[G.R. No. L-18170. August 31, 1963.

NATIONAL BREWERY & ALLIED INDUSTRIES LABOR UNION OF THE

PHILIPPINES, Plaintiff-Appellant, v. SAN MIGUEL BREWERY, INC., THE
INDEPENDENT SAN MIGUEL BREWERY WORKERS ASSOCIATION and ALL
OTHER UNKNOWN NON-UNION WORKERS OF THE SAN MIGUEL BREWERY,
INC., Defendants-Appellees.

Marcos Estacio & Ricardo P. Garcia, for Plaintiff-Appellant.

Ponce Enrile, Siguion Reyna, Montecillo & Belo for defendant-appellee San Miguel
Brewery, Inc.

Nemicio P. Diaz for other defendants-appellees.

SYLLABUS

1. LABOR LAWS; RIGHT OF SELF-ORGANIZATION A FUNDAMENTAL RIGHT. — The

right of employees "to self-organization and to form, join or assist labor organizations of their
own choosing" (Sec. 3, Republic Act No. 875) is a fundamental right that yields only to the
proviso that "nothing in this Act or statute of the Republic of the Philippines shall preclude an
employer from making an agreement with a labor organization to require as a condition of
employment membership therein, if such labor organization is the representative of the
employees as provided in Section twelve." (Sec. [4a] [4]).

2. ID.; UNION AGENCY FEE; VALIDITY AS A FORM OF UNION SECURITY. — A clause

in a collective bargaining agreement providing that "the Company will deduct the Union agency
fee from the wages of workers who are not members of the Union, provided the aforesaid
workers authorize the company to make such deductions in writing or if no such authorization is
given, if a competent court directs the Company to make such deduction," is not a permissible
form of union security.

3. ID.; ID.; RULE IN GENERAL MOTORS CORP., 130 NLRB 481, APPLIED. — The basic
principles underlying the decision in the case of General Motors Corp., 130 NLRB 481, equally
applies here, namely, that where the parties are not free to require of employees membership in a
union as a condition of employment, neither can they require a lesser form of union security.

4. ID.; ID.; NOT APPLICABLE TO EMPLOYEES IN THE SERVICE AND MEMBERS OF

ANOTHER UNION. — If a closed shop agreement cannot be applied to employees already in
the service and members of another union, neither may an agency fee, as a lesser form of union
security, be imposed upon them.

5. ID.; ID.; NOT JUSTIFIED ON PRINCIPLE OF AGENCY. — The collection of agency fee
may not be justified on the principles of agency, because when a union acts as the bargaining
agent it assumes the responsibility imposed upon it by law to represent not only its members but
also all employees in the appropriate bargaining unit of which it is the agent, and there can be no
better proof that such agency is without compensation than the fact that these employees in the
minority voted against the said union.

6. ID.; COLLECTIVE BARGAINING AGREEMENT; BENEFITS EXTENDIBLE TO NON-

UNION EMPLOYEES; REASON. — The benefits of a collective bargaining agreement are
extendible to all employees regardless of their membership in the union because to withhold the
same from the non- members would be to discriminate against them. Moreover, when a union
bids to be the bargaining agent, it voluntarily assumes the responsibility of representing all the
employees in the appropriate unit. Such non-members are neither "free-riders" nor should they
be made to pay on the principle of quasi-contract.

DECISION

REGALA, J.:

This is an appeal directly coming from the Court of First Instance of Manila dismissing
the complaint upon the petition of the defendant San Miguel Brewery Workers’
Association.

This case presents a question of first impression in this jurisdiction, namely, the validity
of a union agency fee as a form of union security.

Appellant National Brewery & Allied Industries Labor Union of the Philippines is the
bargaining representative of all regular workers paid on the daily basis and of route
helpers of San Miguel Brewery, Inc.

On October 2, 1959, it signed a collective bargaining agreement with the company,

which provided among other things, that —

"The COMPANY will deduct the UNION agency fee from the wages of workers who are
not members of the UNION, provided the aforesaid workers authorizes the Company to
make such deductions in writing or if no such authorization is given, if a competent
court direct the COMPANY to make such deduction." (Art. II, Sec. 4)

Alleging that it had obtained benefits for all workers in the company and that
"defendant Independent S.M.B. Workers’ Association refused and still refuses to pay
UNION AGENCY FEE to the plaintiff UNION and defendant COMPANY also refuses and
still refuses to deduct the UNION AGENCY FEE from the wages of workers who are not
members of the plaintiff UNION and remit the same to the latter," the union brought
suit in the Court of First Instance of Manila on November 17, 1960 for the collection of
union agency fees under the bargaining contract.

The lower court, in dismissing the complaint, held that there was nothing in the
Industrial Peace Act (Republic Act No. 875) which would authorize the collection of
agency fees and that neither may such collection be justified under the rules of quasi
contract because the workers had not neglected their business so as to warrant the
intervention of an officious manager. The trial court also held the rules of agency
inapplicable because there was no agreement between the union and the workers
belonging to the other union as to the payment of fee nor was there, said the court,
any allegation in the complaint that the amount of P4.00, which the union sought to
collect from each employee, was the expense incurred by the union in representing
him.

Its motion for reconsideration having been denied, the union appealed to this Court.

The right of employees "to self-organization and to form, join or assist labor
organization of their own choosing" (Sec. 3, Republic Act No. 875) is a fundamental
right that yields only to the proviso that "nothing in this Act or statute of the Republic of
the Philippines shall preclude an employer from making an agreement with a labor
organization to require as a condition of employment membership therein, if such Labor
organization is the representative of the employees as provided in Section twelve."
(Section 4[a] [4])

The only question here is whether such an agreement is a permissible form of union
security under Section 4(a) (4) as contended by the union.

In the case of General Motors Corp., 130 NLRB 481, the National Labor Relations Board
was faced with a similar question. In that case, the union proposed to the company that
employees represented by it and new employees hired thereafter be required as a
condition of continued employment after 30 days following the date of the
supplementary agreement or of their initial employment (whichever was later) to pay to
the union a sum equal to the initiation fee and a monthly sum equal to the regular dues
required of union members at each location. The company contended that the clause
was illegal under Section 7 and Section 8(a) (1) of the National Labor Relations Act, as
amended. 1

In upholding the company’s contention, the Board Held: jgc:chanrobles.com.ph

". . . any union-security agreement, including one providing for an agency shop,
necessarily interferes with the Section 7 right of employees to refrain from assisting a
labor organization, and encourages membership in a labor organization. Such an
agreement is therefore clearly unlawful under Section 8(a) (1) and (3), unless it is
saved by the proviso to Section 8(a) (3) of the Act. That proviso permits an employer
to make an agreement with a labor organization ‘to require as a condition of
employment membership therein on or after the thirtieth day following the beginning of
such employment or the effective date of such agreement, whichever is later . . . [Italic
supplied] There is, however, no other provision in the Act which specifically legalizes
the interference and encouragement inherent in an agency-shop arrangement, and the
only question here is whether such an arrangement can be lawful under the National
Labor Relations Act in a State like Indiana, where it is clear that an agreement requiring
literal membership is prohibited by State law. To hold the agency shop lawful, one
would have to conclude that Congress intended the word ‘membership’ in Section 7 and
8 (a) (3) to encompass not only literal membership, but also other relationships
between employees and the union in the picture, while at the same time intending that
the same word in Section 14 (b) 2 encompass only literal membership; or further, that
Congress intended the word ‘membership’ to mean one thing in Indiana and a different
thing somewhere else. Such reasoning I am not prepared to accept. Thus, the
conclusion is inescapable that an agency shop arrangement, whatever its status under
Indiana law, cannot be lawful under National Labor Relations Act in a State like Indiana
where employment cannot lawfully be conditioned on literal membership.

"In support of their contention that an agency-shop agreement is lawful, the General
Counsel and UAW rely on Public Service Company of Colorado, 89 NLRB 418, and
American Seating Company, 98 NLRB 800. Such reliance seems misplaced as, unlike
the instant matter, both cases involved a valid agreement, requiring membership as a
condition of employment, which was protected under the first proviso to Section 8 (a)
(3); and neither case involved a right-to-work jurisdiction. Significantly, in both Public
Service and American Seating, no legal impediment existed to preclude the parties from
entering into the contract requiring all employees to be union members, and they made
such contracts. Thus they were free to waive membership and to require in lieu thereof
some lesser form of union security, such as an agency-shop clause.

"The instant case is different in that, as indicated above, GM and UAW were not free
under the National Labor Relations Act to require of Indiana employees union
membership as a condition of employment, and so they were not free to require, as a
condition of employment of such employees, any lesser form of union security, such as
an agency shop. For one cannot waive a right he does not have." cralaw virtua1aw library

It may be argued that the Board reached this conclusion in view of the right-to-work
law of Indiana and that a different result might have been reached where, as in the
Philippines, there is no right-to- work law. But the basic principle underlying the
decision in that case equally applies here, namely, that where the parties are not free
to require of employees membership in a union as a condition of employment, neither
can they require a lesser form of union security. "For one cannot waive a right he does
not have." And herein lies the error into which the union has fallen in arguing that the
agency shop agreement in this case can be justified under Section 4(a) (4) because
"the lesser must of necessity be included in the greater."cralaw virtua1aw library

For although a closed-shop agreement may validly be entered into under Section 4(a)
(4) of the Industrial Peace Act (National Labor Union v. Aguinaldo’s Echague, Inc., 51
O.G. p. 2899), We held that the same cannot be made to apply to employees who, like
the employees in this case, are already in the service and are members of another
union. (Freeman Shirt Mfg Co. v. Court of Industrial Relations, G.R. No. L-16561,
January 28, 1961.) Hence, if a closed shop agreement cannot be applied to these
employees, neither may an agency fee, as a lesser form of union security, be imposed
upon them.

It is true, as the union claims, that whatever benefits the majority union obtains from
the employer accrue to its members as well as to non-members. But this alone does
not justify the collection of agency fee from non-members. For the benefits of a
collective bargaining agreement are extended to all employees regardless of their
membership in the union because to withhold the same from the non- members would
be to discriminate against them. (International Oil Factory Workers Union (FFW) v.
Martinez, Et Al., G.R. No. L-15560, Dec. 31, 1960).
Moreover, when a union bids to be the bargaining agent, it voluntarily assumes the
responsibility of representing all the employees in the appropriate bargaining unit. That
is why Section 12 of the law states that "The labor organization designated or selected
for the purpose of collective bargaining by the majority of the employees in an
appropriate collective bargaining unit shall be the exclusive representative of all the
employees in such unit for the purpose of collective bargaining in respect to rates of
pay, wages, hours of employment, or other conditions of employment." cralaw virtua1aw library

The union’s contention that non-members are "free riders" who should be made to pay
for benefits received by them is answered in the concurring opinion of Mr. Jenkin in the
General Motors case, supra at 498, thus: "This statement of the limits to permissible
encouragement of union membership restricts unions, in contractually guaranteeing
their own financial security against ‘free riders,’ to agreements of the type
contemplated by Congress, i.e., ‘permitted union shop’ or ‘maintenance of membership
contract,’ both being agreements explicitly ‘requiring membership.’"

And now We come to the next point raised by the union, namely, that non-members
should be made to pay on the principle of quasi contract. The union invokes Article
2142 of the Civil Code which provides that —

"Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-
contract to the end that no one shall be unjustly enriched or benefited at the expense
of another." (Italics ours)

But the benefits that accrue to non-members by reason of a collective bargaining

agreement can hardly be termed "unjust enrichment" because, as already pointed out,
the same are extended to them precisely to avoid discrimination among employees.
(International Oil Factory Worker’s Union (FFW) v. Martinez, Et Al., G.R. No. L-15560,
Dec. 31, 1960).

Besides, as the trial court held, there is no allegation in the complaint that the amount
of P4.00 represents the expense incurred by the union in representing each employee.
For the benefits extended to non-members are merely incidental.

Lastly, it is contended that the collection of agency fee may be justified on the principle
of agency. In answer to this point, it may be stated that when a union acts as the
bargaining agent, it assumes the responsibility imposed upon it by law to represent not
only its members but all employees in the appropriate bargaining unit of which it is the
agent. The Civil Code states that agency is presumed to be for compensation unless
there is proof to the contrary. (Art. 1875). There can be no better proof that the agency
created by law between the bargaining representative and the employees in the unit is
without compensation than the fact that these employees in the minority voted against
the appellant union.

WHEREFORE, the orders dated December 6, 1960 and December 20, 1960 of the Court
of First Instance of Manila are hereby affirmed, without pronouncement as to costs.

Padilla, Bautista Angelo, Labrador, Concepcion, Paredes, Dizon, and Makalintal, JJ.,

concur.
Reyes, J.B.L., J., reserves his vote.

Bengzon, C.J., and Barrera, J., took no part.

Footnote

1. Section 7 is similar to Section 3 of our Industrial Peace Act (Republic Act No 875),
while Section 8 is similar to Section 4 of our law.

Section 7 provides: "Employees shall have the right to self-organization, to form, join,
or assist labor organizations, to bargain collectively through representatives of their
own choosing, and to engage in other concerted activities for the purpose of collective
bargaining or other mutual aid or protection, and shall also have the right to refrain
from any or all of such activities except to the extent that such right may be affected by
an agreement as requiring membership in a labor organization as a condition of
employment as authorized in section 8(a) (3)."

Section 8(a) (1) and (3) provides in part that: "It shall be an unfair labor practice for an
employer —

" (1) to interfere with, restrain, or coerce employees in the exercise of the rights
guaranteed in Section 7;

x          x           x

"(3) by discrimination in regard to hire or tenure of employment or any term or

condition of employment to encourage or discourage membership in any labor
organization: Provided, That nothing in this Act, or any of her statue of the United
States, shall preclude an employer from making an agreement with a labor organization
(not established, maintained, or assisted by any action defined in section 8(a) of this
Act as an unfair labor practice) to require as a condition of employment membership
therein on or after the thirtieth day following the beginning of such employment or the
effective date of such agreement, whichever is the later, . . ." cralaw virtua1aw library

2. Section 14 (b) provides that "Nothing in this Act shall be construed as authorizing
the execution or application of agreements requiring membership in a labor
organization as a condition of employment in any State or Territory in which such
execution or application is prohibited by State of Territorial Law." The right-to-work law
of Indiana provides that "No corporation . . . or labor organization shall solicit, enter
into or extend any contract, agreement or understanding written, or oral, to exclude
from employment any person by reason of membership or non-membership in a labor
organization to discharge or suspend from employment or lay off any person by reason
of his refusal to join a labor organization . . .
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-7089             August 31, 1954

DOMINGO DE LA CRUZ, plaintiff-appellant,
vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees.

Conrado Rubio for appellant.

Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.

MONTEMAYOR, J.:

The facts in this case based on an agreed statement of facts are simple. In the year 1941 the
Northern Theatrical Enterprises Inc., a domestic corporation operated a movie house in Laoag,
Ilocos Norte, and among the persons employed by it was the plaintiff DOMINGO DE LA CRUZ, hired
as a special guard whose duties were to guard the main entrance of the cine, to maintain peace and
order and to report the commission of disorders within the premises. As such guard he carried a
revolver. In the afternoon of July 4, 1941, one Benjamin Martin wanted to crash the gate or entrance
of the movie house. Infuriated by the refusal of plaintiff De la Cruz to let him in without first providing
himself with a ticket, Martin attacked him with a bolo. De la Cruz defendant himself as best he could
until he was cornered, at which moment to save himself he shot the gate crasher, resulting in the
latter's death.

For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the Court of First
Instance of Ilocos Norte. After a re-investigation conducted by the Provincial Fiscal the latter filed a
motion to dismiss the complaint, which was granted by the court in January 1943. On July 8, 1947,
De la Cruz was again accused of the same crime of homicide, in Criminal Case No. 431 of the same
Court. After trial, he was finally acquitted of the charge on January 31, 1948. In both criminal cases
De la Cruz employed a lawyer to defend him. He demanded from his former employer
reimbursement of his expenses but was refused, after which he filed the present action against the
movie corporation and the three members of its board of directors, to recover not only the amounts
he had paid his lawyers but also moral damages said to have been suffered, due to his worry, his
neglect of his interests and his family as well in the supervision of the cultivation of his land, a total of
P15,000. On the basis of the complaint and the answer filed by defendants wherein they asked for
the dismissal of the complaint, as well as the agreed statement of facts, the Court of First Instance of
Ilocos Norte after rejecting the theory of the plaintiff that he was an agent of the defendants and that
as such agent he was entitled to reimbursement of the expenses incurred by him in connection with
the agency (Arts. 1709-1729 of the old Civil Code), found that plaintiff had no cause of action and
dismissed the complaint without costs. De la Cruz appealed directly to this Tribunal for the reason
that only questions of law are involved in the appeal.

We agree with the trial court that the relationship between the movie corporation and the plaintiff was
not that of principal and agent because the principle of representation was in no way involved.
Plaintiff was not employed to represent the defendant corporation in its dealings with third parties.
He was a mere employee hired to perform a certain specific duty or task, that of acting as special
guard and staying at the main entrance of the movie house to stop gate crashers and to maintain
peace and order within the premises. The question posed by this appeal is whether an employee or
servant who in line of duty and while in the performance of the task assigned to him, performs an act
which eventually results in his incurring in expenses, caused not directly by his master or employer
or his fellow servants or by reason of his performance of his duty, but rather by a third party or
stranger not in the employ of his employer, may recover said damages against his employer.

The learned trial court in the last paragraph of its decision dismissing the complaint said that "after
studying many laws or provisions of law to find out what law is applicable to the facts submitted and
admitted by the parties, has found none and it has no other alternative than to dismiss the
complaint." The trial court is right. We confess that we are not aware of any law or judicial authority
that is directly applicable to the present case, and realizing the importance and far-reaching effect of
a ruling on the subject-matter we have searched, though vainly, for judicial authorities and
enlightenment. All the laws and principles of law we have found, as regards master and servants, or
employer and employee, refer to cases of physical injuries, light or serious, resulting in loss of a
member of the body or of any one of the senses, or permanent physical disability or even death,
suffered in line of duty and in the course of the performance of the duties assigned to the servant or
employee, and these cases are mainly governed by the Employer's Liability Act and the Workmen's
Compensation Act. But a case involving damages caused to an employee by a stranger or outsider
while said employee was in the performance of his duties, presents a novel question which under
present legislation we are neither able nor prepared to decide in favor of the employee.

In a case like the present or a similar case of say a driver employed by a transportation company,
who while in the course of employment runs over and inflicts physical injuries on or causes the death
of a pedestrian; and such driver is later charged criminally in court, one can imagine that it would be
to the interest of the employer to give legal help to and defend its employee in order to show that the
latter was not guilty of any crime either deliberately or through negligence, because should the
employee be finally held criminally liable and he is found to be insolvent, the employer would be
subsidiarily liable. That is why, we repeat, it is to the interest of the employer to render legal
assistance to its employee. But we are not prepared to say and to hold that the giving of said legal
assistance to its employees is a legal obligation. While it might yet and possibly be regarded as a
normal obligation, it does not at present count with the sanction of man-made laws.

If the employer is not legally obliged to give, legal assistance to its employee and provide him with a
lawyer, naturally said employee may not recover the amount he may have paid a lawyer hired by
him.

Viewed from another angle it may be said that the damage suffered by the plaintiff by reason of the
expenses incurred by him in remunerating his lawyer, is not caused by his act of shooting to death
the gate crasher but rather by the filing of the charge of homicide which made it necessary for him to
defend himself with the aid of counsel. Had no criminal charge been filed against him, there would
have been no expenses incurred or damage suffered. So the damage suffered by plaintiff was
caused rather by the improper filing of the criminal charge, possibly at the instance of the heirs of the
deceased gate crasher and by the State through the Fiscal. We say improper filing, judging by the
results of the court proceedings, namely, acquittal. In other words, the plaintiff was innocent and
blameless. If despite his innocence and despite the absence of any criminal responsibility on his part
he was accused of homicide, then the responsibility for the improper accusation may be laid at the
door of the heirs of the deceased and the State, and so theoretically, they are the parties that may
be held responsible civilly for damages and if this is so, we fail to see now this responsibility can be
transferred to the employer who in no way intervened, much less initiated the criminal proceedings
and whose only connection or relation to the whole affairs was that he employed plaintiff to perform
a special duty or task, which task or duty was performed lawfully and without negligence.
Still another point of view is that the damages incurred here consisting of the payment of the lawyer's
fee did not flow directly from the performance of his duties but only indirectly because there was an
efficient, intervening cause, namely, the filing of the criminal charges. In other words, the shooting to
death of the deceased by the plaintiff was not the proximate cause of the damages suffered but may
be regarded as only a remote cause, because from the shooting to the damages suffered there was
not that natural and continuous sequence required to fix civil responsibility.

In view of the foregoing, the judgment of the lower court is affirmed. No costs.

Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J.B.L., JJ., concur.

FIRST DIVISION

G.R. No. L-56960 January 28, 1988

ELISEA G. ROXAS, Petitioner, vs. COURT OF APPEALS, and

CLARENCE PIMENTEL, Respondents. chanrobles virtual law library

NARVASA, J.:

Presented for resolution in this petition for review on certiorari of a

decision of the Court of Appeals, which set aside a Trial Court's
order of execution pending appeal is the question of whether or not
good reasons exist to justify that particular order, in accordance
with Section 2, Rule 39 of the Rules of Court. chanroblesvirtualawlibrary chanrobles virtual law library

What gave rise to this litigation was a general power of attorney

made on October 28, 1973 by Elisea G. Roxas authorizing Edgardo
Jose, among other things, "(t)o buy or sell, hire or lease, mortgage
or otherwise hypothecate lands, tenements, and hereditaments and
other forms of real property, upon such terms and conditions and
under covenant as said attorney shall deem fit and proper." 1  chanrobles virtual law library

On the strength of this general power, Edgardo Jose sold to

Clarence Pimentel on May 30, 1975, Roxas' house and lot at No. 11
President Avenue, BF Homes, Paranaque, Metro Manila. The deed of
sale stated the consideration to be P380,000.00 plus Pimentel's
assumption of the mortgage constituted on the property in favor of
Banco Filipino (securing an obligation in the sum of P83,000.00).
The consideration was payable by Pimentel partly in money -
P180,000.00 in cash - and partly in property - Pimentel's own house
and lot, valued at P200,000.00, which was transferred to Roxas,
Jose's principal, together with the mortgage obligation burdening
said property in the amount of P50,000.00. 2 The agreement was
consummated. Pimentel obtained title to the property in his name,
took possession thereof, and introduced improvements thereon. 3 chanrobles virtual law library

The transaction took place while Roxas was in the United States. On
July 26, 1975, shortly upon her return to the Philippines, she
revoked Jose's general power of attorney and then, by her
attorney's letter dated November 28, 1975, demanded from Jose
the delivery of the cash proceeds of the sale, as well as the chattels
and effects she had left in her house. 4 But Jose evidently failed to
comply with Roxas' demand.   ch anroblesvirtualawlibrary chanrobles virtual law library

On March 29, 1976, Roxas instituted suit to annul the sale, founded
on Jose's alleged lack of authority to sell. 5 Her complaint was
originally against Jose and Pimentel, but was subsequently amended
to implead Banco Filipino and the Register of Deeds of Rizal as
additional defendants: Banco Filipino for releasing the owner's
duplicate certificate of title to Clarence Pimentel; and the Register of
Deeds, for having allowed registration of the deed of sale and the
issuance of title to Pimentel. 6 Answer was in due course filed by the
defendants, affirming the validity of the transaction. 7  chanrobles virtual law library

The defendants asserted, and Pimentel testified at the trial, among

other things, that prior to the execution of the deed of sale, Roxas
had been informed while in America of the terms thereof and had
approved them; that on her return to this country she had
confirmed the sale through two documents: one entitled
"Acknowledgement and/or Confirmation" dated July 29, 1975 and
the other, "Receipt Confirmation and/or Acknowledgment" dated
August 17, 1975; and that her ratification had been made
indubitable by her counsel's aforementioned letter of November 28,
1975 demanding from Jose delivery or accounting of the proceeds
of the sale. 8 
chanrobles virtual law library
The Trial Court's verdict went against the defendants. 9 It annulled
the deed of sale, decreed cancellation of Pimentel's title and the
issuance of a new one in Roxas' favor, ordered Pimentel to vacate
the property and pay damages, and directed Banco Filipino to grant
Roxas a period of 6 months from finality of the decision to update
her accounts. These dispositions were predicated on the Court's
findings that: (1) the transaction was not a sale but a
barter, 10 hence not covered by Jose's general power, which speaks
only of the authority to sell; (2) there was so great a disparity in the
values of the properties exchanged that, even with the additional
cash payment by Pimentel of P180,000.00, the barter was
unconscionable in contemplation of Articles 1887 11and 1888 12 of
the Civil Code; 13 and (3) there had actually been no confirmation or
ratification of the sale by Roxas.   chanroblesvirtualawlibrary chanrobles virtual law library

Pimentel appealed to the Court of appeals. For her part, Roxas filed
a motion for partial execution pending appeal. This the Trial Court
granted over Pimentel's opposition, by Order dated January 2, 1980
(and amended, January 11, 1980). 14It ordered execution
specifically with respect to that portion of the judgment which (1)
annulled the deed of sale, (2) ordered cancellation of Pimentel's title
and the issuance of a new one in Roxas' favor, and (3) directed
Pimentel to vacate the property. In justification of the order for
immediate execution, the Court said:

The plaintiff has no house to live on at present and that she takes
temporary shelter in the houses of her relatives causing much
humiliation to her and much inconvenience to her relatives, the
appeal being interposed by defendants would be, at best, pro-forma
and its purpose is merely to delay the case inasmuch as the rights
of plaintiff are clear as adjudicated in the decision; and that to
answer for whatever damages may accrue to defendant by reason
of the immediate execution of the decision, the plaintiff is hereby
required to post a bond of P100,000.00.

Pimentel promptly filed in the Court of Appeals a petition for

certiorari with application for preliminary injunction, seeking
nullification of said order and writ of execution, and their provisional
inhibition pending judgment. 15 chanrobles virtual law library
On March 27, 1981 the Court of Appeals rendered judgment setting
aside the challenged order and writ of immediate execution because
issued in grave abuse of discretion. 16 The Appellate Court declared
as gravely in error the Trial Court's holding that Pimentel's appeal
was "at best, pro-forma." It moreover said that:

It should be stressed here that petitioner is the present registered

owner and possessor of the subject properties and in fact
admittedly had introduced substantial improvements therein, and
for the respondent court now to order the transfer of ownership and
possession of the same in favor of the private respondent during the
pendency of the appeal, seasonably taken by the petitioner, and
while said properties legally remain in the petitioner's name, would
in effect pre-judge or pre-empt the merits of the appeal, the
determination of which resides in this Court. And until such title or
registration in the name of the petitioner or this sale is declared null
and void by final judgment, the same is presumed to be valid and
should be protected and upheld by the courts; and neither is the
filing of a bond by private respondent enough to compensate for the
harm or injury done to the petitioner with the untimely transfer of
the ownership and possession of the subject properties to herein
private respondent.

Roxas now asks this Court to reverse the Appellate Court's decision.
In the petition for review on certiorari filed by Roxas with this Court,
she takes issue with the Appellate Court's findings that (1) it was
grave abuse of discretion for the Trial Court to have adjudged
Pimentel's appeal as being "at best pro-forma;" (2) in declaring that
the validity of the deed of sale was a proper issue in Pimentel's
appeal; (3) in according full faith and credit to Pimentel's title until
set aside by final judgment; (4) in not acknowledging the urgency
of her need for a residential house; and (5) in not considering the
posting of a bond as sufficient reason to warrant execution pending
appeal, invoking City of Manila vs. CA.,  72 SCRA 98. Roxas argues
that Pimentel's appeal had been correctly characterized as "pro-
forma" since his own admissions were the bases of the Trial Court's
conclusions (as to the precise amount and nature of the
consideration), and he could not disclaim those admissions on
appeal; and success of his appeal was also precluded by the further
fact that there was no specific and convincing evidence
demonstrating the validity of the transaction. Pimentel's title, she
adds, should not have been accorded any credit because obtained in
bad faith, with awareness by Pimentel of her objections; and her
need for a residential house should have been deemed akin to a
need for support or for education, which have been considered as
adequate ground for immediate execution in De Leon v. Soriano, 95
Phil. 806 and People's Bank v. San Jose, 96 Phil. 895.   chanroblesvirtualawlibrary chanrobles virtual law library

The errors ascribed to the Court of Appeals are inexistent. The

petition for review lacks merit. It will be denied.   chanroblesvirtualawlibrary chanrobles virtual law library

The rule set forth in Section 2, Rule 39 of the Rules is that

immediate execution may be ordered by the trial court even before
the expiration of the time to appeal, upon good reasons to be stated
in a special order. And while determination of the existence of good
reasons lies in the court's discretion, that determination may be
nullified upon a showing that it was made with grave abuse of
discretion.  
chanroblesvirtualawlibrary chanrobles virtual law library

Now, in the case at bar, the Court a quo opined that good reasons
did exist to justify immediate execution, namely: (1) the losing
party's appeal was pro-forma and dilatory; (2) the prevailing party
had no house to live in; and (3) a sufficient bond had been posted
to answer for such damages as might be caused by the execution of
the judgment in the event of its subsequent reversal on appeal.   chanroblesvirtualawlibrary chanrobles virtual law library

The Trial Court was convinced of the lack of merit of Pimentel's

appeal because of its perception that "the rights of plaintiff are clear
as adjudicated in the decision," that adjudication being based on the
admissions of Pimentel himself. It is quite true that Pimentel did
admit ceding his house and lot to Roxas as part of the consideration
of P380,000.00 for the sale. But it is also true, and this has
apparently escaped the Trial Court's attention completely, that
evidence had been presented by the defendants tending to establish
that Roxas had ratified the transaction. There are no admissions
anent this issue of ratification; it is an issue legitimately arising
from the pleadings and the evidence; it is, obviously, an issue that
may properly be raised and ventilated on appeal, involving the
examination and evaluation of the testimonial and documentary
proofs relevant thereto; and it is one that Pimentel evidently intends
to so set up on appeal. That the Trial Court has rejected the
defendants' asserted theory of ratification - choosing to accord
superior credit to Roxas' oral disclaimer as against Pimentel's
documentary evidence - does not import that the issue has been
irreversibly resolved. That resolution is not at all conclusive, and is
reviewable upon timely appeal which, it should be stressed, may be
taken by the aggrieved party as a matter of right. 17It is therefore
incorrect to brand Pimentel's appeal as dilatory or "pro-forma." In
doing so, the Trial Court ignored quite without cause and in
derogation of Pimentel's right of appeal, the existence of a
substantial issue litigable in appellate proceedings, and hence acted
with grave abuse of discretion.   chanroblesvirtualawlibrary chanrobles virtual law library

There is, moreover, the matter of the liability of Roxas' attorney-in-

fact, Edgardo Jose, particularly as regards the cash payments
delivered to and received by him, and in relation to his co-party,
Pimentel, which the Trial Court has apparently overlooked, but
which, clearly, calls for adjudication and may therefore, properly be
raised and resolved on appeal.   chanroblesvirtualawlibrary chanrobles virtual law library

Also quote capricious was the Trial Court's acceptance of Roxas'

purported need for shelter as a good ground for immediate
execution. She had undeniably put up for sale or lease the house
which she now claims to urgently need for shelter. She is far from
being a pauper; on the contrary, all indications are that she is a
person of not inconsiderable means. Her situation cannot in any
sense be regarded as analogous to that of a person in need of
support. Her plea for shelter is in the premises an exaggeration,
exposed as such by the circumstances on record, and thus should
not have been taken as a reason for immediate execution.   chanroblesvirtualawlibrary chanrobles virtual law library

The last question that has to be addressed in the instant appeal is

whether or not the filing of a bond, without more, can be considered
a good reason to justify immediate execution under Section 2 of
Rule 39.  
chanroblesvirtualawlibrary chanrobles virtual law library

Execution pending appeal in accordance with Section 2 of Rule 39

is, of course, the exception. 18 Normally, execution of a judgment
should not be had until and unless it has become final and
executory - i.e., the right of appeal has been renounced or waived,
the period for appeal has lapsed without an appeal having been
taken, or appeal having been taken, the appeal has been resolved
and the records of the case have been returned to the court of
origin - in which case, execution "shall issue as a matter of
right." 19
chanrobles virtual law library

On the other hand, when the period of appeal has not expired,
execution of the judgment should not be allowed, save only if there
be good reasons therefor, in the court's discretion. "As provided in
Section 2, Rule 39 of the ... Rules ..., the existence of good reasons
is what confers discretionary power on a Court ... to issue a writ of
execution pending appeal. The reasons allowing execution must
constitute superior circumstances demanding urgency which will
outweigh the injury or damages should the losing party secure a
reversal of the judgment. 20 chanrobles virtual law library

It is not intended obviously that execution pending appeal shall

issue as a matter of course, "Good reasons, special, important,
pressing reasons must exist to justify it; otherwise, instead of an
instrument of solicitude and justice, it may well become a tool of
oppression and inequity. But to consider the mere posting of a bond
a "good reason" would precisely make immediate execution of a
judgment pending appeal routinary, the rule rather than the
exception. Judgments would be executed immediately, as a matter
of course, once rendered, if all that the prevailing party needed to
do was to post a bond to answer for damages that might result
therefrom. This is a situation, to repeat, neither contemplated nor
intended by law.   chanroblesvirtualawlibrary chanrobles virtual law library

There are, to be sure, statements in some of this Court's decisions

which do generate the perception that "the filing of the bond by the
successful party is a good reason for ordering
execution.: 21Petitioner Roxas herself cites City of Manila v. C.A. 22to
support her postulation to this effect. From that case - which
adverts to Hacienda Navarra, Inc. v. Labrador  and People's Bank
etc. v. San Jose 23 - she quotes the following:

From what has been said it is thus clear that the Court of Appeals
erred in not considering the city's posting to a bond as e heirs of the
estate of a deceased person under administration good and special
reason to justify execution pending appeal.

But sight should not be lost of the factual context in which the
quoted statement was made. In that case, the City of Manila had
succeeded in obtaining judgment for the recovery of a piece of land
it had lent to the Metropolitan Theater, and immediate execution
became imperative because the theater was insolvent and there
was imminent danger of its creditor's foreclosing a mortgage on the
property. This combination of circumstances was the dominant
consideration which impelled the grant of immediate execution, the
requirement of a bond having been imposed merely as an additional
factor, no doubt for the protection of the defendant's creditor. In
Hacienda Navarra, there was a special reason for immediate
execution, in addition to the posting of a bond. There, the Court
said that 'Inasmuch as the purpose in depositing the money is to
insure its receipts by the party obtaining a favorable judgment in
the above cited civil case, the filing of a sufficient bond for the
delivery of said proceeds secures said receipt."And in People's Bank,
the order involved in the case decreed payment of allowances for
the support of one of the heirs of the estate of a deceased person
under administration, and the urgent need of the party entitled
thereto was the paramount consideration for immediate execution,
not the filing of a bond.   chanroblesvirtualawlibrary chanrobles virtual law library

Upon the foregoing considerations, and without need of dealing with

the Appellate Court's opinion respecting the presumptive validity
and efficacy of Pimentel's title to the property, which in any case
appears upon its face to be correct, petitioner's appeal cannot
succeed.  
chanroblesvirtualawlibrary chanrobles virtual law library

WHEREFORE, the petition for review on certiorari is dismissed, and

the judgment subject thereof is affirmed, with costs against
petitioner. This judgment is immediately executory, and no motion
for extension of time to file motion for reconsideration will be
entertained.

Teehankee, C.J., Cruz, Paras and Gancayco, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-12191             October 14, 1918

JOSE CANGCO, plaintiff-appellant,
vs.
MANILA RAILROAD CO., defendant-appellee.

Ramon Sotelo for appellant.

Kincaid & Hartigan for appellee.

FISHER, J.:

At the time of the occurrence which gave rise to this litigation the plaintiff, Jose Cangco, was in the
employment of Manila Railroad Company in the capacity of clerk, with a monthly wage of P25. He
lived in the pueblo of San Mateo, in the province of Rizal, which is located upon the line of the
defendant railroad company; and in coming daily by train to the company's office in the city of Manila
where he worked, he used a pass, supplied by the company, which entitled him to ride upon the
company's trains free of charge. Upon the occasion in question, January 20, 1915, the plaintiff arose
from his seat in the second class-car where he was riding and, making, his exit through the door,
took his position upon the steps of the coach, seizing the upright guardrail with his right hand for
support.

On the side of the train where passengers alight at the San Mateo station there is a cement platform
which begins to rise with a moderate gradient some distance away from the company's office and
extends along in front of said office for a distance sufficient to cover the length of several coaches.
As the train slowed down another passenger, named Emilio Zuñiga, also an employee of the railroad
company, got off the same car, alighting safely at the point where the platform begins to rise from
the level of the ground. When the train had proceeded a little farther the plaintiff Jose Cangco
stepped off also, but one or both of his feet came in contact with a sack of watermelons with the
result that his feet slipped from under him and he fell violently on the platform. His body at once
rolled from the platform and was drawn under the moving car, where his right arm was badly
crushed and lacerated. It appears that after the plaintiff alighted from the train the car moved forward
possibly six meters before it came to a full stop.

The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station was
lighted dimly by a single light located some distance away, objects on the platform where the
accident occurred were difficult to discern especially to a person emerging from a lighted car.

The explanation of the presence of a sack of melons on the platform where the plaintiff alighted is
found in the fact that it was the customary season for harvesting these melons and a large lot had
been brought to the station for the shipment to the market. They were contained in numerous sacks
which has been piled on the platform in a row one upon another. The testimony shows that this row
of sacks was so placed of melons and the edge of platform; and it is clear that the fall of the plaintiff
was due to the fact that his foot alighted upon one of these melons at the moment he stepped upon
the platform. His statement that he failed to see these objects in the darkness is readily to be
credited.

The plaintiff was drawn from under the car in an unconscious condition, and it appeared that the
injuries which he had received were very serious. He was therefore brought at once to a certain
hospital in the city of Manila where an examination was made and his arm was amputated. The
result of this operation was unsatisfactory, and the plaintiff was then carried to another hospital
where a second operation was performed and the member was again amputated higher up near the
shoulder. It appears in evidence that the plaintiff expended the sum of P790.25 in the form of
medical and surgical fees and for other expenses in connection with the process of his curation.

Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of the city of
Manila to recover damages of the defendant company, founding his action upon the negligence of
the servants and employees of the defendant in placing the sacks of melons upon the platform and
leaving them so placed as to be a menace to the security of passenger alighting from the company's
trains. At the hearing in the Court of First Instance, his Honor, the trial judge, found the facts
substantially as above stated, and drew therefrom his conclusion to the effect that, although
negligence was attributable to the defendant by reason of the fact that the sacks of melons were so
placed as to obstruct passengers passing to and from the cars, nevertheless, the plaintiff himself
had failed to use due caution in alighting from the coach and was therefore precluded form
recovering. Judgment was accordingly entered in favor of the defendant company, and the plaintiff
appealed.

It can not be doubted that the employees of the railroad company were guilty of negligence in piling
these sacks on the platform in the manner above stated; that their presence caused the plaintiff to
fall as he alighted from the train; and that they therefore constituted an effective legal cause of the
injuries sustained by the plaintiff. It necessarily follows that the defendant company is liable for the
damage thereby occasioned unless recovery is barred by the plaintiff's own contributory negligence.
In resolving this problem it is necessary that each of these conceptions of liability, to-wit, the primary
responsibility of the defendant company and the contributory negligence of the plaintiff should be
separately examined.

It is important to note that the foundation of the legal liability of the defendant is the contract of
carriage, and that the obligation to respond for the damage which plaintiff has suffered arises, if at
all, from the breach of that contract by reason of the failure of defendant to exercise due care in its
performance. That is to say, its liability is direct and immediate, differing essentially, in legal
viewpoint from that presumptive responsibility for the negligence of its servants, imposed by article
1903 of the Civil Code, which can be rebutted by proof of the exercise of due care in their selection
and supervision. Article 1903 of the Civil Code is not applicable to obligations arising ex contractu,
but only to extra-contractual obligations — or to use the technical form of expression, that article
relates only to culpa aquiliana and not to culpa contractual.

Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code, clearly
points out this distinction, which was also recognized by this Court in its decision in the case of
Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In commenting upon article 1093 Manresa
clearly points out the difference between "culpa, substantive and independent, which of itself
constitutes the source of an obligation between persons not formerly connected by any legal tie"
and culpa considered as an accident in the performance of an obligation already existing . . . ."
In the Rakes case (supra) the decision of this court was made to rest squarely upon the proposition
that article 1903 of the Civil Code is not applicable to acts of negligence which constitute the breach
of a contract.

Upon this point the Court said:

The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are
understood to be those not growing out of pre-existing duties of the parties to one another.
But where relations already formed give rise to duties, whether springing from contract or
quasi-contract, then breaches of those duties are subject to article 1101, 1103, and 1104 of
the same code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at 365.)

This distinction is of the utmost importance. The liability, which, under the Spanish law, is, in certain
cases imposed upon employers with respect to damages occasioned by the negligence of their
employees to persons to whom they are not bound by contract, is not based, as in the English
Common Law, upon the principle of respondeat superior — if it were, the master would be liable in
every case and unconditionally — but upon the principle announced in article 1902 of the Civil Code,
which imposes upon all persons who by their fault or negligence, do injury to another, the obligation
of making good the damage caused. One who places a powerful automobile in the hands of a
servant whom he knows to be ignorant of the method of managing such a vehicle, is himself guilty of
an act of negligence which makes him liable for all the consequences of his imprudence. The
obligation to make good the damage arises at the very instant that the unskillful servant, while acting
within the scope of his employment causes the injury. The liability of the master is personal and
direct. But, if the master has not been guilty of any negligence whatever in the selection and
direction of the servant, he is not liable for the acts of the latter, whatever done within the scope of
his employment or not, if the damage done by the servant does not amount to a breach of the
contract between the master and the person injured.

It is not accurate to say that proof of diligence and care in the selection and control of the servant
relieves the master from liability for the latter's acts — on the contrary, that proof shows that the
responsibility has never existed. As Manresa says (vol. 8, p. 68) the liability arising from extra-
contractual culpa is always based upon a voluntary act or omission which, without willful intent, but
by mere negligence or inattention, has caused damage to another. A master who exercises all
possible care in the selection of his servant, taking into consideration the qualifications they should
possess for the discharge of the duties which it is his purpose to confide to them, and directs them
with equal diligence, thereby performs his duty to third persons to whom he is bound by no
contractual ties, and he incurs no liability whatever if, by reason of the negligence of his servants,
even within the scope of their employment, such third person suffer damage. True it is that under
article 1903 of the Civil Code the law creates a presumption that he has been negligent in the
selection or direction of his servant, but the presumption is rebuttable and yield to proof of due care
and diligence in this respect.

The supreme court of Porto Rico, in interpreting identical provisions, as found in the Porto Rico
Code, has held that these articles are applicable to cases of extra-contractual culpa exclusively.
(Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)

This distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua
and Leynes, (30 Phil. rep., 624), which was an action brought upon the theory of the extra-
contractual liability of the defendant to respond for the damage caused by the carelessness of his
employee while acting within the scope of his employment. The Court, after citing the last paragraph
of article 1903 of the Civil Code, said:
 From this article two things are apparent: (1) That when an injury is caused by the
negligence of a servant or employee there instantly arises a presumption of law that there
was negligence on the part of the master or employer either in selection of the servant or
employee, or in supervision over him after the selection, or both; and (2) that that
presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It
follows necessarily that if the employer shows to the satisfaction of the court that in selection
and supervision he has exercised the care and diligence of a good father of a family, the
presumption is overcome and he is relieved from liability.

This theory bases the responsibility of the master ultimately on his own negligence and not
on that of his servant. This is the notable peculiarity of the Spanish law of negligence. It is, of
course, in striking contrast to the American doctrine that, in relations with strangers, the
negligence of the servant in conclusively the negligence of the master.

The opinion there expressed by this Court, to the effect that in case of extra-contractual culpa based
upon negligence, it is necessary that there shall have been some fault attributable to the defendant
personally, and that the last paragraph of article 1903 merely establishes a rebuttable presumption,
is in complete accord with the authoritative opinion of Manresa, who says (vol. 12, p. 611) that the
liability created by article 1903 is imposed by reason of the breach of the duties inherent in the
special relations of authority or superiority existing between the person called upon to repair the
damage and the one who, by his act or omission, was the cause of it.

On the other hand, the liability of masters and employers for the negligent acts or omissions of their
servants or agents, when such acts or omissions cause damages which amount to the breach of a
contact, is not based upon a mere presumption of the master's negligence in their selection or
control, and proof of exercise of the utmost diligence and care in this regard does not relieve the
master of his liability for the breach of his contract.

Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual

obligation has its source in the breach or omission of those mutual duties which civilized society
imposes upon it members, or which arise from these relations, other than contractual, of certain
members of society to others, generally embraced in the concept of status. The legal rights of each
member of society constitute the measure of the corresponding legal duties, mainly negative in
character, which the existence of those rights imposes upon all other members of society. The
breach of these general duties whether due to willful intent or to mere inattention, if productive of
injury, give rise to an obligation to indemnify the injured party. The fundamental distinction between
obligations of this character and those which arise from contract, rests upon the fact that in cases of
non-contractual obligation it is the wrongful or negligent act or omission itself which creates
the vinculum juris, whereas in contractual relations the vinculum exists independently of the breach
of the voluntary duty assumed by the parties when entering into the contractual relation.

With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is
competent for the legislature to elect — and our Legislature has so elected — whom such an
obligation is imposed is morally culpable, or, on the contrary, for reasons of public policy, to extend
that liability, without regard to the lack of moral culpability, so as to include responsibility for the
negligence of those person who acts or mission are imputable, by a legal fiction, to others who are in
a position to exercise an absolute or limited control over them. The legislature which adopted our
Civil Code has elected to limit extra-contractual liability — with certain well-defined exceptions — to
cases in which moral culpability can be directly imputed to the persons to be charged. This moral
responsibility may consist in having failed to exercise due care in the selection and control of one's
agents or servants, or in the control of persons who, by reason of their status, occupy a position of
dependency with respect to the person made liable for their conduct.
The position of a natural or juridical person who has undertaken by contract to render service to
another, is wholly different from that to which article 1903 relates. When the sources of the obligation
upon which plaintiff's cause of action depends is a negligent act or omission, the burden of proof
rests upon plaintiff to prove the negligence — if he does not his action fails. But when the facts
averred show a contractual undertaking by defendant for the benefit of plaintiff, and it is alleged that
plaintiff has failed or refused to perform the contract, it is not necessary for plaintiff to specify in his
pleadings whether the breach of the contract is due to willful fault or to negligence on the part of the
defendant, or of his servants or agents. Proof of the contract and of its nonperformance is
sufficient prima facie to warrant a recovery.

As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor

should assume the burden of proof of its existence, as the only fact upon which his action is
based; while on the contrary, in a case of negligence which presupposes the existence of a
contractual obligation, if the creditor shows that it exists and that it has been broken, it is not
necessary for him to prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).

As it is not necessary for the plaintiff in an action for the breach of a contract to show that the breach
was due to the negligent conduct of defendant or of his servants, even though such be in fact the
actual cause of the breach, it is obvious that proof on the part of defendant that the negligence or
omission of his servants or agents caused the breach of the contract would not constitute a defense
to the action. If the negligence of servants or agents could be invoked as a means of discharging the
liability arising from contract, the anomalous result would be that person acting through the medium
of agents or servants in the performance of their contracts, would be in a better position than those
acting in person. If one delivers a valuable watch to watchmaker who contract to repair it, and the
bailee, by a personal negligent act causes its destruction, he is unquestionably liable. Would it be
logical to free him from his liability for the breach of his contract, which involves the duty to exercise
due care in the preservation of the watch, if he shows that it was his servant whose negligence
caused the injury? If such a theory could be accepted, juridical persons would enjoy practically
complete immunity from damages arising from the breach of their contracts if caused by negligent
acts as such juridical persons can of necessity only act through agents or servants, and it would no
doubt be true in most instances that reasonable care had been taken in selection and direction of
such servants. If one delivers securities to a banking corporation as collateral, and they are lost by
reason of the negligence of some clerk employed by the bank, would it be just and reasonable to
permit the bank to relieve itself of liability for the breach of its contract to return the collateral upon
the payment of the debt by proving that due care had been exercised in the selection and direction
of the clerk?

This distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a

mere incident to the performance of a contract has frequently been recognized by the supreme court
of Spain. (Sentencias of June 27, 1894; November 20, 1896; and December 13, 1896.) In the
decisions of November 20, 1896, it appeared that plaintiff's action arose ex contractu, but that
defendant sought to avail himself of the provisions of article 1902 of the Civil Code as a defense.
The Spanish Supreme Court rejected defendant's contention, saying:

These are not cases of injury caused, without any pre-existing obligation, by fault or
negligence, such as those to which article 1902 of the Civil Code relates, but of damages
caused by the defendant's failure to carry out the undertakings imposed by the
contracts . . . .

A brief review of the earlier decision of this court involving the liability of employers for damage done
by the negligent acts of their servants will show that in no case has the court ever decided that the
negligence of the defendant's servants has been held to constitute a defense to an action for
damages for breach of contract.

In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage was
not liable for the damages caused by the negligence of his driver. In that case the court commented
on the fact that no evidence had been adduced in the trial court that the defendant had been
negligent in the employment of the driver, or that he had any knowledge of his lack of skill or
carefulness.

In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil. Rep., 215), the plaintiff
sued the defendant for damages caused by the loss of a barge belonging to plaintiff which was
allowed to get adrift by the negligence of defendant's servants in the course of the performance of a
contract of towage. The court held, citing Manresa (vol. 8, pp. 29, 69) that if the "obligation of the
defendant grew out of a contract made between it and the plaintiff . . . we do not think that the
provisions of articles 1902 and 1903 are applicable to the case."

In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover
damages for the personal injuries caused by the negligence of defendant's chauffeur while driving
defendant's automobile in which defendant was riding at the time. The court found that the damages
were caused by the negligence of the driver of the automobile, but held that the master was not
liable, although he was present at the time, saying:

. . . unless the negligent acts of the driver are continued for a length of time as to give the
owner a reasonable opportunity to observe them and to direct the driver to desist therefrom. .
. . The act complained of must be continued in the presence of the owner for such length of
time that the owner by his acquiescence, makes the driver's acts his own.

In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage & Taxicab Co. (33 Phil. Rep.,
8), it is true that the court rested its conclusion as to the liability of the defendant upon article 1903,
although the facts disclosed that the injury complaint of by plaintiff constituted a breach of the duty to
him arising out of the contract of transportation. The express ground of the decision in this case was
that article 1903, in dealing with the liability of a master for the negligent acts of his servants "makes
the distinction between private individuals and public enterprise;" that as to the latter the law creates
a rebuttable presumption of negligence in the selection or direction of servants; and that in the
particular case the presumption of negligence had not been overcome.

It is evident, therefore that in its decision Yamada case, the court treated plaintiff's action as though
founded in tort rather than as based upon the breach of the contract of carriage, and an examination
of the pleadings and of the briefs shows that the questions of law were in fact discussed upon this
theory. Viewed from the standpoint of the defendant the practical result must have been the same in
any event. The proof disclosed beyond doubt that the defendant's servant was grossly negligent and
that his negligence was the proximate cause of plaintiff's injury. It also affirmatively appeared that
defendant had been guilty of negligence in its failure to exercise proper discretion in the direction of
the servant. Defendant was, therefore, liable for the injury suffered by plaintiff, whether the breach of
the duty were to be regarded as constituting culpa aquiliana or culpa contractual. As Manresa points
out (vol. 8, pp. 29 and 69) whether negligence occurs an incident in the course of the performance of
a contractual undertaking or its itself the source of an extra-contractual undertaking obligation, its
essential characteristics are identical. There is always an act or omission productive of damage due
to carelessness or inattention on the part of the defendant. Consequently, when the court holds that
a defendant is liable in damages for having failed to exercise due care, either directly, or in failing to
exercise proper care in the selection and direction of his servants, the practical result is identical in
either case. Therefore, it follows that it is not to be inferred, because the court held in the Yamada
case that defendant was liable for the damages negligently caused by its servants to a person to
whom it was bound by contract, and made reference to the fact that the defendant was negligent in
the selection and control of its servants, that in such a case the court would have held that it would
have been a good defense to the action, if presented squarely upon the theory of the breach of the
contract, for defendant to have proved that it did in fact exercise care in the selection and control of
the servant.

The true explanation of such cases is to be found by directing the attention to the relative spheres of
contractual and extra-contractual obligations. The field of non- contractual obligation is much more
broader than that of contractual obligations, comprising, as it does, the whole extent of juridical
human relations. These two fields, figuratively speaking, concentric; that is to say, the mere fact that
a person is bound to another by contract does not relieve him from extra-contractual liability to such
person. When such a contractual relation exists the obligor may break the contract under such
conditions that the same act which constitutes the source of an extra-contractual obligation had no
contract existed between the parties.

The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him in
safety and to provide safe means of entering and leaving its trains (civil code, article 1258). That
duty, being contractual, was direct and immediate, and its non-performance could not be excused by
proof that the fault was morally imputable to defendant's servants.

The railroad company's defense involves the assumption that even granting that the negligent
conduct of its servants in placing an obstruction upon the platform was a breach of its contractual
obligation to maintain safe means of approaching and leaving its trains, the direct and proximate
cause of the injury suffered by plaintiff was his own contributory negligence in failing to wait until the
train had come to a complete stop before alighting. Under the doctrine of comparative negligence
announced in the Rakes case (supra), if the accident was caused by plaintiff's own negligence, no
liability is imposed upon defendant's negligence and plaintiff's negligence merely contributed to his
injury, the damages should be apportioned. It is, therefore, important to ascertain if defendant was in
fact guilty of negligence.

It may be admitted that had plaintiff waited until the train had come to a full stop before alighting, the
particular injury suffered by him could not have occurred. Defendant contends, and cites many
authorities in support of the contention, that it is negligence per se for a passenger to alight from a
moving train. We are not disposed to subscribe to this doctrine in its absolute form. We are of the
opinion that this proposition is too badly stated and is at variance with the experience of every-day
life. In this particular instance, that the train was barely moving when plaintiff alighted is shown
conclusively by the fact that it came to stop within six meters from the place where he stepped from
it. Thousands of person alight from trains under these conditions every day of the year, and sustain
no injury where the company has kept its platform free from dangerous obstructions. There is no
reason to believe that plaintiff would have suffered any injury whatever in alighting as he did had it
not been for defendant's negligent failure to perform its duty to provide a safe alighting place.

We are of the opinion that the correct doctrine relating to this subject is that expressed in
Thompson's work on Negligence (vol. 3, sec. 3010) as follows:

The test by which to determine whether the passenger has been guilty of negligence in
attempting to alight from a moving railway train, is that of ordinary or reasonable care. It is to
be considered whether an ordinarily prudent person, of the age, sex and condition of the
passenger, would have acted as the passenger acted under the circumstances disclosed by
the evidence. This care has been defined to be, not the care which may or should be used
by the prudent man generally, but the care which a man of ordinary prudence would use
 under similar circumstances, to avoid injury." (Thompson, Commentaries on Negligence, vol.
3, sec. 3010.)

Or, it we prefer to adopt the mode of exposition used by this court in Picart vs. Smith (37 Phil. rep.,
809), we may say that the test is this; Was there anything in the circumstances surrounding the
plaintiff at the time he alighted from the train which would have admonished a person of average
prudence that to get off the train under the conditions then existing was dangerous? If so, the plaintiff
should have desisted from alighting; and his failure so to desist was contributory negligence. 1awph!l.net

As the case now before us presents itself, the only fact from which a conclusion can be drawn to the
effect that plaintiff was guilty of contributory negligence is that he stepped off the car without being
able to discern clearly the condition of the platform and while the train was yet slowly moving. In
considering the situation thus presented, it should not be overlooked that the plaintiff was, as we
find, ignorant of the fact that the obstruction which was caused by the sacks of melons piled on the
platform existed; and as the defendant was bound by reason of its duty as a public carrier to afford
to its passengers facilities for safe egress from its trains, the plaintiff had a right to assume, in the
absence of some circumstance to warn him to the contrary, that the platform was clear. The place,
as we have already stated, was dark, or dimly lighted, and this also is proof of a failure upon the part
of the defendant in the performance of a duty owing by it to the plaintiff; for if it were by any
possibility concede that it had right to pile these sacks in the path of alighting passengers, the
placing of them adequately so that their presence would be revealed.

As pertinent to the question of contributory negligence on the part of the plaintiff in this case the
following circumstances are to be noted: The company's platform was constructed upon a level
higher than that of the roadbed and the surrounding ground. The distance from the steps of the car
to the spot where the alighting passenger would place his feet on the platform was thus reduced,
thereby decreasing the risk incident to stepping off. The nature of the platform, constructed as it was
of cement material, also assured to the passenger a stable and even surface on which to alight.
Furthermore, the plaintiff was possessed of the vigor and agility of young manhood, and it was by no
means so risky for him to get off while the train was yet moving as the same act would have been in
an aged or feeble person. In determining the question of contributory negligence in performing such
act — that is to say, whether the passenger acted prudently or recklessly — the age, sex, and
physical condition of the passenger are circumstances necessarily affecting the safety of the
passenger, and should be considered. Women, it has been observed, as a general rule are less
capable than men of alighting with safety under such conditions, as the nature of their wearing
apparel obstructs the free movement of the limbs. Again, it may be noted that the place was
perfectly familiar to the plaintiff as it was his daily custom to get on and of the train at this station.
There could, therefore, be no uncertainty in his mind with regard either to the length of the step
which he was required to take or the character of the platform where he was alighting. Our
conclusion is that the conduct of the plaintiff in undertaking to alight while the train was yet slightly
under way was not characterized by imprudence and that therefore he was not guilty of contributory
negligence.

The evidence shows that the plaintiff, at the time of the accident, was earning P25 a month as a
copyist clerk, and that the injuries he has suffered have permanently disabled him from continuing
that employment. Defendant has not shown that any other gainful occupation is open to plaintiff. His
expectancy of life, according to the standard mortality tables, is approximately thirty-three years. We
are of the opinion that a fair compensation for the damage suffered by him for his permanent
disability is the sum of P2,500, and that he is also entitled to recover of defendant the additional sum
of P790.25 for medical attention, hospital services, and other incidental expenditures connected with
the treatment of his injuries.
The decision of lower court is reversed, and judgment is hereby rendered plaintiff for the sum of
P3,290.25, and for the costs of both instances. So ordered.

Arellano, C.J., Torres, Street and Avanceña, JJ., concur.

THIRD DIVISION

G.R. No. 115838           July 18, 2002

CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners,

vs.
COURT OF APPEALS and FRANCISCO ARTIGO, respondents.

CARPIO, J.:

The Case

Before us is a Petition for Review on Certiorari1 seeking to annul the Decision of the Court of
Appeals2 dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto the decision3 of the
Regional Trial Court of Quezon City, Branch 80, in Civil Case No. Q-89-2631. The trial court
disposed as follows:

"WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly
and solidarily liable to plaintiff the sum of:

a) P303,606.24 representing unpaid commission;

b) P25,000.00 for and by way of moral damages;

c) P45,000.00 for and by way of attorney's fees;

d) To pay the cost of this suit.

Quezon City, Metro Manila, December 20, 1991."

The Antecedent Facts

On May 29, 1989, private respondent Francisco Artigo ("Artigo" for brevity) sued petitioners
Constante A. De Castro ("Constante" for brevity) and Corazon A. De Castro ("Corazon" for brevity)
to collect the unpaid balance of his broker's commission from the De Castros. 4 The Court of Appeals
summarized the facts in this wise:
 "x x x. Appellants5 were co-owners of four (4) lots located at EDSA corner New York and
Denver Streets in Cubao, Quezon City. In a letter dated January 24, 1984 (Exhibit "A-1, p.
144, Records), appellee6 was authorized by appellants to act as real estate broker in the sale
of these properties for the amount of P23,000,000.00, five percent (5%) of which will be
given to the agent as commission. It was appellee who first found Times Transit Corporation,
represented by its president Mr. Rondaris, as prospective buyer which desired to buy two (2)
lots only, specifically lots 14 and 15. Eventually, sometime in May of 1985, the sale of lots 14
and 15 was consummated. Appellee received from appellants P48,893.76 as commission.

It was then that the rift between the contending parties soon emerged. Appellee apparently
felt short changed because according to him, his total commission should be P352,500.00
which is five percent (5%) of the agreed price of P7,050,000.00 paid by Times Transit
Corporation to appellants for the two (2) lots, and that it was he who introduced the buyer to
appellants and unceasingly facilitated the negotiation which ultimately led to the
consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after
having received P48,893.76 in advance. 1âwphi1.nêt

On the other hand, appellants completely traverse appellee's claims and essentially argue
that appellee is selfishly asking for more than what he truly deserved as commission to the
prejudice of other agents who were more instrumental in the consummation of the sale.
Although appellants readily concede that it was appellee who first introduced Times Transit
Corp. to them, appellee was not designated by them as their exclusive real estate agent but
that in fact there were more or less eighteen (18) others whose collective efforts in the long
run dwarfed those of appellee's, considering that the first negotiation for the sale where
appellee took active participation failed and it was these other agents who successfully
brokered in the second negotiation. But despite this and out of appellants' "pure liberality,
beneficence and magnanimity", appellee nevertheless was given the largest cut in the
commission (P48,893.76), although on the principle of quantum meruit he would have
certainly been entitled to less. So appellee should not have been heard to complain of
getting only a pittance when he actually got the lion's share of the commission and worse, he
should not have been allowed to get the entire commission. Furthermore, the purchase price
for the two lots was only P3.6 million as appearing in the deed of sale and not P7.05 million
as alleged by appellee. Thus, even assuming that appellee is entitled to the entire
commission, he would only be getting 5% of the P3.6 million, or P180,000.00."

Ruling of the Court of Appeals

The Court of Appeals affirmed in toto the decision of the trial court.

First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two
lots in Cubao, Quezon City. The handwritten authorization letter signed by Constante clearly
established a contract of agency between Constante and Artigo. Thus, Artigo sought prospective
buyers and found Times Transit Corporation ("Times Transit" for brevity). Artigo facilitated the
negotiations which eventually led to the sale of the two lots. Therefore, the Court of Appeals decided
that Artigo is entitled to the 5% commission on the purchase price as provided in the contract of
agency.

Second. The Court of Appeals ruled that Artigo's complaint is not dismissible for failure to implead as
indispensable parties the other co-owners of the two lots. The Court of Appeals explained that it is
not necessary to implead the other co-owners since the action is exclusively based on a contract of
agency between Artigo and Constante.
Third. The Court of Appeals likewise declared that the trial court did not err in admitting parol
evidence to prove the true amount paid by Times Transit to the De Castros for the two lots. The
Court of Appeals ruled that evidence aliunde could be presented to prove that the actual purchase
price was P7.05 million and not P3.6 million as appearing in the deed of sale. Evidence aliunde is
admissible considering that Artigo is not a party, but a mere witness in the deed of sale between the
De Castros and Times Transit. The Court of Appeals explained that, "the rule that oral evidence is
inadmissible to vary the terms of written instruments is generally applied only in suits between
parties to the instrument and strangers to the contract are not bound by it." Besides, Artigo was not
suing under the deed of sale, but solely under the contract of agency. Thus, the Court of Appeals
upheld the trial court's finding that the purchase price was P7.05 million and not P3.6 million.

Hence, the instant petition.

The Issues

According to petitioners, the Court of Appeals erred in -

I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD

INDISPENSABLE PARTIES-IN-INTEREST;

II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT
ARTIGO'S CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER, OR
ABANDONMENT;

III. CONSIDERING INCOMPETENT EVIDENCE;

IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;

V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES;

VI. NOT AWARDING THE DE CASTRO'S MORAL AND EXEMPLARY DAMAGES, AND
ATTORNEY'S FEES.

The Court's Ruling

The petition is bereft of merit.

First Issue: whether the complaint merits dismissal for failure to implead other co-owners as
indispensable parties

The De Castros argue that Artigo's complaint should have been dismissed for failure to implead all
the co-owners of the two lots. The De Castros claim that Artigo always knew that the two lots were
co-owned by Constante and Corazon with their other siblings Jose and Carmela whom Constante
merely represented. The De Castros contend that failure to implead such indispensable parties is
fatal to the complaint since Artigo, as agent of all the four co-owners, would be paid with funds co-
owned by the four co-owners.

The De Castros' contentions are devoid of legal basis.

An indispensable party is one whose interest will be affected by the court's action in the litigation,
and without whom no final determination of the case can be had. 7 The joinder of indispensable
parties is mandatory and courts cannot proceed without their presence. 8 Whenever it appears to the
court in the course of a proceeding that an indispensable party has not been joined, it is the duty of
the court to stop the trial and order the inclusion of such party.9

However, the rule on mandatory joinder of indispensable parties is not applicable to the instant case.

There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to
sell the properties of the De Castros for P23 million at a 5 percent commission. The authority was on
a first come, first serve basis. The authority reads in full:

"24 Jan. 84

To Whom It May Concern:

This is to state that Mr. Francisco Artigo is authorized as our real estate broker in connection
with the sale of our property located at Edsa Corner New York & Denver, Cubao, Quezon
City.

Asking price P 23,000,000.00 with 5% commission as agent's fee.

C.C. de Castro
owner & representing
co-owners

This authority is on a first-come

First serve basis –CAC"

Constante signed the note as owner and as representative of the other co-owners. Under this note,
a contract of agency was clearly constituted between Constante and Artigo. Whether Constante
appointed Artigo as agent, in Constante's individual or representative capacity, or both, the De
Castros cannot seek the dismissal of the case for failure to implead the other co-owners as
indispensable parties. The De Castros admit that the other co-owners are solidarily liable
under the contract of agency,10 citing Article 1915 of the Civil Code, which reads:

Art. 1915. If two or more persons have appointed an agent for a common transaction or
undertaking, they shall be solidarily liable to the agent for all the consequences of the
agency.

The solidary liability of the four co-owners, however, militates against the De Castros' theory that the
other co-owners should be impleaded as indispensable parties. A noted commentator explained
Article 1915 thus –

"The rule in this article applies even when the appointments were made by the principals in
separate acts, provided that they are for the same transaction. The solidarity arises from
the common interest of the principals, and not from the act of constituting the agency.
By virtue of this solidarity, the agent can recover from any principal the whole
compensation and indemnity owing to him by the others. The parties, however, may, by
 express agreement, negate this solidary responsibility. The solidarity does not disappear by
the mere partition effected by the principals after the accomplishment of the agency.

If the undertaking is one in which several are interested, but only some create the agency,
only the latter are solidarily liable, without prejudice to the effects of negotiorum gestio with
respect to the others. And if the power granted includes various transactions some of which
are common and others are not, only those interested in each transaction shall be liable for
it."11

When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a
contract of agency, each obligor may be compelled to pay the entire obligation. 12 The agent may
recover the whole compensation from any one of the co-principals, as in this case.

Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors.
This article reads:

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others, so long as the debt has not
been fully collected.

Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.13 that –

"x x x solidarity does not make a solidary obligor an indispensable party in a suit filed
by the creditor. Article 1216 of the Civil Code says that the creditor `may proceed against
anyone of the solidary debtors or some or all of them simultaneously'." (Emphasis supplied)

Second Issue: whether Artigo's claim has been extinguished by full payment, waiver or
abandonment

The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given "his
proportionate share and no longer entitled to any balance." According to them, Artigo was just one of
the agents involved in the sale and entitled to a "proportionate share" in the commission. They
assert that Artigo did absolutely nothing during the second negotiation but to sign as a witness in the
deed of sale. He did not even prepare the documents for the transaction as an active real estate
broker usually does.

The De Castros' arguments are flimsy.

A contract of agency which is not contrary to law, public order, public policy, morals or good custom
is a valid contract, and constitutes the law between the parties. 14 The contract of agency entered into
by Constante with Artigo is the law between them and both are bound to comply with its terms and
conditions in good faith.

The mere fact that "other agents" intervened in the consummation of the sale and were paid their
respective commissions cannot vary the terms of the contract of agency granting Artigo a 5 percent
commission based on the selling price. These "other agents" turned out to be employees of Times
Transit, the buyer Artigo introduced to the De Castros. This prompted the trial court to observe:

"The alleged `second group' of agents came into the picture only during the so-called
`second negotiation' and it is amusing to note that these (sic) second group, prominent
 among whom are Atty. Del Castillo and Ms. Prudencio, happened to be employees of Times
Transit, the buyer of the properties. And their efforts were limited to convincing Constante to
'part away' with the properties because the redemption period of the foreclosed properties is
around the corner, so to speak. (tsn. June 6, 1991).

xxx

To accept Constante's version of the story is to open the floodgates of fraud and deceit. A
seller could always pretend rejection of the offer and wait for sometime for others to renew it
who are much willing to accept a commission far less than the original broker. The
immorality in the instant case easily presents itself if one has to consider that the
alleged `second group' are the employees of the buyer, Times Transit and they have
not bettered the offer secured by Mr. Artigo for P7 million.

It is to be noted also that while Constante was too particular about the unrenewed real estate
broker's license of Mr. Artigo, he did not bother at all to inquire as to the licenses of
Prudencio and Castillo. (tsn, April 11, 1991, pp. 39-40)." 15 (Emphasis supplied)

In any event, we find that the 5 percent real estate broker's commission is reasonable and within the
standard practice in the real estate industry for transactions of this nature.

The De Castros also contend that Artigo's inaction as well as failure to protest estops him from
recovering more than what was actually paid him. The De Castros cite Article 1235 of the Civil Code
which reads:

Art. 1235. When the obligee accepts the performance, knowing its incompleteness and
irregularity, and without expressing any protest or objection, the obligation is deemed fully
complied with.

The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's acceptance of
partial payment of his commission neither amounts to a waiver of the balance nor puts him in
estoppel. This is the import of Article 1235 which was explained in this wise:

"The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or
sufficient, or agree to an incomplete or irregular performance. Hence, the mere receipt of a
partial payment is not equivalent to the required acceptance of performance as would
extinguish the whole obligation."16 (Emphasis supplied)

There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that
Artigo merely received the partial payment without waiving the balance. Thus, there is no estoppel to
speak of.

The De Castros further argue that laches should apply because Artigo did not file his complaint in
court until May 29, 1989, or almost four years later. Hence, Artigo's claim for the balance of his
commission is barred by laches.

Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that
which by exercising due diligence could or should have been done earlier. It is negligence or
omission to assert a right within a reasonable time, warranting a presumption that the party entitled
to assert it either has abandoned it or declined to assert it.17
Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent on
January 24, 1984. The two lots were finally sold in June 1985. As found by the trial court, Artigo
demanded in April and July of 1985 the payment of his commission by Constante on the basis of the
selling price of P7.05 million but there was no response from Constante. 18 After it became clear that
his demands for payment have fallen on deaf ears, Artigo decided to sue on May 29, 1989.

Actions upon a written contract, such as a contract of agency, must be brought within ten years from
the time the right of action accrues.19 The right of action accrues from the moment the breach of right
or duty occurs. From this moment, the creditor can institute the action even as the ten-year
prescriptive period begins to run.20

The De Castros admit that Artigo's claim was filed within the ten-year prescriptive period. The De
Castros, however, still maintain that Artigo's cause of action is barred by laches. Laches does not
apply because only four years had lapsed from the time of the sale in June 1985. Artigo made a
demand in July 1985 and filed the action in court on May 29, 1989, well within the ten-year
prescriptive period. This does not constitute an unreasonable delay in asserting one's right. The
Court has ruled, "a delay within the prescriptive period is sanctioned by law and is not
considered to be a delay that would bar relief."21 In explaining that laches applies only in the
absence of a statutory prescriptive period, the Court has stated -

"Laches is recourse in equity. Equity, however, is applied only in the absence, never in

contravention, of statutory law. Thus, laches, cannot, as a rule, be used to abate a
collection suit filed within the prescriptive period mandated by the Civil Code." 22

Clearly, the De Castros' defense of laches finds no support in law, equity or jurisprudence.

Third issue: whether the determination of the purchase price was made in violation of the
Rules on Evidence

The De Castros want the Court to re-examine the probative value of the evidence adduced in the
trial court to determine whether the actual selling price of the two lots was P7.05 million and not P3.6
million. The De Castros contend that it is erroneous to base the 5 percent commission on a
purchase price of P7.05 million as ordered by the trial court and the appellate court. The De Castros
insist that the purchase price is P3.6 million as expressly stated in the deed of sale, the due
execution and authenticity of which was admitted during the trial.

The De Castros believe that the trial and appellate courts committed a mistake in considering
incompetent evidence and disregarding the best evidence and parole evidence rules. They claim
that the Court of Appeals erroneously affirmed sub silentio the trial court's reliance on the various
correspondences between Constante and Times Transit which were mere photocopies that do not
satisfy the best evidence rule. Further, these letters covered only the first negotiations between
Constante and Times Transit which failed; hence, these are immaterial in determining the final
purchase price.

The De Castros further argue that if there was an undervaluation, Artigo who signed as witness
benefited therefrom, and being equally guilty, should be left where he presently stands. They
likewise claim that the Court of Appeals erred in relying on evidence which were not offered for the
purpose considered by the trial court. Specifically, Exhibits "B", "C", "D" and "E" were not offered to
prove that the purchase price was P7.05 Million. Finally, they argue that the courts a quo erred in
giving credence to the perjured testimony of Artigo. They want the entire testimony of Artigo rejected
as a falsehood because he was lying when he claimed at the outset that he was a licensed real
estate broker when he was not.
Whether the actual purchase price was P7.05 Million as found by the trial court and affirmed by the
Court of Appeals, or P3.6 Million as claimed by the De Castros, is a question of fact and not of law.
Inevitably, this calls for an inquiry into the facts and evidence on record. This we can not do.

It is not the function of this Court to re-examine the evidence submitted by the parties, or analyze or
weigh the evidence again.23 This Court is not the proper venue to consider a factual issue as it is not
a trier of facts. In petitions for review on certiorari as a mode of appeal under Rule 45, a petitioner
can only raise questions of law. Our pronouncement in the case of Cormero vs. Court of
Appeals24 bears reiteration:

"At the outset, it is evident from the errors assigned that the petition is anchored on a plea to
review the factual conclusion reached by the respondent court. Such task however is
foreclosed by the rule that in petitions for certiorari as a mode of appeal, like this one, only
questions of law distinctly set forth may be raised. These questions have been defined as
those that do not call for any examination of the probative value of the evidence presented
by the parties. (Uniland Resources vs. Development Bank of the Philippines, 200 SCRA 751
[1991] citing Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of
Appeals, 149 SCRA 67). And when this court is asked to go over the proof presented by the
parties, and analyze, assess and weigh them to ascertain if the trial court and the appellate
court were correct in according superior credit to this or that piece of evidence and
eventually, to the totality of the evidence of one party or the other, the court cannot and will
not do the same. (Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in the absence
of any showing that the findings complained of are totally devoid of support in the record, or
that they are so glaringly erroneous as to constitute serious abuse of discretion, such
findings must stand, for this court is not expected or required to examine or contrast the oral
and documentary evidence submitted by the parties. (Morales vs. Court of Appeals, 197
SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966])."

We find no reason to depart from this principle. The trial and appellate courts are in a much better
position to evaluate properly the evidence. Hence, we find no other recourse but to affirm their
finding on the actual purchase price. 1âwphi1.nêt

Fourth Issue: whether award of moral damages and attorney's fees is proper

The De Castros claim that Artigo failed to prove that he is entitled to moral damages and attorney's
fees. The De Castros, however, cite no concrete reason except to say that they are the ones entitled
to damages since the case was filed to harass and extort money from them.

Law and jurisprudence support the award of moral damages and attorney's fees in favor of Artigo.
The award of damages and attorney's fees is left to the sound discretion of the court, and if such
discretion is well exercised, as in this case, it will not be disturbed on appeal. 25 Moral damages may
be awarded when in a breach of contract the defendant acted in bad faith, or in wanton disregard of
his contractual obligation.26 On the other hand, attorney's fees are awarded in instances where "the
defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just
and demandable claim."27 There is no reason to disturb the trial court's finding that "the defendants'
lack of good faith and unkind treatment of the plaintiff in refusing to give his due commission deserve
censure." This warrants the award of P25,000.00 in moral damages and P 45,000.00 in attorney's
fees. The amounts are, in our view, fair and reasonable. Having found a buyer for the two lots, Artigo
had already performed his part of the bargain under the contract of agency. The De Castros should
have exercised fairness and good judgment in dealing with Artigo by fulfilling their own part of the
bargain - paying Artigo his 5 percent broker's commission based on the actual purchase price of the
two lots.
WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals dated
May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto.

SO ORDERED.

Puno, and Panganiban, JJ., concur.

Sandoval-Gutierrez, J., no part due to close family relation with a party.

THIRD DIVISION

[G.R. No. 111924. January 27, 1997.]

ADORACION LUSTAN, Petitioner, v. COURT OF APPEALS, NICOLAS PARANGAN

and SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK, Respondents.

Alfredo M. Banares for Petitioner.

Roberto Cal Catolino for respondent Parangan.

Rolando A. Niedo for respondent PNB.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SALES; EQUITABLE MORTGAGE;

REQUISITES FOR PRESUMPTION. — For a presumption of an equitable mortgage to
arise, we must first satisfy two requisites, namely: that the parties entered into a
contract denominated as a contract of sale and that their intention was to secure an
existing debt by way of mortgage.  chanroblesvirtuallawlibrary

2. ID.; ID.; ID.; ID.; EXISTENCE OF ANY OF THE CIRCUMSTANCES ENUMERATED

UNDER ART. 1602, SUFFICES TO GIVE RISE TO THE PRESUMPTION. — Under Art. 1604
of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be
an equitable mortgage should any of the conditions in Art. 1602 be present. The
existence of any of the circumstances therein, not a concurrence nor an overwhelming
number of such circumstances, suffices to give rise to the presumption that the contract
is an equitable mortgage.

3. ID.; ID.; CONTRACTS; WHERE A PARTY TO A CONTRACT IS ILLITERATE OR CANNOT

READ, OR CANNOT UNDERSTAND THE LANGUAGE IN WHICH THE CONTRACT IS
WRITTEN, THE BURDEN IS ON THE PARTY INTERESTED IN ENFORCING THE CONTRACT
TO PROVE THAT THE TERMS THEREOF ARE FULLY EXPLAINED TO THE FORMER; CASE
AT BENCH. — Petitioner had no knowledge that the contract she signed is a deed of
sale. The contents of the same were not read nor explained to her so that she may
intelligibly formulate in her mind the consequences of her conduct and the nature of the
rights she was ceding in favor of Parangan. Petitioner is illiterate and her condition
constrained her to merely rely on Parangan’s assurance that the contract only
evidences her indebtedness to the latter. When one of the contracting parties is unable
to read, or if the contract is in a language not understood by him, and mistake or fraud
is alleged, the person enforcing the contract must show that the terms thereof have
been fully explained to the former. Settled is the rule that where a party to a contract is
illiterate or cannot read or cannot understand the language in which the contract is
written, the burden is on the party interested in enforcing the contract to prove that the
terms thereof are fully explained to the former in a language understood by him. To our
mind, this burden has not been satisfactorily discharged.

4. ID.; ID.; INTERPRETATION OF CONTRACTS; IF THE WORDS OF THE CONTRACT

APPEAR TO BE CONTRARY TO THE EVIDENT INTENTION OF THE PARTIES, THE LATTER
SHALL PREVAIL OVER THE FORMER; CASE AT BENCH. — A contract is perfected by
mere consent. More particularly, a contract of sale is perfected at the moment there is
a meeting of minds upon the thing which is the object of the contract and upon the
price. This meeting of the minds speaks of the intent of the parties in entering into the
contract respecting the subject matter and the consideration thereof. If the words of
the contract appear to be contrary to the evident intention of the parties, the latter
shall prevail over the former. In the case at bench, the evidence is sufficient to warrant
a finding that petitioner and Parangan merely intended to consolidate the former’s
indebtedness to the latter in a single instrument and to secure the same with the
subject property. Even when a document appears on its face to be a sale, the owner of
the property may prove that the contract is really a loan with mortgage by raising as an
issue the fact that the document does not express the true intent of the parties.

5. ID.; ID.; AGENCY; SPECIAL POWERS OF ATTORNEY ARE CONTINUING ABSENT A

VALID REVOCATION DULY FURNISHED TO MORTGAGEE; THE SAME CONTINUES TO
HAVE FORCE AND EFFECT, AS AGAINST THIRD PERSONS WHO HAD NO KNOWLEDGE
OF SUCH AUTHORITY; CASE AT BENCH. — It is admitted that petitioner is the owner of
the parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special
Powers of Attorney executed by petitioner in favor of Parangan. Petitioner argues that
the last three mortgages were void for lack of authority. She totally failed to consider
that said Special Powers of Attorney are a continuing one and absent a valid revocation
duly furnished to the mortgagee, the same continues to have force and effect as
against third persons who had no knowledge of such lack of authority . . . The Special
Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter
to represent and act on behalf of the former. Having done so, petitioner clothed
Parangan with authority to deal with PNB on her behalf and in the absence of any proof
that the bank had knowledge that the last three loans were without the express
authority of petitioner, it cannot be prejudiced thereby. As far as third persons are
concerned, an act is deemed to have been performed within the scope of the agent’s
authority if such is within the terms of the power of attorney as written even if the
agent has in fact exceeded the limits of his authority according the understanding
between the principal and the agent.  chanroblesvirtualawlibrary

6. REMEDIAL LAW; EVIDENCE; CREDIBILITY OF WITNESSES; ASSESSMENT BY TRIAL

COURT OF CREDIBILITY OF WITNESSES, ENTITLED TO GREAT RESPECT AND WEIGHT;
CASE AT BENCH. — We do not find the testimony of Parangan and Delia Cabial that the
contract was duly read and explained to petitioner worthy of credit. The assessment by
the trial court of the credibility of witnesses is entitled to great respect and weight for
having had the opportunity of observing the conduct and demeanor of the witnesses
while testifying. The lower court may not have categorically declared Cabial’s testimony
as doubtful but this fact is readily apparent when it ruled on the basis of petitioner’s
evidence in total disregard of the positive testimony on Parangan’s side. We have
subjected the records to a thorough examination, and a reading of the transcript of
stenographic notes would bear out that the court a quo is correct in its assessment. chanroblesvirtuallawlibrary:red

DECISION

FRANCISCO, J.:

Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known
as Lot 8069 of the Cadastral Survey of Calinog, Iloilo containing an area of 10,057
hectares and covered by TCT No. T-561. On February 25, 1969, petitioner leased the
above described property to private respondent Nicolas Parangan for a term of ten (10)
years and an annual rent of One Thousand (P1,000.00) Pesos. During the period of
lease, Parangan was regularly extending loans in small amounts to petitioner to defray
her daily expenses and to finance her daughter’s education. On July 29, 1970,
petitioner executed a Special Power of Attorney in favor of Parangan to secure an
agricultural loan from private respondent Philippine National Bank (PNB) with the
aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney
was executed by petitioner, by virtue of which, Parangan was able to secure four (4)
additional loans, to wit: the sums of P24,000.00, P38,000.00, P38,600.00 and
P25,000.00 on December 15, 1975, September 6, 1976, July 2, 1979 and June 2,
1980, respectively. The last three loans were without the knowledge of herein petitioner
and all the proceeds therefrom were used by Parangan for his own benefit. 1 These
encumbrances were duly annotated on the certificate of title. On April 16, 1973,
petitioner signed a Deed of Pacto de Retro Sale 2 in favor of Parangan which was
superseded by the Deed of Definite Sale 3 dated May 4, 1979 which petitioner signed
upon Parangan’s representation that the same merely evidences the loans extended by
him unto the former.

For fear that her property might be prejudiced by the continued borrowing of Parangan,
petitioner demanded the return of her certificate of title. Instead of complying with the
request, Parangan asserted his rights over the property which allegedly had become his
by virtue of the aforementioned Deed of Definite Sale. Under said document, petitioner
conveyed the subject property and all the improvements thereon unto Parangan
absolutely for and in consideration of the sum of Seventy Five Thousand (P75,000.00)
Pesos.

Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery
of possession and damages against Parangan and PNB in the Regional Trial Court of
Iloilo City. After trial, the lower court rendered judgment, disposing as follows: jgc:chanrobles.com.ph
"WHEREFORE and in view of the foregoing a decision is rendered as follows: chanrob1es virtual 1aw library

1. Ordering cancellation by the Register of Deeds of the Province of Iloilo, of the

unauthorized loans, the liens and encumbrances appearing in the Transfer Certificate of
Title No. T-561, especially entries nos. 286231; 338638; and 352794;

2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of
Definite Sale dated May 6, 1979, both documents executed by Adoracion Lustan in
favor of Nicolas Parangan over Lot 8069 in TCT No. T-561 of the Register of Deeds of
Iloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage;

3. Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant
PNB using thereto as security TCT No. T-561 of plaintiff and defendant PNB to return
TCT No. T-561 to plaintiff;

4. Ordering defendant Nicolas Parangan to return possession of the land in question,

Lot 8069 of the Calinog Cadastre described in TCT No. T-561 of the Register of Deeds of
Iloilo, to plaintiff upon payment of the sum of P75,000.00 by plaintiff to defendant
Parangan which payment by plaintiff must be made within ninety (90) days from receipt
of this decision; otherwise, sale of the land will be ordered by the court to satisfy
payment of the amount;

5. Ordering defendant Nicolas Parangan to pay plaintiff attorney’s fees in the sum of
P15,000.00 and to pay the costs of the suit.

SO ORDERED." 4

Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court’s
decision. Hence this petition contending that the CA committed the following errors: jgc:chanrobles.com.ph

"IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART.
1602 OF THE NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF
EVIDENCE;

IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS

TO THE CONTENTS THEREOF;

IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA CABIAL

DESERVES FULL FAITH AND CREDIT;

IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR

"UNLIMITED" LOANS AS RELEVANT." cralaw virtua1aw library

Two main issues confront us in this case, to wit: whether or not the Deed of Definite
Sale is in reality an equitable mortgage and whether or not petitioner’s property is
liable to PNB for the loans contracted by Parangan by virtue of the special power of
attorney. The lower court and the CA arrived at different factual findings thus
necessitating a review of the evidence on record. 5 After a thorough examination, we
note some errors, both in fact and in law, committed by public respondent CA.
The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage
as it was shown beyond doubt that the intention of the parties was one of a loan
secured by petitioner’s land. 6 We agree.  chanroblesvirtuallawlibrary

A contract is perfected by mere consent. 7 More particularly, a contract of sale is

perfected at the moment there is a meeting of minds upon the thing which is the object
of the contract and upon the price. 8 This meeting of the minds speaks of the intent of
the parties in entering into the contract respecting the subject matter and the
consideration thereof. If the words of the contract appear to be contrary to the evident
intention of the parties, the latter shall prevail over the former. 9 In the case at bench,
the evidence is sufficient to warrant a finding that petitioner and Parangan merely
intended to consolidate the former’s indebtedness to the latter in a single instrument
and to secure the same with the subject property. Even when a document appears on
its face to be a sale, the owner of the property may prove that the contract is really a
loan with mortgage by raising as an issue the fact that the document does not express
the true intent of the parties. In this case, parol evidence then becomes competent and
admissible to prove that the instrument was in truth and in fact given merely as a
security for the repayment of a loan. And upon proof of the truth of such allegations,
the court will enforce the agreement or understanding in consonance with the true
intent of the parties at the time of the execution of the contract. 10

Articles 1602 and 1604 of the Civil Code respectively provide: jgc:chanrobles.com.ph

"The contract shall be presumed to be an equitable mortgage in any of the following

cases:chanrob1es virtual 1aw library

1) When the price of a sale with right to repurchase is unusually inadequate;

2) When the vendor remains in possession as lessor or otherwise;

3) When upon or after the expiration of the right to repurchase, another instrument
extending the period of redemption or granting a new period is executed;

4) When the vendor binds himself to pay the taxes on the thing sold;

5) When the purchaser retains for himself a part of the purchase price;

6) In any other case where it may be fairly inferred that the real intention of the parties
is that the transaction shall secure the payment of a debt or the performance of any
other obligation." cralaw virtua1aw library

"Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be
an absolute sale." cralaw virtua1aw library

From a reading of the above-quoted provisions, for a presumption of an equitable

mortgage to arise, we must first satisfy two requisites namely: that the parties entered
into a contract denominated as a contract of sale and that their intention was to secure
an existing debt by way of mortgage. Under Art. 1604 of the Civil Code, a contract
purporting to be an absolute sale shall be presumed to be an equitable mortgage
should any of the conditions in Art. 1602 be present. The existence of any of the
circumstances therein, not a concurrence nor an overwhelming number of such
circumstances, suffices to give rise to the presumption that the contract is an equitable
mortgage. 11

Art. 1602 (6), in relation to Art. 1604 provides that a contract of sale is presumed to be
an equitable mortgage in any other case where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation. That the case clearly falls under this category can
be inferred from the circumstances surrounding the transaction as herein set forth: chanrob1es virtual 1aw library

Petitioner had no knowledge that the contract 12 she signed is a deed of sale. The
contents of the same were not read nor explained to her so that she may intelligibly
formulate in her mind the consequences of her conduct and the nature of the rights she
was ceding in favor of Parangan. Petitioner is illiterate and her condition constrained her
to merely rely on Parangan’s assurance that the contract only evidences her
indebtedness to the latter. When one of the contracting parties is unable to read, or if
the contract is in a language not understood by him, and mistake or fraud is alleged,
the person enforcing the contract must show that the terms thereof have been fully
explained to the former. 13 Settled is the rule that where a party to a contract is
illiterate or cannot read or cannot understand the language in which the contract is
written, the burden is on the party interested in enforcing the contract to prove that the
terms thereof are fully explained to the former in a language understood by him. 14 To
our mind, this burden has not been satisfactorily discharged.

We do not find the testimony of Parangan and Delia Cabial that the contract was duly
read and explained to petitioner worthy of credit. The assessment by the trial court of
the credibility of witnesses is entitled to great respect and weight for having had the
opportunity of observing the conduct and demeanor of the witnesses while testifying.
15 The lower court may not have categorically declared Cabial’s testimony as doubtful
but this fact is readily apparent when it ruled on the basis of petitioner’s evidence in
total disregard of the positive testimony on Parangan’s side. We have subjected the
records to a thorough examination, and a reading of the transcript of stenographic
notes would bear out that the court a quo is correct in its assessment. The CA
committed a reversible error when it relied on the testimony of Cabial in upholding the
validity of the Deed of Definite Sale. For one, there are noted major contradictions
between the testimonies of Cabial and Judge Lebaquin, who notarized the purported
Deed of Definite Sale. While the former testified that receipts were presented before
Judge Lebaquin, who in turn made an accounting to determine the price of the land 16 ,
the latter categorically denied the allegation. 17 This contradiction casts doubt on the
credibility of Cabial as it is ostensible that her version of the story is concocted.

On the other hand, petitioner’s witness Celso Pamplona, testified that the contract was
not read nor explained to petitioner. We believe that this witness gave a more accurate
account of the circumstances surrounding the transaction. He has no motive to
prevaricate or concoct a story as he witnessed the execution of the document at the
behest of Parangan himself who, at the outset, informed him that he will witness a
document consolidating petitioner’s debts. He thus testified: jgc:chanrobles.com.ph

"Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of
Calinog?

A: Yes, sir.

Q: Who invited you to go there?

A: Parangan.

Q: You mean Nicolas Parangan?

A: Yes, sir.

Q: What did Nicolas tell you why he invited you to go there?

A: He told me that I will witness on the indebtedness of Adoracion to Parangan.

x          x           x

Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document read
to her?

A: No, sir.

Q: Did Nicolas Parangan right in that very room tell Adoracion what she was signing?

A: No, sir.

x          x           x

Q: What did you have in mind when you were signing this document, Exh. "4"?

A: To show that Adoracion Lustan has debts with Nicolas Parangan." 18

Furthermore, we note the absence of any question propounded to Judge Lebaquin to

establish that the deed of sale was read and explained by him to petitioner. When
asked if witness has any knowledge whether petitioner knows how to read or write, he
answered in the negative. 19 This latter admission impresses upon us that the contract
was not at all read or explained to petitioner for had he known that petitioner is
illiterate, his assistance would not have been necessary.

The foregoing squares with the sixth instance when a presumption of equitable
mortgage prevails. The contract of definite sale, where petitioner purportedly ceded all
her rights to the subject lot in favor of Parangan, did not embody the true intention of
the parties. The evidence speaks clearly of the nature of the agreement — it was one
executed to secure some loans.

Anent the issue of whether the outstanding mortgages on the subject property can be
enforced against petitioner, we rule in the affirmative.
Third persons who are not parties to a loan may secure the latter by pledging or
mortgaging their own property. 20 So long as valid consent was given, the fact that the
loans were solely for the benefit of Parangan would not invalidate the mortgage with
respect to petitioner’s property. In consenting thereto, even granting that petitioner
may not be assuming personal liability for the debt, her property shall nevertheless
secure and respond for the performance of the principal obligation. 21 It is admitted
that petitioner is the owner of the parcel of land mortgaged to PNB on five (5)
occasions by virtue of the Special Powers of Attorney executed by petitioner in favor of
Parangan. Petitioner argues that the last three mortgages were void for lack of
authority. She totally failed to consider that said Special Powers of Attorney are a
continuing one and absent a valid revocation duly furnished to the mortgagee, the
same continues to have force and effect as against third persons who had no
knowledge of such lack of authority. Article 1921 of the Civil Code provides: jgc:chanrobles.com.ph

"Art. 1921. If the agency has been entrusted for the purpose of contracting with
specified persons, its revocation shall not prejudice the latter if they were not given
notice thereof."cralaw virtua1aw library

The Special Power of Attorney executed by petitioner in favor of Parangan duly

authorized the latter to represent and act on behalf of the former. Having done so,
petitioner clothed Parangan with authority to deal with PNB on her behalf and in the
absence of any proof that the bank had knowledge that the last three loans were
without the express authority of petitioner, it cannot be prejudiced thereby. As far as
third persons are concerned, an act is deemed to have been performed within the scope
of the agent’s authority if such is within the terms of the power of attorney as written
even if the agent has in fact exceeded the limits of his authority according to the
understanding between the principal and the agent. 22 The Special Power of Attorney
particularly provides that the same is good not only for the principal loan but also for
subsequent commercial, industrial, agricultural loan or credit accommodation that the
attorney-in-fact may obtain and until the power of attorney is revoked in a public
instrument and a copy of which is furnished to PNB. 23 Even when the agent has
exceeded his authority, 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). 24 The
mortgage directly and immediately subjects the property upon which it is imposed. 25
The property of third persons which has been expressly mortgaged to guarantee an
obligation to which the said persons are foreign, is directly and jointly liable for the
fulfillment thereof; it is therefore subject to execution and sale for the purpose of
paying the amount of the debt for which it is liable. 26 However, petitioner has an
unquestionable right to demand proportional indemnification from Parangan with
respect to the sum paid to PNB from the proceeds of the sale of her property 27 in case
the same is sold to satisfy the unpaid debts.

WHEREFORE, premises considered, the judgment of the lower court is hereby

REINSTATED with the following MODIFICATIONS: chanrob1es virtual 1aw library

1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE;

2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE

POSSESSION OF THE SUBJECT LAND UNTO PETITIONER UPON THE LATTER’S PAYMENT
OF THE SUM OF P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS
DECISION;

3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND

MAY THEREFORE BE SUBJECTED TO EXECUTION SALE;

4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF

P15,000.00 BY WAY OF ATTORNEY’S FEES AND TO PAY THE COSTS OF THE SUIT.

SO ORDERED.

Narvasa, C.J., Davide, Jr., Melo and Panganiban, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-36585 July 16, 1984

MARIANO DIOLOSA and ALEGRIA VILLANUEVA-DIOLOSA, petitioners,

vs.
THE HON. COURT OF APPEALS, and QUIRINO BATERNA (As owner and proprietor of QUIN
BATERNA REALTY), respondents.

Enrique L. Soriano for petitioners.

Domingo Laurea for private respondent.

RELOVA, J.:

Appeal by certiorari from a decision of the then Court of Appeals ordering herein petitioners to pay
private respondent "the sum of P10,000.00 as damages and the sum of P2,000.00 as attorney's
fees, and the costs."

This case originated in the then Court of First Instance of Iloilo where private respondents instituted
a case of recovery of unpaid commission against petitioners over some of the lots subject of an
agency agreement that were not sold. Said complaint, docketed as Civil Case No. 7864 and entitled:
"Quirino Baterna vs. Mariano Diolosa and Alegria Villanueva-Diolosa", was dismissed by the trial
court after hearing. Thereafter, private respondent elevated the case to respondent court whose
decision is the subject of the present petition.

The parties — petitioners and respondents-agree on the findings of facts made by respondent court
which are based largely on the pre-trial order of the trial court, as follows:

PRE-TRIAL ORDER
When this case was called for a pre-trial conference today, the plaintiff, assisted by
Atty. Domingo Laurea, appeared and the defendants, assisted by Atty. Enrique
Soriano, also appeared.

A. — During the pre-trial conference the parties, in addition to what have been
admitted in the pleadings, have agreed and admitted that the following facts are
attendant in this case and that they will no longer adduce evidence to prove them:

1. That the plaintiff was and still is a licensed real estate broker, and
as such licensed real estate broker on June 20, 1968, an agreement
was entered into between him as party of the second part and the
defendants spouses as party of the first part, whereby the former was
constituted as exclusive sales agent of the defendants, its
successors, heirs and assigns, to dispose of, sell, cede, transfer and
convey the lots included in VILLA ALEGRE SUBDIVISION owned by
the defendants, under the terms and conditions embodied in Exhibit
"A", and pursuant to said agreement (Exhibit "A"), the plaintiff acted
for and in behalf of the defendants as their agent in the sale of the
lots included in the VILLA ALEGRE SUBDIVISION;

2. That on September 27, 1968, the defendants terminated the

services of plaintiff as their exclusive sales agent per letter marked as
Exhibit "B", for the reason stated in the latter.

B. — During the trial of this case on the merit, the plaintiff will adduce by competent
evidence the following facts:

1. That as a real estate broker, he had sold the lots comprised in

several subdivisions, to wit: Greenfield Subdivision, the Villa Beach
Subdivision, the Juntado Subdivision, the St. Joseph Village, the
Ledesma Subdivision, the Brookside Subdivision, the Villa Alegre
Subdivision, and Cecilia Subdivision, all in the City of Iloilo except St.
Joseph which is in Pavia Iloilo.

2. That the plaintiff, as a licensed real estate broker, has been

seriously damaged by the action of the defendants in rescinding, by
Exhibit "B", the contract (Exhibit "A") for which the plaintiff suffered
moral damages in the amount of P50,000.00, damages to his good
will in the amount of P100,000.00, for attorney's fees in the amount of
P10,000.00 to protect his rights and interests, plus exemplary
damages to be fixed by the Court.

3. That the plaintiff is entitled to a commission on the lots unsold

because of the rescission of the contract.

C. — The defendants during the trial will ill prove by competent evidence the
following:

1. That the plaintiff's complaint was filed to make money out of the
suit from defendants, to harrass and to molest defendants;
 2. That because of the unjustified and unfounded complaint of the
plaintiff, the defendants suffered moral damages in the amount of
P50,000.00, and that for the public good, the court may order the
plaintiff to pay the defendants exemplary damages in the amount of
P20,000.00, plus attorney's fees of P10,000.00.

D.— Contentions of the parties:

1. The plaintiff contends:

(a) That under the terms of the contract (Exhibit "A")

the plaintiff had unrevocable authority to sell all the
lots included in the Villa Alegre Subdivision and to act
as exclusive sales agent of the defendants until all the
lots shall have been disposed of;

(b) That the rescission of the contract under Exhibit

"B", contravenes the agreement of the parties.

2. The defendants contend:

(a) That they were within their legal right to terminate

the agency on the ground that they needed the
undisposed lots for the use of the family;

(b) That the plaintiff has no right in law to case for

commission on lots that they have not sold.

E. — The parties hereby submit to the Court the following issues:

1. Whether under the terms of Exhibit "A" the plaintiff has the
irrevocable right to sen or dispose of all the lots included within Villa
Alegre Subdivision;

2. Can the defendants terminate their agreement with the plaintiff by

a letter like Exhibit "B"?

F. — The plaintiff submitted the following exhibits which were admitted by the
defendants:

Exhibit "A" — agreement entered into between the parties on June

20, 1968 whereby the plaintiff had the authority to sell the subdivision
lots included in Villa Alegre subdivision;

Exhibit "B" — Letter of the defendant Alegria V. Diolosa dated

September 27, 1968 addressed to the plaintiff terminating the agency
and rescinding Exhibit "A" for the reason that the lots remained
unsold lots were for reservation for their grandchildren.

The Court will decide this case based on the facts admitted in the pleadings, those
agreed by the parties during the pre-trial conference, and those which they can prove
 during the trial of this case, in accordance with the contention of the parties based on
the issues submitted by them during the pre-trial conference.

SO ORDERED.

Iloilo City, Philippines, August 14, 1969.

(SGD)
VALER
IO V.
ROVIR
A
Judge
(pp.
22-25,
Rollo)

The only issue in this case is whether the petitioners could terminate the agency agreement, Exhibit
"A", without paying damages to the private respondent. Pertinent portion of said Exhibit "A" reads:

That the PARTY OF THE FIRST PART is the lawful and absolute owner in fee
simple of VILLA ALEGRE SUBDIVISION situated in the District of Mandurriao, Iloilo
City, which parcel of land is more particularly described as follows, to wit:

A parcel of land, Lot No. 2110-b-2-C, PSD 74002, Transfer Certificate

of Title No. T_____ situated in the District of Mandurriao, Iloilo,
Philippines, containing an area of 39016 square meters, more or less,
with improvements thereon.

That the PARTY OF THE FIRST PART by virtue of these presents, to enhance the
sale of the lots of the above-described subdivision, is engaging as their EXCLUSIVE
SALES AGENT the PARTY OF THE SECOND PART, its successors, heirs and
assigns to dispose of, sell, cede, transfer and convey the above-described property
in whatever manner and nature the PARTY OF THE SECOND PART, with the
concurrence of the PARTY OF THE FIRST PART, may deem wise and proper under
the premises, whether it be in cash or installment basis, until all the subject property
as subdivided is fully disposed of. (p. 7 of Petitioner's brief. Emphasis supplied).

Respondent court, in its decision which is the subject of review said:

Article 1920 of the Civil Code of the Philippines notwithstanding, the defendants
could not terminate the agency agreement, Exh. "A", at will without paying damages.
The said agency agreement expressly stipulates ... until all the subject property as
subdivided is fully disposed of ..." The testimony of Roberto Malundo(t.s.n. p. 99) that
the plaintiff agreed to the intention of Mrs. Diolosa to reserve some lots for her own
famay use cannot prevail over the clear terms of the agency agreement. Moreover,
the plaintiff denied that there was an agreement to reserve any of the lots for the
family of the defendants. (T.s.n. pp. 16).

There are twenty seven (27) lots of the subdivision remaining unsold on September
27, 1968 when the defendants rescinded the agency agreement, Exhibit "A". On that
 day the defendants had only six grandchildren. That the defendants wanted to
reserve the twenty seven remaining lots for the six grandchildren is not a legal
reason for defendants rescind the agency agreement. Even if the grandchildren were
to be given one lot each, there would still be twenty-one lots available for sale.
Besides it is undisputed that the defendants have other lands which could be
reserved for their grandchildren. (pp. 26-27, Rollo)

The present appeal is manifestly without merit.

Under the contract, Exhibit "A", herein petitioners allowed the private respondent "to dispose of, sell,
cede, transfer and convey ... until out the subject property as subdivided is fully disposed of." The
authority to sell is not extinguished until all the lots have been disposed of. When, therefore, the
petitioners revoked the contract with private respondent in a letter, Exhibit "B" —

Dear Mr. Baterna:

Please be informed that we have finally decided to reserve the remaining unsold lots,
as of this date of our VILLA ALEGRE Subdivision for our grandchildren.

In view thereof, notice is hereby served upon you to the effect that our agreement
dated June 20, 1968 giving you the authority to sell as exclusive sales agent of our
subdivision is hereby rescinded.

Please be duly guided.

Very
truly
yours,

(SGD) ALEGRIA V.
DIOLOSA
Subdivision Owner

(p. 11 of Petitioner's Brief)

they become liable to the private respondent for damages for breach of contract.

And, it may be added that since the agency agreement, Exhibit "A", is a valid contract, the same
may be rescinded only on grounds specified in Articles 1381 and 1382 of the Civil Code, as follows:

ART. 1381. The following contracts are rescissible:

(1) Those which are entered in to by guardians whenever the wards

whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter

suffer the lesion stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in

any other name collect the claims due them;
 (4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval of
the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to

rescission.

ART. 1382. Payments made in a state of insolvency for obligations to whose

fulfillment the debtor could not be compelled at the time they were effected, are also
rescissible."

In the case at bar, not one of the grounds mentioned above is present which may be the subject of
an action of rescission, much less can petitioners say that the private respondent violated the terms
of their agreement-such as failure to deliver to them (Subdivision owners) the proceeds of the
purchase price of the lots.

ACCORDINGLY, the petition is hereby dismissed without pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, Gutierrez, Jr. and Dela Fuente, JJ., concur.