I. Nature (A. Definition, B.

Purpose; scope and essential elements; basis) court, both Simeon and his sister Gerundia died and they were substituted by the
respective administrators of their estates.
G.R. No.L-24332, January 31, 1978 MUÑOZ PALMA, J.:
After trial, the court a quo rendered judgment with the following dispositive portion:
PETITIONER: RAMON RALLOS, ADMINISTRATOR OF THE ESTATE OF CONCEPCION RALLOS
"A. On Plaintiff's Complaint -
RESPONDENTS: FELIX GO CHAN AND SONS REALTY CORPORATION AND COURT OF APPEALS,

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 name 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 was dropped from the complaint.
The complaint was amended twice; defendant Corporation's Answer con-tained a
cross-claim against its co-defendant, Simeon Rallos, while the latter filed a third-party
complaint against his sister, Gerundia Rallos. While the case was pending in the trial
(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-Estate 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 corpo-ration sustaining the sale in
question. The appellee-administrator, Ramon Rallos, moved for a reconsideration of
the decision but the same was denied in a resolution of March 4, 1965.
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. 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. Article
1403 (1) of the same Code also provides:
"ART. 1403. The following contracts are unenforceable, unless they
are ratified: "(1) Those entered into in the name of another person by
one who has been given no authority or legal representation or who
has acted beyond his powers; x x x."
Out of the above given principles, sprung the creation and acceptance of the
relationship of agency whereby one party, called the principal (mandante), authorizes
another, called the agent (mandatario), to act for and in his behalf in transactions with
third persons. The essential elements of agency are: (1) there is consent, express or
implied, of the parties to establish the relationship; (2) the object is the execution of a
juridical act in relation to a third person; (3) the agent acts as a representative and not for
himself; and (4) the agent acts within the scope of his authority.
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: “xx xx xx "3. By the death, civil
interdiction, insanity or insolvency of the principal or of the agent; x x x."
(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 of 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 established. 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.
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 of the
death of the principal or of any other cause which extinguishes the
agency, is valid and shall be fully effective with respect to third
persons who may have contracted with him in good faith.
Article 1930 is not involved because admittedly the special power of attorney executed
in favor of Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after
the death of his principal is valid and effective only under two conditions, viz: (1) that
the agent acted without knowledge of the death of the principal, and (2) that the third
person who contracted with the agent himself acted in good faith. Good faith here
means that the third person was not aware of the death of the principal at the time he
contracted with said agent. These two requisites must concur: the absence of one will
render the act of the agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the
death of his principal at the time he sold the latter's share in Lot No. 5983 to respondent
corporation. The knowledge of the death is clearly to be inferred from the pleadings
filed by Simeon Rallos before the trial court. That Simeon Rallos knew of the death of
his sister Concepcion is also a finding of fact of the court a quo 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."
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. To the
same effect is the case of Herrera, et al. v. Luy Kim Guan, et al., 1961, where in the words
of Justice Jesus Barrera the Court stated:
"x x x 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.
We cannot see the merits of the foregoing argument as it ignores the existence of the
general rule enunciated in Article 1919 that the death of the principal extinguishes the
agency. That being the general rule it follows a fortiori that any act of 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.
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 persons
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, 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."
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 forging 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.
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 Angela 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
new certificate or to make a memorandum of registration in
accordance with such instrument, 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. xx xx xx " (Act No. 496 as amended)
7. One last point raised by respondent corporation in support of the appealed decision
is an 1842 rulings 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:
"x x x 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 is
intended to say that this principle applies where there was no notice
of death, or opportunity of notice, I must be permitted to dissent from
it.
"x x x That a payment may be good today, or bad tomorrow, from
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; italics 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 principle in its broadest scope.' " (52 Misc. 353,
357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the
opinion, except so far as it related to the particular facts, was a mere dictum, Baldwin, J.
said: " 'The opinion, therefore, of the learned Judge may be regarded more as an
extrajudicial indication of his views on the general subject, than as the adjudication of the
Court upon the point in question. But according 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.
from STM authorizing CSC "to withdraw for and in our behalf the refined sugar
covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated
October 16, 1989 in the total quantity of 25,000 bags."
On October 27, 1989, STM issued 16 checks in the total amount of
P31,900,000.00 with petitioner as payee. The latter, in turn, issued Official
Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said
checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also
covered SLDR No. 1213.

G.R. No. 117356, June 19, 2000 - QUISUMBING, J.: Private respondent CSC surrendered SLDR No. 1214M to the petitioner's
NAWACO warehouse and was allowed to withdraw sugar. However, after 2,000
PETITIONER: VICTORIAS MILLING CO., INC. bags had been released, petitioner refused to allow further withdrawals of sugar
against SLDR No. 1214M. CSC then sent petitioner a letter dated January 23, 1990
RESPONDENTS: COURT OF APPEALS AND CONSOLIDATED SUGAR CORPORATION
informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it
had been refused further withdrawals of sugar from petitioner's warehouse
Before us is a petition for review on certiorari under Rule 45 of the Rules of
despite the fact that only 2,000 bags had been withdrawn. CSC thus inquired
Court assailing the decision of the Court of Appeals dated February 24, 1994, in
when it would be allowed to withdraw the remaining 23,000 bags.
CA-G.R. CV No. 31717, as well as the respondent court's resolution of
September 30, 1994 modifying said decision. Both decision and resolution
On January 31, 1990, petitioner replied that it could not allow any further
amended the judgment dated February 13, 1991, of the Regional Trial Court of
withdrawals of sugar against SLDR No. 1214M because STM had already
Makati City, Branch 147, in Civil Case No. 90-118.
dwithdrawn all the sugar covered by the cleared checks.[6]
The facts of this case as found by both the trial and appellate courts are as
On March 2, 1990, CSC sent petitioner a letter demanding the release of the
follows:
balance of 23,000 bags.
St. Therese Merchandising (hereafter STM) regularly bought sugar from
Seven days later, petitioner reiterated that all the sugar corresponding to the
petitioner Victorias Milling Co., Inc., (VMC). In the course of their dealings,
amount of STM's cleared checks had been fully withdrawn and hence, there
petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as
would be no more deliveries of the commodity to STM's account. Petitioner also
proof of purchases. Among these was SLDR No. 1214M, which gave rise to the
noted that CSC had represented itself to be STM's agent as it had withdrawn the
instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of
2,000 bags against SLDR No. 1214M "for and in behalf" of STM.
sugar. Each bag contained 50 kilograms and priced at P638.00 per bag as "per
sales order VMC Marketing No. 042 dated October 16, 1989." The transaction
On April 27, 1990, CSC filed a complaint for specific performance, docketed as
it covered was a "direct sale." The SLDR also contains an additional note
Civil Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under
which reads: "subject for (sic) availability of a (sic) stock at NAWACO
the name of St. Therese Merchandising) and herein petitioner. Since the former
(warehouse)."
could not be served with summons, the case proceeded only against the latter.
During the trial, it was discovered that Teresita Ng Go who testified for CSC was
On October 25, 1989, STM sold to private respondent Consolidated Sugar
the same Teresita Ng Sy who could not be reached through summons.[7] CSC,
Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued
however, did not bother to pursue its case against her, but instead used her as its
one check dated October 25, 1989 and three checks postdated November 13,
witness.
1989 in payment. That same day, CSC wrote petitioner that it had been
authorized by STM to withdraw the sugar covered by SLDR No. 1214M.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered
Enclosed in the letter were a copy of SLDR No. 1214M and a letter of authority
by SLDR No. 1214M. Therefore, the latter had no justification for refusing
delivery of the sugar. CSC prayed that petitioner be ordered to deliver the
23,000 bags covered by SLDR No. 1214M and sought the award of
P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages,
P2,200,000.00 as attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the
23,000 bags. Since STM had already drawn in full all the sugar corresponding to
the amount of its cleared checks, it could no longer authorize further delivery
of sugar to CSC. Petitioner also contended that it had no privity of contract
with CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents
of title, but mere delivery receipts issued pursuant to a series of transactions
entered into between it and STM. The SLDRs prescribed delivery of the sugar
to the party specified therein and did not authorize the transfer of said party's
rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually
STM's co-conspirator to defraud it through a misrepresentation that CSC was
an innocent purchaser for value and in good faith. Petitioner then prayed that
CSC be ordered to pay it the following sums: P10,000,000.00 as moral damages;
P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees.
Petitioner also prayed that cross-defendant STM be ordered to pay it
P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on
the merits.
As earlier stated, the trial court rendered its judgment favoring private
respondent CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of
the plaintiff and against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags
of refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as
unrealized profits, the amount of P800,000.00 as exemplary damages and the amount
of P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of
refined sugar in the amount of P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase
price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No.
1214 as well as the purchase price of P15,950,000.00 for the 25,000 bags of sugar bought
by her covered by SLDR No. 1213 on the same date, October 16, 1989 (date of the two
SLDRs) is duly supported by Exhibits C to C-15 inclusive which are post-dated checks dated
October 27, 1989 issued by St. Therese Merchandising in favor of Victorias Milling
Company at the time it purchased the 50,000 bags of sugar covered by SLDR No. 1213 and
1214. Said checks appear to have been honored and duly credited to the account of
Victorias Milling Company because on October 27, 1989 Victorias Milling Company issued
official receipt no. 34734 in favor of St. Therese Merchandising for the amount of
P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita Ng Go is further supported
by Exhibit F, which is a computer printout of defendant Victorias Milling Company showing
the quantity and value of the purchases made by St. Therese Merchandising, the SLDR no.
issued to cover the purchase, the official reciept no. and the status of payment. It is clear
in Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same has been
fully paid as indicated by the word 'cleared' appearing under the column of 'status of
payment.'
"On the other hand, the claim of defendant Victorias Milling Company that the purchase
price of the 25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR
No. 1214 has not been fully paid is supported only by the testimony of Arnulfo Caintic,
witness for defendant Victorias Milling Company. The Court notes that the testimony of
Arnulfo Caintic is merely a sweeping barren assertion that the purchase price has not been
fully paid and is not corroborated by any positive evidence. There is an insinuation by
Arnulfo Caintic in his testimony that the postdated checks issued by the buyer in payment
of the purchased price were dishonored. However, said witness failed to present in Court
any dishonored check or any replacement check. Said witness likewise failed to present
any bank record showing that the checks issued by the buyer, Teresita Ng Go, in payment
of the purchase price of the sugar covered by SLDR No. 1214 were dishonored."
Petitioner appealed the trial court's decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part of a series
of transactions involving only one account or one general contract of sale. Pursuant to this
contract, STM or any of its authorized agents could withdraw bags of sugar only against
cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM and
since the latter had already withdrawn its full quota of sugar under the said SLDR, CSC was
already precluded from seeking delivery of the 23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M
were separate and independent transactions and that the details of the series of
purchases were contained in a single statement with a consolidated summary of cleared
check payments and sugar stock withdrawals because this a more convenient system
than issuing separate statements for each purchase.
The appellate court considered the following issues: (a) Whether or not the transaction
between petitioner and STM involving SLDR No. 1214M was a separate, independent,
and single transaction; (b) Whether or not CSC had the capacity to sue on its own on
SLDR No. 1214M; and (c) Whether or not CSC as buyer from STM of the rights to 25,000
bags of sugar covered by SLDR No. 1214M could compel petitioner to deliver 23,000
bags allegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision modifying the trial
court's judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and
orders defendant-appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR
No. 1214M;
" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of
the undelivered bags of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its decision to
read:
"WHEREFORE, the Court hereby modifies the assailed judgment and
orders defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under
SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit `F' We relied upon in fixing the number of bags of sugar which
remained undelivered as 12,586 cannot be made the basis for such a
finding. The rule is explicit that courts should consider the evidence
only for the purpose for which it was offered. (People v. Abalos, et al,
1 CA Rep 783). The rationale for this is to afford the party against whom
the evidence is presented to object thereto if he deems it necessary.
Plaintiff-appellee is, therefore, correct in its argument that Exhibit `F'
which was offered to prove that checks in the total amount of
P15,950,000.00 had been cleared. (Formal Offer of Evidence for Plaintiff,
Records p. 58) cannot be used to prove the proposition that 12,586 bags
of sugar remained undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990,
p. 33] and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36])
presented by plaintiff-appellee was to the effect that it had withdrawn
only 2,000 bags of sugar from SLDR after which it was not allowed to
withdraw anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K,
Id., p. 80) show that plaintiff-appellee had sent demand letters to
defendant-appellant asking the latter to allow it to withdraw the
remaining 23,000 bags of sugar from SLDR 1214M. Defendant-appellant,
on the other hand, alleged that sugar delivery to the STM corresponded
only to the value of cleared checks; and that all sugar corresponded to
cleared checks had been withdrawn. Defendant-appellant did not rebut
plaintiff-appellee's assertions. It did not present evidence to show how
many bags of sugar had been withdrawn against SLDR No. 1214M,
precisely because of its theory that all sales in question were a series of
one single transaction and withdrawal of sugar depended on the clearing
of checks paid therefor.
"After a second look at the evidence, We see no reason to overturn the
findings of the trial court on this point."
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private
respondent's specially informing petitioner that respondent was
authorized by buyer STM to withdraw sugar against SLDR No. 1214M
"for and in our (STM) behalf," (emphasis in the original) private
respondent's withdrawing 2,000 bags of sugar for STM, and STM's
empowering other persons as its agents to withdraw sugar against the
same SLDR No. 1214M, rendered respondent like the other persons, an
agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA
252, and precluded it from subsequently claiming and proving being an
assignee of SLDR No. 1214M and from suing by itself for its enforcement
because it was conclusively presumed to be an agent (Sec. 2, Rule 131,
Rules of Court) and estopped from doing so. (Art. 1431, Civil Code).
" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring
and disregarding certain relevant and undisputed facts which, had
they been considered, would have shown that petitioner was not
liable, except for 69 bags of sugar, and which would justify review of
its conclusion of facts by this Honorable Court.
" 3. The Court of Appeals misapplied the law on compensation under
Arts. 1279, 1285 and 1626 of the Civil Code when it ruled that
compensation applied only to credits from one SLDR or contract and
not to those from two or more distinct contracts between the same
parties; and erred in denying petitioner's right to setoff all its credits
arising prior to notice of assignment from other sales or SLDRs against
private respondent's claim as assignee under SLDR No. 1214M, so as
to extinguish or reduce its liability to 69 bags, because the law on
compensation applies precisely to two or more distinct contracts
between the same parties (emphasis in the original).
"4. The Court of Appeals erred in concluding that the settlement or
liquidation of accounts in Exh. `F' between petitioner and STM,
respondent's admission of its balance, and STM's acquiescence
thereto by silence for almost one year did not render Exh. `F' an
account stated and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of
the assigned SLDR No. 1214, namely, (a) its subject matter being
generic, and (b) the sale of sugar being subject to its availability at the
Nawaco warehouse, made the sale conditional and prevented STM or
private respondent from acquiring title to the sugar; and the
non-availability of sugar freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands"
doctrine precluded respondent from seeking judicial reliefs (sic) from
petitioner, its only remedy being against its assignor."
Simply stated, the issues now to be resolved are:
(1) Whether or not the Court of Appeals erred in not ruling that CSC
was an agent of STM and hence, estopped to sue upon SLDR No.
1214M as an assignee.
(2) Whether or not the Court of Appeals erred in applying the law on
compensation to the transaction under SLDR No. 1214M so as to
preclude petitioner from offsetting its credits on the other SLDRs.
(3) Whether or not the Court of Appeals erred in not ruling that the sale
of sugar under SLDR No. 1214M was a conditional sale or a contract to
sell and hence freed petitioner from further obligations.
(4) Whether or not the Court of Appeals committed an error of law in
not applying the "clean hands doctrine" to preclude CSC from seeking
judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for the first
time on appeal. It is settled that an issue which was not raised during the trial in the court
below could not be raised for the first time on appeal as to do so would be offensive to the
basic rules of fair play, justice, and due process. Nonetheless, the Court of Appeals opted
to address this issue, hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar
against SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion of
said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative
to withdraw for and in our behalf (stress supplied) the refined sugar
covered by Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214
dated October 16, 1989 in the total quantity of 25, 000 bags."
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds himself to render
some service or to do something in representation or on behalf of
another, with the consent or authority of the latter."
It is clear from Article 1868 that the basis of agency is representation. On the part of the
principal, there must be an actual intention to appoint or an intention naturally inferable
from his words or actions; and on the part of the agent, there must be an intention to
accept the appointment and act on it, and in the absence of such intent, there is
generally no agency. One factor which most clearly distinguishes agency from other legal
concepts is control; one person - the agent - agrees to act under the control or direction of
another - the principal. Indeed, the very word "agency" has come to connote control by
the principal. The control factor, more than any other, has caused the courts to put
contracts between principal and agent in a separate category. The Court of Appeals, in
finding that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent
upon the acts of the parties, the law makes no presumption of agency,
and it is always a fact to be proved, with the burden of proof resting
 upon the persons alleging the agency, to show not only the fact of its
existence, but also its nature and extent (Antonio vs. Enriquez [CA], 51
O.G. 3536]. Here, defendant-appellant failed to sufficiently establish
the existence of an agency relation between plaintiff-appellee and
STM. The fact alone that it (STM) had authorized withdrawal of sugar
by plaintiff-appellee "for and in our (STM's) behalf" should not be
eyed as pointing to the existence of an agency relation ...It should be
viewed in the context of all the circumstances obtaining. Although it
would seem STM represented plaintiff-appellee as being its agent by
the use of the phrase "for and in our (STM's) behalf" the matter was
cleared when on 23 January 1990, plaintiff-appellee informed
defendant-appellant that SLDFR No. 1214M had been "sold and
endorsed" to it by STM (Exhibit I, Records, p. 78). Further,
plaintiff-appellee has shown that the 25, 000 bags of sugar covered by
the SLDR No. 1214M were sold and transferred by STM to it ...A
conclusion that there was a valid sale and transfer to plaintiff-appellee
may, therefore, be made thus capacitating plaintiff-appellee to sue in
its own name, without need of joining its imputed principal STM as
co-plaintiff."
In the instant case, it appears plain to us that private respondent CSC was a buyer of the
SLDFR form, and not an agent of STM. Private respondent CSC was not subject to STM's
control. The question of whether a contract is one of sale or agency depends on the
intention of the parties as gathered from the whole scope and effect of the language
employed. That the authorization given to CSC contained the phrase "for and in our
(STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention
of the parties. That no agency was meant to be established by the CSC and STM is
clearly shown by CSC's communication to petitioner that SLDR No. 1214M had been
"sold and endorsed" to it. The use of the words "sold and endorsed" means that STM
and CSC intended a contract of sale, and not an agency. Hence, on this score, no error
was committed by the respondent appellate court when it held that CSC was not STM's
agent and could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions entered into
between petitioner and STM are but serial parts of one account, petitioner insists that
its debt has been offset by its claim for STM's unpaid purchases, pursuant to Article
1279 of the Civil Code. However, the trial court found, and the Court of Appeals
concurred, that the purchase of sugar covered by SLDR No. 1214M was a separate and
independent transaction; it was not a serial part of a single transaction or of one
account contrary to petitioner's insistence. Evidence on record shows, without being
rebutted, that petitioner had been paid for the sugar purchased under SLDR No. 1214M.
Petitioner clearly had the obligation to deliver said commodity to STM or its assignee.
Since said sugar had been fully paid for, petitioner and CSC, as assignee of STM, were not
mutually creditors and debtors of each other. No reversible error could thereby be
imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil
Code to the present case.
Regarding the third issue, petitioner contends that the sale of sugar under SLDR No.
1214M is a conditional sale or a contract to sell, with title to the sugar still remaining with
the vendor. Noteworthy, SLDR No. 1214M contains the following terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined
sugar and/or receipt of this document by the buyer/trader personally or
through a representative, title to refined sugar is transferred to
buyer/trader and delivery to him/it is deemed effected and completed
(stress supplied) and buyer/trader assumes full responsibility
therefore..."
The aforequoted terms and conditions clearly show that petitioner transferred
title to the sugar to the buyer or his assignee upon payment of the purchase price.
Said terms clearly establish a contract of sale, not a contract to sell. Petitioner is
now estopped from alleging the contrary. The contract is the law between the
contracting parties. And where the terms and conditions so stipulated are not
contrary to law, morals, good customs, public policy or public order, the contract
is valid and must be upheld. Having transferred title to the sugar in question,
petitioner is now obliged to deliver it to the purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and private respondent CSC
have entered into a conspiracy to defraud it of its sugar. This conspiracy is
allegedly evidenced by: (a) the fact that STM's selling price to CSC was below its
purchasing price; (b) CSC's refusal to pursue its case against Teresita Ng Go; and
(c) the authority given by the latter to other persons to withdraw sugar against
SLDR No. 1214M after she had sold her rights under said SLDR to CSC. Petitioner
prays that the doctrine of "clean hands" should be applied to preclude CSC from
seeking judicial relief. However, despite careful scrutiny, we find here the records
bare of convincing evidence whatsoever to support the petitioner's allegations of
fraud. We are now constrained to deem this matter purely speculative, bereft of
concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against
petitioner.
SO ORDERED
G.R. No. 156262, July 14, 2005 - PANGANIBAN, J.:
PETITIONER: MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, SPOUSES
ANASTACIO AND MARY T. BUENAVENTURA,
RESPONDENTS : HEIRS OF BARTOLOME RAMOS,
Stripped of nonessentials, the present case involves the collection of a sum of
money. Specifically, this case arose from the failure of petitioners to pay
respondents' predecessor-in-interest. This fact was shown by the
non-encashment of checks issued by a third person, but indorsed by herein
Petitioner Maria Tuazon in favor of the said predecessor. Under these
circumstances, to enable respondents to collect on the indebtedness, the
check drawer need not be impleaded in the Complaint. Thus, the suit is
directed, not against the drawer, but against the debtor who indorsed the
checks in payment of the obligation.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, challenging the
July 31, 2002 Decision of the Court of Appeals (CA) in CA-GR CV No. 46535. The
decretal portion of the assailed Decision reads:
"WHEREFORE, the appeal is DISMISSED and the appealed decision is
AFFIRMED."
On the other hand, the affirmed Decision of Branch 34 of the Regional Trial Court (RTC)
of Gapan, Nueva Ecija, disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs
and against the defendants, ordering the defendants spouses Leonilo
Tuazon and Maria Tuazon to pay the plaintiffs, as follows:
"1. The sum of P1,750,050.00, with interests from
the filing of the second amended complaint;
"2. The sum of P50,000.00, as attorney's fees;
"3. The sum of P20,000.00, as moral damages
"4. And to pay the costs of suit.
xxx xxx x x x"
The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988 and
June 5, 1988, spouses Leonilo and Maria Tuazon purchased a total of
8,326 cavans of rice from [the deceased Bartolome] Ramos
[predecessor-in-interest of respondents]. That of this [quantity,] x x x
only 4,437 cavans [have been paid for so far], leaving unpaid 3,889
cavans valued at P1,211,919.00. In payment therefor, the spouses
Tuazon issued x x x [several] Traders Royal Bank checks.
xxx xxx xxx
[B]ut when these [checks] were encashed, all of the checks bounced due
to insufficiency of funds. [Respondents] advanced that before issuing
said checks[,] spouses Tuazon already knew that they had no available
fund to support the checks, and they failed to provide for the payment
of these despite repeated demands made on them.
"[Respondents] averred that because spouses Tuazon anticipated that
they would be sued, they conspired with the other [defendants] to
defraud them as creditors by executing x x x fictitious sales of their
properties. They executed x x x simulated sale[s] [of three lots] in favor
of the x x x spouses Buenaventura x x x[,] as well as their residential lot
and the house thereon[,] all located at Nueva Ecija, and another
simulated deed of sale dated July 12, 1988 of a Stake Toyota registered
with the Land Transportation Office of Cabanatuan City on September 7,
1988. [Co-petitioner] Melecio Tuazon, a son of spouses Tuazon,
registered a fictitious Deed of Sale on July 19, 1988 x x x over a
residential lot located at Nueva Ecija. Another simulated sale of a
Toyota Willys was executed on January 25, 1988 in favor of their other
son, [co-petitioner] Alejandro Tuazon x x x. As a result of the said sales,
the titles of these properties issued in the names of spouses Tuazon
were cancelled and new ones were issued in favor of the
[co-]defendants spouses Buenaventura, Alejandro Tuazon and Melecio
Tuazon. Resultantly, by the said ante-dated and simulated sales and the
corresponding transfers there was no more property left registered in
the names of spouses Tuazon answerable to creditors, to the damage
and prejudice of [respondents].
"For their part, defendants denied having purchased x x x rice from
[Bartolome] Ramos. They alleged that it was Magdalena Ramos, wife of
said deceased, who owned and traded the merchandise and Maria
Tuazon was merely her agent. They argued that it was Evangeline
Santos who was the buyer of the rice and issued the checks to Maria
Tuazon as payments therefor. In good faith[,] the checks were received
[by petitioner] from Evangeline Santos and turned over to Ramos
without knowing that these were not funded. And it is for this reason
that [petitioners] have been insisting on the inclusion of Evangeline
Santos as an indispensable party, and her non-inclusion was a fatal
 error. Refuting that the sale of several properties were fictitious or
simulated, spouses Tuazon contended that these were sold because
they were then meeting financial difficulties but the disposals were
made for value and in good faith and done before the filing of the
instant suit. To dispute the contention of plaintiffs that they were the
buyers of the rice, they argued that there was no sales invoice, official
receipts or like evidence to prove this. They assert that they were
merely agents and should not be held answerable."
The corresponding civil and criminal cases were filed by respondents against Spouses
Tuazon. Those cases were later consolidated and amended to include Spouses
Anastacio and Mary Buenaventura, with Alejandro Tuazon and Melecio Tuazon as
additional defendants. Having passed away before the pretrial, Bartolome Ramos was
substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the case, petitioners
moved to file a third-party complaint against her. Allegedly, she was primarily liable to
respondents, because she was the one who had purchased the merchandise from their
predecessor, as evidenced by the fact that the checks had been drawn in her
name. The RTC, however, denied petitioners' Motion.
Since the trial court acquitted petitioners in all three of the consolidated criminal cases,
they appealed only its decision finding them civilly liable to respondents.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioners had failed to prove the existence of an
agency between respondents and Spouses Tuazon. The appellate court disbelieved
petitioners' contention that Evangeline Santos should have been impleaded as an
indispensable party. Inasmuch as all the checks had been indorsed by Maria Tuazon,
who thereby became liable to subsequent holders for the amounts stated in those
checks, there was no need to implead Santos.
Hence, this Petition.[6]
Issues
Petitioners raise the following issues for our consideration:
"1. Whether or not the Honorable Court of Appeals erred in ruling that
petitioners are not agents of the respondents.
"2. Whether or not the Honorable Court of Appeals erred in rendering
judgment against the petitioners despite x x x the failure of the
respondents to include in their action Evangeline Santos, an
indispensable party to the suit."[7]
The Court's Ruling
The Petition is unmeritorious.
First Issue:
Agency
Well-entrenched is the rule that the Supreme Court's role in a petition under Rule 45 is
limited to reviewing errors of law allegedly committed by the Court of Appeals. Factual
findings of the trial court, especially when affirmed by the CA, are conclusive on the
parties and this Court.[8] Petitioners have not given us sufficient reasons to deviate from
this rule.
In a contract of agency, one binds oneself to render some service or to do something in
representation or on behalf of another, with the latter's consent or authority. [9] The
following are the elements of agency: (1) the parties' consent, express or implied, to
establish the relationship; (2) the object, which is the execution of a juridical act in relation
to a third person; (3) the representation, by which the one who acts as an agent does so,
not for oneself, but as a representative; (4) the limitation that the agent acts within the
scope of his or her authority.[10] As the basis of agency is representation, there must be,
on the part of the principal, an actual intention to appoint, an intention naturally inferable
from the principal's words or actions. In the same manner, there must be an intention on
the part of the agent to accept the appointment and act upon it. Absent such mutual
intent, there is generally no agency.
This Court finds no reversible error in the findings of the courts a quo that petitioners were
the rice buyers themselves; they were not mere agents of respondents in their rice
dealership. The question of whether a contract is one of sale or of agency depends on the
intention of the parties.
The declarations of agents alone are generally insufficient to establish the fact or extent of
their authority. The law makes no presumption of agency; proving its existence, nature
and extent is incumbent upon the person alleging it. In the present case, petitioners
raise the fact of agency as an affirmative defense, yet fail to prove its existence.
The Court notes that petitioners, on their own behalf, sued Evangeline Santos for
collection of the amounts represented by the bounced checks, in a separate civil case
that they sought to be consolidated with the current one. If, as they claim, they were
mere agents of respondents, petitioners should have brought the suit against Santos for
and on behalf of their alleged principal, in accordance with Section 2 of Rule 3 of the
Rules on Civil Procedure. Their filing a suit against her in their own names negates
their claim that they acted as mere agents in selling the rice obtained from Bartolome
Ramos.
Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be
impleaded as an indispensable party. They insist that respondents' Complaint against
them is based on the bouncing checks she issued; hence, they point to her as the person
primarily liable for the obligation.
We hold that respondents' cause of action is clearly founded on petitioners' failure to
pay the purchase price of the rice. The trial court held that Petitioner Maria Tuazon
had indorsed the questioned checks in favor of respondents, in accordance with
Sections 31 and 63 of the Negotiable Instruments Law. That Santos was the drawer of
the checks is thus immaterial to the respondents' cause of action.
As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks
were to be accepted or paid, or both, according to their tenor; and that in case they
were dishonored, she would pay the corresponding amount. After an instrument is
dishonored by nonpayment, indorsers cease to be merely secondarily liable; they
become principal debtors whose liability becomes identical to that of the original
obligor. The holder of a negotiable instrument need not even proceed against the
maker before suing the indorser. Clearly, Evangeline Santos -- as the drawer of the
checks -- is not an indispensable party in an action against Maria Tuazon, the indorser of
the checks.
Indispensable parties are defined as "parties in interest without whom no final
determination can be had." The instant case was originally one for the collection of
the purchase price of the rice bought by Maria Tuazon from respondents'
predecessor. In this case, it is clear that there is no privity of contract between
respondents and Santos. Hence, a final determination of the rights and interest of the
parties may be made without any need to implead her.
WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. NO. 167552, April 23, 2007 - CHICO-NAZARIO, J.:
PETITIONER: EUROTECH INDUSTRIAL TECHNOLOGIES, INC.
RESPONDENTS: EDWIN CUIZON AND ERWIN CUIZON
Before Us is a petition for review by certiorari assailing the Decision of the Court
of Appeals dated 10 August 2004 and its Resolution 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
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.
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). 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 has an outstanding receivables from Toledo Power
Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND
(P365,000.00) PESOS as payment for the purchase of one unit of
Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY
unto the ASSIGNEE[6] the said receivables from Toledo Power
 Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND
(P365,000.00) PESOS which receivables the ASSIGNOR is the lawful
recipient;
3.) That the ASSIGNEE does hereby accept this assignment.[7]
Following the execution of the Deed of Assignment, petitioner delivered to respondents
the sludge pump as shown by Invoice No. 12034 dated 30 June 1995.[8]
Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of
Assignment, proceeded to collect from Toledo Power Company the amount of
P365,135.29 as evidenced by Check Voucher No. 0933[9] prepared by said power
company and an official receipt dated 15 August 1995 issued by Impact Systems. [10]
Alarmed by this development, petitioner made several demands upon respondents to
pay their obligations. As a result, respondents were able to make partial payments to
petitioner. On 7 October 1996, 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. 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.
On 8 January 1997, the trial court granted petitioner's prayer for the issuance of writ of
preliminary attachment.
On 25 June 1997, respondent EDWIN filed his Answer wherein he admitted
petitioner's allegations with respect to the sale transactions entered into by Impact
Systems and petitioner between January and April 1995. He, however, disputed the
total amount of Impact Systems' indebtedness to petitioner which, according to him,
amounted to only P220,000.00.
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.
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" 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. 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.
After the filing of respondent EDWIN's Memorandum in support of his special and
affirmative defenses and petitioner's opposition 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.
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.
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.
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.
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.
In his Comment, respondent EDWIN again posits the argument that he is not a real
party in interest in this case and it was proper for the trial court to have him dropped as
a defendant. He insists that he was a mere agent of Impact Systems which is owned by
ERWIN and that his status as such is known even to petitioner as it is alleged in the
Complaint that he is being sued in his capacity as the sales manager of the said business
venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly
states that he was acting as a representative of Impact Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or to do something
in representation or on behalf of another with the latter's consent. 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. 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. 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. 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.
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.
In this case, the parties do not dispute the existence of the agency relationship between
respondents ERWIN as principal and EDWIN as agent. The only cause of the present
dispute is whether respondent EDWIN exceeded his authority when he signed the Deed of
Assignment thereby binding himself personally to pay the obligations to petitioner.
Petitioner firmly believes that respondent EDWIN acted beyond the authority granted by
his principal and he should therefore bear the effect of his deed pursuant to Article 1897
of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not
personally liable to the party with whom he contracts. The same provision, however,
presents two instances when an agent becomes personally liable to a third person. The
first is when he expressly binds himself to the obligation and the second is when he
exceeds his authority. In the last instance, the agent can be held liable if he does not give
the third party sufficient notice of his powers. We hold that respondent EDWIN does not
fall within any of the exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the
sales manager of Impact Systems. As discussed elsewhere, the position of manager is
unique in that it presupposes the grant of broad powers with which to conduct the
business of the principal, thus:
The powers of an agent are particularly broad in the case of one acting as a
general agent or manager; such a position presupposes a degree of confidence
reposed and investiture with liberal powers for the exercise of judgment and
discretion in transactions and concerns which are incidental or appurtenant to
the business entrusted to his care and management. In the absence of an
agreement to the contrary, a managing agent may enter into any contracts that
he deems reasonably necessary or requisite for the protection of the interests
of his principal entrusted to his management. x x x.
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. 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, 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. 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.
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." 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.
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." 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.
(C. The parties tot he contract; capacity)
G.R. No. 120465, September 09, 1999 KAPUNAN, J.:
PETITIONERS: WILLIAM UY AND RODEL ROXAS
RESPONDENTS: COURT OF APPEALS, HON. ROBERT BALAO AND NATIONAL HOUSING
AUTHORITY,
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of land
by the owners thereof. By virtue of such authority, petitioners offered to sell the lands,
located in Tuba, Tadiangan, Benguet to respondent National Housing Authority (NHA) to
be utilized and developed as a housing project.
On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the
acquisition of said lands, with an area of 31.8231 hectares, at the cost of P23.867 million,
pursuant to which the parties executed a series of Deeds of Absolute Sale covering the
subject lands. Of the eight parcels of land, however, only five were paid for by the NHA
because of the report it received from the Land Geosciences Bureau of the
Department of Environment and Natural Resources (DENR) that the remaining area is
located at an active landslide area and therefore, not suitable for development into a
housing project.
On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale over the
three parcels of land. The NHA, through Resolution No. 2394, subsequently offered the
amount of P1.225 million to the landowners as daños perjuicios.
On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon City
a Complaint for Damages against NHA and its General Manager Robert Balao.
After trial, the RTC rendered a decision declaring the cancellation of the contract to be
justified. The trial court nevertheless awarded damages to plaintiffs in the sum of
P1.255 million, the same amount initially offered by NHA to petitioners as damages.
Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court
and entered a new one dismissing the complaint. It held that since there was “sufficient
justifiable basis” in cancelling the sale, “it saw no reason” for the award of damages. The
Court of Appeals also noted that petitioners were mere attorneys-in-fact and, therefore,
not the real parties-in-interest in the action before the trial court.
xxx In paragraph 4 of the complaint, plaintiffs alleged themselves to be
“sellers’ agents” for several owners of the 8 lots subject matter of the case.
Obviously, William Uy and Rodel Roxas in filing this case acted as
attorneys-in-fact of the lot owners who are the real parties in interest but who
were omitted to be pleaded as party-plaintiffs in the case. This omission is fatal.
Where the action is brought by an attorney-in-fact of a land owner in his name,
(as in our present action) and not in the name of his principal, the action was
properly dismissed (Ferrer vs. Villamor, 60 SCRA 406 [1974]; Marcelo vs. de Leon,
105 Phil. 1175) because the rule is that every action must be prosecuted in the
name of the real parties-in-interest (Section 2, Rule 3, Rules of Court).
When plaintiffs Uy and Roxas sought payment of damages in their favor in view
of the partial rescission of Resolution No. 1632 and the Deed of Absolute Sale
covering TCT Nos. 10998, 10999 and 11292 (Prayer complaint, page 5, RTC
records), it becomes obviously indispensable that the lot owners be included,
mentioned and named as party-plaintiffs, being the real party-in-interest. Uy and
Roxas, as attorneys-in-fact or apoderados, cannot by themselves lawfully
commence this action, more so, when the supposed special power of attorney, in
their favor, was never presented as an evidence in this case. Besides, even if
herein plaintiffs Uy and Roxas were authorized by the lot owners to commence
this action, the same must still be filed in the name of the pricipal, (Filipino
Industrial Corporation vs. San Diego, 23 SCRA 706 [1968]). As such indispensable
party, their joinder in the action is mandatory and the complaint may be
dismissed if not so impleaded (NDC vs. CA, 211 SCRA 422 [1992]).
Their motion for reconsideration having been denied, petitioners seek relief from this
Court contending that:
I. COMPLAINT FINDING THE RESPONDENT CA ERRED IN DECLARING
THAT RESPONDENT NHA HAD ANY LEGAL BASIS FOR RESCINDING THE
SALE INVOLVING THE LAST THREE (3) PARCELS COVERED BY NHA
RESOLUTION NO. 1632.
II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL
BASIS TO RESCIND THE SUBJECT SALE, THE RESPONDENT CA
NONETHELESS ERRED IN DENYING HEREIN PETITIONERS’ CLAIM TO
DAMAGES, CONTRARY TO THE PROVISIONS OF ART. 1191 OF THE CIVIL
CODE.
III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT
COMPLAINT FINDING THAT THE PETITIONERS FAILED TO JOIN AS
INDISPENSABLE PARTY PLAINTIFF THE SELLING LOT-OWNERS.
We first resolve the issue raised in the third assignment of error.
Petitioners claim that they lodged the complaint not in behalf of their principles but in
their own name as agents directly damaged by the termination of the contract. The
damages prayed for were intended not for the benefit of their principals but to indemnify
petitioners for the losses they themselves allegedly incurred as a result of such
termination. These damages consist mainly of “unearned income” and advances.
Petitioners, thus, attempt to distinguish the case at bar from those involving agents or
apoderados instituting actions in their own name but in behalf of their principals.
Petitioners in this case purportedly brought the action for damages in their own name and
in their own behalf.
We find this contention unmeritorious.
Section 2, Rule 3 of the Rules of Court requires that every action must be prosecuted
and defended in the name of the real party-in-interest. The real party-in-interest is the
party who stands to be benefited or injured by the judgment or the party entitled to the
avails of the suit. “Interest,” within the meaning of the rule, means material interest, an
interest in the issue and to be affected by the decree, as distinguished from mere
interest in the question involved, or a mere incidental interest. [6] Cases construing the
real party-in-interest provision can be more easily understood if it is borne in mind that
the true meaning of real party-in-interest may be summarized as follows: An action shall
be prosecuted in the name of the party who, by the substantive law, has the right
sought to be enforced.[7]
Do petitioners, under substantive law, possess the right they seek to enforce? We rule
in the negative.
The applicable substantive law in this case is Article 1311 of the Civil Code, which states:
Contracts take effect only between the parties, their assigns, and heirs,
except in case where the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation, or by provision of law. x x x.
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit or interest of a person
is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person. (Underscoring supplied.)
Petitioners are not parties to the contract of sale between their principals and NHA.
They are mere agents of the owners of the land subject of the sale. As agents, they only
render some service or do something in representation or on behalf of their principals.[8]
The rendering of such service did not make them parties to the contracts of sale
executed in behalf of the latter. Since a contract may be violated only by the parties
thereto as against each other, the real parties-in-interest, either as plaintiff or
defendant, in an action upon that contract must, generally, either be parties to said
contract.[9]
Neither has there been any allegation, much less proof, that petitioners are the heirs of
their principals.
Are petitioners assignees to the rights under the contracts of sale? In McMicking vs.
Banco Español-Filipino,[10] we held that the rule requiring every action to be prosecuted
in the name of the real party-in-interest
x x x recognizes the assignments of rights of action and also recognizes
that when one has a right of action assigned to him he is then the real
party in interest and may maintain an action upon such claim or right.
The purpose of [this rule] is to require the plaintiff to be the real party in
interest, or, in other words, he must be the person to whom the
proceeds of the action shall belong, and to prevent actions by persons
who have no interest in the result of the same. xxx
Thus, an agent, in his own behalf, may bring an action founded on a contract made for his
principal, as an assignee of such contract. We find the following declaration in Section 372
(1) of the Restatement of the Law on Agency (Second):
Section 372. Agent as Owner of Contract Right
(1) Unless otherwise agreed, an agent who has or who acquires an
interest in a contract which he makes on behalf of his principal can,
although not a promisee, maintain such action thereon as might a
transferee having a similar interest.
The Comment on subsection (1) states:
a. Agent a transferee. One who has made a contract on behalf of
another may become an assignee of the contract and bring suit against
the other party to it, as any other transferee. The customs of business or
the course of conduct between the principal and the agent may indicate
that an agent who ordinarily has merely a security interest is a
transferee of the principals rights under the contract and as such is
permitted to bring suit. If the agent has settled with his principal with
the understanding that he is to collect the claim against the obligor by
way of reimbursing himself for his advances and commissions, the agent
is in the position of an assignee who is the beneficial owner of the chose
in action. He has an irrevocable power to sue in his principal’s name. x x
x. And, under the statutes which permit the real party in interest to sue,
he can maintain an action in his own name. This power to sue is not
affected by a settlement between the principal and the obligor if the
latter has notice of the agent’s interest. x x x. Even though the agent has
not settled with his principal, he may, by agreement with the principal,
have a right to receive payment and out of the proceeds to reimburse
himself for advances and commissions before turning the balance over
to the principal. In such a case, although there is no formal assignment,
the agent is in the position of a transferee of the whole claim for security;
he has an irrevocable power to sue in his principal’s name and, under
statutes which permit the real party in interest to sue, he can maintain
an action in his own name.
Petitioners, however, have not shown that they are assignees of their principals to the
subject contracts. While they alleged that they made advances and that they suffered
loss of commissions, they have not established any agreement granting them “the right
to receive payment and out of the proceeds to reimburse [themselves] for advances
and commissions before turning the balance over to the principal[s].”
Finally, it does not appear that petitioners are beneficiaries of a stipulation pour autrui
under the second paragraph of Article 1311 of the Civil Code. Indeed, there is no
stipulation in any of the Deeds of Absolute Sale “clearly and deliberately” conferring a
favor to any third person.
That petitioners did not obtain their commissions or recoup their advances because of
the non-performance of the contract did not entitle them to file the action below
against respondent NHA. Section 372 (2) of the Restatement of the Law on Agency
(Second) states:
(2) An agent does not have such an interest in a contract as to entitle
him to maintain an action at law upon it in his own name merely
because he is entilted to a portion of the proceeds as compensation
for making it or because he is liable for its breach.
The following Comment on the above subsection is illuminating:
The fact that an agent who makes a contract for his principal will gain
or suffer loss by the performance or nonperformance of the contract
by the principal or by the other party thereto does not entitle him to
maintain an action on his own behalf against the other party for its
breach. An agent entitled to receive a commission from his principal
upon the performance of a contract which he has made on his
principal’s account does not, from this fact alone, have any claim
against the other party for breach of the contract, either in an action
on the contract or otherwise. An agent who is not a promisee cannot
maintain an action at law against a purchaser merely because he is
entitled to have his compensation or advances paid out of the
purchase price before payment to the principal. x x x.
Thus, in Hopkins vs. Ives, the Supreme Court of Arkansas, citing Section 372 (2) above,
denied the claim of a real estate broker to recover his alleged commission against the
purchaser in an agreement to purchase property.
In Goduco vs. Court of Appeals, this Court held that:
x x x granting that appellant had the authority to sell the property, the
same did not make the buyer liable for the commission she claimed.
At most, the owner of the property and the one who promised to give
her a commission should be the one liable to pay the same and to whom
the claim should have been directed. xxx
As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour autrui
under the contracts of sale, they do not, under substantive law, possess the right they
seek to enforce. Therefore, they are not the real parties-in-interest in this case.
Petitioners not being the real parties-in-interest, any decision rendered herein would be
pointless since the same would not bind the real parties-in-interest.
Nevertheless, to forestall further litigation on the substantive aspects of this case, we shall
proceed to rule on the merits.
Petitioners submit that respondent NHA had no legal basis to “rescind” the sale of the
subject three parcels of land. The existence of such legal basis, notwithstanding,
petitioners argue that they are still entitled to an award of damages.
Petitioners confuse the cancellation of the contract by the NHA as a rescission of the
contract under Article 1191 of the Civil Code. The right of rescission or, more accurately,
resolution, of a party to an obligation under Article 1191 is predicated on a breach of faith
by the other party that violates the reciprocity between them. The power to rescind,
therefore, is given to the injured party. Article 1191 states:
The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.
In this case, the NHA did not rescind the contract. Indeed, it did not have the right to do so
for the other parties to the contract, the vendors, did not commit any breach, much less a
substantial breach, of their obligation. Their obligation was merely to deliver the parcels
of land to the NHA, an obligation that they fulfilled. The NHA did not suffer any injury by
the performance thereof.
The cancellation, therefore, was not a rescission under Article 1191. Rather, the
cancellation was based on the negation of the cause arising from the realization that the
lands, which were the object of the sale, were not suitable for housing.
Cause is the essential reason which moves the contracting parties to enter into it. In
other words, the cause is the immediate, direct and proximate reason which justifies
the creation of an obligation through the will of the contracting parties. Cause, which
is the essential reason for the contract, should be distinguished from motive, which is
the particular reason of a contracting party which does not affect the other party.
For example, in a contract of sale of a piece of land, such as in this case, the cause of the
vendor (petitioner’s principals) in entering into the contract is to obtain the price. For
the vendee, NHA, it is the acquisition of the land. The motive of the NHA, on the other
hand, is to use said lands for housing. This is apparent from the portion of the Deeds of
Absolute Sale stating:
WHEREAS, under the Executive Order No. 90 dated December 17,
1986, the VENDEE is mandated to focus and concentrate its efforts
and resources in providing housing assistance to the lowest thirty
percent (30%) of urban income earners, thru slum upgrading and
development of sites and services projects;
WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by
Letter of Instruction No. 630, prescribed slum improvement and
upgrading, as well as the development of sites and services as the
principal housing strategy for dealing with slum, squatter and other
blighted communities;
xxx
WHEREAS, the VENDEE, in pursuit of and in compliance with the
above-stated purposes offers to buy and the VENDORS, in a gesture of
their willing to cooperate with the above policy and commitments,
agree to sell the aforesaid property together with all the existing
improvements there or belonging to the VENDORS;
NOW, THEREFORE, for and in consideration of the foregoing premises
and the terms and conditions hereinbelow stipulated, the VENDORS
hereby, sell, transfer, cede and convey unto the VENDEE, its assigns,
or successors-in-interest, a parcel of land located at Bo. Tadiangan,
Tuba, Benguet containing a total area of FIFTY SIX THOUSAND EIGHT
HUNDRED NINETEEN (56,819) SQUARE METERS, more or less x x x.
Ordinarily, a party’s motives for entering into the contract do not affect the contract.
However, when the motive predetermines the cause, the motive may be regarded as
the cause. In Liguez vs. Court of Appeals, this Court, speaking through Justice J.B.L.
Reyes, held:
xxx It is well to note, however, that Manresa himself (Vol. 8, pp. 641-642)
while maintaining the distinction and upholding the inoperativeness of
the motives of the parties to determine the validity of the contract,
expressly excepts from the rule those contracts that are conditioned
upon the attainment of the motives of either party.
The same view is held by the Supreme Court of Spain, in its decisions of
February 4, 1941, and December 4, 1946, holding that the motive may
be regarded as causa when it predetermines the purpose of the
contract.
In this case, it is clear, and petitioners do not dispute, that NHA would not have entered
into the contract were the lands not suitable for housing. In other words, the quality of the
land was an implied condition for the NHA to enter into the contract. On the part of the
NHA, therefore, the motive was the cause for its being a party to the sale.
Were the lands indeed unsuitable for the housing as NHA claimed?
We deem the findings contained in the report of the Land Geosciences Bureau dated 15
July 1991 sufficient basis for the cancellation of the sale, thus:
In Tadiangan, Tuba, the housing site is situated in an area of moderate
topography. There [are] more areas of less sloping ground apparently
habitable. The site is underlain by x x x thick slide deposits (4-45m)
consisting of huge conglomerate boulders (see Photo No. 2) mix[ed] with
silty clay materials. These clay particles when saturated have some
swelling characteristics which is dangerous for any civil structures
especially mass housing development.
Petitioners content that the report was merely “preliminary,” and not conclusive, as
indicated in its title:
MEMORANDUM
TO: EDWIN G. DOMINGO
Chief, Lands Geology Division
FROM: ARISTOTLE A. RILLON
Geologist II
SUBJECT: Preliminary Assessment of Tadiangan Housing Project in Tuba, Benguet

Thus, page 2 of the report states in part:
xxx
Actually there is a need to conduct further geottechnical [sic] studies
in the NHA property. Standard Penetration Test (SPT) must be carried
out to give an estimate of the degree of compaction (the relative
density) of the slide deposit and also the bearing capacity of the soil
materials. Another thing to consider is the vulnerability of the area to
landslides and other mass movements due to thick soil cover.
Preventive physical mitigation methods such as surface and
subsurface drainage and regrading of the slope must be done in the
area.
We read the quoted portion, however, to mean only that further tests are required to
determine the “degree of compaction,” “the bearing capacity of the soil materials,” and
“vulnerability of the area to landslides,” since the tests already conducted were
inadequate to ascertain such geological attributes. It is only in this sense that the
assessment was “preliminary.”
Accordingly, we hold that the NHA was justified in cancelling the contract. The
realization of the mistake as regards the quality of the land resulted in the negation of
the motive/cause thus rendering the contract inexistent. Article 1318 of the Civil Code
states that:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (Underscoring supplied.)
Therefore, assuming that petitioners are parties, assignees or beneficiaries to
the contract of sale, they would not be entitled to any award of damages.
WHEREFORE, the instant petition is hereby DENIED.
SO ORDERED.
G.R. NO. 149353, June 26, 2006 AUSTRIA-MARTINEZ, J.:
PETITIONER: JOCELYN B. DOLES
RESPONDENT : MA. AURA TINA ANGELES
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court
questioning the Decision 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 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", 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, 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.
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:
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.
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby
GRANTED. The Decision of the lower court dated July 29, 1998 is
REVERSED and SET ASIDE. A new one is entered ordering
defendant-appellee to execute all necessary documents to effect
transfer of subject property to plaintiff-appellant with the arrearages of
the former's loan with the NHMFC, at the latter's expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the
amount borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale
was supported by a valid consideration, which is the sum of money petitioner owed
respondent amounting to P405,430.00, representing both principal and interest.
The CA took into account the following circumstances in their entirety: the supposed
friends of petitioner never presented themselves to respondent and that all transactions
were made by and between petitioner and respondent; [7] that the money borrowed was
deposited with the bank account of the petitioner, while payments made for the loan
were deposited by the latter to 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 of the Civil Code; 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.
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
co-owned the subject property, was not impleaded as a defendant nor was he indebted
to the respondent and, hence, she cannot be made to sign the documents to effect the
transfer of ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that
the foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28,
2001, petitioner filed the present Petition and raised the following issues:
I. WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A
DEBTOR OF THE RESPONDENT.
II. WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE
PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT
PAYMENT FROM THE DEBTOR.
as a valid cause or consideration for the sale.
To restate, the CA cited four instances in the record to support its holding that petitioner
"re-lends" the amount borrowed from respondent to her friends: first, the friends of
petitioner never presented themselves to respondent and that all transactions were made
by and between petitioner and respondent; second; the money passed through the bank
accounts of petitioner and respondent; third, petitioner herself admitted that she was
"re-lending" the money loaned to other individuals for profit; and fourth, the
documentary evidence shows that the actual borrowers, the friends of petitioner, consider
her as their creditor and not the respondent.
On the first, third, and fourth points, the CA cites the testimony of the petitioner, then
defendant, during her cross-examination:
Atty. Diza:

III.WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A You also mentioned that you were not the one indebted to the
q.
CAUSE. plaintiff?

Although, as a rule, it is not the business of this Court to review the findings of fact witness:
made by the lower courts, jurisprudence has recognized several exceptions, at least a. Yes, sir.
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; Atty. Diza:
and when the CA manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, could justify a different conclusion. To arrive at And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa
a proper judgment, therefore, the Court finds it necessary to re-examine the evidence q. Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are your
presented by the contending parties during the trial of the case. friends?

witness:
The Petition is meritorious.
Inocencio and Moraquin are my friends while [as to] Jacob and
a.
The principal issue is whether the Deed of Absolute Sale is supported by a valid Tomelden[,] they were just referred.
consideration.
Atty. Diza:
1. Petitioner argues that since she is merely the agent or representative of the alleged q. And you have transact[ed] with the plaintiff?
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 witness:
pre-existing debt, is void for lack of consideration.
a. Yes, sir.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the Atty. Diza:
form of a price certain in money 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 q. What is that transaction?
produces no effect whatsoever where the same is without cause or consideration. The
question that has to be resolved for the moment is whether this debt can be considered
witness:

a. To refer those persons to Aura and to refer again to Arsenio Pua, sir. Atty. Diza:

Atty. Diza:

q. Did the plaintiff personally see the transactions with your friends? q. You are re-lending the money?

witness:

a. No, sir. witness:

Atty. Diza:

q. Your friends and the plaintiff did not meet personally? a. Yes, sir.

witness:

a. Yes, sir. Atty. Diza:

Atty. Diza:

q. You are intermediaries? witness:

witness: a. Yes, sir.

We are both intermediaries. As evidenced by the checks of the Atty. Diza:

a. debtors they were deposited to the name of Arsenio Pua because the
money came from Arsenio Pua. q. How much?

xxxx
witness:

Atty. Diza:
Two percent to Tomelden, one percent to Jacob and then Inocencio
a.
and my friends none, sir.
Did the plaintiff knew [sic] that you will lend the money to your friends
q.
specifically the one you mentioned [a] while ago?
Based on the foregoing, the CA concluded that petitioner is the real borrower, while the
respondent, the real lender.

witness: But as correctly noted by the RTC, respondent, then plaintiff, made the following
admission during her cross examination:

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

Atty. Villacorta:
 Is it not a fact Ms. Witness that the defendant borrowed from you to
q. Who is this Arsenio Pua? q. accommodate somebody, are you aware of that?

witness:
witness:

a. I am aware of that.
a. Principal financier, sir.
Atty. Villacorta:
Atty. Villacorta:
q. More or less she [accommodated] several friends of the defendant?

q. So the money came from Arsenio Pua?

witness:

witness: a. Yes, sir, I am aware of that.

a. Yes, because I am only representing him, sir. xxxx

Atty. Villacorta:
Other portions of the testimony of respondent must likewise be considered:
And these friends of the defendant borrowed money from you with
Atty. Villacorta: q. the assurance of the defendant?

So it is not actually your money but the money of Arsenio Pua? witness:
q.

witness: a. They go direct to Jocelyn because I don't know them.

Yes, sir. xxxx

a.

Court: Atty. Villacorta:

It is not your money? And is it not also a fact Madam witness that everytime that the
q.
q. defendant borrowed money from you her friends who [are] in need of
witness: money issued check[s] to you? There were checks issued to you?

Yes, Your Honor. witness:

a.

Atty. Villacorta: a. Yes, there were checks issued.

Atty. Villacorta: q. And because of that Arsenio Pua got mad with you?

q. By the friends of the defendant, am I correct? witness:

witness: a. Yes, sir.

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
Atty. Villacorta: acted as agent for the alleged debtors, the friends whom she (petitioner)
referred.
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 This Court has affirmed that, under Article 1868 of the Civil Code, the basis of
q.
your assistance? agency is representation. The question of whether an agency has been created
is ordinarily a question which may be established in the same way as any other
witness: fact, either by direct or circumstantial evidence. The question is ultimately one
of intention. Agency may even be implied from the words and conduct of the
parties and the circumstances of the particular case. Though the fact or extent
a. Yes, sir. 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
Atty. Villacorta: 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.
q. So that occasion lasted for more than a year?
In this case, petitioner knew that the financier of respondent is Pua; and
witness: respondent knew that the borrowers are friends of petitioner.

The CA is incorrect when it considered the fact that the "supposed friends of
a. Yes, sir.
[petitioner], the actual borrowers, did not present themselves to [respondent]"
as evidence that negates the agency relationship—it is sufficient that petitioner
Atty. Villacorta: 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
And some of the checks that were issued by the friends of the necessary that the principal personally encounter the third person with whom
q. defendant bounced, am I correct? 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
witness: 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.

a. Yes, sir.
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
Atty. Villacorta: 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.
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. 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.
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.
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. This Court in the recent past has declared that an assumption
of a mortgage debt may constitute a valid consideration for a sale.
Although the record shows that petitioner admitted at the time of trial that she
owned the property described in the TCT, the Court must stress that the
Transfer Certificate of Title No. 382532 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," 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 and, with more
reason, to effect the delivery of the object of the sale at the consummation
stage. What is worse, there is a notation that the TCT itself has been
"cancelled."
In view of these anomalies, the Court cannot entertain the possibility that
respondent agreed to assume the balance of the mortgage loan which petitioner
allegedly owed to the NHMFC, especially since the record is bereft of any factual
finding that petitioner was, in the first place, endowed with any ownership rights
to validly mortgage and convey the property. As the complainant who initiated
the case, respondent bears the burden of proving the basis of her
complaint. Having failed to discharge such burden, the Court has no choice but
to declare the sale void for lack of cause. And since the sale is void, the Court
finds it unnecessary to dwell on the issue of whether duress or intimidation had
been foisted upon petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly exists, the Court notes
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.
(D. Contract of agency; elements)
G.R. No. 151319, November 22, 2004 TINGA, J,:
MANILA MEMORIAL PARK CEMETERY, INC., PETITIONER, VS. PEDRO L. LINSANGAN,
RESPONDENT.
For resolution in this case is a classic and interesting texbook question in the law on
agency.
This is a petition for review assailing the Decision of the Court of Appeals dated 22
June 2001, and its Resolution dated 12 December 2001 in CA G.R. CV No. 49802
entitled “Pedro L. Linsangan v. Manila Memorial Cemetery, Inc. et al.,” finding Manila
Memorial Park Cemetery, Inc. (MMPCI) jointly and severally liable with Florencia C.
Baluyot to respondent Atty. Pedro L. Linsangan.
The facts of the case are as follows:
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called
Garden State at the Holy Cross Memorial Park owned by petitioner
(MMPCI). According to Baluyot, a former owner of a memorial lot under Contract No.
25012 was no longer interested in acquiring the lot and had opted to sell his rights
subject to reimbursement of the amounts he already paid. The contract was for
P95,000.00. Baluyot reassured Atty. Linsangan that once reimbursement is made to the
former buyer, the contract would be transferred to him. Atty. Linsangan agreed and
gave Baluyot P35,295.00 representing the amount to be reimbursed to the original
buyer and to complete the down payment to MMPCI. Baluyot issued handwritten and
typewritten receipts for these payments.
Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued
Contract No. 28660, a new contract covering the subject lot in the name of the latter
instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured him
that he would still be paying the old price of P95,000.00 with P19,838.00 credited as full
down payment leaving a balance of about P75,000.00.
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15),
Block 83, Garden Estate I denominated as Contract No. 28660 and the Official Receipt
No. 118912 dated 6 April 1985 for the amount of P19,838.00. Contract No. 28660 has a
listed price of P132,250.00. Atty. Linsangan objected to the new contract price, as the
same was not the amount previously agreed upon. To convince Atty. Linsangan, Baluyot
executed a document[6] confirming that while the contract price is P132,250.00, Atty.
Linsangan would pay only the original price of P95,000.00.
The document reads in part:
The monthly installment will start April 6, 1985; the amount of P1,800.00 and the
difference will be issued as discounted to conform to the previous price as previously
agreed upon. --- P95,000.00
Prepared by:
(Signed)
(MRS.) FLORENCIA C. BALUYOT Holy Cross Memorial Park 4/18/85
Agency Manager
Dear Atty. Linsangan:
This will confirm our agreement that while the offer to purchase under Contract No. 28660
states that the total price of P132,250.00 your undertaking is to pay only the total sum of
P95,000.00 under the old price. Further the total sum of P19,838.00 already paid by you
under O.R. # 118912 dated April 6, 1985 has been credited in the total purchase price
thereby leaving a balance of P75,162.00 on a monthly installment of P1,800.00 including
interests (sic) charges for a period of five (5) years.
(Signed)
FLORENCIA C. BALUYOT
By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official
Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued twelve (12)
postdated checks of P1,800.00 each in favor of MMPCI. The next year, or on 29 April
1986, Atty. Linsangan again issued twelve (12) postdated checks in favor of MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was
cancelled for reasons the latter could not explain, and presented to him another proposal
for the purchase of an equivalent property. He refused the new proposal and insisted
that Baluyot and MMPCI honor their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty.
Linsangan filed a Complaint[7] for Breach of Contract and Damages against the former.
Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No.
28660 was cancelled conformably with the terms of the contract[8] because of
non-payment of arrearages.[9] MMPCI stated that Baluyot was not an agent but an
independent contractor, and as such was not authorized to represent MMPCI or to use its
name except as to the extent expressly stated in the Agency Manager Agreement. [10]
Moreover, MMPCI was not aware of the arrangements entered into by Atty. Linsangan
and Baluyot, as it in fact received a down payment and monthly installments as indicated
in the contract. Official receipts showing the application of payment were turned over to
Baluyot whom Atty. Linsangan had from the beginning allowed to receive the same in his
behalf. Furthermore, whatever misimpression that Atty. Linsangan may have had must
have been rectified by the Account Updating Arrangement signed by Atty. Linsangan
which states that he “expressly admits that Contract No. 28660 ‘on account of serious
delinquency…is now due for cancellation under its terms and conditions.’’’
The trial court held MMPCI and Baluyot jointly and severally liable. It found that
Baluyot was an agent of MMPCI and that the latter was estopped from denying this
agency, having received and enchased the checks issued by Atty. Linsangan and given to
it by Baluyot. While MMPCI insisted that Baluyot was authorized to receive only the
down payment, it allowed her to continue to receive postdated checks from Atty.
Linsangan, which it in turn consistently encashed.
The dispositive portion of the decision reads:
WHEREFORE, judgment by preponderance of evidence is hereby
rendered in favor of plaintiff declaring Contract No. 28660 as valid and
subsisting and ordering defendants to perform their undertakings
thereof which covers burial lot No. A11 (15), Block 83, Section Garden
I, Holy Cross Memorial Park located at Novaliches, Quezon City. All
payments made by plaintiff to defendants should be credited for his
accounts. NO DAMAGES, NO ATTORNEY’S FEES but with costs against
the defendants.
The cross claim of defendant Manila Memorial Cemetery Incorporated
as against defendant Baluyot is GRANTED up to the extent of the costs.
SO ORDERED.
MMPCI appealed the trial court’s decision to the Court of Appeals. It claimed that Atty.
Linsangan is bound by the written contract with MMPCI, the terms of which were
clearly set forth therein and read, understood, and signed by the former. It also
alleged that Atty. Linsangan, a practicing lawyer for over thirteen (13) years at the time
he entered into the contract, is presumed to know his contractual obligations and is
fully aware that he cannot belatedly and unilaterally change the terms of the contract
without the consent, much less the knowledge of the other contracting party, which
was MMPCI. And in this case, MMPCI did not agree to a change in the contract and in
fact implemented the same pursuant to its clear terms. In view thereof, because of Atty.
Linsangan’s delinquency, MMPCI validly cancelled the contract.
MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as
the latter exceeded the terms of her agency, neither did MMPCI ratify Baluyot’s acts. It
added that it cannot be charged with making any misrepresentation, nor of having
allowed Baluyot to act as though she had full powers as the written contract expressly
stated the terms and conditions which Atty. Linsangan accepted and understood. In
canceling the contract, MMPCI merely enforced the terms and conditions imposed
therein.
Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the
former’s obligation, as a party knowingly dealing with an alleged agent, to determine the
limitations of such agent’s authority, particularly when such alleged agent’s actions were
patently questionable. According to MMPCI, Atty. Linsangan did not even bother to verify
Baluyot’s authority or ask copies of official receipts for his payments.
The Court of Appeals affirmed the decision of the trial court. It upheld the trial court’s
finding that Baluyot was an agent of MMPCI at the time the disputed contract was entered
into, having represented MMPCI’s interest and acting on its behalf in the dealings with
clients and customers. Hence, MMPCI is considered estopped when it allowed Baluyot to
act and represent MMPCI even beyond her authority. The appellate court likewise found
that the acts of Baluyot bound MMPCI when the latter allowed the former to act for and in
its behalf and stead. While Baluyot’s authority “may not have been expressly conferred
upon her, the same may have been derived impliedly by habit or custom, which may have
been an accepted practice in the company for a long period of time.” Thus, the Court of
Appeals noted, innocent third persons such as Atty. Linsangan should not be prejudiced
where the principal failed to adopt the needed measures to prevent
misrepresentation. Furthermore, if an agent misrepresents to a purchaser and the
principal accepts the benefits of such misrepresentation, he cannot at the same time deny
responsibility for such misrepresentation. Finally, the Court of Appeals declared:
There being absolutely nothing on the record that would show that the
court a quo overlooked, disregarded, or misinterpreted facts of weight
and significance, its factual findings and conclusions must be given great
weight and should not be disturbed by this Court on appeal.
WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and
the appealed decision in Civil Case No. 88-1253 of the Regional Trial
Court, National Capital Judicial Region, Branch 57 of Makati, is hereby
AFFIRMED in toto.
SO ORDERED.
MMPCI filed its Motion for Reconsideration, but the same was denied for lack of merit.
In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred
in disregarding the plain terms of the written contract and Atty. Linsangan’s failure to
abide by the terms thereof, which justified its cancellation. In addition, even assuming that
Baluyot was an agent of MMPCI, she clearly exceeded her authority and Atty. Linsangan
knew or should have known about this considering his status as a long-practicing lawyer.
MMPCI likewise claims that the Court of Appeals erred in failing to consider that the facts
and the applicable law do not support a judgment against Baluyot only “up to the extent
of costs.”
Atty. Linsangan argues that he did not violate the terms and conditions of the contract,
and in fact faithfully performed his contractual obligations and complied with them in
good faith for at least two years. He claims that contrary to MMPCI’s position, his
profession as a lawyer is immaterial to the validity of the subject contract and the case
at bar. According to him, MMPCI had practically admitted in its Petition that Baluyot
was its agent, and thus, the only issue left to be resolved is whether MMPCI allowed
Baluyot to act as though she had full powers to be held solidarily liable with the latter.
We find for the petitioner MMPCI.
The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules
of Court is limited to reviewing only errors of law, not fact, unless the factual findings
complained of are devoid of support by the evidence on record or the assailed judgment
is based on misapprehension of facts. In BPI Investment Corporation v. D.G. Carreon
Commercial Corporation, this Court ruled:
There are instances when the findings of fact of the trial court and/or
Court of Appeals may be reviewed by the Supreme Court, such as (1)
when the conclusion is a finding grounded entirely on speculation,
surmises and conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) where there is a 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 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 facts set forth
in the petition as well as in the petitioners’ main and reply briefs are
not disputed by the respondents; and (10) the findings of fact of the
Court of Appeals are premised on the supposed absence of evidence
and contradicted by the evidence on record.
In the case at bar, the Court of Appeals committed several errors in the apprehension of
the facts of the case, as well as made conclusions devoid of evidentiary support, hence
we review its findings of fact.
By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of
the latter. Thus, the elements of agency are (i) consent, express or implied, of the
parties to establish the relationship; (ii) the object is the execution of a juridical act in
relation to a third person; (iii) the agent acts as a representative and not for himself; and
(iv) the agent acts within the scope of his authority.
In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its
Agency Manager Agreement; an agency manager such as Baluyot is considered an
independent contractor and not an agent. However, in the same contract, Baluyot as
agency manager was authorized to solicit and remit to MMPCI offers to purchase
interment spaces belonging to and sold by the latter. Notwithstanding the claim of
MMPCI that Baluyot was an independent contractor, the fact remains that she was
authorized to solicit solely for and in behalf of MMPCI. As properly found both by the trial
court and the Court of Appeals, Baluyot was an agent of MMPCI, having represented the
interest of the latter, and having been allowed by MMPCI to represent it in her dealings
with its clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by
the contract procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces
obtained on forms provided by MMPCI. The terms of the offer to purchase, therefore,
are contained in such forms and, when signed by the buyer and an authorized officer of
MMPCI, becomes binding on both parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by
MMPCI showed a total list price of P132,250.00. Likewise, it was clearly stated therein
that “Purchaser agrees that he has read or has had read to him this agreement, that he
understands its terms and conditions, and that there are no covenants, conditions,
warranties or representations other than those contained herein.” By signing the Offer
to Purchase, Atty. Linsangan signified that he understood its contents. That he and
Baluyot had an agreement different from that contained in the Offer to Purchase is of no
moment, and should not affect MMPCI, as it was obviously made outside Baluyot’s
authority. To repeat, Baluyot’s authority was limited only to soliciting purchasers. She
had no authority to alter the terms of the written contract provided by MMPCI. The
document/letter “confirming” the agreement that Atty. Linsangan would have to pay the
old price was executed by Baluyot alone. Nowhere is there any indication that the same
came from MMPCI or any of its officers.
It is a settled rule that persons dealing with an agent are bound at their peril, 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
establish it. The basis for agency is representation and a person dealing with an agent is
put upon inquiry and must discover upon his peril the authority of the agent. If he does
not make such an inquiry, he is chargeable with knowledge of the agent’s authority and
his ignorance of that authority will not be any excuse.
As noted by one author, the ignorance of a person dealing with an agent as to the scope
of the latter’s authority is no excuse to such person and the fault cannot be thrown
upon the principal. A person dealing with an agent assumes the risk of lack of
authority in the agent. He cannot charge the principal by relying upon the agent’s
assumption of authority that proves to be unfounded. The principal, on the other hand,
may act on the presumption that third persons dealing with his agent will not be
negligent in failing to ascertain the extent of his authority as well as the existence of his
agency.
In the instant case, it has not been established that Atty. Linsangan even bothered to
inquire whether Baluyot was authorized to agree to terms contrary to those indicated in
the written contract, much less bind MMPCI by her commitment with respect to such
agreements. Even if Baluyot was Atty. Linsangan’s friend and known to be an agent of
MMPCI, her declarations and actions alone are not sufficient to establish the fact or
extent of her authority. Atty. Linsangan as a practicing lawyer for a relatively long
period of time when he signed the contract should have been put on guard when their
agreement was not reflected in the contract. More importantly, Atty. Linsangan should
have been alerted by the fact that Baluyot failed to effect the transfer of rights earlier
promised, and was unable to make good her written commitment, nor convince MMPCI
to assent thereto, as evidenced by several attempts to induce him to enter into other
contracts for a higher consideration. As properly pointed out by MMPCI, as a lawyer, a
greater degree of caution should be expected of Atty. Linsangan especially in dealings
involving legal documents. He did not even bother to ask for official receipts of his
payments, nor inquire from MMPCI directly to ascertain the real status of the contract,
blindly relying on the representations of Baluyot. A lawyer by profession, he knew
what he was doing when he signed the written contract, knew the meaning and value of
every word or phrase used in the contract, and more importantly, knew the legal effects
which said document produced. He is bound to accept responsibility for his negligence.
The trial and appellate courts found MMPCI liable based on ratification and estoppel.
For the trial court, MMPCI’s acts of accepting and encashing the checks issued by Atty.
Linsangan as well as allowing Baluyot to receive checks drawn in the name of MMPCI
confirm and ratify the contract of agency. On the other hand, the Court of Appeals
faulted MMPCI in failing to adopt measures to prevent misrepresentation, and declared
that in view of MMPCI’s acceptance of the benefits of Baluyot’s misrepresentation, it
can no longer deny responsibility therefor.
The Court does not agree. Pertinent to this case are the following provisions of the
Civil Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding
the scope of his authority, and the principal does not ratify the contract,
it shall be void if the party with whom the agent contracted is aware of
the limits of the powers granted by the principal. In this case, however,
the agent is liable if he undertook to secure the principal’s ratification.
Art. 1910. The principal must comply with all the obligations that the
agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the latter
to act as though he had full powers.
Thus, the acts of an agent beyond the scope of his authority do not bind the
principal, unless he ratifies them, expressly or impliedly. Only the principal can
ratify; the agent cannot ratify his own unauthorized acts. Moreover, the
principal must have knowledge of the acts he is to ratify.
Ratification in agency is the adoption or confirmation by one person of an act
performed on his behalf by another without authority. The substance of the
doctrine is confirmation after conduct, amounting to a substitute for a prior
authority. Ordinarily, the principal must have full knowledge at the time of
ratification of all the material facts and circumstances relating to the
unauthorized act of the person who assumed to act as agent. Thus, if material
facts were suppressed or unknown, there can be no valid ratification and this
regardless of the purpose or lack thereof in concealing such facts and regardless
of the parties between whom the question of ratification may arise.
Nevertheless, this principle does not apply if the principal’s ignorance of the
material facts and circumstances was willful, or that the principal chooses to act
in ignorance of the facts. However, in the absence of circumstances putting a
reasonably prudent man on inquiry, ratification cannot be implied as against the
principal who is ignorant of the facts.
No ratification can be implied in the instant case.
A perusal of Baluyot’s Answer reveals that the real arrangement between her
and Atty. Linsangan was for the latter to pay a monthly installment of P1,800.00
whereas Baluyot was to shoulder the counterpart amount of P1,455.00 to meet
the P3,255.00 monthly installments as indicated in the contract. Thus, every
time an installment falls due, payment was to be made through a check from
Atty. Linsangan for P1,800.00 and a cash component of P1,455.00 from
Baluyot. However, it appears that while Atty. Linsangan issued the post-dated
checks, Baluyot failed to come up with her part of the bargain. This was
supported by Baluyot’s statements in her letter to Mr. Clyde Williams, Jr.,
Sales Manager of MMPCI, two days after she received the copy of the
Complaint. In the letter, she admitted that she was remiss in her duties when
she consented to Atty. Linsangan’s proposal that he will pay the old price while
the difference will be shouldered by her. She likewise admitted that the
contract suffered arrearages because while Atty. Linsangan issued the agreed
checks, she was unable to give her share of P1,455.00 due to her own financial
difficulties. Baluyot even asked for compassion from MMPCI for the error she
committed.
Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement.
As far as MMPCI is concerned, the contract price was P132,250.00, as stated in
the Offer to Purchase signed by Atty. Linsangan and MMPCI’s authorized
officer. The down payment of P19,838.00 given by Atty. Linsangan was in
accordance with the contract as well. Payments of P3,235.00 for at least two
installments were likewise in accord with the contract, albeit made through a
check and partly in cash. In view of Baluyot’s failure to give her share in the
payment, MMPCI received only P1,800.00 checks, which were clearly
insufficient payment. In fact, Atty. Linsangan would have incurred arrearages
that could have caused the earlier cancellation of the contract, if not for
MMPCI’s application of some of the checks to his account. However, the
checks alone were not sufficient to cover his obligations.
If MMPCI was aware of the arrangement, it would have refused the latter’s
check payments for being insufficient. It would not have applied to his
account the P1,800.00 checks. Moreover, the fact that Baluyot had to
practically explain to MMPCI’s Sales Manager the details of her “arrangement”
with Atty. Linsangan and admit to having made an error in entering such
arrangement confirm that MMCPI had no knowledge of the said
agreement. It was only when Baluyot filed her Answer that she claimed that
MMCPI was fully aware of the agreement.
Neither is there estoppel in the instant case. The essential elements of
estoppel are (i) conduct of a party amounting to false representation or
concealment of material facts or at least calculated to convey the impression
that the facts are otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (ii) intent, or at least expectation, that this
conduct shall be acted upon by, or at least influence, the other party; and (iii)
knowledge, actual or constructive, of the real facts.[51]
While there is no more question as to the agency relationship between Baluyot
and MMPCI, there is no indication that MMPCI let the public, or specifically, Atty.
Linsangan to believe that Baluyot had the authority to alter the standard
contracts of the company. Neither is there any showing that prior to signing
Contract No. 28660, MMPCI had any knowledge of Baluyot’s commitment to Atty.
Linsangan. One who claims the benefit of an estoppel on the ground that he has
been misled by the representations of another must not have been misled
through his own want of reasonable care and circumspection. [52] Even assuming
that Atty. Linsangan was misled by MMPCI’s actuations, he still cannot invoke the
principle of estoppel, as he was clearly negligent in his dealings with Baluyot, and
could have easily determined, had he only been cautious and prudent, whether
said agent was clothed with the authority to change the terms of the principal’s
written contract. Estoppel must be intentional and unequivocal, for when
misapplied, it can easily become a most convenient and effective means of
injustice.[53] In view of the lack of sufficient proof showing estoppel, we refuse to
hold MMPCI liable on this score.
Likewise, this Court does not find favor in the Court of Appeals’ findings that “the
authority of defendant Baluyot may not have been expressly conferred upon her;
however, the same may have been derived impliedly by habit or custom which
may have been an accepted practice in their company in a long period of
time.” A perusal of the records of the case fails to show any indication that
there was such a habit or custom in MMPCI that allows its agents to enter into
agreements for lower prices of its interment spaces, nor to assume a portion of
the purchase price of the interment spaces sold at such lower price. No
evidence was ever presented to this effect.
As the Court sees it, there are two obligations in the instant case. One is the
Contract No. 28660 between MMPCI and by Atty. Linsangan for the purchase of
an interment space in the former’s cemetery. The other is the agreement
between Baluyot and Atty. Linsangan for the former to shoulder the amount
P1,455.00, or the difference between P95,000.00, the original price, and
P132,250.00, the actual contract price.
To repeat, the acts of the agent beyond the scope of his authority do not bind the
principal unless the latter ratifies the same. It also bears emphasis that when
the third person knows that the agent was acting beyond his power or authority,
the principal cannot be held liable for the acts of the agent. If the said third
person was aware of such limits of authority, he is to blame and is not entitled to
recover damages from the agent, unless the latter undertook to secure the
principal’s ratification.[54]
This Court finds that Contract No. 28660 was validly entered into both by
MMPCI and Atty. Linsangan. By affixing his signature in the contract, Atty.
Linsangan assented to the terms and conditions thereof. When Atty.
Linsangan incurred delinquencies in payment, MMCPI merely enforced its
rights under the said contract by canceling the same.
Being aware of the limits of Baluyot’s authority, Atty. Linsangan cannot insist
on what he claims to be the terms of Contract No. 28660. The agreement,
insofar as the P95,000.00 contract price is concerned, is void and cannot be
enforced as against MMPCI. Neither can he hold Baluyot liable for damages
under the same contract, since there is no evidence showing that Baluyot
undertook to secure MMPCI’s ratification. At best, the “agreement” between
Baluyot and Atty. Linsangan bound only the two of them. As far as MMPCI is
concerned, it bound itself to sell its interment space to Atty. Linsangan for
P132,250.00 under Contract No. 28660, and had in fact received several
payments in accordance with the same contract. If the contract was cancelled
due to arrearages, Atty. Linsangan’s recourse should only be against Baluyot
who personally undertook to pay the difference between the true contract
price of P132,250.00 and the original proposed price of P95,000.00. To surmise
that Baluyot was acting on behalf of MMPCI when she promised to shoulder
the said difference would be to conclude that MMPCI undertook to pay itself
the difference, a conclusion that is very illogical, if not antithetical to its
business interests.
However, this does not preclude Atty. Linsangan from instituting a separate
action to recover damages from Baluyot, not as an agent of MMPCI, but in
view of the latter’s breach of their separate agreement. To review, Baluyot
obligated herself to pay P1,455.00 in addition to Atty. Linsangan’s P1,800.00 to
complete the monthly installment payment under the contract, which, by her
own admission, she was unable to do due to personal financial difficulties. It
is undisputed that Atty. Linsangan issued the P1,800.00 as agreed upon, and
were it not for Baluyot’s failure to provide the balance, Contract No. 28660
would not have been cancelled. Thus, Atty. Linsangan has a cause of action
against Baluyot, which he can pursue in another case.
WHEREFORE, the instant petition is GRANTED. The Decision of the Court of
Appeals dated 22 June 2001 and its Resolution dated 12 December 2001 in CA-
G.R. CV No. 49802, as well as the Decision in Civil Case No. 88-1253 of the
Regional Trial Court, Makati City Branch 57, are hereby REVERSED and SET
ASIDE. The Complaint in Civil Case No. 88-1253 is DISMISSED for lack of cause of
action. No pronouncement as to costs.SO ORDERED.
G.R. No. 76931, May 29, 1991
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, PETITIONER, VS. COURT OF APPEALS
AND AMERICAN AIRLINES INCORPORATED, RESPONDENTS.
[G.R. NO. 76933. MAY 29, 1991]
AMERICAN AIRLINES, INCORPORATED, PETITIONER, VS. COURT OF APPEALS AND ORIENT
AIR SERVICES & HOTEL REPRESENTATIVES,INCORPORATED RESPONDENTS.
PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari
of a decision of the Court of Appeals in CA-G.R. No. CV-04294, entitled
"American Airlines, Inc. vs. Orient Air Services and Hotel Representa-
tives, Inc." which affirmed, with modification, the decision of the
Regional Trial Court of Manila, Branch IV, which dismissed the complaint
and granted therein defendant's counterclaim for agent's overriding
commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as
American Air), an air carrier offering passenger and air cargo
transportation in the Philippines, and Orient Air Services and Hotel
Representatives (hereinafter referred to as Orient Air), entered into a
General Sales Agency Agreement (hereinafter referred to as the
Agreement), whereby the former authorized the latter to act as its
exclusive general sales agent within the Philippines for the sale of air
passenger transportation. Pertinent provisions of the agreement are
reproduced, to wit:
"WITNESSETH
In consideration of the mutual convenants herein
contained, the parties hereto agree as follows:
 1. Representation of American by Orient Air
Services
Orient Air Services will act on American's behalf as
its exclusive General Sales Agent within the
Philippines, including any United States military
installation therein which are not serviced by an Air
Carrier Representation Office (ACRO), for the sale of
air passenger transportation. The services to be
performed by Orient Air Services shall include:
... ... ...
1. Remittances
Orient Air Services shall remit in United States dollars to
American the ticket stock or exchange orders, less commissions
to which Orient Air Services is entitled hereunder, not less
frequently than semi-monthly, on the 15th and last days of each
month for sales made during the preceding half month.

soliciting and promoting passenger traffic for the services of American and, if All monies collected by Orient Air Services for transportation
(a) sold hereunder on American's ticket stock or on exchange
necessary, employing staff competent and sufficient to do so;
orders, less applicable commissions to which Orient Air Services
is entitled hereunder, are the property of American and shall be
held in trust by Orient Air Services until satisfactorily accounted
providing and maintaining a suitable area in its place of business to be used for to American.
(b)
exclusively for the transaction of the business of American;
2. Commissions
arranging for distribution of American's timetables, tariffs and promotional material American will pay Orient Air Services
(c)
to sales agents and the general public in the assigned territory; commission on transportation sold
hereunder by Orient Air Services or
its sub-agents as follows:
servicing and supervising of sales agents (including such sub-agents as may be
appointed by Orient Air Services with the prior written consent of American) in the (a) Sales agency commission
(d)
assigned territory including if required by American the control of remittances and
commissions retained; and
American will pay Orient Air Services a sales agency commission for a
transportation by Orient Air Services or its sub-agents over American's se
holding out a passenger reservation facility to sales agents and the general public in any connecting through air transportation, when made on American's ti
(e)
the assigned territory. equal to the following percentages of the tariff fares and charges:
In connection with scheduled or non-scheduled air passenger
transportation within the United States, neither Orient Air Services
nor its sub-agents will perform services for any other air carrier similar For transportation solely between points within the United States an
to those to be performed hereunder for American without the prior (i) such points and Canada: 7% or such other rate(s) as may be prescri
written consent of American. Subject to periodic instructions and Air Traffic Conference of America.
continued consent from American, Orient Air Services may sell air
passenger transportation to be performed within the United States by
other scheduled air carriers provided American does not provide
substantially equivalent schedules between the points involved.
 For transportation included in a through ticket covering transportation ... ...
(ii) between points other than those described above: 8% or such other rate(s). .as.
may be prescribed by the International Air Transport Association.
1. Termination

(b) Overriding commission
In addition to the above commission American will pay Orient Air Services Agreement
overriding commission of 3% of the tariff fares and charges for all salesletter, of telegram or cable.
transportation over American's service by Orient Air Service or its sub-agents.
3.
... ... ...
1. Default
If Orient Air Services shall at any time default in observing or
performing any of the provisions of this Agreement or shall
become bankrupt or make any assignment for the benefit of
or enter into any agreement or promise with its creditors or
go into liquidation, or suffer any of its goods to be taken in
execution, or if it ceases to be in business, this Agreement
may, at the option of American, be terminated forthwith and
American may, without prejudice to any of its rights under
this Agreement, take possession of any ticket forms,
exchange orders, traffic material or other property or funds
belonging to American.
2. IATA and ATC Rules
The provisions of this Agreement are subject to any
applicable rules or resolutions of the International Air
Transport Association and the Air Traffic Conference of
America, and such rules or resolutions shall control in the
event of any conflict with the provisions hereof.
American may terminate the Agreement on two days' notice in
the event Orient Air Services is unable to transfer to the United
States the funds payable by Orient Air Services to American
under this Agreement. Either party may terminate the
an without cause by giving the other 30 days' notice by
... ...
. . ."
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for the months of
January to March 1981 in the amount of US $254,400.40, American Air by itself undertook
the collection of the proceeds of tickets sold originally by Orient Air and terminated
forthwith the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4)
days later, or on 15 May 1981, American Air instituted suit against Orient Air with the
Court of First Instance of Manila, Branch 24, for Accounting with Preliminary Attachment
or Garnishment, Mandatory Injunction and Restraining Order, averring the aforesaid
basis for the termination of the Agreement as well as therein defendant's previous record
of failures "to promptly settle past outstanding refunds of which, there were available
funds in the possession of the defendant, x x x to the damage and prejudice of plaintiff."
In its Answer[6] with counterclaim dated 9 July 1981, defendant Orient Air denied the
material allegations of the complaint with respect to plaintiff's entitlement to alleged
unremitted amounts, contending that after application thereof to the commissions due it
under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding
commissions. Further, the defendant contended that the actions taken by American Air
in the course of terminating the Agreement as well as the termination itself were
untenable, Orient Air claiming that American Air's precipitous conduct had occassioned
prejudice to its business interests.
Finding that the record and the evidence substantiated the allegations of the defendant,
the trial court ruled in its favor, rendering a decision dated 16 July 1984, the dispositive
portion of which reads:

"WHEREFORE, all the foregoing premises considered, judgment is hereby

rendered in favor of defendant and against plaintiff dismissing the
 complaint and holding the termination made by the latter as affecting
the GSA agreement illegal and improper and order the plaintiff to
reinstate defendant as its general sales agent for passenger
transportation in the Philippines in accordance with said GSA
agreement; plaintiff is ordered to pay defendant the balance of the
overriding commission on total flown revenue covering the period
from March 16, 1977 to December 31, 1980 in the amount of
US$84,821.31 plus the additional amount of US$8,000.00 by way of
proper 3% overriding commission per month commencing from
January 1, 1981 until such reinstatment or said amounts in its
Philippine peso equivalent legally prevailing at the time of payment
plus legal interest to commence from the filing of the counterclaim up
to the time of payment. Further, plaintiff is directed to pay
defendant the amount of One Million Five Hundred Thousand
(P1,500,000.00) pesos as and for exemplary damages; and the
amount of Three Hundred Thousand (P300,000.00) pesos as and by
way of attorney's fees.
Costs against plaintiff."[7]
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision
promulgated on 27 January 1986, affirmed the findings of the court a quo on their
material points but with some modifications with respect to the monetary awards
granted. The dispositive portion of the appellate court's decision is as follows:
"WHEREFORE, with the following modifications -
1) American is ordered to pay Orient the sum of
US$53,491.11 representing the balance of the
latter's overriding commission covering the period
March 16, 1977 to December 31, 1980, or its
Philippine peso equivalent in accordance with the
official rate of exchange legally prevailing on July
10, 1981, the date the counterclaim was filed;
2) American is ordered to pay Orient the sum of
US$7,440.00 as the latter's overriding commission
per month starting January 1, 1981 until date of
termination, May 9, 1981, or its Philippine
peso equivalent in accordance with the official rate
of exchange legally prevailing on July 10, 1981, the
date the counterclaim was filed;
3) American is ordered to pay interest of 12% on said
amounts from July 10, 1981 the date the answer with
counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary
damages of P200,000.00;
5) American is ordered to pay Orient the sum of
P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American."[8]
American Air moved for reconsideration of the aforementioned decision, assailing the
substance thereof and arguing for its reversal. The appellate court's decision was also the
subject of a Motion for Partial Reconsideration by Orient Air which prayed for the
restoration of the trial court's ruling with respect to the monetary awards. The Court of
Appeals, by resolution promulgated on 17 December 1986, denied American Air's motion
and with respect to that of Orient Air, ruled thus:
"Orient's motion for partial reconsideration is denied insofar as it prays
for affirmance of the trial court’s award of exemplary damages and
attorney's fees, but granted insofar as the rate of exchange is
concerned. The decision of January 27, 1986 is modified in paragraphs
(1) and (2) of the dispositive part so that the payment of the sums
mentioned therein shall be at their Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on the
date of actual payment."[9]
Both parties appealed the aforesaid resolution and decision of the respondent court,
Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No.
76933. By resolution[10] of this Court dated 25 March 1987, both petitions were
consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3%
overriding commission. It is the stand of American Air that such commission is based only
on sales of its services actually negotiated or transacted by Orient Air, otherwise referred
to as "ticketed sales." As basis thereof, primary reliance is placed upon paragraph 5(b) of
the Agreement which, in reiteration, is quoted as follows:
"5. Commissions
a) . . .

b) Overriding Commission
In addition to the above commission, American will pay Orient
Air Services an overriding commission of 3% of the tariff fees
and charges for all sales of transportation over American's
services by Orient Air Services or its sub-agents." (underscoring
supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the
former not having opted to appoint any sub-agents, it is American Air's contention that
Orient Air can claim entitlement to the disputed overriding commission based only on
ticketed sales. This is supposed to be the clear meaning of the underscored portion of
the above provision. Thus, to be entitled to the 3% overriding commission, the sale
must be made by Orient Air and the sale must be done with the use of American Air's
ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3%
overriding commission covers the total revenue of American Air and not merely that
derived from ticketed sales undertaken by Orient Air. The latter, in justification of its
submission, invokes its designation as the exclusive General Sales Agent of American Air,
with the corresponding obligations arising from such agency, such as, the promotion
and solicitation for the services of its principal. In effect, by virtue of such exclusivity,
"all sales of transportation over American Air's services are necessarily by Orient Air."
It is a well settled legal principle that in the interpretation of a contract, the entirety
thereof must be taken into consideration to ascertain the meaning of its provisions.
The various stipulations in the contract must be read together to give effect to all.
After a careful examination of the records, the Court finds merit in the contention of
Orient Air that the Agreement, when interpreted in accordance with the foregoing
principles, entitles it to the 3% overriding commission based on total revenue, or as
referred to by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was
responsible for the promotion and marketing of American Air's services for air
passenger transportation, and the solicitation of sales therefor. In return for such
efforts and services, Orient Air was to be paid commissions of two (2) kinds: first, a
sales agency commission, ranging from 7-8% of tariff fares and charges from sales by
Orient Air when made on American Air ticket stock; and second, an overriding
commission of 3% of tariff fares and charges for all sales of passenger transportation
over American Air services. It is immediately observed that the precondition attached
to the first type of commission does not obtain for the second type of
commissions. The latter type of commissions would accrue for sales of American Air
services made not on its ticket stock but on the ticket stock of other air carriers sold by
such carriers or other authorized ticketing facilities or travel agents. To rule otherwise,
i.e., to limit the basis of such overriding commissions to sales from American Air ticket
stock would erase any distinction between the two (2) types of commissions and would
lead to the absurd conclusion that the parties had entered into a contract with
meaningless provisions. Such an interpretation must at all times be avoided with every
effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that
American Air was the party responsible for the preparation of the
Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be taken
"contra proferentem", i.e., construed against the party who caused the ambiguity and
could have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil
Code provides that the interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity. To put it differently, when several
interpretations of a provision are otherwise equally proper, that interpretation or
construction is to be adopted which is most favorable to the party in whose favor the
provision was made and who did not cause the ambiguity. We therefore agree with the
respondent appellate court's declaration that:
"Any ambiguity in a contract, whose terms are susceptible of different
interpretations, must be read against the party who drafted it."
We now turn to the propriety of American Air's termination of the Agreement. The
respondent appellate court, on this issue, ruled thus:
"It is not denied that Orient withheld remittances but such action finds
justification from paragraph 4 of the Agreement, Exh. F, which provides
for remittances to American less commissions to which Orient is entitled,
and from paragraph 5(d) which specifically allows Orient to retain the
full amount of its commissions. Since, as stated ante, Orient is entitled
to the 3% override, American's premise, therefore, for the cancellation
of the Agreement did not exist. . . .."
We agree with the findings of the respondent appellate court. As
earlier established, Orient Air was entitled to an overriding commission
based on total flown revenue. American Air's perception that Orient
Air was remiss or in default of its obligations under the Agreement was,
in fact, a situation where the latter acted in accordance with the
Agreement – that of retaining from the sales proceeds its accrued
commissions before remitting the balance to American Air. Since the
latter was still obligated to Orient Air by way of such
commissions. Orient Air was clearly justified in retaining and refusing
 to remit the sums claimed by American Air. The latter's termination
of the Agreement was, therefore, without cause and basis, for which
it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified
by reduction the trial court's award of exemplary damages and
attorney's fees. This Court sees no error in such modification and,
thus, affirms the same.
It is believed, however, that respondent appellate court erred in
affirming the rest of the decision of the trial court. We refer
particularly to the lower court's decision ordering American Air to
"reinstate defendant as its general sales agent for passenger
transportation in the Philippines in accordance with said GSA
Agreement."
By affirming this ruling of the trial court, respondent appellate court,
in effect, compels American Air to extend its personality to Orient
Air. Such would be violative of the principles and essence of agency,
defined by law as a contract whereby "a person binds himself to
render some service or to do something in representation or on
behalf of another, WITH THE CONSENT OR AUTHORITY OF THE
LATTER." (emphasis supplied) 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. The Agreement itself between the parties states that "either
party may terminate the Agreement without cause by giving the
other 30 days' notice by letter, telegram or cable." (emphasis
supplied) We, therefore, set aside the portion of the ruling of the
respondent appellate court reinstating Orient Air as general sales
agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the
decision and resolution of the respondent Court of Appeals, dated 27
January 1986 and 17 December 1986, respectively. Costs against
petitioner American Air. SO ORDERED.
G.R. No. 88539, October 26, 1993
KUE CUISON, DOING BUSINESS UNDER THE FIRM NAME AND STYLE "KUE CUISON PAPER
SUPPLY," PETITIONER, VS. THE COURT OF APPEALS, VALIANT INVESTMENT ASSOCIATES,
RESPONDENTS.
BIDIN, J.:
This petition for review assails the decision of the respondent Court of Appeals ordering
petitioner to pay private respondent, among others, the sum of P297,482.30 with interest.
Said decision reversed the appealed decision of the trial court rendered in favor of
petitioner.
The case involves an action for a sum of money filed by respondent against petitioner
anchored on the following antecedent facts:
Petitioner Kue Cuison is a sole proprietorship engaged in the purchase and sale of
newsprint, bond paper and scrap, with places of business at Baesa, Quezon City, and Sto.
Cristo, Binondo, Manila. Private respondent Valiant Investment Associates, on the other
hand, is a partnership duly organized and existing under the laws of the Philippines with
business address at Kalookan City.
From December 4, 1979 to February 15, 1980, private respondent delivered various kinds
of paper products amounting to P297,487.30 to a certain Lilian Tan of LT Trading. The
deliveries were made by respondent pursuant to orders allegedly placed by Tiu Huy Tiac
who was then employed in the Binondo Office of petitioner. It was likewise pursuant to
Tiac's instructions that the merchandise was delivered to Lilian Tan. Upon delivery, Lilian
Tan paid for the merchandise by issuing several checks payable to cash at the specific
request of Tiu Huy Tiac. In turn, Tiac issued nine (9) postdated checks to private
respondent as payment for the paper products. Unfortunately, said checks were later
dishonored by the drawee bank.
Thereafter, private respondent made several demands upon petitioner to pay for the
merchandise in question, claiming that Tiu Huy Tiac was duly authorized by petitioner as
the manager of his Binondo office, to enter into the questioned transactions with private
respondent and Lilian Tan. Petitioner denied any involvement in the transaction entered
into by Tiu Huy Tiac and refused to pay private respondent the amount corresponding to
the selling price of the subject merchandise.
Left with no recourse, private respondent filed an action against petitioner for the
collection of P297,487.30 representing the price of the merchandise. After due hearing,
the trial court dismissed the complaint against petitioner for lack of merit. On appeal,
however, the decision of the trial court was modified, but was in effect reversed by the
Court of Appeals, the dispositive portion of which reads:
"WHEREFORE, the decision appealed from is MODIFIED in that defendant-appellant Kue
Cuison is hereby ordered to pay plaintiff-appellant Valiant Investment Associates the
sum of P297,487.30 with 12% interest from the filing of the complaint until the amount
is fully paid, plus the sum of 7% of the total amount due as attorney's fees, and to pay
the costs. In all other respects, the decision appealed from is affirmed." (Rollo, p. 55)
In this petition, petitioner contends that:
"THE HONORABLE COURT ERRED IN FINDING TIU HUY TIAC AGENT OF
DEFENDANT-APPELLANT CONTRARY TO THE UNDISPUTED/ESTABLISHED FACTS AND
CIRCUMSTANCES.
"THE HONORABLE COURT ERRED IN FINDING DEFENDANT-APPELLANT LIABLE FOR AN
OBLIGATION UNDISPUTEDLY BELONGING TO TIU HUY TIAC.
"THE HONORABLE COURT ERRED IN REVERSING THE WELL-FOUNDED DECISION OF THE
TRIAL COURT." (ROLLO, P. 19)
The issue here is really quite simple, and that is --- whether or not Tiu Huy Tiac
possessed the required authority from petitioner sufficient to hold the latter liable for
the disputed transaction.
This petition ought to have been denied outright, for in the final analysis, it raises a
factual issue. It is elementary that in petitions for review under Rule 45, this Court only
passes upon questions of law. An exception thereto occurs where the findings of fact of
the Court of Appeals are at variance with the trial court, in which case the Court reviews
the evidence in order to arrive at the correct findings based on the records.
As to the merits of the case, it is a well-established rule that one who clothes another
with apparent authority as his agent and holds him out to the public as such cannot be
permitted to deny the authority of such person to act as his agent, to the prejudice of
innocent third parties dealing with such person in good faith and in the honest belief
that he is what he appears to be (Macke, et al. v. Camps, 7 Phil. 553 [1907]; Philippine
National Bank v. Court of Appeals, 94 SCRA 357 [1979]). From the facts and the evidence
on record, there is no doubt that this rule obtains. The petition must therefore fail.
It is evident from the records that by his own acts and admission, petitioner held out Tiu
Huy Tiac to the public as the manager of his store in Sto. Cristo, Binondo, Manila. More
particularly, petitioner explicitly introduced Tiu Huy Tiac to Bernardino Villanueva,
respondent's manager, as his (petitioner's) branch manager as testified to by Bernardino
Villanueva. Secondly, Lilian Tan, who has been doing business with petitioner for quite a
while, also testified that she knew Tiu Huy Tiac to be the manager of petitioner's Sto.
Cristo, Binondo branch. This general perception of Tiu Huy Tiac as the manager of
petitioner's Sto. Cristo store is even made manifest by the fact that Tiu Huy Tiac is known
in the community to be the "kinakapatid" (godbrother) of petitioner. In fact, even
petitioner admitted his close relationship with Tiu Huy Tiac when he said in open court
that they are "like brothers" (Rollo, p. 54). There was thus no reason for anybody
especially those transacting business with petitioner to even doubt the authority of Tiu
Huy Tiac as his manager in the Sto Cristo, Binondo branch.
In a futile attempt to discredit Villanueva, petitioner alleges that the former's testimony is
clearly self-serving inasmuch as Villanueva worked for private respondent as its manager.
We disagree. The argument that Villanueva's testimony is self-serving and therefore
inadmissible on the lame excuse of his employment with private respondent utterly
misconstrues the nature of "self-serving evidence" and the specific ground for its exclusion.
As pointed out by this Court in Co v. Court of Appeals et al., (99 SCRA 321 [1980]):
"Self-serving evidence is evidence made by a party out of court at one time; it does not
include a party's testimony as a witness in court. It is excluded on the same ground as any
hearsay evidence, that is the lack of opportunity for cross-examination by the adverse
party, and on the consideration that its admission would open the door to fraud and to
fabrication of testimony. On the other hand, a party's testimony in court is sworn and
affords the other party the opportunity for cross-examination" (underscoring supplied).
Petitioner cites Villanueva's failure, despite his commitment to do so on cross-examination,
to produce the very first invoice of the transaction between petitioner and private
respondent as another ground to discredit Villanueva's testimony. Such failure, petitioner
argues, proves that Villanueva was not only bluffing when he pretended that he can
produce the invoice, but that Villanueva was likewise prevaricating when he insisted that
such prior transactions actually took place. Petitioner is mistaken. In fact, it was
petitioner's counsel himself who withdrew the reservation to have Villanueva produce the
document in court. As aptly observed by the Court of Appeals in its decision:
"xxx However, during the hearing on March 3, 1981, Villanueva failed to present the
document adverted to because defendant-appellant's counsel withdrew his reservation to
have the former (Villanueva) produce the document or invoice, thus prompting
plaintiff-appellant to rest its case that same day (t.s.n., pp. 39-40, Sess. of March 3, 1981).
Now, defendant-appellant assails the credibility of Villanueva for having allegedly failed to
produce even one single document to show that plaintiff-appellant and
defendant-appellant have had transactions before, when in fact said failure of
Villanueva to produce said document is a direct off-shoot of the action of
defendant-appellant's counsel who withdrew his reservation for the production of the
document or invoice and which led plaintiff-appellant to rest its case that very day."
(Rollo, p. 52)
In the same manner, petitioner assails the credibility of Lilian Tan by alleging that Tan
was part of an intricate plot to defraud him. However, petitioner failed to substantiate
or prove that the subject transaction was designed to defraud him. Ironically, it was
even the testimony of petitioner's daughter and assistant manager Imelda Kue Cuison
which confirmed the credibility of Tan as a witness. On the witness stand, Imelda
testified that she knew for a fact that prior to the transaction in question, Tan regularly
transacted business with her father (petitioner herein), thereby corroborating Tan's
testimony to the same effect. As correctly found by the respondent court, there was no
logical explanation for Tan to impute liability upon petitioner. Rather, the testimony of
Imelda Kue Cuison only served to add credence to Tan's testimony as regards the
transaction, the liability for which petitioner wishes to be absolved.
But of even greater weight than any of these testimonies, is petitioner's categorical
admission on the witness stand that Tiu Huy Tiac was the manager of his store in Sto.
Cristo, Binondo, to wit:
"Court:
xx x All of these point to the fact that at the time of the transaction, Tiu Huy Tiac was
"Q And who was managing the store in Sto Cristo?
"A At first it was Mr. Ang, then later Mr. Tiu Huy Tiac but I cannot
remember the exact year.
"Q So, Mr. Tiu Huy Tiac took over the management.
"A Not that was because every afternoon, I was there, sir.
"Q But in the morning, who takes charge?
"A Tiu Huy Tiac takes charge of management and if there (sic)
orders for newsprint or bond papers they are always referred to the
compound in Baesa, sir." (t.s.n., p. 16, Session of January 20, 1981, CA
decision, Rollo, p. 50, underscoring supplied).
Such admission, spontaneous no doubt, and standing alone, is sufficient to negate all the
denials made by petitioner regarding the capacity of Tiu Huy Tiac to enter into the
transaction in question. Furthermore, consistent with and as an obvious indication of, the
fact that Tiu Huy Tiac was the manager of the Sto. Cristo branch, three (3) months after Tiu
Huy Tiac left petitioner's employ, petitioner even sent communications to its customers
notifying them that Tiu Huy Tiac is no longer connected with petitioner's business. Such
undertaking spoke unmistakenly of Tiu Huy Tiac's valuable position as petitioner's
manager than any uttered disclaimer. More than anything else, his act taken together with
the declaration of petitioner in open court amount to admissions under Rule 130 Section
22 of the Rules of Court, to wit: "The act, declaration or omission of a party as to a
relevant fact may be given in evidence against him." For well-settled is the rule that "a
man's acts, conduct and declaration, wherever made, if voluntary, are admissible against
him, for the reason that it is fair to presume that they correspond with the truth, and it is
his fault if they do not. If a man's extrajudicial admissions are admissible against him, there
seems to be no reason why his admissions made in open court, under oath, should not be
accepted against him." (U.S. vs. Ching Po, 23 Phil. 578, 583 [1912];).
Moreover, petitioner's unexplained delay in disowning the transactions entered into by
Tiu-Huy Tiac despite several attempts made by respondent to collect the amount from him,
proved all the more that petitioner was aware of the questioned transactions. Such
omission was tantamount to an admission by silence under Rule 130 Section 23 of the
Rules of Court, thus: "Any act or declaration made in the presence of and within the
observation of a party who does or says nothing when the act or declaration is such as
naturally to call for action or comment if not true, may be given in evidence against him."
admittedly the manager of petitioner's store in Sto. Cristo, Binondo. Consequently, the
transaction in question as well as the concomitant obligation is valid and binding upon
petitioner.
By his representations, petitioner is now estopped from disclaiming liability for the
transaction entered into by Tiu Huy Tiac on his behalf. It matters not whether the
representations are intentional or merely negligent so long as innocent third persons
relied upon such representations in good faith and for value. As held in the case of Manila
Remnant Co., Inc. v. Court of Appeals, (191 SCRA 622 [1990]):
"More in point, we find that by the principle of estoppel, Manila Remnant is deemed to
have allowed its agent to act as though it had plenary powers. Article 1911 of the Civil
Code provides:
'Even when the agent has exceeded his authority, the principal is solidarily liable with
the agent if the former allowed the latter to act as though he had full powers.' (Italics
supplied).
The above-quoted article is new. It is intended to protect the rights of innocent persons.
In such a situation, both the principal and the agent may be considered as joint
tortfeasors whose liability is joint and solidary.
Authority by estoppel has arisen in the instant case because by its negligence, the
principal, Manila Remnant, has permitted its agent, A.U. Valencia and Co., to exercise
powers not granted to it. That the principal might not have had actual knowledge of the
agent's misdeed is of no moment."
Tiu Huy Tiac, therefore, by petitioner's own representations and manifestations,
became an agent of petitioner by estoppel. Under the doctrine of estoppel, an
admission or representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon (Article 1431, Civil
Code of the Philippines). A party cannot be allowed to go back on his own acts and
representations to the prejudice of the other party who, in good faith, relied upon them
(Philippine National Bank v. Intermediate Appellate Court, et al., 189 SCRA 680 [1990]).
Taken in this light, petitioner is liable for the transaction entered into by Tiu Huy Tiac on
his behalf. Thus, even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though he had
full powers (Article 1911 Civil Code), as in the case at bar.
Finally, although it may appear that Tiu Huy Tiac defrauded his principal (petitioner) in
not turning over the proceeds of the transaction to the latter, such fact cannot in any
way relieve nor exonerate petitioner of his liability to private respondent. For it is an
equitable maxim that as between two innocent parties, the one who made it possible
for the wrong to be done should be the one to bear the resulting loss (Francisco vs.
Government Service Insurance System, 7 SCRA 577 [1963]).
Inasmuch as the fundamental issue of the capacity or incapacity of the purported agent
Tiu Huy Tiac, has already been resolved, the Court deems it unnecessary to resolve the
other peripheral issues raised by petitioner.
WHEREFORE, the instant petition is hereby DENIED for lack of merit. Costs against
petitioner. SO ORDERED.
G.R. No. 137686, February 08, 2000
RURAL BANK OF MILAOR (CAMARINES SUR), PETITIONER, VS. FRANCISCA OCFEMIA,
ROWENA BARROGO, MARIFE O. NIÑO, FELICISIMO OCFEMIA, RENATO OCFEMIA JR.,
AND WINSTON OCFEMIA, RESPONDENTS.
PANGANIBAN, J.:
When a bank, by its acts and failure to act, has clearly clothed its
manager with apparent authority to sell an acquired asset in the normal
course of business, it is legally obliged to confirm the transaction by
issuing a board resolution to enable the buyers to register the property
in their names. It has a duty to perform necessary and lawful acts to
enable the other parties to enjoy all benefits of the contract which it
had authorized.
The Case
Before this Court is a Petition for Review on Certiorari challenging the December 18, 1998
Decision of the Court of Appeals (CA) in CA-GR SP No. 46246, which affirmed the May 20,
1997 Decision of the Regional Trial Court (RTC) of Naga City (Branch 28). The CA disposed
as follows:
"Wherefore, premises considered, the Judgment appealed from is
hereby AFFIRMED. Costs against the respondent-appellant."
The dispositive portion of the judgment affirmed by the CA ruled in this wise:
"WHEREFORE, in view of all the foregoing findings, decision is hereby
rendered whereby the [petitioner] Rural Bank of Milaor (Camarines Sur),
Inc. through its Board of Directors is hereby ordered to immediately
issue a Board Resolution confirming the Deed of Sale it executed in favor
of Renato Ocfemia marked Exhibits C, C-1 and C-2); to pay [respondents]
the sum of FIVE HUNDRED (P500.00) PESOS as actual damages; TEN
THOUSAND (P10,000.00) PESOS as attorney’s fees; THIRTY THOUSAND
(P30,000.00) PESOS as moral damages; THIRTY THOUSAND (P30,000.00)
PESOS as exemplary damages; and to pay the costs."
Also assailed is the February 26, 1999 CA Resolution which denied petitioner’s Motion for
Reconsideration.
The Facts
The trial court’s summary of the undisputed facts was reproduced in the CA Decision as
follows:
"This is an action for mandamus with damages. On April 10, 1996,
[herein petitioner] was declared in default on motion of the
[respondents] for failure to file an answer within the reglementary
period after it was duly served with summons. On April 26, 1996,
[herein petitioner] filed a motion to set aside the order of default with
objection thereto filed by [herein respondents].
"On June 17, 1996, an order was issued denying [petitioner’s] motion
to set aside the order of default. On July 10, 1996, the defendant filed
a motion for reconsideration of the order of June 17, 1996 with
objection thereto by [respondents]. On July 12, 1996, an order was
issued denying [petitioner’s] motion for reconsideration. On July 31,
1996, [respondents] filed a motion to set case for hearing. A copy
thereof was duly furnished the [petitioner] but the latter did not file
any opposition and so [respondents] were allowed to present their
evidence ex-parte. A certiorari case was filed by the [petitioner] with
the Court of Appeals docketed as CA GR No. 41497-SP but the petition
was denied in a decision rendered on March 31, 1997 and the same is
now final.
"The evidence presented by the [respondents] through the testimony
of Marife O. Niño, one of the [respondents] in this case, show[s] that
she is the daughter of Francisca Ocfemia, a co-[respondent] in this
case, and the late Renato Ocfemia who died on July 23, 1994. The
parents of her father, Renato Ocfemia, were Juanita Arellano Ocfemia
and Felicisimo Ocfemia. Her other co-[respondents] Rowena O.
Barrogo, Felicisimo Ocfemia, Renato Ocfemia, Jr. and Winston
Ocfemia are her brothers and sisters.
"Marife O. Niño knows the five (5) parcels of land described in
paragraph 6 of the petition which are located in Bombon, Camarines
Sur and that they are the ones possessing them which [were]
originally owned by her grandparents, Juanita Arellano Ocfemia and
Felicisimo Ocfemia. During the lifetime of her grandparents,
[respondents] mortgaged the said five (5) parcels of land and two (2)
others to the [petitioner] Rural Bank of Milaor as shown by the Deed
of Real Estate Mortgage (Exhs. A and A-1) and the Promissory Note
(Exh. B).
"The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not
able to redeem the mortgaged properties consisting of seven (7) parcels
of land and so the mortgage was foreclosed and thereafter ownership
thereof was transferred to the [petitioner] bank. Out of the seven (7)
parcels that were foreclosed, five (5) of them are in the possession of the
[respondents] because these five (5) parcels of land described in
paragraph 6 of the petition were sold by the [petitioner] bank to the
parents of Marife O. Niño as evidenced by a Deed of Sale executed in
January 1988 (Exhs. C, C-1 and C-2).
"The aforementioned five (5) parcels of land subject of the deed of sale
(Exh. C), have not been, however transferred in the name of the parents
of Merife O. Niño after they were sold to her parents by the [petitioner]
bank because according to the Assessor’s Office the five (5) parcels of
land, subject of the sale, cannot be transferred in the name of the buyers
as there is a need to have the document of sale registered with the
Register of Deeds of Camarines Sur.
"In view of the foregoing, Marife O. Niño went to the Register of Deeds
of Camarines Sur with the Deed of Sale (Exh. C) in order to have the
same registered. The Register of Deeds, however, informed her that the
document of sale cannot be registered without a board resolution of the
[petitioner] Bank. Marife Niño then went to the bank, showed to it the
Deed of Sale (Exh. C), the tax declaration and receipt of tax payments
and requested the [petitioner] for a board resolution so that the
property can be transferred to the name of Renato Ocfemia the husband
of petitioner Francisca Ocfemia and the father of the other [respondents]
having died already.
"The [petitioner] bank refused her request for a board resolution and
made many alibi[s]. She was told that the [petitioner] bank ha[d] a new
manager and it had no record of the sale. She was asked and she
complied with the request of the [petitioner] for a copy of the deed of
sale and receipt of payment. The president of the [petitioner] bank told
her to get an authority from her parents and other [respondents] and
receipts evidencing payment of the consideration appearing in the deed
of sale. She complied with said requirements and after she gave all these
documents, Marife O. Niño was again told to wait for two (2) weeks
because the [petitioner] bank would still study the matter.
"After two (2) weeks, Marife O. Niño returned to the [petitioner] bank
and she was told that the resolution of the board would not be
released because the [petitioner] bank ha[d] no records from the old
manager. Because of this, Marife O. Niño brought the matter to her
lawyer and the latter wrote a letter on December 22, 1995 to the
[petitioner] bank inquiring why no action was taken by the board of
the request for the issuance of the resolution considering that the
bank was already fully paid [for] the consideration of the sale since
January 1988 as shown by the deed of sale itself (Exh. D and D-1).
"On January 15, 1996 the [petitioner] bank answered [respondents’]
lawyer’s letter (Exh. D and D-1) informing the latter that the request
for board resolution ha[d] already been referred to the board of
directors of the [petitioner] bank with another request that the latter
should be furnished with a certified machine copy of the receipt of
payment covering the sale between the [respondents] and the
[petitioner] (Exh. E). This request of the [petitioner] bank was already
complied [with] by Marife O. Niño even before she brought the matter
to her lawyer.
"On January 23, 1996 [respondents’] lawyer wrote back the branch
manager of the [petitioner] bank informing the latter that they were
already furnished the receipts the bank was asking [for] and that the
[respondents] want[ed] already to know the stand of the bank
whether the board [would] issue the required board resolution as the
deed of sale itself already show[ed] that the [respondents were]
clearly entitled to the land subject of the sale (Exh. F). The manager of
the [petitioner] bank received the letter which was served personally
to him and the latter told Marife O. Niño that since he was the one
himself who received the letter he would not sign anymore a copy
showing him as having already received said letter (Exh. F).
"After several days from receipt of the letter (Exh. F) when Marife O.
Niño went to the [petitioner] again and reiterated her request, the
manager of the [petitioner] bank told her that they could not issue the
required board resolution as the [petitioner] bank ha[d] no records of
the sale. Because of this Merife O. Niño already went to their lawyer
and ha[d] this petition filed.
"The [respondents] are interested in having the property described in
paragraph 6 of the petition transferred to their names because their
mother and co-petitioner, Francisca Ocfemia, is very sickly and they
want to mortgage the property for the medical expenses of Francisca
Ocfemia. The illness of Francisca Ocfemia beg[a]n after her husband died
and her suffering from arthritis and pulmonary disease already became
serious before December 1995.
"Marife O. Niño declared that her mother is now in serious condition and
they could not have her hospitalized for treatment as they do not have
any money and this is causing the family sleepless nights and mental
anguish, thinking that their mother may die because they could not
submit her for medication as they do not have money."[6]
The trial court granted the Petition. As noted earlier, the CA affirmed the RTC Decision.
Hence, this recourse.[7] In a Resolution dated June 23, 1999, this Court issued a Temporary
Restraining Order directing the trial court "to refrain and desist from executing [pending
appeal] the decision dated May 20, 1997 in Civil Case No. RTC-96-3513, effective
immediately until further orders from this Court."[8]
Ruling of the Court of Appeals
The CA held that herein respondents were "able to prove their present cause of action"
against petitioner. It ruled that the RTC had jurisdiction over the case, because (1) the
Petition involved a matter incapable of pecuniary estimation; (2) mandamus fell within the
jurisdiction of RTC; and (3) assuming that the action was for specific performance as
argued by the petitioner, it was still cognizable by the said court.
Issues
In its Memorandum,[9] the bank posed the following questions:
"1. Question of Jurisdiction of the Regional Trial Court. -- Has a Regional
Trial Court original jurisdiction over an action involving title to real
property with a total assessed value of less than P20,000.00?
"2. Question of Law. -- May the board of directors of a rural banking
corporation be compelled to confirm a deed of absolute sale of real
property owned by the corporation which deed of sale was executed by
the bank manager without prior authority of the board of directors of
the rural banking corporation?"[10]
This Court’s Ruling

The present Petition has no merit.
First Issue:
Jurisdiction of the Regional Trial Court
Petitioner submits that the RTC had no jurisdiction over the case. Disputing the ruling of
the appellate court that the present action was incapable of pecuniary estimation,
petitioner argues that the matter in fact involved title to real property worth less than
P20,000. Thus, under RA 7691, the case should have been filed before a metropolitan
trial court, a municipal trial court or a municipal circuit trial court.
We disagree. The well-settled rule is that jurisdiction is determined by the allegations of
the complaint. In the present case, the Petition for Mandamus filed by respondents
before the trial court prayed that petitioner-bank be compelled to issue a board
resolution confirming the Deed of Sale covering five parcels of unregistered land, which
the bank manager had executed in their favor. The RTC has jurisdiction over such action
pursuant to Section 21 of BP 129, which provides:
"SEC 21. Original jurisdiction in other cases. -- Regional Trial Courts
shall exercise original jurisdiction:
(1) in the issuance of writs of certiorari, prohibition, mandamus, quo warranto, habeas
corpus and injunction which may be enforced in any part of their respective
regions; and
(2) In actions affecting ambassadors and other public ministers and consuls."
A perusal of the Petition shows that the respondents did not raise any question
involving the title to the property, but merely asked that petitioner’s board of directors
be directed to issue the subject resolution. Moreover, the bank did not controvert the
allegations in the said Petition. To repeat, the issue therein was not the title to the
property; it was respondents’ right to compel the bank to issue a board resolution
confirming the Deed of Sale.
Second Issue:
Authority of the Bank Manager
Respondents initiated the present proceedings, so that they could transfer to their
names the subject five parcels of land; and subsequently, to mortgage said lots and to
use the loan proceeds for the medical expenses of their ailing mother. For the property
to be transferred in their names, however, the register of deeds required the
submission of a board resolution from the bank confirming both the Deed of Sale and the
authority of the bank manager, Fe S. Tena, to enter into such transaction. Petitioner
refused. After being given the runaround by the bank, respondents sued in exasperation.
Allegations in the Petition for
Mandamus Deemed Admitted
Respondents based their action before the trial court on the Deed of Sale, the substance
of which was alleged in and a copy thereof was attached to the Petition for Mandamus.
The Deed named Fe S. Tena as the representative of the bank. Petitioner, however, failed
to specifically deny under oath the allegations in that contract. In fact, it filed no answer at
all, for which reason it was declared in default. Pertinent provisions of the Rules of Court
read:
"SEC. 7. Action or defense based on document. -- Whenever an action or
defense is based upon a written instrument or document, the substance
of such instrument or document shall be set forth in the pleading, and
the original or a copy thereof shall be attached to the pleading as an
exhibit, which shall be deemed to be a part of the pleading, or said copy
may with like effect be set forth in the pleading.
"SEC. 8. How to contest genuineness of such documents. -- When an
action or defense is founded upon a written instrument, copied in or
attached to the corresponding pleading as provided in the preceding
section, the genuineness and due execution of the instrument shall be
deemed admitted unless the adverse party, under oath, specifically
denies them, and sets forth what he claims to be the facts; but this
provision does not apply when the adverse party does not appear to be
a party to the instrument or when compliance with an order for an
inspection of the original instrument is refused."
In failing to file its answer specifically denying under oath the Deed of Sale, the bank
admitted the due execution of the said contract. Such admission means that it
acknowledged that Tena was authorized to sign the Deed of Sale on its behalf. Thus,
defenses that are inconsistent with the due execution and the genuineness of the written
instrument are cut off by an admission implied from a failure to make a verified specific
denial.
Other Acts of the Bank
In any event, the bank acknowledged, by its own acts or failure to act, the authority of Fe S.
Tena to enter into binding contracts. After the execution of the Deed of Sale, respondents
occupied the properties in dispute and paid the real estate taxes due thereon. If the bank
management believed that it had title to the property, it should have taken some
measures to prevent the infringement or invasion of its title thereto and possession
thereof.
Likewise, Tena had previously transacted business on behalf of the bank, and the latter
had acknowledged her authority. A bank is liable to innocent third persons where
representation is made in the course of its normal business by an agent like Manager
Tena, even though such agent is abusing her authority. Clearly, persons dealing with
her could not be blamed for believing that she was authorized to transact business for
and on behalf of the bank. Thus, this Court has ruled in Board of Liquidators v. Kalaw:
"Settled jurisprudence has it that where similar acts have been
approved by the directors as a matter of general practice, custom, and
policy, the general manager may bind the company without formal
authorization of the board of directors. In varying language, existence
of such authority is established, by proof of the course of business, the
usages and practices of the company and by the knowledge which the
board of directors has, or must be presumed to have, of acts and
doings of its subordinates in and about the affairs of the corporation.
So also,
"‘x x x authority to act for and bind a corporation may be presumed
from acts of recognition in other instances where the power was in
fact exercised.’
"‘x x x Thus, when, in the usual course of business of a corporation, an
officer has been allowed in his official capacity to manage its affairs,
his authority to represent the corporation may be implied from the
manner in which he has been permitted by the directors to manage its
business.’"
Notwithstanding the putative authority of the manager to bind the bank in the Deed of
Sale, petitioner has failed to file an answer to the Petition below within the
reglementary period, let alone present evidence controverting such authority. Indeed,
when one of herein respondents, Marife S. Nino, went to the bank to ask for the board
resolution, she was merely told to bring the receipts. The bank failed to categorically
declare that Tena had no authority. This Court stresses the following:
"x x x Corporate transactions would speedily come to a standstill were
every person dealing with a corporation held duty-bound to disbelieve
every act of its responsible officers, no matter how regular they
should appear on their face. This Court has observed in Ramirez vs.
Orientalist Co., 38 Phil. 634, 654-655, that ---
‘In passing upon the liability of a corporation in cases
of this kind it is always well to keep in mind the
situation as it presents itself to the third party with
whom the contract is made. Naturally he can have little
or no information as to what occurs in corporate
meetings; and he must necessarily rely upon the
external manifestation of corporate consent. The
integrity of commercial transactions can only be
maintained by holding the corporation strictly to the
liability fixed upon it by its agents in accordance with
law; and we would be sorry to announce a doctrine
which would permit the property of man in the city of
Paris to be whisked out of his hands and carried into a
remote quarter of the earth without recourse against
the corporation whose name and authority had been
used in the manner disclosed in this case. As already
observed, it is familiar doctrine that if a corporation
knowingly permits one of its officers, or any other
agent, to do acts within the scope of an apparent
authority, and thus holds him out to the public as
possessing power to do those acts, the corporation will,
as against any one who has in good faith dealt with the
corporation through such agent, be estopped from
denying his authority; and where it is said ‘if the
corporation permits this means the same as ‘if the
thing is permitted by the directing power of the
corporation.’"
In this light, the bank is estopped from questioning the authority of the bank manager to
enter into the contract of sale. If a corporation knowingly permits one of its officers or any
other agent to act within the scope of an apparent authority, it holds the agent out to the
public as possessing the power to do those acts; thus, the corporation will, as against
anyone who has in good faith dealt with it through such agent, be estopped from denying
the agent’s authority.
Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly,
it has a clear legal duty to issue the board resolution sought by respondents. Having
authorized her to sell the property, it behooves the bank to confirm the Deed of Sale so
that the buyers may enjoy its full use.
The board resolution is, in fact, mere paper work. Nonetheless, it is paper work necessary
in the orderly operations of the register of deeds and the full enjoyment of respondents’
rights. Petitioner-bank persistently and unjustifiably refused to perform its legal duty.
Worse, it was less than candid in dealing with respondents regarding this matter. In this
light, the Court finds it proper to assess the bank treble costs, in addition to the award
of damages.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision and Resolution
AFFIRMED. The Temporary Restraining Order issued by this Court is hereby LIFTED.
Treble costs against petitioner. SO ORDERED.
CONCURRING OPINION
VITUG, J.:
I share the views expressed in the ponencia written for the Court by our esteemed
colleague Mr. Justice Artemio V. Panganiban. There is just a brief clarificatory statement
that I thought could be made.
The Civil Code, being a law of general application, can be suppletory to special laws and
certainly not preclusive of those that govern commercial transactions. Indeed, in its
generic sense, civil law can rightly be said to encompass commercial law. Jus civile, in
ancient Rome, was merely used to distinguish it from jus gentium or the law common to
all the nations within the empire and, at some time later, only in contrast to
international law. In more recent times, civil law is so referred to as private law in
distinction from public law and criminal law. Today, it may not be totally inaccurate to
consider commercial law, among some other special laws, as being a branch of civil law.
Section 45 of the Corporation Code provides:
"Sec. 45. Ultra vires acts of corporations. – No corporation under this
code shall possess or exercise any corporate powers except those
conferred by this Code or by its articles of incorporation and except
such as are necessary or incidental to the exercise of the powers so
conferred."
The language of the Code appears to confine the term ultra vires to an act outside or
beyond express, implied and incidental corporate powers. Nevertheless, the concept
can also include those acts that may ostensibly be within such powers but are, by
general or special laws, either proscribed or declared illegal. In general, although
perhaps loosely, ultra vires has also been used to designate those acts of the board of
directors or of corporate officers when acting beyond their respective spheres of
authority. In the context that the law has used the term in article 45 of the Corporation
Code, an ultra vires act would be void and not susceptible to ratification. In
determining whether or not a corporation may perform an act, one considers the logical
and necessary relation between the act assailed and the corporate purpose expressed by
the law or in the charter. For if the act were one which is lawful in itself or not otherwise
prohibited and done for the purpose of serving corporate ends or reasonably contributes
to the promotion of those ends in a substantial and not merely in a remote and fanciful
sense, it may be fairly considered within corporate powers.
Section 23 of the Corporation Code states that the corporate powers are to be exercised,
all business conducted, and all property of corporations controlled and held, by the Board
of Directors. When the act of the board is within corporate powers but it is done without
the concurrence of the shareholders as and when such approval is required by law or
when the act is beyond its competence to do, the act has been described as void or, as
unenforceable,[6] or as ineffective and not legally binding.[7] These holdings
notwithstanding, the act cannot accurately be likened to an ultra vires act of the
corporation itself defined in Section 45 of the Code. Where the act is within corporate
powers but the board has acted without being competent to independently do so, the
action is not necessarily and totally devoid of effects, and it may generally be ratified
expressly or impliedly. Thus, an acceptance of benefits derived by the shareholders from
an outside investment made by the board wihtout the required concurrence of the
stockholders may, nonethelss, be so considered as an effective investment. [8] It may be
said, however, that when the board resolution is yet executory, the act should aptly be
deemed inoperative and specific performance cannot be validly demanded but, if for any
reason, the contemplated action is carried out, such principles as ratification or
prescription when applicable, normally unknown in void contracts, can serve to negate a
claim for the total nullity thereof.
Corporate officers, in their case, may act on such matters as may be authorized either
expressly by the By-laws or Board Resolutions or impliedly such as by general practice or
policy or as are impliedl by express powers. When officers are allowed to act in certain
particular cases, their acts conformably therewith can bind the company. Hence, a
corporate officer entrusted with general management and control of the business has the
implied auhtority to act or contract for the corporation which may be necessary or
appropriate to conduct the ordinary business.[9] If the act of corporate officers comes
within corporate powers but it is done without any express or implied authority therefor
from the by-laws, board resolutions or corporate practices, such an act does not bind the
corporation. The Board, however, acting within its competence, may ratify the
unauthorized act of the corporate officer. So, too, a corporation may be held in estoppel
from denying as against innocent third persons the authority of its officers or agents who
have been clothed by it with ostensible or apparent authority. [10]
The Corporation Code itself has not been that explicit with respect to the consequences of
ultra vires acts; hence, the varied ascriptions to its effects heretofore expressed. It may
well be to consider futile any further attempt to have these situations bear any exact
equivalence to the civil law precepts of defective contracts. Nevertheless, general
statements could be made. Here reiterated, while an act of the corporation which is
either illegal or outside of express, implied or incidental powers as so provided by law or
the charter would be void under Article 5 of the Civil Code, and the act is not
susceptible to ratification, an unauthorized act (if within corporate powers) of the board
or a corporate officer, however, would only be unenforceable conformably with Article
1403 of the Civil Code but, if the party with whom the agent has contracted is aware of
the latter’s limits of powers, the unauthorized act is declared void by Article 1898 of
the same Code, although still susceptible thereunder to ratification by the principal. Any
person dealing with corporate boards and officers may be said to be charged with the
knowledge that the latter can only act within their respective limits of power, and he is
put to notice accordingly. Thus, it would generally behoove such a person to look into
the extent of the authority of corporate agents since the onus would ordinarily be with
him.
G.R. No. 163553, December 11, 2009
YUN KWAN BYUNG, PETITIONER, VS. PHILIPPINE AMUSEMENT AND GAMING
CORPORATION, RESPONDENT.
CARPIO, J.:
The Case
Yun Kwan Byung (petitioner) filed this Petition for Review assailing
the Court of Appeals' Decision dated 27 May 2003 in CA-G.R. CV No.
65699 as well as the Resolution dated 7 May 2004 denying the
Motion for Reconsideration. In the assailed decision, the Court of
Appeals (CA) affirmed the Regional Trial Court's Decision dated 6
May 1999. The Regional Trial Court of Manila, Branch 13 (trial court),
dismissed petitioner's demand against respondent Philippine
Amusement and Gaming Corporation (PAGCOR) for the redemption
of gambling chips.
The Facts
PAGCOR is a government-owned and controlled corporation tasked to establish and
operate gambling clubs and casinos as a means to promote tourism and generate
sources of revenue for the government. To achieve these objectives, PAGCOR is vested
with the power to enter into contracts of every kind and for any lawful purpose that
pertains to its business. Pursuant to this authority, PAGCOR launched its Foreign Highroller
Marketing Program (Program). The Program aims to invite patrons from foreign countries
to play at the dollar pit of designated PAGCOR-operated casinos under specified terms and
conditions and in accordance with industry practice.
The Korean-based ABS Corporation was one of the international groups that availed of the
Program. In a letter-agreement dated 25 April 1996 (Junket Agreement), ABS Corporation
agreed to bring in foreign players to play at the five designated gaming tables of the
Casino Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino Filipino). The
relevant stipulations of the Junket Agreement state:
1. PAGCOR will provide ABS Corporation with separate junket
chips. The junket chips will be distinguished from the chips
being used by other players in the gaming tables.
2. ABS Corporation will distribute these junket chips to its players
and at the end of the playing period, ABS Corporation will
collect the junket chips from its players and make an accounting
to the casino treasury.
3. ABS Corporation will assume sole responsibility to pay the
winnings of its foreign players and settle the collectibles from
losing players.
4. ABS Corporation shall hold PAGCOR absolutely free and
harmless from any damage, claim or liability which may arise
from any cause in connection with the Junket Agreement.
5. In providing the gaming facilities and services to these foreign
players, PAGCOR is entitled to receive from ABS Corporation a
12.5% share in the gross winnings of ABS Corporation or 1.5
million US dollars, whichever is higher, over a playing period of
6 months. PAGCOR has the option to extend the period.[6]
Petitioner, a Korean national, alleges that from November 1996 to March 1997, he came
to the Philippines four times to play for high stakes at the Casino Filipino. [7] Petitioner
claims that in the course of the games, he was able to accumulate gambling chips worth
US$2.1 million. Petitioner presented as evidence during the trial gambling chips with a
face value of US$1.1 million. Petitioner contends that when he presented the gambling
chips for encashment with PAGCOR's employees or agents, PAGCOR refused to redeem
them.[8]
Petitioner brought an action against PAGCOR seeking the redemption of gambling chips
valued at US$2.1 million. Petitioner claims that he won the gambling chips at the Casino
Filipino, playing continuously day and night. Petitioner alleges that every time he would
come to Manila, PAGCOR would extend to him amenities deserving of a high roller. A
PAGCOR official who meets him at the airport would bring him to Casino Filipino, a
casino managed and operated by PAGCOR. The card dealers were all PAGCOR
employees, the gambling chips, equipment and furnitures belonged to PAGCOR, and
PAGCOR enforced all the regulations dealing with the operation of foreign exchange
gambling pits. Petitioner states that he was able to redeem his gambling chips with the
cashier during his first few winning trips. But later on, the casino cashier refused to
encash his gambling chips so he had no recourse but to deposit his gambling chips at the
Grand Boulevard Hotel's deposit box, every time he departed from Manila. [9]
PAGCOR claims that petitioner, who was brought into the Philippines by ABS
Corporation, is a junket player who played in the dollar pit exclusively leased by ABS
Corporation for its junket players. PAGCOR alleges that it provided ABS Corporation with
distinct junket chips. ABS Corporation distributed these chips to its junket players. At
the end of each playing period, the junket players would surrender the chips to ABS
Corporation. Only ABS Corporation would make an accounting of these chips to
PAGCOR's casino treasury.[10]
As additional information for the junket players playing in the gaming room leased to
ABS Corporation, PAGCOR posted a notice written in English and Korean languages
which reads:
NOTICE
This GAMING ROOM is exclusively operated by ABS
under arrangement with PAGCOR, the former is
solely accountable for all PLAYING CHIPS wagered on
the tables. Any financial
ARRANGEMENT/TRANSACTION between PLAYERS
and ABS shall only be binding upon said PLAYERS
and ABS.
PAGCOR claims that this notice is a standard precautionary measure to avoid
confusion between junket players of ABS Corporation and PAGCOR's players.
PAGCOR argues that petitioner is not a PAGCOR player because under PAGCOR's gaming
rules, gambling chips cannot be brought outside the casino. The gambling chips must be
converted to cash at the end of every gaming period as they are inventoried every shift.
Under PAGCOR's rules, it is impossible for PAGCOR players to accumulate two million
dollars worth of gambling chips and to bring the chips out of the casino premises.
Since PAGCOR disclaimed liability for the winnings of players recruited by ABS Corporation
and refused to encash the gambling chips, petitioner filed a complaint for a sum of money
before the trial court. PAGCOR filed a counterclaim against petitioner. Then, trial ensued.
On 6 May 1999, the trial court dismissed the complaint and counterclaim. Petitioner
appealed the trial court's decision to the CA. On 27 May 2003, the CA affirmed the
appealed decision. On 27 June 2003, petitioner moved for reconsideration which was
denied on 7 May 2004.
Aggrieved by the CA's decision and resolution, petitioner elevated the case before this
Court.
The Ruling of the Trial Court
The trial court ruled that based on PAGCOR's charter, PAGCOR has no authority to lease
any portion of the gambling tables to a private party like ABS Corporation. Section 13 of
Presidential Decree No. 1869 or the PAGCOR's charter states:
Sec. 13. Exemptions -
xxx
(4) Utilization of Foreign Currencies - The Corporation shall have the
right and authority, solely and exclusively in connection with the
operations of the casino(s), to purchase, receive, exchange and disburse
foreign exchange, subject to the following terms and conditions:
(a) A specific area in the casino(s) or gaming pit shall be put up
solely and exclusively for players and patrons utilizing foreign
currencies;
(b) The Corporation shall appoint and designate a duly accredited
commercial bank agent of the Central Bank, to handle, administer
and manage the use of foreign currencies in the casino(s);
(c) The Corporation shall provide an office at casino(s) exclusively
for the employees of the designated bank, agent of the Central
Bank, where the Corporation shall maintain a dollar account
which will be utilized exclusively for the above purpose and the
casino dollar treasury employees;

(d) Only persons with foreign passports or certificates of
identity (for Hong Kong patron only) duly issued by the
government or country of their residence will be allowed to
play in the foreign exchange gaming pit;
(e) Only foreign exchange prescribed to form part of the
Philippine International Reserve and the following foreign
exchange currencies: Australian Dollar, Singapore Dollar, Hong
Kong Dollar, shall be used in this gaming pit;
(f) The disbursement, administration, management and
recording of foreign exchange currencies used in the casino(s)
shall be carried out in accordance with existing foreign
exchange regulations, and periodical reports of the
transactions in such foreign exchange currencies by the
Corporation shall be duly recorded and reported to the Central
Bank thru the designated Agent Bank; and
(g) The Corporation shall issue the necessary rules and
regulations for the guidance and information of players
qualified to participate in the foreign exchange gaming pit, in
order to make certain that the terms and conditions as above
set forth are strictly complied with.
The trial court held that only PAGCOR could use foreign currency in its gaming tables.
When PAGCOR accepted only a fixed portion of the dollar earnings of ABS Corporation
in the concept of a lease of facilities, PAGCOR shared its franchise with ABS Corporation
in violation of the PAGCOR's charter. Hence, the Junket Agreement is void. Since the
Junket Agreement is not permitted by PAGCOR's charter, the mutual rights and
obligations of the parties to this case would be resolved based on agency and estoppel.
The trial court found that the petitioner wanted to redeem gambling chips that were
specifically used by ABS Corporation at its gaming tables. The gambling chips come in
distinctive orange or yellow colors with stickers bearing denominations of 10,000 or
1,000. The 1,000 gambling chips are smaller in size and the words "no cash value"
marked on them. The 10,000 gambling chips do not reflect the "no cash value" sign. The
senior treasury head of PAGCOR testified that these were the gambling chips used by
the previous junket operators and PAGCOR merely continued using them. However, the
gambling chips used in the regular casino games were of a different quality.
The trial court pointed out that PAGCOR had taken steps to warn players brought in by all
junket operators, including ABS Corporation, that they were playing under special rules.
Apart from the different kinds of gambling chips used, the junket players were confined to
certain gaming rooms. In these rooms, notices were posted that gambling chips could only
be encashed there and nowhere else. A photograph of one such notice, printed in Korean
and English, stated that the gaming room was exclusively operated by ABS Corporation
and that ABS Corporation was solely accountable for all the chips wagered on the gaming
tables. Although petitioner denied seeing this notice, this disclaimer has the effect of a
negative evidence that can hardly prevail against the positive assertions of PAGCOR
officials whose credibility is also not open to doubt. The trial court concluded that
petitioner had been alerted to the existence of these special gambling rules, and the mere
fact that he continued to play under the same restrictions over a period of several months
confirms his acquiescence to them. Otherwise, petitioner could have simply chose to stop
gambling.
In dismissing petitioner's complaint, the trial court concluded that petitioner's demand
against PAGCOR for the redemption of the gambling chips could not stand. The trial court
stated that petitioner, a stranger to the agreement between PAGCOR and ABS Corporation,
could not under principles of equity be charged with notice other than of the apparent
authority with which PAGCOR had clothed its employees and agents in dealing with
petitioner. Since petitioner was made aware of the special rules by which he was playing
at the Casino Filipino, petitioner could not now claim that he was not bound by them. The
trial court explained that in an unlawful transaction, the courts will extend equitable relief
only to a party who was unaware of all its dimensions and whose ignorance of them
exposed him to the risk of being exploited by the other. Where the parties enter into such
a relationship with the opportunity to know all of its ramifications, as in this case, there is
no room for equitable considerations to come to the rescue of any party. The trial court
ruled that it would leave the parties where they are.
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed the four errors assigned by
petitioner.
First, petitioner maintains that he was never a junket player of ABS Corporation. Petitioner
also denies seeing a notice that certain gaming rooms were exclusively operated by
entities under special agreement.
The CA ruled that the records do not support petitioner's theory. Petitioner's own
testimony reveals that he enjoyed special accommodations at the Grand Boulevard Hotel.
This similar accommodation was extended to players brought in by ABS Corporation and
other junket operators. Petitioner cannot disassociate himself from ABS Corporation for it
is unlikely that an unknown high roller would be accorded choice accommodations by
the hotel unless the accommodation was facilitated by a junket operator who enjoyed
such privilege.
The CA added that the testimonies of PAGCOR's employees affirming that notices were
posted in English and Korean in the gaming areas are credible in the absence of any
convincing proof of ill motive. Further, the specified gaming areas used only special
chips that could be bought and exchanged at certain cashier booths in that area.
Second, petitioner attacks the validity of the contents of the notice. Since the Junket
Agreement is void, the notice, which was issued pursuant to the Junket Agreement, is
also void and cannot affect petitioner.
The CA reasoned that the trial court never declared the notice valid and neither did it
enforce the contents thereof. The CA emphasized that it was the act of cautioning and
alerting the players that was upheld. The trial court ruled that signs and warnings were
in place to inform the public, petitioner included, that special rules applied to certain
gaming areas even if the very agreement giving rise to these rules is void.
Third, petitioner takes the position that an implied agency existed between PAGCOR
and ABS Corporation.
The CA disagreed with petitioner's view. A void contract has no force and effect from
the very beginning. It produces no effect either against or in favor of anyone. Neither
can it create, modify or extinguish the juridical relation to which it refers. Necessarily,
the Junket Agreement, being void from the beginning, cannot give rise to an implied
agency. The CA explained that it cannot see how the principle of implied agency can be
applied to this case. Article 1883 of the Civil Code applies only to a situation where the
agent is authorized by the principal to enter into a particular transaction, but instead of
contracting on behalf of the principal, the agent acts in his own name.
The CA concluded that no such legal fiction existed between PAGCOR and ABS
Corporation. PAGCOR entered into a Junket Agreement to lease to ABS Corporation
certain gaming areas. It was never PAGCOR's intention to deal with the junket players.
Neither did PAGCOR intend ABS Corporation to represent PAGCOR in dealing with the
junket players. Representation is the basis of agency but unfortunately for petitioner
none is found in this case.
The CA added that the special gaming chips, while belonging to PAGCOR, are mere
accessories in the void Junket Agreement with ABS Corporation. In Article 1883, the
phrase "things belonging to the principal" refers only to those things or properties
subject of a particular transaction authorized by the principal to be entered into by its
purported agent. Necessarily, the gambling chips being mere incidents to the void lease
agreement cannot fall under this category.
The CA ruled that Article 2152 of the Civil Code is also not applicable. The circumstances
relating to negotiorum gestio are non-existent to warrant an officious manager to take
over the management and administration of PAGCOR.
Fourth, petitioner asks for equitable relief.
The CA explained that although petitioner was never a party to the void Junket Agreement,
petitioner cannot deny or feign blindness to the signs and warnings all around him. The
notices, the special gambling chips, and the separate gaming areas were more than
enough to alert him that he was playing under different terms. Petitioner persisted and
continued to play in the casino. Petitioner also enjoyed the perks extended to junket
players of ABS Corporation. For failing to heed these signs and warnings, petitioner can no
longer be permitted to claim equitable relief. When parties do not come to court with
clean hands, they cannot be allowed to profit from their own wrong doing.
The Issues
Petitioners raise three issues in this petition:
1. Whether the CA erred in holding that PAGCOR is not liable to petitioner,
disregarding the doctrine of implied agency, or agency by estoppel;
2. Whether the CA erred in using intent of the contracting parties as the test for
creation of agency, when such is not relevant since the instant case involves
liability of the presumed principal in implied agency to a third party; and
3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least
adopted, the acts of the agent, ABS Corporation.
The Ruling of the Court
The petition lacks merit.
Courts will not enforce debts arising from illegal gambling

Gambling is prohibited by the laws of the Philippines as specifically provided in Articles
195 to 199 of the Revised Penal Code, as amended. Gambling is an act beyond the pale
of good morals, and is thus prohibited and punished to repress an evil that
undermines the social, moral, and economic growth of the nation. Presidential Decree
No. 1602 (PD 1602), which modified Articles 195-199 of the Revised Penal Code and
repealed inconsistent provisions, prescribed stiffer penalties on illegal gambling.
As a rule, all forms of gambling are illegal. The only form of gambling allowed by law is
that stipulated under Presidential Decree No. 1869, which gave PAGCOR its franchise to
maintain and operate gambling casinos. The issue then turns on whether PAGCOR can
validly share its franchise with junket operators to operate gambling casinos in the
country. Section 3(h) of PAGCOR's charter states:
Section 3. Corporate Powers. - The Corporation shall have the
following powers and functions, among others:
xxx
h) to enter into, make, perform, and carry out contracts of every kind
and for any lawful purpose pertaining to the business of the
Corporation, or in any manner incident thereto, as principal, agent or
otherwise, with any person, firm, association, or corporation.
xxx
The Junket Agreement would be valid if under Section 3(h) of PAGCOR's charter,
PAGCOR could share its gambling franchise with another entity. In Senator Jaworski v.
Phil. Amusement and Gaming Corp., the Court discussed the extent of the grant of the
legislative franchise to PAGCOR on its authority to operate gambling casinos:
A legislative franchise is a special privilege granted by the state to
corporations. It is a privilege of public concern which cannot be
exercised at will and pleasure, but should be reserved for public
control and administration, either by the government directly, or by
public agents, under such conditions and regulations as the
government may impose on them in the interest of the public. It is
Congress that prescribes the conditions on which the grant of the
franchise may be made. Thus the manner of granting the franchise, to
whom it may be granted, the mode of conducting the business, the
charter and the quality of the service to be rendered and the duty of
the grantee to the public in exercising the franchise are almost always
defined in clear and unequivocal language.
After a circumspect consideration of the foregoing discussion and the
contending positions of the parties, we hold that PAGCOR has acted
beyond the limits of its authority when it passed on or shared its
franchise to SAGE.
In the Del Mar case where a similar issue was raised when PAGCOR
entered into a joint venture agreement with two other entities in the
operation and management of jai alai games, the Court, in an En Banc
Resolution dated 24 August 2001, partially granted the motions for
clarification filed by respondents therein insofar as it prayed that
PAGCOR has a valid franchise, but only by itself (i.e. not in association
with any other person or entity), to operate, maintain and/or manage
the game of jai-alai.
In the case at bar, PAGCOR executed an agreement with SAGE whereby
the former grants the latter the authority to operate and maintain sports
betting stations and Internet gaming operations. In essence, the grant of
authority gives SAGE the privilege to actively participate, partake and
share PAGCOR's franchise to operate a gambling activity. The grant of
franchise is a special privilege that constitutes a right and a duty to be
performed by the grantee. The grantee must not perform its activities
arbitrarily and whimsically but must abide by the limits set by its
franchise and strictly adhere to its terms and conditionalities. A
corporation as a creature of the State is presumed to exist for the
common good. Hence, the special privileges and franchises it receives
are subject to the laws of the State and the limitations of its charter.
There is therefore a reserved right of the State to inquire how these
privileges had been employed, and whether they have been abused.
(Emphasis supplied)
Thus, PAGCOR has the sole and exclusive authority to operate a gambling activity. While
PAGCOR is allowed under its charter to enter into operator's or management contracts,
PAGCOR is not allowed under the same charter to relinquish or share its franchise.
PAGCOR cannot delegate its power in view of the legal principle of delegata potestas
delegare non potest, inasmuch as there is nothing in the charter to show that it has been
expressly authorized to do so.
Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of ABS
Corporation from its foreign currency collection, allowed ABS Corporation to operate
gaming tables in the dollar pit. The Junket Agreement is in direct violation of PAGCOR's
charter and is therefore void.
Since the Junket Agreement violates PAGCOR's charter, gambling between the junket
player and the junket operator under such agreement is illegal and may not be enforced
by the courts. Article 2014 of the Civil Code, which refers to illegal gambling, states
that no action can be maintained by the winner for the collection of what he has won in
a game of chance.
Although not raised as an issue by petitioner, we deem it necessary to discuss the
applicability of Republic Act No. 9487 (RA 9487) to the present case.
RA 9487 amended the PAGCOR charter, granting PAGCOR the power to enter into
special agreement with third parties to share the privileges under its franchise for the
operation of gambling casinos:
Section 1. The Philippine Amusement and Gaming Corporation
(PAGCOR) franchise granted under Presidential Decree No. 1869
otherwise known as the PAGCOR Charter, is hereby further amended
to read as follows:
xxx
(2) Section 3(h) is hereby amended to read as
follows:
"SEC. 3. Corporate Powers. -
"x x x
"(h) to enter into, make, conclude, perform, and
carry out contracts of every kind and nature and for
any lawful purpose which are necessary, appropriate,
proper or incidental to any business or purpose of
the PAGCOR, including but not limited to investment
agreements, joint venture agreements,
management agreements, agency agreements,
whether as principal or as an agent, manpower
supply agreements, or any other similar agreements
or arrangements with any person, firm, association
or corporation." (Boldfacing supplied)
PAGCOR sought the amendment of its charter precisely to address and remedy the legal
impediment raised in Senator Jaworski v. Phil. Amusement and Gaming Corp.
Unfortunately for petitioner, RA 9487 cannot be applied to the present case. The Junket
Agreement was entered into between PAGCOR and ABS Corporation on 25 April 1996
when the PAGCOR charter then prevailing (PD 1869) prohibited PAGCOR from entering
into any arrangement with a third party that would allow such party to actively participate
in the casino operations.
It is a basic principle that laws should only be applied prospectively unless the legislative
intent to give them retroactive effect is expressly declared or is necessarily implied from
the language used. RA 9487 does not provide for any retroactivity of its provisions. All
laws operate prospectively absent a clear contrary language in the text, and that in every
case of doubt, the doubt will be resolved against the retroactive operation of laws.
Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the law when the
acts giving rise to the claimed liabilities took place. This makes the gambling activity
participated in by petitioner illegal. Petitioner cannot sue PAGCOR to redeem the cash
value of the gambling chips or recover damages arising from an illegal activity for two
reasons. First, petitioner engaged in gambling with ABS Corporation and not with PAGCOR.
Second, the court cannot assist petitioner in enforcing an illegal act. Moreover, for a court
to grant petitioner's prayer would mean enforcing the Junket Agreement, which is void.
Now, to address the issues raised by petitioner in his petition, petitioner claims that he is a
third party proceeding against the liability of a presumed principal and claims relief,
alternatively, on the basis of implied agency or agency by estoppel.
Article 1869 of the Civil Code states that implied agency is derived from the acts 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. Implied agency, being an
actual agency, is a fact to be proved by deductions or inferences from other facts.
On the other hand, apparent authority is based on estoppel and can arise from two
instances. First, the principal may knowingly permit the agent to hold himself out as
having such authority, and the principal becomes estopped to claim that the agent does
not have such authority. Second, the principal may clothe the agent with the indicia of
authority as to lead a reasonably prudent person to believe that the agent actually has
such authority. In an agency by estoppel, there is no agency at all, but the one assuming
to act as agent has apparent or ostensible, although not real, authority to represent
another.
The law makes no presumption of agency and proving its existence, nature and extent is
incumbent upon the person alleging it. Whether or not an agency has been created is
a question to be determined by the fact that one represents and is acting for another.
Acts and conduct of PAGCOR negates the existence of an implied agency or an agency
by estoppel
Petitioner alleges that there is an implied agency. Alternatively, petitioner claims that
even assuming that no actual agency existed between PAGCOR and ABS Corporation,
there is still an agency by estoppel based on the acts and conduct of PAGCOR showing
apparent authority in favor of ABS Corporation. Petitioner states that one factor which
distinguishes agency from other legal precepts is control and the following undisputed
facts show a relationship of implied agency:
1. Three floors of the Grand Boulevard Hotel[52] were leased to PAGCOR for
conducting gambling operations;[53]
2. Of the three floors, PAGCOR allowed ABS Corporation to use one whole floor
for foreign exchange gambling, conducted by PAGCOR dealers using PAGCOR
facilities, operated by PAGCOR employees and using PAGCOR chips bearing the
PAGCOR logo;
3. PAGCOR controlled the release, withdrawal and return of all the gambling chips
given to ABS Corporation in that part of the casino and at the end of the day,
PAGCOR conducted an inventory of the gambling chips;[55]
4. ABS Corporation accounted for all gambling chips with the Commission on
Audit (COA), the official auditor of PAGCOR;[56]
5. PAGCOR enforced, through its own manager, all the rules and regulations on
the operation of the gambling pit used by ABS Corporation. [57]
Petitioner's argument is clearly misplaced. The basis for agency is
representation,[58] 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. [59] On the part of
the principal, there must be an actual intention to appoint or an intention
naturally inferable from his words or actions, while on the part of the agent,
there must be an intention to accept the appointment and act on it. [60] Absent
such mutual intent, there is generally no agency.[61]
There is no implied agency in this case because PAGCOR did not hold out to the
public as the principal of ABS Corporation. PAGCOR's actions did not mislead the
public into believing that an agency can be implied from the arrangement with
the junket operators, nor did it hold out ABS Corporation with any apparent
authority to represent it in any capacity. The Junket Agreement was merely a
contract of lease of facilities and services.
The players brought in by ABS Corporation were covered by a different set of
rules in acquiring and encashing chips. The players used a different kind of chip
than what was used in the regular gaming areas of PAGCOR, and that such junket
players played specifically only in the third floor area and did not mingle with the
regular patrons of PAGCOR. Furthermore, PAGCOR, in posting notices stating that
the players are playing under special rules, exercised the necessary precaution to
warn the gaming public that no agency relationship exists.
For the second assigned error, petitioner claims that the intention of the parties
cannot apply to him as he is not a party to the contract.
We disagree. The Court of Appeals correctly used the intent of the contracting
parties in determining whether an agency by estoppel existed in this case. 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. [62]
There can be no apparent authority of an agent without acts or conduct on the
part of the principal and such acts or conduct of the principal must have been
known and relied upon in good faith and as a result of the exercise of reasonable
prudence by a third person as claimant, and such must have produced a change
of position to its detriment.[63] Such proof is lacking in this case.
In the entire duration that petitioner played in Casino Filipino, he was dealing
only with ABS Corporation, and availing of the privileges extended only to players
brought in by ABS Corporation. The facts that he enjoyed special treatment upon
his arrival in Manila and special accommodations in Grand Boulevard Hotel, and
that he was playing in special gaming rooms are all indications that petitioner
cannot claim good faith that he believed he was dealing with PAGCOR. Petitioner
cannot be considered as an innocent third party and he cannot claim entitlement
to equitable relief as well.
For his third and final assigned error, petitioner asserts that PAGCOR ratified the
acts of ABS Corporation.

The trial court has declared, and we affirm, that the Junket Agreement is void.
A void or inexistent contract is one which has no force and effect from the very
beginning. Hence, it is as if it has never been entered into and cannot be
validated either by the passage of time or by ratification. [64] Article 1409 of the
Civil Code provides that contracts expressly prohibited or declared void by law,
such as gambling contracts, "cannot be ratified."[65]
WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals'
Decision dated 27 May 2003 as well as the Resolution dated 7 May 2004 as
modified by this Decision.SO ORDERED.
G.R. No. 140667, August 12, 2004 CALLEJO, SR., J.:
WOODCHILD HOLDINGS, INC., PETITIONER, VS. ROXAS ELECTRIC AND CONSTRUCTION
COMPANY, INC., RESPONDENT
This is a petition for review on certiorari of the Decision of the Court of Appeals in
CA-G.R. CV No. 56125 reversing the Decision of the Regional Trial Court of Makati,
Branch 57, which ruled in favor of the petitioner.
The Antecedents
The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the
Roxas Electric and Construction Company, was the owner of two parcels of land,
identified as Lot No. 491-A-3-B-1 covered by Transfer Certificate of Title (TCT) No. 78085
and Lot No. 491-A-3-B-2 covered by TCT No. 78086. A portion of Lot No. 491-A-3-B-1
which abutted Lot No. 491-A-3-B-2 was a dirt road accessing to the Sumulong Highway,
Antipolo, Rizal.
At a special meeting on May 17, 1991, the respondent’s Board of Directors approved a
resolution authorizing the corporation, through its president, Roberto B. Roxas, to sell
Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an area of 7,213 square meters, at
a price and under such terms and conditions which he deemed most reasonable and
advantageous to the corporation; and to execute, sign and deliver the pertinent sales
documents and receive the proceeds of the sale for and on behalf of the company.
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2 covered
by TCT No. 78086 on which it planned to construct its warehouse building, and a portion
of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot container van would be able
to readily enter or leave the property. In a Letter to Roxas dated June 21, 1991, WHI
President Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2 under stated terms and
conditions for P1,000 per square meter or at the price of P7,213,000. One of the terms
incorporated in Dy’s offer was the following provision:
1. This Offer to Purchase is made on the representation and warranty of the
OWNER/SELLER, that he holds a good and registrable title to the property, which
shall be conveyed CLEAR and FREE of all liens and encumbrances, and that the
area of 7,213 square meters of the subject property already includes the area on
which the right of way traverses from the main lot (area) towards the exit to the
Sumulong Highway as shown in the location plan furnished by the Owner/Seller
to the buyer. Furthermore, in the event that the right of way is insufficient for the
buyer’s purposes (example: entry of a 45-foot container), the seller agrees to sell
additional square meter from his current adjacent property to allow the buyer to
full access and full use of the property.
Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a month later
or on July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as President of WHI, as
vendee, executed a contract to sell in which RECCI bound and obliged itself to sell to Dy
Lot No. 491-A-3-B-2 covered by TCT No. 78086 for P7,213,000.[6] On September 5, 1991, a
Deed of Absolute Sale[7] in favor of WHI was issued, under which Lot No. 491-A-3-B-2
covered by TCT No. 78086 was sold for P5,000,000, receipt of which was acknowledged by
Roxas under the following terms and conditions:
The Vendor agree (sic), as it hereby agrees and binds itself to give
Vendee the beneficial use of and a right of way from Sumulong Highway
to the property herein conveyed consists of 25 square meters wide to be
used as the latter’s egress from and ingress to and an additional 25
square meters in the corner of Lot No. 491-A-3-B-1, as turning and/or
maneuvering area for Vendee’s vehicles.
The Vendor agrees that in the event that the right of way is insufficient
for the Vendee’s use (ex entry of a 45-foot container) the Vendor agrees
to sell additional square meters from its current adjacent property to
allow the Vendee full access and full use of the property
The Vendor hereby undertakes and agrees, at its account, to defend the
title of the Vendee to the parcel of land and improvements herein
conveyed, against all claims of any and all persons or entities, and that
the Vendor hereby warrants the right of the Vendee to possess and own
the said parcel of land and improvements thereon and will defend the
 Vendee against all present and future claims and/or action in relation
thereto, judicial and/or administrative. In particular, the Vendor shall
eject all existing squatters and occupants of the premises within two
(2) weeks from the signing hereof. In case of failure on the part of the
Vendor to eject all occupants and squatters within the two-week
period or breach of any of the stipulations, covenants and terms and
conditions herein provided and that of contract to sell dated 1 July
1991, the Vendee shall have the right to cancel the sale and demand
reimbursement for all payments made to the Vendor with interest
thereon at 36% per annum.[8]
On September 10, 1991, the Wimbeco Builder’s, Inc. (WBI) submitted its quotation for
P8,649,000 to WHI for the construction of the warehouse building on a portion of the
property with an area of 5,088 square meters.[9] WBI proposed to start the project on
October 1, 1991 and to turn over the building to WHI on February 29, 1992. [10]
In a Letter dated September 16, 1991, Ponderosa Leather Goods Company, Inc.
confirmed its lease agreement with WHI of a 5,000-square-meter portion of the
warehouse yet to be constructed at the rental rate of P65 per square meter. Ponderosa
emphasized the need for the warehouse to be ready for occupancy before April 1, 1992.
WHI accepted the offer. However, WBI failed to commence the construction of the
warehouse in October 1, 1991 as planned because of the presence of squatters in the
property and suggested a renegotiation of the contract after the squatters shall have
been evicted. Subsequently, the squatters were evicted from the property.
On March 31, 1992, WHI and WBI executed a Letter-Contract for the construction of the
warehouse building for P11,804,160. The contractor started construction in April 1992
even before the building officials of Antipolo City issued a building permit on May 28,
1992. After the warehouse was finished, WHI issued on March 21, 1993 a certificate of
occupancy by the building official. Earlier, or on March 18, 1993, WHI, as lessor, and
Ponderosa, as lessee, executed a contract of lease over a portion of the property for a
monthly rental of P300,000 for a period of three years from March 1, 1993 up to
February 28, 1996.
In the meantime, WHI complained to Roberto Roxas that the vehicles of RECCI were
parked on a portion of the property over which WHI had been granted a right of way.
Roxas promised to look into the matter. Dy and Roxas discussed the need of the WHI to
buy a 500-square-meter portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 as
provided for in the deed of absolute sale. However, Roxas died soon thereafter. On April
15, 1992, the WHI wrote the RECCI, reiterating its verbal requests to purchase a portion
of the said lot as provided for in the deed of absolute sale, and complained about the
latter’s failure to eject the squatters within the three-month period agreed upon in the
said deed.
The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1 covered by TCT No.
78085 for its beneficial use within 72 hours from notice thereof, otherwise the appropriate
action would be filed against it. RECCI rejected the demand of WHI. WHI reiterated its
demand in a Letter dated May 29, 1992. There was no response from RECCI.
On June 17, 1992, the WHI filed a complaint against the RECCI with the Regional Trial
Court of Makati, for specific performance and damages, and alleged, inter alia, the
following in its complaint:
1. The “current adjacent property” referred to in the aforequoted
paragraph of the Deed of Absolute Sale pertains to the property
covered by Transfer Certificate of Title No. N-78085 of the
Registry of Deeds of Antipolo, Rizal, registered in the name of
herein defendant Roxas Electric.
2. Defendant Roxas Electric in patent violation of the express and
valid terms of the Deed of Absolute Sale unjustifiably refused to
deliver to Woodchild Holdings the stipulated beneficial use and
right of way consisting of 25 square meters and 55 square
meters to the prejudice of the plaintiff.
3. Similarly, in as much as the 25 square meters and 55 square
meters alloted to Woodchild Holdings for its beneficial use is
inadequate as turning and/or maneuvering area of its 45-foot
container van, Woodchild Holdings manifested its intention
pursuant to para. 5 of the Deed of Sale to purchase additional
square meters from Roxas Electric to allow it full access and use
of the purchased property, however, Roxas Electric refused and
failed to merit Woodchild Holdings’ request contrary to
defendant Roxas Electric’s obligation under the Deed of
Absolute Sale (Annex “A”).
4. Moreover, defendant, likewise, failed to eject all existing
squatters and occupants of the premises within the stipulated
time frame and as a consequence thereof, plaintiff’s planned
construction has been considerably delayed for seven (7)
months due to the squatters who continue to trespass and
obstruct the subject property, thereby Woodchild Holdings
incurred substantial losses amounting to P3,560,000.00
 occasioned by the increased cost of construction materials
and labor.
5. Owing further to Roxas Electric’s deliberate refusal to comply
with its obligation under Annex “A,” Woodchild Holdings
suffered unrealized income of P300,000.00 a month or
P2,100,000.00 supposed income from rentals of the subject
property for seven (7) months.
6. On April 15, 1992, Woodchild Holdings made a final demand
to Roxas Electric to comply with its obligations and
warranties under the Deed of Absolute Sale but
notwithstanding such demand, defendant Roxas Electric
refused and failed and continue to refuse and fail to heed
plaintiff’s demand for compliance.
Copy of the demand letter dated April 15, 1992 is hereto
attached as Annex “B” and made an integral part hereof.
7. Finally, on 29 May 1991, Woodchild Holdings made a letter
request addressed to Roxas Electric to particularly annotate
on Transfer Certificate of Title No. N-78085 the agreement
under Annex “A” with respect to the beneficial use and right
of way, however, Roxas Electric unjustifiably ignored and
disregarded the same.
Copy of the letter request dated 29 May 1992 is hereto
attached as Annex “C” and made an integral part hereof.
8. By reason of Roxas Electric’s continuous refusal and failure to
comply with Woodchild Holdings’ valid demand for
compliance under Annex “A,” the latter was constrained to
litigate, thereby incurring damages as and by way of
attorney’s fees in the amount of P100,000.00 plus costs of
suit and expenses of litigation.
The WHI prayed that, after due proceedings, judgment be rendered in its favor, thus:
WHEREFORE, it is respectfully prayed that judgment be rendered in
favor of Woodchild Holdings and ordering Roxas Electric the following:
a) to deliver to Woodchild Holdings the beneficial use of the stipulated
25 square meters and 55 square meters;
b) to sell to Woodchild Holdings additional 25 and 100 square meters to
allow it full access and use of the purchased property pursuant to para. 5
of the Deed of Absolute Sale;
c) to cause annotation on Transfer Certificate of Title No. N-78085 the
beneficial use and right of way granted to Woodchild Holdings under the
Deed of Absolute Sale;
d) to pay Woodchild Holdings the amount of P5,660,000.00,
representing actual damages and unrealized income;
e) to pay attorney’s fees in the amount of P100,000.00; and
f) to pay the costs of suit.
Other reliefs just and equitable are prayed for.
In its answer to the complaint, the RECCI alleged that it never authorized its former
president, Roberto Roxas, to grant the beneficial use of any portion of Lot No. 491-A-3-B-1,
nor agreed to sell any portion thereof or create a lien or burden thereon. It alleged that,
under the Resolution approved on May 17, 1991, it merely authorized Roxas to sell Lot No.
491-A-3-B-2 covered by TCT No. 78086. As such, the grant of a right of way and the
agreement to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in the said
deed are ultra vires. The RECCI further alleged that the provision therein that it would sell
a portion of Lot No. 491-A-3-B-1 to the WHI lacked the essential elements of a binding
contract.
In its amended answer to the complaint, the RECCI alleged that the delay in the
construction of its warehouse building was due to the failure of the WHI’s contractor to
secure a building permit thereon.
During the trial, Dy testified that he told Roxas that the petitioner was buying a portion of
Lot No. 491-A-3-B-1 consisting of an area of 500 square meters, for the price of P1,000 per
square meter.
On November 11, 1996, the trial court rendered judgment in favor of the WHI, the
decretal portion of which reads:
WHEREFORE, judgment is hereby rendered directing defendant:
 (1) To allow plaintiff the beneficial use of the existing
right of way plus the stipulated 25 sq. m. and 55 sq.
m.;
(2) To sell to plaintiff an additional area of 500 sq. m.
priced at P1,000 per sq. m. to allow said plaintiff full
access and use of the purchased property pursuant
to Par. 5 of their Deed of Absolute Sale;
(3) To cause annotation on TCT No. N-78085 the
beneficial use and right of way granted by their Deed
of Absolute Sale;
(4) To pay plaintiff the amount of P5,568,000
representing actual damages and plaintiff’s
unrealized income;
(5) To pay plaintiff P100,000 representing attorney’s
fees; and
To pay the costs of suit.
SO ORDERED.
The trial court ruled that the RECCI was estopped from disowning the apparent
authority of Roxas under the May 17, 1991 Resolution of its Board of Directors. The
court reasoned that to do so would prejudice the WHI which transacted with Roxas in
good faith, believing that he had the authority to bind the WHI relating to the easement
of right of way, as well as the right to purchase a portion of Lot No. 491-A-3-B-1 covered
by TCT No. 78085.
The RECCI appealed the decision to the CA, which rendered a decision on November 9,
1999 reversing that of the trial court, and ordering the dismissal of the complaint. The
CA ruled that, under the resolution of the Board of Directors of the RECCI, Roxas was
merely authorized to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, but not to
grant right of way in favor of the WHI over a portion of Lot No. 491-A-3-B-1, or to grant
an option to the petitioner to buy a portion thereof. The appellate court also ruled that
the grant of a right of way and an option to the respondent were so lopsided in favor of
the respondent because the latter was authorized to fix the location as well as the price
of the portion of its property to be sold to the respondent. Hence, such provisions
contained in the deed of absolute sale were not binding on the RECCI. The appellate
court ruled that the delay in the construction of WHI’s warehouse was due to its fault.
The Present Petition
The petitioner now comes to this Court asserting that:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ABSOLUTE
SALE (EXH. “C”) IS ULTRA VIRES.
II.THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE
COURT A QUO ALLOWING THE PLAINTIFF-APPELLEE THE BENEFICIAL USE OF THE
EXISTING RIGHT OF WAY PLUS THE STIPULATED 25 SQUARE METERS AND 55
SQUARE METERS BECAUSE THESE ARE VALID STIPULATIONS AGREED BY BOTH
PARTIES TO THE DEED OF ABSOLUTE SALE (EXH. “C”).
III.
THERE IS NO FACTUAL PROOF OR EVIDENCE FOR THE COURT OF
APPEALS TO RULE THAT THE STIPULATIONS OF THE DEED OF ABSOLUTE
SALE (EXH. “C”) WERE DISADVANTAGEOUS TO THE APPELLEE, NOR WAS
APPELLEE DEPRIVED OF ITS PROPERTY WITHOUT DUE PROCESS.
IV. IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY
WITHOUT DUE PROCESS BY THE ASSAILED DECISION.
V. THE DELAY IN THE CONSTRUCTION WAS DUE TO THE FAILURE OF THE
APPELLANT TO EVICT THE SQUATTERS ON THE LAND AS AGREED IN THE
DEED OF ABSOLUTE SALE (EXH. “C”).
VI. THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING
OF THE COURT A QUO DIRECTING THE DEFENDANT TO PAY THE
PLAINTIFF THE AMOUNT OF P5,568,000.00 REPRESENTING ACTUAL
DAMAGES AND PLAINTIFF’S UNREALIZED INCOME AS WELL AS
ATTORNEY’S FEES.
The threshold issues for resolution are the following: (a) whether the respondent is bound
by the provisions in the deed of absolute sale granting to the petitioner beneficial use and
a right of way over a portion of Lot No. 491-A-3-B-1 accessing to the Sumulong Highway
and granting the option to the petitioner to buy a portion thereof, and, if so, whether such
agreement is enforceable against the respondent; (b) whether the respondent failed to
eject the squatters on its property within two weeks from the execution of the deed of
absolute sale; and, (c) whether the respondent is liable to the petitioner for damages.
On the first issue, the petitioner avers that, under its Resolution of May 17, 1991, the
respondent authorized Roxas, then its president, to grant a right of way over a portion
of Lot No. 491-A-3-B-1 in favor of the petitioner, and an option for the respondent to
buy a portion of the said property. The petitioner contends that when the respondent
sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it (respondent) was well aware of
its obligation to provide the petitioner with a means of ingress to or egress from the
property to the Sumulong Highway, since the latter had no adequate outlet to the
public highway. The petitioner asserts that it agreed to buy the property covered by TCT
No. 78085 because of the grant by the respondent of a right of way and an option in its
favor to buy a portion of the property covered by TCT No. 78085. It contends that the
respondent never objected to Roxas’ acceptance of its offer to purchase the property
and the terms and conditions therein; the respondent even allowed Roxas to execute
the deed of absolute sale in its behalf. The petitioner asserts that the respondent even
received the purchase price of the property without any objection to the terms and
conditions of the said deed of sale. The petitioner claims that it acted in good faith, and
contends that after having been benefited by the said sale, the respondent is estopped
from assailing its terms and conditions. The petitioner notes that the respondent’s
Board of Directors never approved any resolution rejecting the deed of absolute sale
executed by Roxas for and in its behalf. As such, the respondent is obliged to sell a
portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 with an area of 500 square
meters at the price of P1,000 per square meter, based on its evidence and Articles 649
and 651 of the New Civil Code.
For its part, the respondent posits that Roxas was not so authorized under the May 17,
1991 Resolution of its Board of Directors to impose a burden or to grant a right of way
in favor of the petitioner on Lot No. 491-A-3-B-1, much less convey a portion thereof to
the petitioner. Hence, the respondent was not bound by such provisions contained in
the deed of absolute sale. Besides, the respondent contends, the petitioner cannot
enforce its right to buy a portion of the said property since there was no agreement in
the deed of absolute sale on the price thereof as well as the specific portion and area to
be purchased by the petitioner.
We agree with the respondent.
In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, we held that:
A corporation is a juridical person separate and distinct from its stockholders or
members. Accordingly, the property of the corporation is not the property of
its stockholders or members and may not be sold by the stockholders or
members without express authorization from the corporation’s board of
directors. Section 23 of BP 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.”
Indubitably, a corporation may act only through its board of directors or, when
authorized either by its by-laws or by its board resolution, through its officers or
agents in the normal course of business. The general principles of agency govern
the relation between the corporation and its officers or agents, subject to the
articles of incorporation, by-laws, or relevant provisions of law. …
Generally, the acts of the corporate officers within the scope of their authority are binding
on the corporation. However, under Article 1910 of the New Civil Code, acts done by such
officers beyond the scope of their authority cannot bind the corporation unless it has
ratified such acts expressly or tacitly, or is estopped from denying them:
Art. 1910. The principal must comply with all the obligations which the agent
may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is
not bound except when he ratifies it expressly or tacitly.
Thus, contracts entered into by corporate officers beyond the scope of authority are
unenforceable against the corporation unless ratified by the corporation.
In BA Finance Corporation v. Court of Appeals, we also ruled that persons dealing with an
assumed agency, whether the assumed agency be a general or special one, are bound at
their peril, 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 establish it.
In this case, the respondent denied authorizing its then president Roberto B. Roxas to sell
a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to create a lien or burden
thereon. The petitioner was thus burdened to prove that the respondent so authorized
Roxas to sell the same and to create a lien thereon.
Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors of the
respondent, which is worded as follows:
 RESOLVED, as it is hereby resolved, that the corporation, thru the
President, sell to any interested buyer, its 7,213-sq.-meter property at the
Sumulong Highway, Antipolo, Rizal, covered by Transfer Certificate of Title
No. N-78086, at a price and on terms and conditions which he deems
most reasonable and advantageous to the corporation;
FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of the
corporation, be, as he is hereby authorized to execute, sign and deliver
the pertinent sales documents and receive the proceeds of sale for and on
behalf of the company.
Evidently, Roxas was not specifically authorized under the said resolution to grant a
right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to
sell to the petitioner a portion thereof. The authority of Roxas, under the resolution, to
sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the authority to sell a
portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real rights
thereon. Neither may such authority be implied from the authority granted to Roxas to
sell Lot No. 491-A-3-B-2 to the petitioner “on such terms and conditions which he
deems most reasonable and advantageous.” Under paragraph 12, Article 1878 of the
New Civil Code, a special power of attorney is required to convey real rights over
immovable property. Article 1358 of the New Civil Code requires that contracts which
have for their object the creation of real rights over immovable property must appear in
a public document. The petitioner cannot feign ignorance of the need for Roxas to
have been specifically authorized in writing by the Board of Directors to be able to
validly grant a right of way and agree to sell a portion of Lot No. 491-A-3-B-1. The rule is
that if the act of the agent is one which requires authority in writing, those dealing with
him are charged with notice of that fact.
Powers of attorney are generally construed strictly and courts will not infer or presume
broad powers from deeds which do not sufficiently include property or subject under
which the agent is to deal. The general rule is that the power of attorney must be
pursued within legal strictures, and the agent can neither go beyond it; nor beside it.
The act done must be legally identical with that authorized to be done. In sum, then,
the consent of the respondent to the assailed provisions in the deed of absolute sale
was not obtained; hence, the assailed provisions are not binding on it.
We reject the petitioner’s submission that, in allowing Roxas to execute the contract to
sell and the deed of absolute sale and failing to reject or disapprove the same, the
respondent thereby gave him apparent authority to grant a right of way over Lot No.
491-A-3-B-1 and to grant an option for the respondent to sell a portion thereof to the
petitioner. Absent estoppel or ratification, apparent authority cannot remedy the lack of
the written power required under the statement of frauds. In addition, the petitioner’s
fallacy is its wrong assumption of the unproved premise that the respondent had full
knowledge of all the terms and conditions contained in the deed of absolute sale when
Roxas executed it.
It bears stressing that apparent authority is based on estoppel and can arise from two
instances: first, the principal may knowingly permit the agent to so hold himself out as
having such authority, and in this way, the principal becomes estopped to claim that the
agent does not have such authority; second, the principal may so clothe the agent with the
indicia of authority as to lead a reasonably prudent person to believe that he actually has
such authority. There can be no apparent authority of an agent without acts or conduct
on the part of the principal and such acts or conduct of the principal must have been
known and relied upon in good faith and as a result of the exercise of reasonable prudence
by a third person as claimant and such must have produced a change of position to its
detriment. The apparent power of an agent is to be determined by the acts of the principal
and not by the acts of the agent.
For the principle of apparent authority to apply, the petitioner was burdened to prove the
following: (a) the acts of the respondent justifying belief in the agency by the petitioner; (b)
knowledge thereof by the respondent which is sought to be held; and, (c) reliance thereon
by the petitioner consistent with ordinary care and prudence. In this case, there is no
evidence on record of specific acts made by the respondent showing or indicating that it
had full knowledge of any representations made by Roxas to the petitioner that the
respondent had authorized him to grant to the respondent an option to buy a portion of
Lot No. 491-A-3-B-1 covered by TCT No. 78085, or to create a burden or lien thereon, or
that the respondent allowed him to do so.
The petitioner’s contention that by receiving and retaining the P5,000,000 purchase price
of Lot No. 491-A-3-B-2, the respondent effectively and impliedly ratified the grant of a
right of way on the adjacent lot, Lot No. 491-A-3-B-1, and to grant to the petitioner an
option to sell a portion thereof, is barren of merit. It bears stressing that the respondent
sold Lot No. 491-A-3-B-2 to the petitioner, and the latter had taken possession of the
property. As such, the respondent had the right to retain the P5,000,000, the purchase
price of the property it had sold to the petitioner. For an act of the principal to be
considered as an implied ratification of an unauthorized act of an agent, such act must be
inconsistent with any other hypothesis than that he approved and intended to adopt what
had been done in his name. Ratification is based on waiver – the intentional
relinquishment of a known right. Ratification cannot be inferred from acts that a principal
has a right to do independently of the unauthorized act of the agent. Moreover, if a
writing is required to grant an authority to do a particular act, ratification of that act must
also be in writing. Since the respondent had not ratified the unauthorized acts of Roxas,
the same are unenforceable. Hence, by the respondent’s retention of the amount, it
cannot thereby be implied that it had ratified the unauthorized acts of its agent, Roberto
Roxas.
On the last issue, the petitioner contends that the CA erred in dismissing its complaint
for damages against the respondent on its finding that the delay in the construction of
its warehouse was due to its (petitioner’s) fault. The petitioner asserts that the CA
should have affirmed the ruling of the trial court that the respondent failed to cause the
eviction of the squatters from the property on or before September 29, 1991; hence,
was liable for P5,660,000. The respondent, for its part, asserts that the delay in the
construction of the petitioner’s warehouse was due to its late filing of an application for
a building permit, only on May 28, 1992.
The petitioner’s contention is meritorious. The respondent does not deny that it failed
to cause the eviction of the squatters on or before September 29, 1991. Indeed, the
respondent does not deny the fact that when the petitioner wrote the respondent
demanding that the latter cause the eviction of the squatters on April 15, 1992, the
latter were still in the premises. It was only after receiving the said letter in April 1992
that the respondent caused the eviction of the squatters, which thus cleared the way
for the petitioner’s contractor to commence the construction of its warehouse and
secure the appropriate building permit therefor.
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted
in good faith is liable shall be those that are the natural and probable consequences of the
breach of the obligation, and which the parties have foreseen or could have reasonably
foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for
all damages which may be reasonably attributed to the non-performance of the
obligation.
In sum, we affirm the trial court’s award of damages and attorney’s fees to the petitioner.
IN LIGHT OF ALL THE FOREGOING, judgment is hereby rendered AFFIRMING the assailed
Decision of the Court of Appeals WITH MODIFICATION. The respondent is ordered to pay
to the petitioner the amount of P5,612,980 by way of actual damages and P100,000 by
way of attorney’s fees. No costs. SO ORDERED.

The petitioner could not be expected to file its application for a building permit before
April 1992 because the squatters were still occupying the property. Because of the
respondent’s failure to cause their eviction as agreed upon, the petitioner’s contractor
failed to commence the construction of the warehouse in October 1991 for the agreed
price of P8,649,000. In the meantime, costs of construction materials spiraled. Under
the construction contract entered into between the petitioner and the contractor, the
petitioner was obliged to pay P11,804,160, including the additional work costing
P1,441,500, or a net increase of P1,712,980. The respondent is liable for the difference
between the original cost of construction and the increase thereon, conformably to
Article 1170 of the New Civil Code, which reads:

Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay and those who in any manner contravene the tenor thereof,
are liable for damages.

The petitioner, likewise, lost the amount of P3,900,000 by way of unearned income
from the lease of the property to the Ponderosa Leather Goods Company. The
respondent is, thus, liable to the petitioner for the said amount, under Articles 2200 and
2201 of the New Civil Code:

Art. 2200. Indemnification for damages shall comprehend not only the value of the loss
suffered, but also that of the profits which the obligee failed to obtain.