ten (110) sub-lots or portions thereof without the consent of the owner, herein
petitioner Tong.

DECISION
DE LEON, JR., J p:
Before us is a Petition for Review of the consolidated Decision 1 dated January 31, 2001 of
the Court of Appeals 2 in CA-G.R. SP No. 54413, 3 and in CA-G.R. SP No. 54414, 4 and of its
Resolutions 5 dated June 5, 2001 reversing the Decisions 6 dated May 22, 1998 and
Resolution July 22, 1999 of the Office of the President.
The facts of the case are as follows:
Petitioner Nelita M. Bacaling and her spouse Ramon Bacaling were the owners of three (3)
parcels of land, with a total area of 9.9631 hectares, located in Barangay Cubay, Jaro, Iloilo
City, and designated as Lot No. 2103-A (Psd-24069), Lot No. 2103-B-12 (Psd 26685) and Lot
No. 2295. These lots were duly covered by Transfer Certificates of Title Nos. T-5801, T-5833
and T-5834, respectively. In 1955 the landholding was subdivided into one hundred ten (110)
sub-lots covered by TCT Nos. T-10664 to T-10773, inclusive of the Registry of Deeds of the
City of Iloilo. On May 16, 1955, the landholding was processed and approved as "residential"
or "subdivision" by the National Urban Planning Commission (NUPC). 7 On May 24, 1955 the
Bureau of Lands approved the corresponding subdivision plan for purposes of developing the
said property into a low-cost residential community which the spouses referred to as
the Bacaling-Moreno Subdivision. 8

In 1957, a real estate loan of Six Hundred Thousand Pesos (P600,000.00) was granted to the
spouses Nelita and Ramon Bacaling by the Government Service Insurance System (GSIS) for
the development of the subdivision. 9 To secure the repayment of the loan, the Bacalings
executed in favor of the GSIS a real estate mortgage over their parcels of land including the
one hundred ten (110) sub-lots. 10 Out of the approved loan of Six Hundred Thousand Pesos
(P600,000.00), only Two Hundred Forty Thousand Pesos (P240,000.00) was released to
them. 11 The Bacalings failed to pay the amortizations on the loan and consequently the
mortgage constituted on the one hundred ten (110) sub-lots was foreclosed by the
GSIS. 12 After a court case that reached all the way to this Court, 13 Nelita Bacaling (by then
a widow) in 1989 was eventually able to restore to herself ownership of the one hundred ten
(110) sub-lots. 14
According to the findings of the Office of the President, in 1972 and thereafter, respondents
Felomino Muya, Crispin Amor, Wilfredo Jereza, Rodolfo Lazarte and Nemesio Tonocante
clandestinely entered and occupied the entire one hundred ten (110) sub-lots (formerly
known as Lot No. 2103-A, Lot No. 2103-B-12 and Lot No. 2295) and grabbed exclusively for
themselves the said 9.9631 hectare landholding. 15 Apparently, respondents took advantage
of the problematic peace and order situation at the onset of martial law and the foreclosure
of the lots by GSIS. 16 They sowed the lots as if the same were their own, and altered the
roads, drainage, boundaries and monuments established thereon. 17
Respondents, on the other hand, claim that in 1964 they were legally instituted by Bacaling's
administrator/overseer as tenant-tillers of the subject parcels of land on sharing basis with
two and a half (2 1/2) hectares each for respondents Muya, Amor, Tonocante and Lazarte, and
one and a half (1 1/2) hectares for respondent Jereza. In 1974, their relationship with the
landowner was changed to one of leasehold. They religiously delivered their rental payments
to Bacaling as agricultural lessor. In 1980, they secured certificates of land transfer in their
names for the one hundred ten (110) sub-lots. They have made various payments to the Land
Bank of the Philippines as amortizing owners-cultivators of their respective tillage.
In 1977, however, the City Council of Iloilo enacted Zoning Ordinance No. 212 declaring the
one hundred ten (110) sub-lots as "residential" and "nonagricultural," which was consistent
with the conversion effected in 1955 by the NUPC and the Bureau of Lands. In 1978, Nelita
Bacaling was able to register the subject property as the Bacaling-Moreno Subdivision with
the National Housing Authority and to obtain therefrom a license to sell the subject one
hundred ten (110) sub-lots comprising the said subdivision to consummate the original and
abiding design to develop a low-cost residential community.
In August 21, 1990, petitioner Jose Juan Tong, together with Vicente Juan and Victoria Siady,
bought from Nelita Bacaling the subject one hundred ten (110) sub-lots for One Million Seven
Hundred Thousand Pesos (P1,700,000.00). 18 The said sale was effected after Bacaling has
repurchased the subject property from the Government Service Insurance System. To secure
performance of the contract of absolute sale and facilitate the transfer of title of the lots to
Jose Juan Tong, Bacaling appointed him in 1992 as her attorney-in-fact, under an irrevocable
special power of attorney with the following mandate
1. To file, defend and prosecute any case/cases involving lots nos. 1 to
110 covered by TCT Nos. T-10664 to T-10773 of the Register of
Deeds of the City of Iloilo;
2. To assume full control, prosecute, terminate and enter into an
amicable settlement and compromise agreement of all cases
now pending before the DARAB, Region VI, Iloilo City, which
involved portion of Lots 1 to 110, covered by TCT Nos. T-10664
to T-10773 of the Register of Deeds of Iloilo City, which were

purchased by Jose Juan Tong, Vicente Juan Tong and Victoria

Siady;
3. To hire a lawyer/counsel which he may deem fit and necessary to
effect and attain the foregoing acts and deeds; handle and
prosecute the aforesaid cases;
4. To negotiate, cause and effect a settlement of occupation and tenants
on the aforesaid lots;
5. To cause and effect the transfer of the aforesaid lots in the name of the
VENDEES;
6. To execute and deliver document/s or instrument of whatever nature
necessary to accomplish the foregoing acts and deeds. 19
It is significant to note that ten (10) years after the perfection and execution of the sale, or on
April 26, 2000, Bacaling filed a complaint to nullify the contract of sale. The suit was,
however, dismissed with prejudice and the dismissal has long become final and executory. 20
Following the sale of the one hundred ten (110) sub-lots and using the irrevocable special
power of attorney executed in his favor, petitioner Tong (together with Bacaling) filed a
petition for cancellation of the certificates of land transfer against respondents and a certain
Jaime Ruel with the Department of Agrarian Reform (DAR) Region VI Office in Iloilo
City. 21 The DAR, however, dismissed the petition on the ground that there had been no
legitimate conversion of the classification of the 110 sub-lots from agricultural to residential
prior to October 21, 1972 when Operation Land Transfer under P.D. No. 72 took
effect. 22 Bacaling and Tong appealed to the DAR Central Office but their appeal was
similarly rejected. 23 The motion for reconsideration failed to overturn the ruling of
the Central Office Order. 24
On September 19, 1997, Bacaling and Tong appealed the adverse DAR Orders to the Office of
the President which reversed themin toto in a Decision 25 dated May 22, 1998 (OP Decision,
for brevity), the dispositive portion of which reads:
WHEREFORE, premises [considered], the assailed order of the Regional
Director, DAR Region VI, dated April 3, 1996, as well as the orders of the
DAR Secretary dated December 12, 1996 and September 4, 1997, are
hereby REVERSED AND SET ASIDE and subject landholdings declared
exempt from coverage of the CARL. The Certificates of Land Transfer
(CLTs) issued to the appellees are hereby cancelled and the Department
of Agrarian Reform directed to implement the voluntary offer made by
appellant with respect to the payment of disturbance compensation and
relocation of the affected parties.
SO ORDERED. 26
The OP Decision found that the one hundred ten (110) parcels of land had been completely
converted from agricultural to residential lots as a result of the declarations of the NUPC and
the Bureau of Lands and the factual circumstances, i.e., the GSIS loan with real estate
mortgage, the division of the original three (3) parcels of land into one hundred ten (110)
sub-lots under individual certificates of title, and the establishment of residential
communities adjacent to the subject property, which indubitably proved the intention of
Nelita and Ramon Bacaling to develop a residential subdivision thereon. The OP Decision also
categorically acknowledged the competence of the NUPC and the Bureau of Lands to classify
the one hundred ten (110) sub-lots into residential areas. On July 22, 1999, separate motions
for reconsideration thereof were denied. 27
Respondents elevated the OP Decision to the Court of Appeals on a petition for review
under Rule 43 of the Rules of Civil Procedure 28 Before the petition was resolved, or on
December 2, 1999, Nelita Bacaling manifested to the appellate court that she was revoking

the irrevocable power of attorney in favor of Jose Juan Tong and that she was admitting the
status of respondents as her tenants of the one hundred ten (110) sub-lots which allegedly
were agricultural in character. The manifestation was however characterized by an obvious
streak of ambivalence when her prayer therein urged the Court of Appeals to decide the
case, curiously, "on the basis of the clear intent of Private Respondent" and "in accordance
with the perception of this Honorable Court."29
On January 31, 2001 the Court of Appeals reversed the OP Decision and validated the
certificates of land transfers in favor of respondents without however promulgating a ruling
on petitioner Tong's supposedly ensuing lack of material interest in the controversy as a
result of the manifestation. 30 The dispositive portion of the decision reads:
WHEREFORE, premises considered, petition is GRANTED; and the May 22,
1998 Decision of the Office of the President is hereby REVERSED and SET
ASIDE. The April 3, 1996 Order of the Regional Director, DARAB, Region
VI, is REINSTATED. 31
The appellate court refused to recognize the 1955 NUPC and Bureau of Lands classification of
the subject lots as residential subdivision. Tong moved for reconsideration of the CA
Decision which Bacaling did not oppose despite her manifestation. On June 5, 2001, again
without a single reference to Bacaling's alleged repudiation of Tong's actions, the Court of
Appeals denied reconsideration of its decision, 32 Hence, this petition for review
on certiorari based on the following assignment of errors:
I
SUBJECT LANDHOLDINGS ARE EXEMPT FROM THE COVERAGE OF P.D.
27 AND OPERATION LAND TRANSFER (1972, AS WELL (sic) THE
COMPREHENSIVE AGRARIAN REFORM LAW (1988) AS THEY WERE
CLASSIFIED AS RESIDENTIAL WAY BACK IN 1955 BY THE THEN NATIONAL
PLANNING COMMISSION AND THE SUBDIVISION PLAN WAS APPROVED BY
THE BUREAU OF LANDS. AS A CONSEQUENCE, THE CLTs ISSUED TO
PRIVATE RESPONDENTS IN OCTOBER, 1980 ARE INVALID AS HAVING BEEN
ISSUED WITHOUT JURISDICTION.
II
PRIVATE RESPONDENTS ARE NOT BONA FIDE TENANTS OF THE LANDS
INVOLVED. PUBLIC RESPONDENT'S RULING THAT THE LATTER ARE SUCH
IS CONTRARY TO LAW AS IT IGNORED THE FACT THAT THE
LANDHOLDINGS ARE RESIDENTIAL AND NO COMPETENT PROOF OF
CONSENT OF THE OWNER WAS EVER PRESENTED BY PRIVATE
RESPONDENTS.
III
APPROVAL OF THE SECRETARY OF AGRARIAN REFORM IS NOT NECESSARY
FOR THE VALID CLASSIFICATION OF THE LANDS INVOLVED INTO
RESIDENTIAL BECAUSE THE CARL, AS ALSO THE RELATED AGRARIAN
LAWS, HAVE NO RETROACTIVE APPLICATION. 33
Long after issues were joined in the instant proceedings, or on October 8, 2001, petitioner
Nelita Bacaling resurrected her manifestation with the Court of Appeals and moved to
withdraw/dismiss the present petition on the ground that the irrevocable power of attorney in
favor of petitioner Jose Juan Tong had been nullified by her and that Tong consequently lacked
the authority to appear before this Court. 34 She also manifested that, contrary to the
arguments of petitioner Tong, respondents were bona fide tenants of the one hundred ten
(110) sub-lots which were allegedly agricultural and not residential pieces of
realty. 35Accordingly, petitioner Tong was left all alone to pursue the instant case.

The issues in this case can be summarized as follows: (1) Does petitioner Tong have the
requisite interest to litigate this petition for review on certiorari?; (2) Are the respondents
agricultural lessees?; and (3) Are the one hundred ten (110) sub-lots admittedly classified for
residential use by the National Urban Planning Commission and the Bureau of Lands prior to
October 21, 1972 36covered by the Operation Land Transfer under P.D. No. 72?
We hold that petitioner Jose Juan Tong possesses adequate and legitimate interest to file the
instant petition. Under our rules of procedure, interest means material interest, that is, an
interest in issue and to be affected by the judgment, 37 while a real party-in-interest is the
party who would be benefited or injured by the judgment or the party entitled to the avails of
the suit. 38 There should be no doubt that as transferee of the one hundred ten (110) sublots through a contract of sale and as the attorney-in-fact of Nelita Bacaling, former owner of
the subject lots, under an irrevocable special power of attorney, petitioner Tong stands to be
benefited or injured by the judgment in the instant case as well as the orders and decisions in
the proceedings a quo. The deed of sale categorically states that petitioner Tong and his cosellers have fully paid for the subject parcels of land. The said payment has been duly
received by Bacaling. Hence, it stands to reason that he has adequate and material interest
to pursue the present petition to finality.
Respondents put too much weight on the motion to dismiss/withdraw filed by Nelita Bacaling.
Under the facts obtaining in this case, the motion should be treated cautiously, and more
properly, even skeptically. It is a matter of law that when a party adopts a certain theory in
the court below, he will not be permitted to change his theory on appeal, for to permit him to
do so would not only be unfair to the other party but it would also be offensive to the basic
rules of fair play, justice and due process. 39 Bacaling's motion to dismiss the instant petition
comes at the heels of her admission that she had immensely benefited from selling the said
one hundred ten (110) sub-lots to petitioner Tong and of the dismissal with prejudice of the
civil case which she had earlier filed to nullify the sale. 40 It appears that the motion to
dismiss is a crude and belated attempt long after the dismissal of the civil case to divest Tong
of his indubitable right of ownership over the one hundred ten (110) sub-lots through the
pretext of revoking the irrevocable special power of attorney which Bacaling had executed in
his favor hoping that in the process that her act would cause the assailed orders of the DAR
to become final and executory.
The records also bear out the fact that Bacaling's design to dispossess petitioner Tong of
material interest in the subject matter of the instant petition appears to be subtly coordinated
with respondents' legal maneuvers when it began as a side pleading (a mereManifestation) in
the proceedings before the Court of Appeals (CA-G.R. SP No. 54413 and CA-G.R. SP No.
54414) but which was never pursued to its ultimate conclusion until it again surfaced before
this Court long after respondents' voluminous comment to the instant petition had been filed.
Under these circumstances, we certainly cannot place our trust upon such an unsolicited
motion having dubious roots, character and purpose.
Substantively, we rule that Bacaling cannot revoke at her whim and pleasure the irrevocable
special power of attorney which she had duly executed in favor of petitioner Jose Juan Tong
and duly acknowledged before a notary public. The agency, to stress, is one coupled with
interest which is explicitly irrevocable since the deed of agency was prepared and signed
and/or accepted by petitioner Tong and Bacaling with a view to completing the performance
of the contract of sale of the one hundred ten (110) sub-lots. It is for this reason that the
mandate of the agency constituted Tong as the real party-in-interest to remove all clouds on
the title of Bacaling and that, after all these cases are resolved, to use the irrevocable special
power of attorney to ultimately "cause and effect the transfer of the aforesaid lots in the
name of the vendees [Tong with two (2) other buyers] and execute and deliver document/s or

instrument of whatever nature necessary to accomplish the foregoing acts and

deeds." 41 The fiduciary relationship inherent in ordinary contracts of agency is replaced by
material consideration which in the type of agency herein established bars the removal or
dismissal of petitioner Tong as Bacaling's attorney-in-fact on the ground of alleged loss of
trust and confidence.
While Bacaling alleges fraud in the performance of the contract of agency to justify its
revocation, it is significant to note that allegations are not proof, and that proof requires the
intervention of the courts where both petitioners Tong and Bacaling are heard. Stated
otherwise, Bacaling cannot vest in herself just like in ordinary contracts the unilateral
authority of determining the existence and gravity of grounds to justify the rescission of the
irrevocable special power of attorney. In Sevilla v. Court of Appeals42 we thus held
But unlike simple grants of a power of attorney, the agency that we
hereby declare to be compatible with the intent of the parties, cannot be
revoked at will. The reason is that it is one coupled with an interest, the
agency having been created for the mutual interest of the agent and the
principal . . . [Petitioner's] interest, obviously, is not limited to the
commissions she earned as a result of her business transactions, but one
that extends to the very subject matter of the power of management
delegated to her. It is an agency that, as we said, cannot be revoked at
the pleasure of the principal. Accordingly, the revocation complained of
should entitle the petitioner . . . to damages.
The requirement of a judicial process all the more assumes significance in light of the
dismissal with prejudice, hence, res judicata, of Bacaling's complaint to annul the
contract of sale which in turn gave rise to the irrevocable special power of attorney. It is
clear that prima facie there are more than sufficient reasons to deny the revocation of
the said special power of attorney which is coupled with interest. Inasmuch as no
judgment has set aside the agency relationship between Bacaling and Tong, we rule that
petitioner Tong maintains material interest to prosecute the instant petition with or
without the desired cooperation of Bacaling.
On the issue of whether the private respondents are agricultural tenants and entitled to the
benefits accorded by our agrarian laws, we rule in the negative. The requisites in order to
have a valid agricultural leasehold relationship are: (1) The parties are the landowner and the
tenant or agricultural lessee; (2) The subject matter of the relationship is agricultural land; (3)
There is consent between the parties to the relationship; (4) the purpose of the relationship is
to bring about agricultural production; (5) There is personal cultivation on the part of the
tenant or agricultural lessee; and (6) The harvest is shared between the landowner and the
tenant or agricultural lessee.
We find that the first, third and sixth requisites are lacking in the case at bar. One legal
conclusion adduced from the facts inGovernment Service Insurance System v. Court of
Appeals 43 provides that GSIS, not Bacaling, was the owner of the subject properties from
1961 up to 1989 as a result of the foreclosure and confirmation of the sale of the subject
properties. Although the confirmation only came in 1975, the ownership is deemed to have
been vested to GSIS way back in 1961, the year of the sale of the foreclosed properties. This
is due to the fact that the date of confirmation by the trial court of the foreclosure sale
retroacts to the date of the actual sale itself. 44
Thus, the respondents cannot validly claim that they are legitimate and recognized tenants of
the subject parcels of land for the reason that their agreement to till the land was not with
GSIS, the real landowner. There is no showing that GSIS consented to such tenancy
relationship nor is there proof that GSIS received a share in the harvest of the tenants.

Consequently, the respondents cannot claim security of tenure and other rights accorded by
our agrarian laws considering that they have not been validly instituted as agricultural
lessees of the subject parcels of land. And from the time Bacaling recovered the subject
properties from GSIS up to the time the former changed her legal position in the instant case,
Bacaling has consistently disclaimed respondents as her alleged tenants. Bacaling's current
legal posture cannot also overturn our finding since, as earlier mentioned, the said change of
mind of Bacaling has little or no evidentiary weight under the circumstances.
The respondents argue that GSIS cannot be considered as the owner of the said properties
from 1961 up to 1989 inasmuch as the foreclosure proceedings that started in 1957 only
attained finality during its promulgation by this Court in 1989. Respondents contend that
GSIS was the owner of the said parcels of land only from 1989.
We disagree. The pendency of the GSIS case cannot be construed as a maintenance of status
quo with Bacaling as the owner from 1957 up to 1989 for the reason that what was appealed
to this Court was only the issue of redemption, and not the validity of the foreclosure
proceedings including the public auction sale, the confirmation of the public auction sale and
the confirmation and transfer of ownership of the foreclosed parcels of land to GSIS. The
ownership of GSIS over the subject parcels of land was not disputed. It was the existence of
the right to redeem in a judicial foreclosure that was the subject of the controversy. We ruled
that there was no longer any right of redemption in a judicial foreclosure proceeding after the
confirmation of the public auction. Only foreclosures of mortgages in favor of banking
institutions and those made extrajudicially are subject to legal redemption. Since GSIS is not
a banking institution and the procedure of the foreclosure is not extrajudicial in nature, no
right of redemption exists after the judicial confirmation of the public auction sale of the said
lots.
With respect to the third issue, we find that the one hundred ten (110) sub-lots are indeed
residential. In Tiongson v. Court of Appeals 45 we held that if the lot in question is not an
agricultural land then the rules on agrarian reform do not apply since the "key factor in
ascertaining whether there is a landowner-tenant relationship . . . is the nature of the
disputed property. 46 We reiterated this rule in Natalia Realty, Inc. v. Department of Agrarian
Reform 47 where we excluded lands not devoted to agricultural activity, i.e., lands previously
converted to non-agricultural or residential uses prior to the effectivity of the 1988 agrarian
reform law (R.A. No. 6657) by agencies other than the DAR, from the coverage of agrarian
reform. The statement of the rule is buttressed by P.D. No. 27 which by its terms applies only
to "tenant-farmers of private agricultural lands primarily devoted to rice and corn under a
system of shared-crop or lease tenancy, whether classified as landed estate or not." 48
In the case at bar, the indubitable conclusion from established facts is that the one hundred
ten (110) sub-lots, originally three (3) parcels of land, have been officially classified as
residential since 1955. The classification began when the NUPC and the Bureau of Lands
approved the subdivision of the original three (3) parcels of land into one hundred ten (110)
sub-lots each covered with transfer certificates of title. To build the subdivision project, Nelita
Bacaling then obtained a real estate mortgage loan from the GSIS which she used to fund the
project but he was unfortunately unable to complete it due to the immensity of the project
cost. Bacaling undertook to complete the sale of the subdivision when in 1978 she obtained
the registration thereof with the National Housing Authority as well as a license to sell
individually the one hundred ten (110) sub-lots. Earlier, in 1977, the City Council of Iloilo also
recognized the residential classification of the same one hundred ten (110) sub-lots when it
passed the Land Use Plan and Zoning Ordinance. In 1990, Bacaling sold the same parcels of
land to petitioner Tong who obviously wanted to pursue the development of the subdivision
project. It is clear that Tong bought the property for residential and not agricultural purposes

upon the strong assurance of Bacaling that the one hundred ten (110) sub-lots were legally
available for such prospect. To be sure, the subject lots were valuable in the buyer's market
only for residential use as shown by the example of adjacent lots which had long been
utilized for building subdivisions and the implausibility of believing that Tong would buy the
lands only to lose them at a bargain to agrarian reform. 49
Clearly, both intention and overt actions show the classification of the one hundred ten (110)
sub-lots for residential use. There can be no other conclusion from the facts obtaining in the
instant case. Indeed, one cannot imagine Nelita Bacaling borrowing the substantial amount of
Six Hundred Thousand Pesos (P600,000.00) from the GSIS and spending Two Hundred Fifty
Thousand Pesos (P250,000.00) for the purpose of developing and subdividing the original
three (3) parcels of land into one hundred ten (110) homelots, with individual transfer
certificates of title ready and available for sale, if her purported desire were to keep the
landholding for agricultural purposes. It also makes no sense that petitioner Tong would
invest so much money, time and effort in these sub-lots for planting and cultivating
agricultural crops when all the mechanisms are already in place for building a residential
community. One cannot likewise deny the consistent official government action which
decreed the said one hundred ten (110) sub-lots as most appropriate for human settlements
considering that for several times beginning in 1955 and in accordance with relevant laws
and regulations, the said landholding was categorically reserved as a residential subdivision.
It is also grave error to gloss over the NUPC action since its declarations have long been
recognized in similar cases as the present one as clear and convincing evidence of residential
classification. In Magno-Adamos v. Bagasao 50 we found the endorsements of the NUPC
approving albeit tentatively a subdivision plan to be a very strong evidence of conversion of
the disputed parcels of land into a residential subdivision which would contradict the alleged
tenancy relationship. We found nothing objectionable in the trial court's ruling in Santos v. de
Guzman 51 ejecting an alleged tenant from the landholding "because the same was included
in
a
homesite
subdivision
duly
approved
by
the
National
Planning
Commission." 52 In Republic v. Castellvi 53 we gave great weight to the certification of the
NUPC that the subject parcels of land were classified as residential areas and ordered their
appraisal as residential and not agricultural lands
The lower court found, and declared, that the lands of Castellvi and
Toledo-Gozun are residential lands. The finding of the lower court is in
consonance with the unanimous opinion of the three commissioners who,
in their report to the court, declared that the lands are residential lands.
The Republic assails the finding that the lands are residential, contending
that the plans of the appellees to convert the lands into subdivision for
residential purposes were only on paper, there being no overt acts on the
part of the appellees which indicated that the subdivision project had
been commenced . . . . We find evidence showing that the lands in
question had ceased to be devoted to the production of agricultural
crops, that they had become adaptable for residential purposes, and that
the appellees had actually taken steps to convert their lands into
residential subdivisions . . . . The evidence shows that Castellvi broached
the idea of subdividing her land into residential lots as early as July 11,
1956 in her letter to the Chief of Staff of the Armed Forces of the
Philippines . . . . As a matter of fact, the layout of the subdivision plan
was tentatively approved by the National Planning Commission on
September 7, 1956 . . . . The land of Castellvi had not been devoted to
agriculture since 1947 when it was leased to the Philippine Army. In 1957
said land was classified as residential, and taxes based on its

classification as residential had been paid since then . . . . The location of

the Castellvi land justifies its suitability for a residential subdivision.
The NUPC was created under EO 98, s. of 1946 54 to "prepare general plans, zoning
ordinances, and subdivision regulations, to guide and accomplish a coordinated, adjusted,
harmonious reconstruction and future development of urban areas which will in accordance
with present and future needs, best promote health, safety, morals, order, convenience,
prosperity, and general welfare, as well as efficiency and economy in the process of
development; including among other things adequate provisions for traffic, the promotion of
safety from fire and other dangers, adequate provision for light and air, the promotion of
healthful and convenient distribution of populations . . . ." 55 Under the express terms of its
mandate, the NUPC was therefore duty-bound to act only upon realty projects which would be
used for human settlements and not for agricultural purposes. It is in this light that we must
take stock of the 1955 NUPC conversion of the one hundred ten (110) sub-lots from
agricultural to residential classification.
To bolster the exclusive role of the NUPC over developmental projects for residential and
industrial purposes, the term "subdivision" (which NUPC was mandated to review and if
properly executed to approve) was defined in EO 98 as "the division of a tract or parcel of
land into two (2) or more lots, sites or other divisions for the purpose, whether immediate or
future, of sale or building development, and includes resubdivision, and when appropriate to
the context, relates to the process of subdividing or to the land or area
subdivided." 56 The Subdivision Regulations 57 (which the NUPC adopted pursuant to EO 98)
decreed as mandatory the NUPC approval of all subdivisions of land in the Philippines
intended for residential, commercial and industrial purposes, before lots comprising the
subdivision could be legally sold or building development therein could validly commence
Any owner of land wishing to subdivide land shall submit to the Director
of Planning [who was the head of NUPC] a plat of the subdivision which
shall conform to the requirements set forth in these Regulations. No
subdivider shall proceed with the sale of lots of a subdivision and no plat
of a subdivision shall be filed with the Director of Lands for approval or
recorded in the Office of the Register of Deeds until such plat shall have
been approved by the Director of Planning.Applications for plat approval
submitted to the District or City Engineer of a town or city in the
Philippines shall be forwarded to the Director of Planning together with
the District or City Engineer's recommendations (italics supplied).
We are convinced that the 1955 approval by the NUPC of the subdivision of the subject three
(3) parcels of land owned by Nelita Bacaling and her spouse into one hundred ten (110) sublots caused the conversion, if not outright classification, of the entire landholding into a
residential community for sale to interested buyers. This is an official classification of the sublots as residential units and constitutes the only objective and effectual means of obtaining in
1955 the classification and reservation of private land for non-agricultural use, i.e. residential,
industrial or commercial, since neither P.D. No. 27 nor R.A. No. 6657 58 (together with the
specified formal mechanisms stipulated therein for converting a piece of agricultural land into
a residential lot) were then binding and effective. The assignment or conversion of the one
hundred ten (110) sub-lots for residential purposes was not abrogated byP.D. No. 27 under
which respondents invalidly secured their certificates of land transfer since the decree was
only prospectively effective 59 and its coverage was limited only to agricultural lands which
clearly do not include the residential sub-lots in question.60

By virtue of the official classification made by NUPC and the other circumstances convincingly
proved herein, the only fair and legally acceptable decision in the instant case would be to
declare, as we now indeed rule, that the one hundred ten (110) sub-lots are truly residential
in character as well as in purpose and are thus excluded from the coverage of P.D. No. 27.
Verily, the Certificates of Land Transfer (CLT) issued in respondents' names are not valid and
do not change our ruling. The respondents cannot rely on said CLTS as proof of security of
tenure. It is well settled that the certificates of land transfer are not absolute evidence of
ownership of the subject lots 61 and consequently do not bar the finding that their issuance
is void from inception since they cover residential lands contrary to the mandate of P.D. No.
27. It follows from the fact of nullity of the certificates of land transfer in respondents' names
that the respondents are not entitled to occupy and possess the one hundred ten (110) sublots or portions thereof without the consent of the owner, herein petitioner Tong.
While not raised as issues in the instant petition, we nevertheless rule now (conformably
with Gayos v. Gayos 62 that it is a cherished rule of procedure that a court should always
strive to settle the entire controversy in a single proceeding leaving no root or branch to bear
the seeds of future litigation) that respondents cannot claim disturbance compensation for
the reason that the sub-lots are not and have never been available for agrarian reform. In the
same vein, respondents also have no right to be reimbursed by petitioner Jose Juan Tong for
the value of or expenses for improvements which they might have introduced on the one
hundred ten (110) sub-lots since they did not allege nor prove the existence of such
improvements and their right to compensation thereto, if any. 63
WHEREFORE, the Petition for Review is GRANTED. It is further ordered and adjudged that:
1. The certificates of land transfer over the one hundred ten (110) sub-lots located in
Barangay Cubay, Jaro, Iloilo City, in the name of respondents and/or their successors-ininterest are hereby DECLARED VOID AB INITIO. The said one hundred ten (110) sub-lots,
covered by TCT Nos. T-10664 to T-10773 of the Registry of Deeds of the City of Iloilo, are
declared outside the coverage and operation of P.D. No. 27 and other land reform laws.
2. The consolidated Decision of the Court of Appeals in CA-G.R. SP No. 54413 ("Felomino
Muya and Crispin Amor v. Nelita Bacaling, represented by her attorney-in fact, Jose Juan Tong,
and the Executive Secretary, Office of the President") and in CA-G.R. SP No. 54414, ("Wilfredo
Jereza, Rodolfo Lazarte and Nemesio Tonocante v. Hon. Executive Secretary, Office of the
President and Nelita Bacaling") and its Resolution dated June 5, 2001 denying
petitioners' Motion for Reconsideration are REVERSED AND SET ASIDE.
3. The Decision dated May 22, 1998 and the Resolution dated July 22, 1999 of the Office of
the President in O.P. Case No. 98-K-8180 are REINSTATED with the modification in that the
respondents are not entitled to disturbance compensation; and
4. Respondents Felomino Muya, Crispin Amor, Wilfredo Jereza, Rodolfo Lazarte and Nemesio
Tonocante together with their assigns and successors-in-interest are ordered to vacate and
surrender peacefully the possession of the one hundred ten (110) sub-lots, covered by TCT
Nos. T-10664 to T-10773-Iloilo City, to petitioner Jose Juan Tong within thirty (30) days from
notice of this Decision.
No pronouncement as to costs.
SO ORDERED.