time claiming that the respondent had no participation whatsoever with regard to the second
FIRST DIVISION
G.R. No. L-67889 October 10, 1985
PRIMITIVO SIASAT and MARCELINO SIASAT vs. INTERMEDIATE APPELLATE COURT
and TERESITA NACIANCENO
GUTIERREZ, JR., J.:
This is a petition for review of the decision of the Intermediate Appellate Court affirming in toto
the judgment of the Court of First Instance of Manila, Branch XXI, which ordered the petitioner
to pay respondent the thirty percent (30%) commission on 15,666 pieces of Philippine flags
worth P936,960.00, moral damages, attorney's fees and the costs of the suit.
Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing officials of the
then Department of Education and Culture, hereinafter called Department, to purchase without
public bidding, one million pesos worth of national flags for the use of public schools
throughout the country. The respondent was able to expedite the approval of the purchase by
hand-carrying the different indorsements from one office to another, so that by the first week of
September, 1974, all the legal requirements had been complied with, except the release of the
purchase orders. When Nacianceno was informed by the Chief of the Budget Division of the
Department that the purchase orders could not be released unless a formal offer to deliver the
flags in accordance with the required specifications was first submitted for approval, she
contacted the owners of the United Flag Industry on September 17, 1974. The next day, after
the transaction was discussed, the following document (Exhibit A) was drawn up:
Mrs. Tessie Nacianceno,
This is to formalize our agreement for you to represent United Flag Industry
to deal with any entity or organization, private or government in connection
with the marketing of our products-flags and all its accessories.
For your service, you will be entitled to a commission of thirty
(30%) percent.
Signed
Mr. Primitive Siasat
Owner and Gen. Manager
On October 16, 1974, the first delivery of 7,933 flags was made by the United Flag Industry.
The next day, on October 17, 1974, the respondent's authority to represent the United Flag
Industry was revoked by petitioner Primitivo Siasat.
According to the findings of the courts below, Siasat, after receiving the payment of
P469,980.00 on October 23, 1974 for the first delivery, tendered the amount of P23,900.00 or
five percent (5%) of the amount received, to the respondent as payment of her commission.
The latter allegedly protested. She refused to accept the said amount insisting on the 30%
commission agreed upon. The respondent was prevailed upon to accept the same, however,
because of the assurance of the petitioners that they would pay the commission in full after
they delivered the other half of the order. The respondent states that she later on learned that
petitioner Siasat had already received payment for the second delivery of 7,833 flags. When
she confronted the petitioners, they vehemently denied receipt of the payment, at the same
delivery of flags and that the agency had already been revoked.
The respondent originally filed a complaint with the Complaints and Investigation Office in
Malacañang but when nothing came of the complaint, she filed an action in the Court of First
Instance of Manila to recover the following commissions: 25%, as balance on the first delivery
and 30%, on the second delivery.
The trial court decided in favor of the respondent. The dispositive portion of the decision reads
as follows:
WHEREFORE, judgment is hereby rendered sentencing Primitivo Siasat to
pay to the plaintiff the sum of P281,988.00, minus the sum P23,900.00, with
legal interest from the date of this decision, and ordering the defendants to
pay jointly and solidarily the sum of P25,000.00 as moral damages, and
P25,000.00 as attorney's fees, also with legal interest from the date of this
decision, and the costs.
The decision was affirmed in toto by the Intermediate Appellate Court. After their motion for
reconsideration was denied, the petitioners went to this Court on a petition for review on
August 6, 1984.
In assailing the appellate court's decision, the petition tenders the following arguments: first,
the authorization making the respondent the petitioner's representative merely states that she
could deal with any entity in connection with the marketing of their products for a commission
of 30%. There was no specific authorization for the sale of 15,666 Philippine flags to the
Department; second, there were two transactions involved evidenced by the separate
purchase orders and separate delivery receipts, Exhibit 6-C for the purchase and deliver on
October 16, 1974, and Exhibits 7 to 7-C, for the purchase and delivery on November 6, 1974.
The revocation of agency effected by the parties with mutual consent on October 17, 1974,
therefore, forecloses the respondent's claim of 30% commission on the second transaction;
and last, there was no basis for the granting of attorney's fees and moral damages because
there was no showing of bad faith on the part of the petitioner. It was respondent who showed
bad faith in denying having received her commission on the first delivery. The petitioner's
counterclaim, therefore, should have been granted.
This petition was initially dismissed for lack of merit in a minute resolution.On a motion for
reconsideration, however,this Court give due course to the petition on November 14, 1984.
After a careful review of the records, we are constrained to sustain with some modifications the
decision of the appellate court.
We find respondent's argument regarding respondent's incapacity to represent them in the
transaction with the Department untenable. There are several kinds of agents. To quote a
commentator on the matter:
An agent may be (1) universal: (2) general, or (3) special. A universal; agent
is one authorized to do all acts for his principal which can lawfully be
delegated to an agent. So far as such a condition is possible, such an agent
may be said to have universal authority. (Mec. Sec. 58).
A general agent is one authorized to do all acts pertaining to a business of a
certain kind or at a particular place, or all acts pertaining to a business of a
 particular class or series. He has usually authority either expressly conferred
in general terms or in effect made general by the usages, customs or nature
of the business which he is authorized to transact.
An agent, therefore, who is empowered to transact all the business of his
principal of a particular kind or in a particular place, would, for this reason,
be ordinarily deemed a general agent. (Mec Sec. ,30).
A special agent is one authorized to do some particular act or to act upon
some particular occasion. lie acts usually in accordance with specific
instructions or under limitations necessarily implied from the nature of the
act to be done. (Mec. Sec. 61) (Padilla, Civil Law The Civil Code Annotated,
Vol. VI, 1969 Edition, p. 204).
One does not have to undertake a close scrutiny of the document embodying the agreement
between the petitioners and the respondent to deduce that the 'latter was instituted as a
general agent. Indeed, it can easily be seen by the way general words were employed in the
agreement that no restrictions were intended as to the manner the agency was to be carried
out or in the place where it was to be executed. The power granted to the respondent was so
broad that it practically covers the negotiations leading to, and the execution of, a contract of
sale of petitioners' merchandise with any entity or organization.
There is no merit in petitioners' allegations that the contract of agency between the parties was
entered into under fraudulent representation because respondent "would not disclose the
agency with which she was supposed to transact and made the petitioner believe that she
would be dealing with The Visayas", and that "the petitioner had known of the transactions
and/or project for the said purchase of the Philippine flags by the Department of Education and
Culture and precisely it was the one being followed up also by the petitioner."
If the circumstances were as claimed by the petitioners, they would have exerted efforts to
protect their interests by limiting the respondent's authority. There was nothing to prevent the
petitioners from stating in the contract of agency that the respondent could represent them only
in the Visayas. Or to state that the Department of Education and Culture and the Department
of National Defense, which alone would need a million pesos worth of flags, are outside the
scope of the agency. As the trial court opined, it is incredible that they could be so careless
after being in the business for fifteen years.
A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules of Court
states that "when the terms of an agreement have been reduced to writing, it is to be
considered as containing all such terms, and, therefore, there can be between the parties and
their successors-in-interest, no evidence of the terms of the agreement other than the contents
of the writing", except in cases specifically mentioned in the same rule. Petitioners have failed
to show that their agreement falls under any of these exceptions. The respondent was given
ample authority to transact with the Department in behalf of the petitioners. Equally without
merit is the petitioners' proposition that the transaction involved two separate contracts
because there were two purchase orders and two deliveries. The petitioners' evidence is
overcome by other pieces of evidence proving that there was only one transaction.
The indorsement of then Assistant Executive Secretary Roberto Reyes to the Budget
Commission on September 3, 1974 (Exhibit "C") attests to the fact that out of the total budget
of the Department for the fiscal year 1975, "P1,000,000.00 is for the purchase of national
flags." This is also reflected in the Financial and Work Plan Request for Allotment (Exhibit "F")
submitted by Secretary Juan Manuel for fiscal year 1975 which however, divided the allocation
and release of the funds into three, corresponding to the second, third, and fourth quarters of
the said year. Later correspondence between the Department and the Budget Commission
(Exhibits "D" and "E") show that the first allotment of P500.000.00 was released during the
second quarter. However, due to the necessity of furnishing all of the public schools in the
country with the Philippine flag, Secretary Manuel requested for the immediate release of the
programmed allotments intended for the third and fourth quarters. These circumstances
explain why two purchase orders and two deliveries had to be made on one transaction.
The petitioners' evidence does not necessarily prove that there were two separate transactions.
Exhibit "6" is a general indorsement made by Secretary Manuel for the purchase of the
national flags for public schools. It contains no reference to the number of flags to be ordered
or the amount of funds to be released. Exhibit "7" is a letter request for a "similar authority" to
purchase flags from the United Flag Industry. This was, however, written by Dr. Narciso
Albarracin who was appointed Acting Secretary of the Department after Secretary Manuel's
tenure, and who may not have known the real nature of the transaction.
If the contracts were separate and distinct from one another, the whole or at least a substantial
part of the government's supply procurement process would have been repeated. In this case,
what were issued were mere indorsements for the release of funds and authorization for the
next purchase.
Since only one transaction was involved, we deny the petitioners' contention that respondent
Nacianceno is not entitled to the stipulated commission on the second delivery because of the
revocation of the agency effected after the first delivery. The revocation of agency could not
prevent the respondent from earning her commission because as the trial court opined, it came
too late, the contract of sale having been already perfected and partly executed.
In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one in principle,
this Court held:
We do not mean to question the general doctrine as to the power of a
principal to revoke the authority of his agent at will, in the absence of a
contract fixing the duration of the agency (subject, however, to some well
defined exceptions). Our ruling is that at the time fixed by the manager of the
plaintiff company for the termination of the negotiations, the defendant real
estate agent had already earned the commissions agreed upon, and could
not be deprived thereof by the arbitrary action of the plaintiff company in
declining to execute the contract of sale for some reason personal to itself.
The principal cannot deprive his agent of the commission agreed upon by cancelling the
agency and, thereafter, dealing directly with the buyer. (Infante v. Cunanan, 93 Phil. 691).
The appellate courts citation of its previous ruling in Heimbrod et al. v. Ledesma (C.A. 49 O.G.
1507) is correct:
The appellee is entitled to recovery. No citation is necessary to show that
the general law of contracts the equitable principle of estoppel. and the
expense of another, uphold payment of compensation for services rendered.
There is merit, however, in the petitioners' contention that the agent's commission on the first
delivery was fully paid. The evidence does not sustain the respondent's claim that the
petitioners paid her only 5% and that their right to collect another 25% commission on the first
delivery must be upheld.
When respondent Nacianceno asked the Malacanang Complaints and Investigation Office to
help her collect her commission, her statement under oath referred exclusively to the 30%
commission on the second delivery. The statement was emphatic that "now" her demand was
for the 30% commission on the (second) release of P469,980.00. The demand letter of the
respondent's lawyer dated November 13, 1984 asked petitioner Siasat only for the 30%
commission due from the second delivery. The fact that the respondent demanded only the
commission on the second delivery without reference to the alleged unpaid balance which was
only slightly less than the amount claimed can only mean that the commission on the first
delivery was already fully paid, Considering the sizeable sum involved, such an omission is too
glaringly remiss to be regarded as an oversight.
Moreover, the respondent's authorization letter (Exhibit "5") bears her signature with the
handwritten words "Fully Paid", inscribed above it.
The respondent contested her signature as a forgery, Handwriting experts from two
government agencies testified on the matter. The reason given by the trial court in ruling for the
respondent is too flimsy to warrant a finding of forgery.
The court stated that in thirteen documents presented as exhibits, the private respondent
signed her name as "Tessie Nacianceno" while in this particular instance, she signed as "T.
Nacianceno."
The stated basis is inadequate to sustain the respondent's allegation of forgery. A variance in
the manner the respondent signed her name can not be considered as conclusive proof that
the questioned signature is a forgery. The mere fact that the respondent signed thirteen
documents using her full name does not rule out the possibility of her having signed the
notation "Fully Paid", with her initial for the given came and the surname written in full. What
she was signing was a mere acknowledgment.
This leaves the expert testimony as the sole basis for the verdict of forgery.
In support of their allegation of full payment as evidenced by the signed authorization letter
(Exhibit "5-A"), the petitioners presented as witness Mr. Francisco Cruz. Jr., a senior document
examiner of the Philippine Constabulary Crime laboratory. In rebuttal, the respondent
presented Mr. Arcadio Ramos, a junior document examiner of the National Bureau of
Investigation.
While the experts testified in a civil case, the principles in criminal cases involving forgery are
applicable. Forgery cannot be presumed. It must be proved.
In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:
xxx xxx xxx
... Where the evidence, as here, gives rise to two probabilities, one
consistent with the defendant's innocence and another indicative of his guilt,
that which is favorable to the accused should be considered. The
constitutional presumption of innocence continues until overthrown by proof
of guilt beyond reasonable doubt, which requires moral certainty which
convinces and satisfies the reason and conscience of those who are to act
upon it. (People v. Clores, et al., 125 SCRA 67; People v. Bautista, 81 Phil.
78).
We ruled in another case that where the supposed expert's testimony would constitute the sole
ground for conviction and there is equally convincing expert testimony to the contrary, the
constitutional presumption of innocence must prevail. (Lorenzo Ga. Cesar v. Hon.
Sandiganbayan and People of the Philippines, 134 SCRA 105). In the present case, the
circumstances earlier mentioned taken with the testimony of the PC senior document examiner
lead us to rule against forgery.
We also rule against the respondent's allegation that the petitioners acted in bad faith when
they revoked the agency given to the respondent.
Fraud and bad faith are matters not to be presumed but matters to be alleged with sufficient
facts. To support a judgment for damages, facts which justify the inference of a lack or
absence of good faith must be alleged and proven. (Bacolod-Murcia Milling Co., Inc. vs. First
Farmers Milling Co., Inc., Etc., 103 SCRA 436).
There is no evidence on record from which to conclude that the revocation of the agency was
deliberately effected by the petitioners to avoid payment of the respondent's commission.
What appears before us is only the petitioner's use in court of such a factual allegation as a
defense against the respondent's claim. This alone does not per se make the petitioners guilty
of bad faith for that defense should have been fully litigated.
Moral damages cannot be awarded in the absence of a wrongful act or omission or of fraud or
bad faith. (R & B Surety & Insurance Co., Inc. vs. Intermediate Appellate Court, 129 SCRA
736).
We therefore, rule that the award of P25,000.00 as moral damages is without basis.
The additional award of P25,000.00 damages by way of attorney's fees, was given by the
courts below on the basis of Article 2208, Paragraph 2, of the Civil Code, which provides:
"When the defendant's act or omission has compelled the plaintiff to litigate with third persons
or to incur expenses to protect his interests;" attorney's fees may be awarded as damages.
(Pirovano et al. v. De la Rama Steamship Co., 96 Phil. 335).
The underlying circumstances of this case lead us to rule out any award of attorney's fees. For
one thing, the respondent did not come to court with completely clean hands. For another, the
petitioners apparently believed they could legally revoke the agency in the manner they did
and deal directly with education officials handling the purchase of Philippine flags. They had
reason to sincerely believe they did not have to pay a commission for the second delivery of
flags.
We cannot close this case without commenting adversely on the inexplicably strange
procurement policies of the Department of Education and Culture in its purchase of Philippine
flags. There is no reason why a shocking 30% of the taxpayers' money should go to an agent
or facilitator who had no flags to sell and whose only work was to secure and handcarry the
indorsements of education and budget officials. There are only a few manufacturers of flags in
our country with the petitioners claiming to have supplied flags for our public schools on earlier
occasions. If public bidding was deemed unnecessary, the Department should have
negotiated directly with flag manufacturers. Considering the sad plight of underpaid and
overworked classroom teachers whose pitiful salaries and allowances cannot sometimes be
paid on time, a P300,000.00 fee for a P1,000,000.00 purchase of flags is not only clearly
unnecessary but a scandalous waste of public funds as well.
WHEREFORE, the decision of the respondent court is hereby MODIFIED. The petitioners are
ordered to pay the respondent the amount of ONE HUNDRED FOURTY THOUSAND NINE
HUNDRED AND NINETY FOUR PESOS (P140,994.00) as her commission on the second
delivery of flags with legal interest from the date of the trial court's decision. No pronouncement
as to costs.
SO ORDERED.
FIRST DIVISION
G.R. No. 129919 February 6, 2002
DOMINION INSURANCE CORPORATION vs. COURT OF APPEALS, RODOLFO S.
GUEVARRA, and FERNANDO AUSTRIA
DECISION
PARDO, J.:
The Case
This is an appeal via certiorari1 from the decision of the Court of Appeals2 affirming the
decision3 of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered
petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra)
the sum of P156,473.90 representing the total amount advanced by Guevarra in the payment
of the claims of Dominion’s clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of
money against defendant Dominion Insurance Corporation. Plaintiff sought to recover
thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as
manager of defendant to satisfy certain claims filed by defendant’s clients.
"In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for
P249,672.53, representing premiums that plaintiff allegedly failed to remit.
"On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at
the time relevant to the case, was its Regional Manager for Central Luzon area.
"In due time, third-party defendant Austria filed his answer.
"Thereafter the pre-trial conference was set on the following dates: October 18, 1991,
November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29,
1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial
conference was held. The record shows that except for the settings on October 18, 1991,
January 17, 1992 and March 17, 1992 which were cancelled at the instance of defendant,
third-party defendant and plaintiff, respectively, the rest were postponed upon joint request of
the parties.
"On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel
were present. Despite due notice, defendant and counsel did not appear, although a
messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by
defendant’s counsel which instructed him to request for postponement. Plaintiff’s counsel
objected to the desired postponement and moved to have defendant declared as in default.
This was granted by the trial court in the following order:
"ORDER
"When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty.
Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain
Roy who was requested to ask for postponement, Atty. Maglalang vigorously objected to any
postponement on the ground that the note is but a mere scrap of paper and moved that the
defendant corporation be declared as in default for its failure to appear in court despite due
notice.
"Finding the verbal motion of plaintiff’s counsel to be meritorious and considering that the
pre-trial conference has been repeatedly postponed on motion of the defendant Corporation,
the defendant Dominion Insurance Corporation is hereby declared (as) in default and plaintiff
is allowed to present his evidence on June 16, 1992 at 9:00 o’clock in the morning.
"The plaintiff and his counsel are notified of this order in open court.
"SO ORDERED.
"Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of
documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13, 1992.
The exhibits were admitted in evidence in an order dated July 17, 1992.
"On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT ORDER OF DEFAULT.’ It
alleged therein that the failure of counsel to attend the pre-trial conference was ‘due to an
unavoidable circumstance’ and that counsel had sent his representative on that date to inform
the trial court of his inability to appear. The Motion was vehemently opposed by plaintiff.
"On August 25, 1992 the trial court denied defendant’s motion for reasons, among others, that
it was neither verified nor supported by an affidavit of merit and that it further failed to allege or
specify the facts constituting his meritorious defense.
"On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the
first time counsel revealed to the trial court that the reason for his nonappearance at the
pre-trial conference was his illness. An Affidavit of Merit executed by its Executive
Vice-President purporting to explain its meritorious defense was attached to the said Motion.
Just the same, in an Order dated November 13, 1992, the trial court denied said Motion.
"On November 18, 1992, the court a quo rendered judgment as follows:
"WHEREFORE, premises considered, judgment is hereby rendered ordering:
"1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of
P156,473.90 representing the total amount advanced by plaintiff in the payment of
the claims of defendant’s clients;
 "2. The defendant to pay plaintiff P10,000.00 as and by way of attorney’s fees;
"3. The dismissal of the counter-claim of the defendant and the third-party complaint;
"4. The defendant to pay the costs of suit."4
On December 14, 1992, Dominion appealed the decision to the Court of Appeals.5
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial
court.6 On September 3, 1996, Dominion filed with the Court of Appeals a motion for
reconsideration.7 On July 16, 1997, the Court of Appeals denied the motion.8
Hence, this appeal. 9
The Issues
The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for
petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of amounts he
paid out of his personal money in settling the claims of several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.10 The basis
for agency is representation.11 On the part of the principal, there must be an actual intention to
appoint12 or an intention naturally inferrable from his words or actions;13 and on the part of the
agent, there must be an intention to accept the appointment and act on it,14 and in the absence
of such intent, there is generally no agency.15
A perusal of the Special Power of Attorney16 would show that petitioner (represented by
third-party defendant Austria) and respondent Guevarra intended to enter into a
principal-agent relationship. Despite the word "special" in the title of the document, the
contents reveal that what was constituted was actually a general agency. The terms of the
agreement read:
"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC., a corporation duly 17
organized and existing under and by virtue of the laws of the Republic of the Philippines, xxx
represented by the undersigned as Regional Manager, xxx do hereby appoint RSG Guevarra
Insurance Services represented by Mr. Rodolfo Guevarra xxx to be our Agency Manager in
San Fdo., for our place and stead, to do and perform the following acts and things:
"1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance
business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR,
PERSONAL ACCIDENT, and BONDING with the right, upon our prior written consent,
to appoint agents and sub-agents.
"2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance
and Bonds for and on our behalf.
"3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer
for and receive and give effectual receipts and discharge for all money to which the
FIRST CONTINENTAL ASSURANCE COMPANY, INC.,18 may hereafter become due,
owing payable or transferable to said Corporation by reason of or in connection with
the above-mentioned appointment.
"4. To receive notices, summons, and legal processes for and in behalf of the FIRST
CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all
legal proceedings against the said Corporation."19 [Emphasis supplied]
The agency comprises all the business of the principal,20 but, couched in general terms, it is
limited only to acts of administration.21
A general power permits the agent to do all acts for which the law does not require a special
power.22 Thus, the acts enumerated in or similar to those enumerated in the Special Power of
Attorney do not require a special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special power of attorney is
required. The pertinent portion that applies to this case provides that:
"Article 1878. Special powers of attorney are necessary in the following cases:
"(1) To make such payments as are not usually considered as acts of administration;
"x x x xxx xxx
"(15) Any other act of strict dominion."
The payment of claims is not an act of administration. The settlement of claims is not included
among the acts enumerated in the Special Power of Attorney, neither is it of a character similar
to the acts enumerated therein. A special power of attorney is required before respondent
Guevarra could settle the insurance claims of the insured.
Respondent Guevarra’s authority to settle claims is embodied in the Memorandum of
Management Agreement23dated February 18, 1987 which enumerates the scope of
respondent Guevarra’s duties and responsibilities as agency manager for San Fernando,
Pampanga, as follows:
"x x x xxx xxx
"1. You are hereby given authority to settle and dispose of all motor car claims in the
amount of P5,000.00 with prior approval of the Regional Office.
"2. Full authority is given you on TPPI claims settlement.
"xxx xxx x x x "24
In settling the claims mentioned above, respondent Guevarra’s authority is further limited by
the written standard authority to pay,25 which states that the payment shall come from
respondent Guevarra’s revolving fund or collection. The authority to pay is worded as follows:
"This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS
__________________ (P ) representing the payment on the _________________ claim of
assured _______________ under Policy No. ______ in that accident of ___________ at
____________.
"It is further expected, release papers will be signed and authorized by the concerned and
attached to the corresponding claim folder after effecting payment of the claim.
"(sgd.) FERNANDO C. AUSTRIA
Regional Manager"26
[Emphasis supplied]
The instruction of petitioner as the principal could not be any clearer.1âwphi1 Respondent
Guevarra was authorized to pay the claim of the insured, but the payment shall come from the
revolving fund or collection in his possession.
Having deviated from the instructions of the principal, the expenses that respondent Guevarra
incurred in the settlement of the claims of the insured may not be reimbursed from petitioner
Dominion. This conclusion is in accord with Article 1918, Civil Code, which states that:
"The principal is not liable for the expenses incurred by the agent in the following cases:
"(1) If the agent acted in contravention of the principal’s instructions, unless the latter
should wish to avail himself of the benefits derived from the contract;
"xxx xxx xxx"
However, while the law on agency prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be justified under the general law on obligations
and contracts.
Article 1236, second paragraph, Civil Code, provides:
"Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor."
In this case, when the risk insured against occurred, petitioner’s liability as insurer
arose.1âwphi1 This obligation was extinguished when respondent Guevarra paid the claims
and obtained Release of Claim Loss and Subrogation Receipts from the insured who were
paid.
Thus, to the extent that the obligation of the petitioner has been extinguished, respondent
Guevarra may demand for reimbursement from his principal. To rule otherwise would result in
unjust enrichment of petitioner.
The extent to which petitioner was benefited by the settlement of the insurance claims could
best be proven by the Release of Claim Loss and Subrogation Receipts27 which were attached
to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the total
amount of P116,276.95.
However, the amount of the revolving fund/collection that was then in the possession of
respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be
deducted from the above amount.
The outstanding balance and the production/remittance for the period corresponding to the
claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the
amount that may be reimbursed to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the Court
of Appeals28 and that of the Regional Trial Court, Branch 44, San Fernando, Pampanga,29 in
that petitioner is ordered to pay respondent Guevarra the amount of P112,672.11 representing
the total amount advanced by the latter in the payment of the claims of petitioner’s clients.
No costs in this instance.
SO ORDERED.
EN BANC
G.R. No. L-23181 March 16, 1925
THE BANK OF THE PHILIPPINE ISLANDS vs. GABRIELA ANDREA DE COSTER Y
ROXAS, ET AL., LA ORDEN DE DOMINICOS or PP. PREDICADORES DE LA PROVINCIA
DEL SANTISIMO ROSARIO; GABRIELA ANDREA DE COSTER Y ROXAS,
STATEMENT
March 10, 1924, the plaintiff filed a complaint in which it was alleged that it was a domestic
banking corporation with its principal office and place of business in the City of Manila; that the
defendant Gabriela Andrea de Coster y Roxas was the wife of the defendant Jean M. Poizat,
both of whom were residents of the City of Manila; that the defendant J. M. Poizat and Co. was
a duly registered partnership with its principal office and place of business in the City of Manila;
that the defendant La Orden de Dominicos or PP. Predicadores de la Provincia del Santisimo
Rosario was a religious corporation duly organized and existing under the laws of the
Philippine Islands with its principal office and place of business in the City of Manila; that on
December 29, 1921, for value, the defendant Gabriela Andrea de Coster y Roxas, having the
consent and permission of her husband, and he acting as her agent, said defendants made to
the plaintiff a certain promissory note for P292,000, payable one year after date, with interest
of 9 per cent per annum, payable monthly, in which, among other things, it is provided that in
the event of a suit or action, the defendants should pay the further sum of P10,000, as
attorney's fees; that the note in question was a joint and several note; that to secure the
payment thereof, the defendants Jean M. Poizat and J. M. Poizat and Co. executed a chattel
mortgage to the plaintiff on the steamers Roger Poizat and Gabrielle Poizat, with the
machinery and materials belonging to the Poizat Vegetable Oil Mills and certain merchandise;
that at the same time and for the same purpose, the defendant Gabriela Andrea de Coster y
Roxas, having the consent and permission of her husband, and he acting as her agent, they
acknowledged and delivered to this plaintiff a mortgage on certain real property lying and being
situated in the City of Manila, which is specifically described in the mortgage; that the real
property was subject to a prior mortgage in favor of La Orden de Dominicos or PP.
Predicadores de la Provincia del Santisimo Rosario, hence it is made a party defendant; that
the note in question is long past due and owing. The plaintiff having brought action against the
defendants on the note in the Court of First Instance of the City of Manila, civil case No. 25218;
that in such case the court rendered judgment against the defendants Gabriela Andrea de
Coster y Roxas, Jean M. Poizat and J. M. Poizat and Co. jointly and severally for P292,000,
with interest at the rate of 9 per cent per annum from the 31st of August, 1923, P10,000 as
attorney's fees, and P2,500 for and in account of insurance upon the steamer Gabrielle Poizat,
with interest on that amount from February 9, 1924, at the rate of 9 per cent per annum, and
costs; that the said defendants have not paid the judgment or any part thereof, and that the full
amount of the debt secured by the mortgaged on the property described in the complaint is
now due and owing. Wherefore, plaintiff prays for an order of the court to direct the sheriff of
the City of Manila to take immediate possession of the property described in the chattel
mortgage and sell the same according to the Chattel Mortgage Law; that the property
described in the real mortgage or so much thereof as may be required to pay the amount due
the plaintiff be sold according to law; that out of such sales plaintiff shall be paid the amount
due and owing it; and that such defendants be adjudged to pay any remaining deficiency.
Copies of the chattel and real mortgage are attached to, and made a part of, the complaint and
marked, respectively, Exhibits A and B.
On April 24, 1924, the La Orden de Dominicos or PP. Predicadores de la Provincia del
Santisimo Rosario appeared in the suit and filed the following plea:
The defendant corporation, La Orden de Dominicos or PP. Predicadores de la
Provincia del Santisimo Rosario, for answer to the complaint, shows:
I. That the encumbrance above-mentioned, but not determined in paragraph V of the
complaint, consisting of a first mortgage in favor of the aforesaid religious corporation
on the property described in paragraph IV of the same complaint is P125,000 with
interest of 10 per cent per annum;
II. That the mortgagors Jean M. Poizat and Gabriela Andrea de Coster y Roxas, have
not paid the principal or the interest stipulated and agreed upon from the 16th of
December, 1921 up to the present date;
III. The interest due up to the 30th of April of the present year 1924 amounts to a total
sum of P27,925.34.
Wherefore, it is prayed that the credit above-mentioned be taken into account when
the second mortgage is foreclosed.
May 3, 1924, on motion of the plaintiff, for failure to appear or answer, the defendants Gabriela
Andrea de Coster y Roxas and Jean M. Poizat and J.M. Poizat & Co. were declared in default.
Without giving any notice of the defendants Jean M. Poizat, J.M. Poizat & Co. and Gabriela
Andrea de Coster y Roxas, and after the introduction of evidence on the part of the plaintiff and
the defendant Dominican Fathers, on June 24, 1924, the court rendered an opinion in
substance and to the effect that the plaintiff should have judgment as prayed for in its
complaint, and that the Dominican Fathers should have judgment for the amount of their claim,
and that the property should be sold and the proceeds applied to satisfy the respective
judgments.
About August 26, although her attorney, the defendant Gabriela Andrea de Coster y Roxas
filed a motion in which she recites that she is the legitimate wife of the defendant Jean M.
Poizat; that she had been absent from the Philippine Islands and residing in the City of Paris
from the year 1908 to April 30, 1924, when she returned to Manila; that at that time of the filing
of the complaint and the issuance of the summons, she was absent from the Philippine Islands;
that the summons was delivered by the sheriff of the City of Manila to her husband, and that
through his malicious negligence, default was taken and judgment entered for the respective
amounts; that she never had any knowledge of the actual facts until the latter part of July, 1924,
when, through the local newspapers, she learned that a default judgment had been rendered
against her on July 28, 1924; that when she first knew of that fact, she was unable to obtain the
rendition of accounts, because her husband had left the Philippine Islands two days previous
and gone to Hongkong; that she then went to Hongkong and learned that her husband had left
there under a false name and had gone to the port of Singapore from whence he went to other
places unknown to thus defendant; that she then returned to Manila, and that in August, 1924,
she came into possession of documents showing the illegally of the notes and mortgage in
question; that she has a good and legal defense to the action, which involves the validity of the
order of the Dominican Fathers in this, that their mortgage does not guarantee any loan made
to this defendant; that it is a security only given for a credit of a third person; that the mortgage
was executed without the marital consent of the wife; and that he did not have nay authority to
make her liable as surety on the debt of a third person; that as regards the notes to the plaintiff:
First, it does not represent any money paid to the defendant by the bank; second, that it is
exclusively the personal debt of the defendants Jean M. Poizat and J.M. Poizat & Co., third,
that it was executed by her husband, because the bank desired more security for the payment
of her husband's debt to the bank; fourth, that it was executed by her husband in excess of the
powers given to him under his power of attorney; fifth, that it was executed as the result of
collusion between the bank and the defendant liable for the obligation of a third person. That
as to the mortgage: First, it was executed to secure a void obligation; second, it does not
guarantee any loan made to this defendant; third, it was executed to secure a void litigation;
second, it does not guarantee any loan made to third defendant; third, it was executed without
the express marital consent which the law requires; fourth, it was executed through collusion.
That if the judgment is not set aside, the defendant will suffer irreparable injury; that through
surprise and negligence, for which she was not responsible, this defendant was prevented
from defending herself in this action; that this is a case which comes under section 113 of the
Code of Civil Procedure. She prays that the judgment annulled and set aside and the case be
reopened, and that she be permitted to file an answer, and that the case be tried on its merits,
and that a final judgment be rendered, absolving her from all liability.
The motion was based upon, and supported by, the affidavit of the defendant wife, to which
was attached a large number of exhibits all of which tended to support the motion.
After counter showings by the bank and the Dominican Fathers and the arguments of
respective counsel, the motion to set aside and vacate the judgment was denied. A motion for
a reconsideration was then made, and the motion of the defendant to file an answer and make
a defense was again denied. The defendant Gabriela Andrea de Coster y Roxas appeals,
assigning the following errors;
PART I
AS TO THE JURISDICTION
I. The lower court erred in holding that it had acquired jurisdiction on the defendant
Gabriela Andrea de Coster y Roxas,
(1) There having been no service of the summons on her in the manner
required by section 396 of the Code of Civil Procedure, she being absent
from the Philippine Islands at the time of the filing of the complaint and of the
issuance of the summons in this case, and a resident of Paris, France,
where she had lived permanently and continuously for fifteen years prior
thereof, and
(2) There having been no se rive by publication in the manner required by
section 398 of the Code of Civil Procedure.
II. The lower court erred in considering that in a case where the wife is the only
necessary party, service of the summons on the husband, at a place which is not "the
usual place of residence" of the wife and where the wife has never lived or resided, is
sufficient to give the court jurisdiction on the person and property of the wife and to
render judgment by default against her.
III. The court erred in admitting and considering evidence, outside of the sheriff's
return, of the fact that the husband of the defendant Gabriela Andrea de Coster y
Roxas was her attorney in fact with power to appear for the defendant in court.
IV. The court erred in holding that the non-appearance of an agent of the defendant
when service of the summons has been made on him not as the agent of the
defendant but in other capacity, will entitle the plaintiff who has misstated the material
jurisdictional facts of the complaint to a judgment by default against the principal.
V. The lower court erred in refusing to vacate a judgment by default against the
defendant Gabriela Andrea de Coster y Roxas rendered on a defective summons,
served in a manner not provided for by the law, and in a case where the complaint
shows that plaintiff has no right of action.
PART II
AS TO THE MERITS OF THE DEFENSE
I. The lower court erred, with abuse of discretion, in holding that the negligence, if any,
of J.M. Poizat in not appearing on behalf of the defendant Gabriela Andrea de Coster
y Roxas, can be imputed to this defendant, without redress, and to the advantage of
the plaintiff bank who in collusion with said J.M. Poizat caused the latter to contract
beyond the scope of his powers as agent of this defendant the obligation which is the
subject matter of this case.
II. The lower court erred in holding that the relief on the part of J.M. Poizat that there
was no defense against the claim of the plaintiff on an obligation contracted by said
J.M. Poizat apparently as agent of the defendant Gabriela Andrea de Coster y Roxas,
but in truth beyond the scope of his authority, and with knowledge on the part of the
plaintiff bank that he was so acting beyond his powers, was such an error was can be
imputed to this defendant, and against which she can obtain no redress.
III. The lower court erred in not holding that a principal is not liable for an obligation
contracted by his agent beyond his power even when both the creditor and the agent
believed that the latter was acting within the scope of his powers.
IV. The lower court erred in holding that because the agent of the defendant Gabriela
Andrea de Coster y Roxas had power to appear for her in court, his non-appearance
could render this defendant liable to a judgment by default, when the record shows
that there was no service of the summons in accordance with any of the forms of
service provided by law.
V. The lower court erred in holding that J.M. Poizat was summoned as agent of hi
wife, the defendant Gabriela Andrea de Coster y Roxas, and was, in that capacity,
notified of all the decisions rendered in this case, there being nothing in the record to
support the truth of such finding.
VI. The lower court erred in holding that in contracting the obligations in favor of the
plaintiff Bank of the Philippine Islands and of the defendant Orden de PP.
Predicadores de la Provincia del Santisimo Rosario, the agent of the defendant
Gabriela Andrea de Coster y Roxas acted within the scope of his powers.
VII. The lower court erred in not holding that the plaintiff Bank of the Philippine Islands
and the defendant Orden de PP. Predicadores de la Provincia del Santisimo Rosario
had knowledge of the fact that J.M. Poizat in contracting the respective obligations in
their favor, pretending to act as agent of the defendant Gabriela Andrea de Coster y
Roxas, was acting beyond the scope of his powers as such agent.
VIII. The lower court erred in making the following statement:
"It is however alleged, by the petitioner, that these loans were obtained to
pay debts, of strangers. Even so, this would not render the loan obtained by
the attorney in fact null and void. The circumstance that the agent used the
money, borrowed by him within the scope of his powers, to purposes for
which he was not authorized by his principal, may entitle the latter to
demand from him the corresponding liability for the damages suffered, but it
cannot prejudice the creditor and cause the nullity of the loan. But, even
admitting that the money borrowed was used by Poizat to pay debts which
did not belong to his principal, even then, he would have acted within his
powers, since his principal, together with the power to borrow money, had
given her agent power to loan any amount of money, and the payment of the
debts of a stranger would amount to a loan made by the agent on behalf of
his principal to the person or entity whose debt was paid with the money
obtained from the creditors."
IX. The lower court erred in applying to this case the principle involved in the case of
Palanca vs. Smith, Bell and Co., 9 Phil., 131.
X. The court erred in supplying from its own imagination facts which did not take
place, of which there is no evidence in the record, and which the parties never
claimed to have existed, and then draw the conclusion that if under those hypothetical
facts the transaction between J.M. Poizat and the Bank of the Philippine Islands
might have been legal, then the transaction as it actually took place was also legal.
XI. The lower court erred in holding that defendant has not alleged any of the grounds
enumerated in section 113 of the Code of Civil Procedure.
XII. The lower court erred in holding that this defendant-appellant has no meritorious
defense against the Dominican Order and the Bank of the Philippine Islands.
XIII. The lower court erred in taking into consideration Exhibit A appearing at pages
156-165 of the bill of exceptions.
XIV. The lower court erred in denying the motion filed by this defendant-appellant.
XV. The lower court has acted throughout these proceedings with a clear abuse of
discretion.
JOHNS, J.:
We will decide the case of the bank first
The petition of the appellant states under oath:
II. That this defendant has been absent from the Philippine Islands and residing in the
City of Paris, France, since the year 1908 (1909), up to April 30, 1924, on which date
she arrived in this City of Manila, Philippine Islands.
III. That at the time when the complaint in this case was filed and the summons
issued, she was still absent from the Philippine Islands and had no knowledge either
of the filing of this action or of the facts which led to it.
Under oath the plaintiff, through its acting president, says:
I-II. That it admits the allegations contained in paragraphs I and II of the aforesaid
motion.
III. That it admits the first part of this paragraph, to wit: That at the time that the
complaint in the above entitled case was filed, the defendant Gabriela Andrea de
Coster y Roxas was absent from the Philippine Islands.
Paragraph 6 of section 396 of the Code of Civil Procedure provides:
In all other cases, to the defendant personally, or by leaving a copy at his usual place
of residence, in the hands of some person resident therein of sufficient discretion to
receive the same. But service upon a corporation, as provided in subsections one
and two, may be made by leaving the copy at the office of the proper officer thereof if
such officer cannot be found.
The return of the sheriff as to the service is as follows:
On this date I have served a copy of the within summons, and of the
complaint attached, upon Jean M. Poizat, personally, and the copies
corresponding to J.M. Poizat and Co., a company duly organized under the
laws of the Philippine Islands, by delivering said copies to its President Mr.
Jean M. Poizat, personally, and the copies corresponding to Gabriela
Andrea de Coster y Roxas, by leaving the same in the place of her usual
residence in the City of Manila and in the hands of her husband, Mr. J.M.
Poizat, a person residing therein and of sufficient discretion to receive it,
personally.
Done at Manila, P.I., this 13th day of March, 1924.
RICARDO SUMMERS
Sheriff of Manila
By GREGORIO GARCIA
I hereby certify that on this date I have delivered a copy of this summons
and of the complaint corresponding to the "La Orden de Dominicos or PP.
Predicadores de la Provincia del Santisimo Rosario," through Father Pedro
Pratt, Procurador General of said Orden de Dominicos or PP. Predicadores
de la Provincia del Santisimo Rosario, personally.
Manila, P.I., April 1, 1924.
RICARDO SUMMERS
Sheriff of Manila
By SIMEON D. SERDEÑA
It will be noted that the service of summons and complaint was made on this defendant on the
13th day of March, 1924, and that it is a stipulated fact that since the year 1908 and up to April
30, 1924, she was "residing in the City of Paris, France." Even so, it is contended that the
service was valid by reason of the fact that it was made at the usual place of residence and
abode of the defendant husband, and that legally the residence of the wife is that of the
husband. That contention is in direct conflict with the admission of the plaintiff that since the
year 1908 and up to April 30, 1924, the wife was residing in the City of Paris. The residence of
the wife in the City of Paris covered a period of sixteen years.
It may be that where in the ordinary course of business the wife is absent from the residence of
husband on a pleasure trip or for business reasons or to visit friends or relatives that, in the
nature of such things, the residence of the wife would continue and remain to be that of the
husband. That is not this case. For sixteen years the residence of the husband was in the City
of Manila, and the residence of the wife was in the City of Paris.
Upon the admitted facts, we are clearly of the opinion that the residence of the husband was
not the usual place of residence of the wife. Giving full force and effect to the legal presumption
that the usual place of residence of the wife is that of her husband, that presumption is
overcome by the admitted fact that the wife was "residing in the City of Paris, France, since the
year 1908 up to April 30, 1924."
Without placing a limitation upon the length of time sufficient to overcome the legal
presumption, suffice it to say that sixteen years is amply sufficient.
It follows that the substituted service attempted to be made under the provisions of section 396
of the Code of Civil Procedure is null and void, and that by such service the court never
acquired jurisdiction of the person of the defendant wife. In that event the plaintiff contends that
under his power of attorney, the husband was the general agent of the wife with authority to
accept service of process for her and in her name, and that by reason of the fact that the
husband was duly served and that he failed or neglected to appear or answer, his actions and
conduct were binding on the defendant wife. Be that as it may, there is nothing in the record
tending to show that the husband accepted service of any process for or on account of his wife
or as her agent, or that he was acting for or representing her in his failure and neglect to
appear or answer.
The first appearance in court of the defendant wife was made when she filed the motion of
August 26, 1924, in which she prays in legal effect that the judgment against her be annulled
and set aside and the case reopened, and that she be permitted to file an answer and to have
the case tried on its merits. That was a general appearance as distinguished from a special
appearance. When she filed that motion asking to be relieved from the legal force and effect of
the judgment, she submitted herself to the jurisdiction of the court. If, in the first instance, she
had made a special appearance to question only the jurisdiction of the court, and had not
appeared for any other or different purpose, another and a different question would have been
presented. Having made a general appearance for one purpose, she is now in court for all
purposes.
It is an elementary rule of law that as a condition precedent, to entitle a party to relief from a
judgment "taken against him through his mistake, inadvertence, surprise or excusable
neglect," that, among other things, he must show to the court that he has a meritorious
defense. Based upon that legal principle the bank contends that no such a showing has been
made by the defendant wife. That involves the legal construction of the power of attorney
which, it is admitted, the wife gave to her husband on August 25, 1903, which, among other
things material to this opinion, recites that she gave to him:
Such full and ample power as required or necessary, to the end that he may perform
on my behalf, and in my name and availing himself of all my rights and actions, the
following acts:
5. Loan or borrow any sums of money or fungible things at the rate of interest and for
the time and under the conditions which he might deem convenient, collecting or
paying the capital or the interest on their respective due dates; executing and signing
the corresponding public or private documents related thereto, and making all these
transactions with or without mortgages, pledges or personal guaranty.
6. Enter into any kind of contracts whether civil or mercantile, giving due form thereof
either by private documents or public deeds with all clauses and requisites provided
by law for their validity and effect, having due regard to the nature of each contract.
7. Draw, endorse, accept, issue and negotiate any drafts, bills of exchange, letters of
credit, letters of payment, bills, vales, promissory notes and all kinds of documents
representative of value; paying or collecting the value thereof on their respective due
dates, or protesting them for non-acceptance or non-payment, utilizing in this case
the rights granted by the Code of Commerce now in force, in order to collect the value
thereof, interests, expenses and damages against whomsoever should be liable
therefor.
8. Institute before the competent courts the corresponding action in justification of the
possession which I have or might have over any real estate, filing the necessary
pleadings, evidencing them by means of documentary or oral testimony admissible
by law; accepting notices and summons, and instituting all necessary proceedings for
the termination thereof and the consequent inscription of said action in the
corresponding office of the Register of Deeds, in the same manner in which I might
do if personally present and acting.
9. Represent me in all cases before the municipal courts, justice of the peace courts,
courts of first instance, supreme court and all other courts of regular or any other
special jurisdiction, appearing before them in any civil or criminal proceedings,
instituting and filing criminal and ordinary civil actions, claims in intestate and
testamentary proceedings, insolvencies and other actions provided by law; filing
complaints, answers, counterclaims, cross complaints, criminal complaints and such
other pleadings as might be necessary; filing demurrers, taking and offering judicial
admissions, documentary, expert, oral evidence, and others provided by law,
objecting to and opposing whatever contrary actions are taken, offered and presented;
accepting notices, citations and summons and acknowledging their receipt to the
proper judicial officials.
10. For to the end stated above and the incidents related thereto, I confer on him
ample and complete power, binding myself in the most solemn manner as required by
law to recognize as existing and valid all that he might do by virtue hereof.
It is admitted that on December 29, 1921, the defendant husband signed the name of the
defendant wife to the promissory note in question, and that to secure the payment of the note,
upon the same date and as attorney in fact for his wife, the husband signed the real mortgage
in question in favor of the bank, and that the mortgage was duly executed.
Based upon such admissions, the bank vigorously contends that the defendant wife has not
shown a meritorious defense. In fact that it appears from her own showing that she does not
have a legal defense. It must be admitted that upon the face of the instruments, that fact
appears to be true. To meet that contention, the defendant wife points out, first, that the note in
question is a joint and several note, and, second, that it appears from the evidence, which she
submitted, that she is nothing more than an accommodation maker of the note. She also
submits evidence which tends to show:
First. That prior to July 25, 1921, Jean M. Poizat was personally indebted to the Bank
of the Philippine Islands in the sum of P290,050.02 (Exhibit H, page 66, bill of
exceptions);
Second. That on July 25, 1921, the personal indebtedness of Jean M. Poizat was
converted into six promissory notes aggregating the sum of P308,458.58 of which
P16,180 were paid, leaving an outstanding balance of P292,278.58 (Exhibits D, E, F,
G, H and I, pages 75-80, bill of exceptions);
Third. That on December 29, 1921, the above promissory notes were cancelled and
substituted by a joint and several note signed by Jean M. Poizat in his personal
capacity and as agent of Gabriela Andrea de Coster y Roxas and as member of the
firm J.M. Poizat and Co.
In other words, that under the power of attorney, the husband had no authority for and on
behalf of the wife to execute a joint and several note or to make her liable as an
accommodation maker. That the debt in question was a preexisting debt of her husband and of
the firm of J.M. Poizat and Co., to which she was not a party, and for which she was under no
legal obligation to pay. That she never borrowed any money from the bank, and that previous
to the signing of the note, she never had any dealings with the bank and was not indebted to
the bank in any amount. That the old, original debts of her husband and J.M. Poizat and Co. to
the bank, to which she was not a party, were all taken up and merged in the new note of
December 29, 1921, in question, and that at the time the note was signed, she did not borrow
any money, and that no money was loaned by the bank to the makers of the note.
Assuming such facts to be true, it would be a valid defense by the defendant wife to the
payment of the note. There is no claim or pretense that the bank was misled or deceived. If it
had made an actual loan of P292,000 at the time the note was executed, another and a
different question would be presented. In the ordinary course of its business, the bank knew
that not a dollar was loaned or borrowed on the strength of the note. It was given at the urgent
and pressing demand of the bank to obtain security for the six different notes which it held
against J.M. Poizat and Co. and Jean M. Poizat of date July 25, 1921, aggregating about
P292,000, and at the time it was given, those notes were taken up and merged in the note of
December 29, 1921, now in question. Upon the record before us, there is no evidence that the
defendant wife was a party to the notes of July 25, 1921, or that she was under any legal
liability to pay them.
The note and mortgage in question show upon their face that at the time they were executed,
the husband was attorney in fact for the defendant wife, and the bank knew or should have
known the nature and extent of his authority and the limitations upon his power.
You will search the terms and provisions of the power of attorney in vain to find any authority
for the husband to make his wife liable as a surety for the payment of the preexisting debt of a
third person.
Paragraph 5 of the power of attorney above quoted authorizes the husband for in the name of
his wife to "loan or borrow any sums of money or fungible things, etc." This should be
construed to mean that the husband had power only to loan his wife's money and to borrow
money for or on account of his wife as her agent and attorney in fact. That does not carry with it
or imply that he had the legal right to make his wife liable as a surety for the preexisting debt of
a third person.
Paragraph 6 authorizes him to "enter into any kind of contracts whether civil or mercantile,
giving due form thereof either by private documents or public deeds, etc."
Paragraph 7 authorizes him to "draw, endorse, accept, issue and negotiate any drafts, bills of
exchange, letters of credit, letters of payment, bills, vales, promissory notes, etc."
The foregoing are the clauses in the power of attorney upon which the bank relies for the
authority of the husband to execute promissory notes for and on behalf of his wife and as her
agent.
It will be noted that there is no provision in either of them which authorizes or empowers him to
sign anything or to do anything which would make his wife liable as a surety for a preexisting
debt.
It is fundamental rule of construction that where in an instrument powers and duties are
specified and defined, that all of such powers and duties are limited and confined to those
which are specified and defined, and that all other powers and duties are excluded.
Paragraph 8 of the power of attorney authorizes the husband to institute, prosecute and
defend all actions or proceedings in a court of justice, including "accepting notices and
summons."
There is nothing in the record tending to show that the husband accepted the service of any
notice or summons in the action on behalf of the bank, and even so, if he had, it would not be a
defense to open up and vacate a judgment under section 113 of the Code of Civil Procedure.
The same thing is true as to paragraph 9 of the power of attorney.
The fact that an agent failed and neglected to perform his duties and to represent the interests
of his principal is not a bar to the principal obtaining legal relief for the negligence of her agent,
provided that the application for such a relief is duly and properly made under the provisions of
section 113.
It is very apparent from the face of the instrument that the whole purpose and intent of the
power of attorney was to empower and authorize the husband to look after and protect the
interests of the wife and for her and in her name to transact any and all of her business. But
nowhere does it provide or authorize him to make her liable as a surety for the payment of the
preexisting debt of a third person.
Hence, it follows that the husband was not authorized or empowered to sign the note in
question for and on behalf of the wife as her act and deed, and that as to her the note is void
for want of power of her husband to execute it.
The same thing is true as to the real mortgage to the bank. It was given to secure the note in
question and was not given for any other purpose. The real property described in the mortgage
to the bank was and is the property of the wife. The note being void as to her, it follows that as
to her the real mortgage to the bank is also void for want of power to execute it.
It appears that before the motion in question was filed, there were certain negotiations
between the bank and the attorney for the wife with a view of a compromise or settlement of
the bank's claim against her, and that during such negotiations, there was some evidence or
admissions on the part of her attorney that she was liable for the bank's claim. It now contends
that as a result of such negotiations and admissions, the wife is estopped to deny her liability.
but it also appears that during such negotiations, both the wife and her attorney did not have
any knowledge of the actual facts, and that she was then ignorant of the defense upon which
she now relies. Be that as it may, such negotiations were more or less in the nature of a
compromise which was rejected by the bank, and it appears that in any event both the wife and
her attorney did not have any knowledge of the facts upon which they now rely as a defense.
There is no claim or pretense that the debt in question was contracted for or on account of the
"usual daily expenses of the family, incurred by the wife or by her order, with the tacit consent
of the husband," as provided for in article 1362 of the Civil Code. Neither is there any evidence
tending to show that the wife was legally liable for any portion of the original debt evidence by
the note in question.
This decision as to the bank on this motion is based on the assumption that the facts are true
as set forth and alleged in the petition to set aside and vacate the judgment as to the wife, but
we are not making any finding as to the actual truth of such facts. That remains for the
defendant wife to prove such alleged facts when the case is tried on its merits.
It follows that the opinion of the lower court in refusing to set aside and vacate the judgment of
the plaintiff bank against the defendant wife is reversed, and that judgment is vacated and set
aside, and as to the bank the case is remanded to the lower court, with leave for the wife to file
an answer to plaintiff's cause of action, and to have the case tried on its merits and for any
further proceedings not inconsistent with this opinion.
As to the judgment in favor of the Dominican Fathers, it appears that their plea above quoted in
the statement of facts was filed on April 24, 1924. In that plea they say that they have a first
mortgage on the property described in paragraph IV of the complaint for P125,000 with interest
at 10 per cent per annum. That the mortgagors Jean M. Poizat and Gabriela Andrea de Coster
y Roxas have not paid the principal or the stipulated interest from December 16, 1921, to date,
which up to the 30th day of April, 1924, amounts to P27,925.34. Wherefore, it is prayed that
the credit above-mentioned be taken into account when the second mortgage is foreclosed.
No other plea of any kind, nature or description was filed by it. The record shows that a copy of
this alleged plea was served upon the attorneys for the plaintiff bank. There is nothing in the
record which shows or tends to show that a copy of it was ever served on either one of the
defendants. Neither is there any evidence that either of the defendants ever appeared in the
original action. In fact, judgment was rendered against them by default.
Under such a state of facts, the judgment in favor of the Dominican Fathers cannot be
sustained. In the first place, the plea above quoted filed on April 24, 1924, would not be
sufficient to sustain a judgment. It does not even ask for a judgment of the foreclosure of its
mortgage. In the second place, no copy of the plea was ever served upon either of the
defendants, who were the real parties in interest, and against whom a judgment was rendered
for the full amount of the note and the foreclosure of the mortgage. Such a proceeding cannot
be sustained on any legal principle.
Unless waived, a defendant has a legal right to service of process, to his day in court and to be
heard in his defense.
From what has been said, it follows that, if the transaction between the Dominican Fathers and
Jean M. Poizat as attorney in fact for his wife was an original one and the P125,000 was
actually loaned at the time the note and mortgage were executed and the money was in good
faith delivered to the husband as the agent and attorney in fact of the wife, it would then be a
valid exercise of the power given to the husband, regardless of the question as to what he may
have done with the money.
Paragraph 5 of the power of attorney specifically authorizes him to borrow money for and on
account of his wife and her name, "and making all these transactions with or without
mortgages, pledges or personal guaranty."
It follows that the judgment of the lower court in favor of La Orden de Dominicos or PP.
Predicadores de la Provincia del Santisimo Rosario is reversed, without prejudice to its right to
either file an original suit to foreclose its mortgage or to file a good and sufficient plea as
intervenor in the instant suit, setting forth the facts upon which it relies for a judgment on its
note and the foreclosure of its mortgage, copies of which should be served upon the
defendants.
Neither party to recover costs. So ordered.
Separate Opinions
VILLAMOR, J., concurring and dissenting:
I concur in the result reached by the court in ordering the remanding of the case for further
proceedings, for in my opinion, the defendant-appellant, against whom a judgment by default
was rendered, has the right, under section 113 of the Code of Civil Procedure, to have said
judgment set aside and to be given an opportunity to appear, having alleged facts which, if
proven, would constitute a good defense, but I dissent from the opinion of the majority in so far
as it attempts to decide certain features of the case raised by the defendant-appellant, without
waiting for the outcome of the new trial wherein the other parties must naturally have the same
opportunity to present their defenses against the facts alleged by the appellant. In my opinion,
the merits of the question should not now be discussed without giving the trial court an
opportunity to pass upon the allegations and evidence of the parties litigant.
DIVISION
G.R. No. 171460 July 24, 2007
LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR., represented
by their Attorney-In-Fact, ALFREDO M. PEREZ vs. ALLIED BANKING CORPORATION
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of
Court, filed by petitioners Lillian N. Mercado, Cynthia M. Fekaris and Julian Mercado, Jr.,
represented by their Attorney-In-Fact, Alfredo M. Perez, seeking to reverse and set aside the
Decision1 of the Court of Appeals dated 12 October 2005, and its Resolution2 dated 15
February 2006 in CA-G.R. CV No. 82636. The Court of Appeals, in its assailed Decision and
Resolution, reversed the Decision3 of the Regional Trial Court (RTC) of Quezon City, Branch
220 dated 23 September 2003, declaring the deeds of real estate mortgage constituted on
TCT No. RT-18206 (106338) null and void. The dispositive portion of the assailed Court of
Appeals Decision thus reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new judgment is
hereby entered dismissing the [petitioners] complaint.4
Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned several
pieces of real property situated in different provinces of the Philippines.
Respondent, on the other hand, is a banking institution duly authorized as such under the
Philippine laws.
On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her husband,
Julian D. Mercado (Julian) over several pieces of real property registered under her name,
authorizing the latter to perform the following acts:
1. To act in my behalf, to sell, alienate, mortgage, lease and deal otherwise over the
different parcels of land described hereinafter, to wit:
a) Calapan, Oriental Mindoro Properties covered by Transfer Certificates of
Title Nos. T-53618 - 3,522 Square Meters, T-46810 – 3,953 Square Meters,
T-53140 – 177 Square Meters, T-21403 – 263 square Meters, T- 46807 – 39
Square Meters of the Registry of Deeds of Oriental Mindoro;
b) Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos.
T-108954 – 600 Square Meters and RT-106338 – 805 Square Meters of the
Registry of Deeds of Pasig (now Makati);
c) Personal property – 1983 Car with Vehicle Registration No. R-16381;
Model 1983; Make – Toyota; Engine No. T- 2464
2. To sign for and in my behalf any act of strict dominion or ownership any sale,
disposition, mortgage, lease or any other transactions including quit-claims, waiver
and relinquishment of rights in and over the parcels of land situated in General Trias,
Cavite, covered by Transfer Certificates of Title Nos. T-112254 and T-112255 of the
Registry of Deeds of Cavite, in conjunction with his co-owner and in the person ATTY.
AUGUSTO F. DEL ROSARIO;
3. To exercise any or all acts of strict dominion or ownership over the
above-mentioned properties, rights and interest therein. (Emphasis supplied.)
On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a loan from the
respondent in the amount of ₱3,000,000.00, secured by real estate mortgage constituted on
TCT No. RT-18206 (106338) which covers a parcel of land with an area of 805 square meters,
registered with the Registry of Deeds of Quezon City (subject property).5
Still using the subject property as security, Julian obtained an additional loan from the
respondent in the sum of ₱5,000,000.00, evidenced by a Promissory Note6 he executed on 5
February 1997 as another real estate mortgage (REM).
It appears, however, that there was no property identified in the SPA as TCT No. RT – 18206
(106338) and registered with the Registry of Deeds of Quezon City. What was identified in the
SPA instead was the property covered by TCT No. RT-106338 registered with the Registry of
Deeds of Pasig.
Subsequently, Julian defaulted on the payment of his loan obligations. Thus, respondent
initiated extra-judicial foreclosure proceedings over the subject property which was
subsequently sold at public auction wherein the respondent was declared as the highest
bidder as shown in the Sheriff’s Certificate of Sale dated 15 January 1998.7
On 23 March 1999, petitioners initiated with the RTC an action for the annulment of REM
constituted over the subject property on the ground that the same was not covered by the SPA
and that the said SPA, at the time the loan obligations were contracted, no longer had force
and effect since it was previously revoked by Perla on 10 March 1993, as evidenced by the
Revocation of SPA signed by the latter.8
Petitioners likewise alleged that together with the copy of the Revocation of SPA, Perla, in a
Letter dated 23 January 1996, notified the Registry of Deeds of Quezon City that any attempt
to mortgage or sell the subject property must be with her full consent documented in the form
of an SPA duly authenticated before the Philippine Consulate General in New York. 9
In the absence of authority to do so, the REM constituted by Julian over the subject property
was null and void; thus, petitioners likewise prayed that the subsequent extra-judicial
foreclosure proceedings and the auction sale of the subject property be also nullified.
In its Answer with Compulsory Counterclaim,10 respondent averred that, contrary to petitioner’s
allegations, the SPA in favor of Julian included the subject property, covered by one of the
titles specified in paragraph 1(b) thereof, TCT No. RT- 106338 registered with the Registry of
Deeds of Pasig (now Makati). The subject property was purportedly registered previously
under TCT No. T-106338, and was only subsequently reconstituted as TCT RT-18206
(106338). Moreover, TCT No. T-106338 was actually registered with the Registry of Deeds of
Quezon City and not before the Registry of Deeds of Pasig (now Makati). Respondent
explained that the discrepancy in the designation of the Registry of Deeds in the SPA was
merely an error that must not prevail over the clear intention of Perla to include the subject
property in the said SPA. In sum, the property referred to in the SPA Perla executed in favor of
Julian as covered by TCT No. 106338 of the Registry of Deeds of Pasig (now Makati) and the
subject property in the case at bar, covered by RT – 18206 (106338) of the Registry of Deeds
of Quezon City, are one and the same.
On 23 September 2003, the RTC rendered a Decision declaring the REM constituted over the
subject property null and void, for Julian was not authorized by the terms of the SPA to
mortgage the same. The court a quo likewise ordered that the foreclosure proceedings and the
auction sale conducted pursuant to the void REM, be nullified. The dispositive portion of the
Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the [herein
petitioners] and against the [herein respondent] Bank:
1. Declaring the Real Estate Mortgages constituted and registered under Entry Nos.
PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT No. RT-18206 (106338)
of the Registry of Deeds of Quezon City as NULL and VOID;
2. Declaring the Sheriff’s Sale and Certificate of Sale under FRE No. 2217 dated
January 15, 1998 over the property covered by TCT No. RT-18206 (106338) of the
Registry of Deeds of Quezon City as NULL and VOID;
3. Ordering the defendant Registry of Deeds of Quezon City to cancel the annotation
of Real Estate Mortgages appearing on Entry Nos. PE-4543/RT-18206 and
2012/RT-18206 on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon
City;
4. Ordering the [respondent] Bank to deliver/return to the [petitioners] represented by
their attorney-in-fact Alfredo M. Perez, the original Owner’s Duplicate Copy of TCT
No. RT-18206 (106338) free from the encumbrances referred to above; and
5. Ordering the [respondent] Bank to pay the [petitioners] the amount of ₱100,000.00
as for attorney’s fees plus cost of the suit.
The other claim for damages and counterclaim are hereby DENIED for lack of merit.11
Aggrieved, respondent appealed the adverse Decision before the Court of Appeals.
In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC Decision and
upheld the validity of the REM constituted over the subject property on the strength of the SPA.
The appellate court declared that Perla intended the subject property to be included in the SPA
she executed in favor of Julian, and that her subsequent revocation of the said SPA, not being
contained in a public instrument, cannot bind third persons.
The Motion for Reconsideration interposed by the petitioners was denied by the Court of
Appeals in its Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision and Resolution rendered by the Court of
Appeals raising several issues, which are summarized as follows:
I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER
SUBJECT PROPERTY.
II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.
III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN- GOOD
FAITH.
For a mortgage to be valid, Article 2085 of the Civil Code enumerates the following essential
requisites:
Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
 (2) That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of
their property, and in the absence thereof, that they be legally authorized for the
purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging
or mortgaging their own property.
In the case at bar, it was Julian who obtained the loan obligations from respondent which he
secured with the mortgage of the subject property. The property mortgaged was owned by his
wife, Perla, considered a third party to the loan obligations between Julian and respondent. It
was, thus, a situation recognized by the last paragraph of Article 2085 of the Civil Code
afore-quoted. However, since it was not Perla who personally mortgaged her own property to
secure Julian’s loan obligations with respondent, we proceed to determining if she duly
authorized Julian to do so on her behalf.
Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases where
real rights over immovable property are created or conveyed.12 In the SPA executed by Perla
in favor of Julian on 28 May 1992, the latter was conferred with the authority to "sell,
alienate, mortgage, lease and deal otherwise" the different pieces of real and personal
property registered in Perla’s name. The SPA likewise authorized Julian "[t]o exercise any
or all acts of strict dominion or ownership" over the identified properties, and rights and
interest therein. The existence and due execution of this SPA by Perla was not denied or
challenged by petitioners.
There is no question therefore that Julian was vested with the power to mortgage the pieces of
property identified in the SPA. However, as to whether the subject property was among those
identified in the SPA, so as to render Julian’s mortgage of the same valid, is a question we still
must resolve.
Petitioners insist that the subject property was not included in the SPA, considering that it
contained an exclusive enumeration of the pieces of property over which Julian had authority,
and these include only: (1) TCT No. T-53618, with an area of 3,522 square meters, located at
Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (2)
TCT No. T-46810, with an area of 3,953 square meters, located at Calapan, Oriental Mindoro,
and registered with the Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140, with an
area of 177 square meters, located at Calapan, Oriental Mindoro, and registered with the
Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403, with an area of 263 square
meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of
Oriental Mindoro; (5) TCT No. T- 46807, with an area of 39 square meters, located at Calapan,
Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No.
T-108954, with an area of 690 square meters and located at Susana Heights, Muntinlupa; (7)
RT-106338 – 805 Square Meters registered with the Registry of Deeds of Pasig (now Makati);
and (8) Personal Property consisting of a 1983 Car with Vehicle Registration No. R-16381,
Model – 1983, Make – Toyota, and Engine No. T- 2464. Nowhere is it stated in the SPA that
Julian’s authority extends to the subject property covered by TCT No. RT – 18206 (106338)
registered with the Registry of Deeds of Quezon City. Consequently, the act of Julian of
constituting a mortgage over the subject property is unenforceable for having been done
without authority.
Respondent, on the other hand, mainly hinges its argument on the declarations made by the
Court of Appeals that there was no property covered by TCT No. 106338 registered with the
Registry of Deeds of Pasig (now Makati); but there exists a property, the subject property
herein, covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of
Quezon City. Further verification would reveal that TCT No. RT-18206 is merely a
reconstitution of TCT No. 106338, and the property covered by both certificates of title is
actually situated in Quezon City and not Pasig. From the foregoing circumstances, respondent
argues that Perla intended to include the subject property in the SPA, and the failure of the
instrument to reflect the recent TCT Number or the exact designation of the Registry of Deeds,
should not defeat Perla’s clear intention.
After an examination of the literal terms of the SPA, we find that the subject property was not
among those enumerated therein. There is no obvious reference to the subject property
covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City.
There was also nothing in the language of the SPA from which we could deduce the intention
of Perla to include the subject property therein. We cannot attribute such alleged intention to
Perla who executed the SPA when the language of the instrument is bare of any indication
suggestive of such intention. Contrariwise, to adopt the intent theory advanced by the
respondent, in the absence of clear and convincing evidence to that effect, would run afoul of
the express tenor of the SPA and thus defeat Perla’s true intention.
In cases where the terms of the contract are clear as to leave no room for interpretation, resort
to circumstantial evidence to ascertain the true intent of the parties, is not countenanced. As
aptly stated in the case of JMA House, Incorporated v. Sta. Monica Industrial and
Development Corporation,13 thus:
[T]he law is that if the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall control. When the language of the
contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read
into it [in] any other intention that would contradict its main import. The clear terms of the
contract should never be the subject matter of interpretation. Neither abstract justice nor the
rule on liberal interpretation justifies the creation of a contract for the parties which they did not
make themselves or the imposition upon one party to a contract or obligation not assumed
simply or merely to avoid seeming hardships. The true meaning must be enforced, as it is to be
presumed that the contracting parties know their scope and effects.14
Equally relevant is the rule that a power of attorney must be strictly construed and pursued.
The instrument will be held to grant only those powers which are specified therein, and the
agent may neither go beyond nor deviate from the power of attorney.15 Where powers and
duties are specified and defined in an instrument, all such powers and duties are limited and
are confined to those which are specified and defined, and all other powers and duties are
excluded.16 This is but in accord with the disinclination of courts to enlarge the authority
granted beyond the powers expressly given and those which incidentally flow or derive
therefrom as being usual and reasonably necessary and proper for the performance of such
express powers.17
Even the commentaries of renowned Civilist Manresa18 supports a strict and limited
construction of the terms of a power of attorney:
The law, which must look after the interests of all, cannot permit a man to express himself in a
vague and general way with reference to the right he confers upon another for the purpose of
alienation or hypothecation, whereby he might be despoiled of all he possessed and be
brought to ruin, such excessive authority must be set down in the most formal and explicit
terms, and when this is not done, the law reasonably presumes that the principal did not mean
to confer it.
In this case, we are not convinced that the property covered by TCT No. 106338 registered
with the Registry of Deeds of Pasig (now Makati) is the same as the subject property covered
by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. The
records of the case are stripped of supporting proofs to verify the respondent’s claim that the
two titles cover the same property. It failed to present any certification from the Registries of
Deeds concerned to support its assertion. Neither did respondent take the effort of submitting
and making part of the records of this case copies of TCTs No. RT-106338 of the Registry of
Deeds of Pasig (now Makati) and RT-18206 (106338) of the Registry of Deeds of Quezon City,
and closely comparing the technical descriptions of the properties covered by the said TCTs.
The bare and sweeping statement of respondent that the properties covered by the two
certificates of title are one and the same contains nothing but empty imputation of a fact that
could hardly be given any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not conferred by Perla with the authority to
mortgage the subject property under the terms of the SPA, the real estate mortgages Julian
executed over the said property are therefore unenforceable.
Assuming arguendo that the subject property was indeed included in the SPA executed by
Perla in favor of Julian, the said SPA was revoked by virtue of a public instrument executed by
Perla on 10 March 1993. To address respondent’s assertion that the said revocation was
unenforceable against it as a third party to the SPA and as one who relied on the same in good
faith, we quote with approval the following ruling of the RTC on this matter:
Moreover, an agency is extinguished, among others, by its revocation (Article 1999, New Civil
Code of the Philippines). The principal may revoke the agency at will, and compel the agent to
return the document evidencing the agency. Such revocation may be express or implied
(Article 1920, supra).
In this case, the revocation of the agency or Special Power of Attorney is expressed and by a
public document executed on March 10, 1993.
The Register of Deeds of Quezon City was even notified that any attempt to mortgage or sell
the property covered by TCT No. [RT-18206] 106338 located at No. 21 Hillside Drive, Blue
Ridge, Quezon City must have the full consent documented in the form of a special power of
attorney duly authenticated at the Philippine Consulate General, New York City, N.Y., U.S.A.
The non-annotation of the revocation of the Special Power of Attorney on TCT No. RT-18206
is of no consequence as far as the revocation’s existence and legal effect is concerned since
actual notice is always superior to constructive notice. The actual notice of the revocation
relayed to defendant Registry of Deeds of Quezon City is not denied by either the Registry of
Deeds of Quezon City or the defendant Bank. In which case, there appears no reason why
Section 52 of the Property Registration Decree (P.D. No. 1529) should not apply to the
situation. Said Section 52 of P.D. No. 1529 provides:
"Section 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien,
attachment, order, judgment, instrument or entry affecting registered land shall, if registered,
filed or entered in the Office of the Register of Deeds for the province or city where the land to
which it relates lies, be constructive notice to all persons from the time of such registering, filing
or entering. (Pres. Decree No. 1529, Section 53) (emphasis ours)
It thus developed that at the time the first loan transaction with defendant Bank was effected on
December 12, 1996, there was on record at the Office of the Register of Deeds of Quezon City
that the special power of attorney granted Julian, Sr. by Perla had been revoked. That notice,
works as constructive notice to third parties of its being filed, effectively rendering Julian, Sr.
without authority to act for and in behalf of Perla as of the date the revocation letter was
received by the Register of Deeds of Quezon City on February 7, 1996.19
Given that Perla revoked the SPA as early as 10 March 1993, and that she informed the
Registry of Deeds of Quezon City of such revocation in a letter dated 23 January 1996 and
received by the latter on 7 February 1996, then third parties to the SPA are constructively
notified that the same had been revoked and Julian no longer had any authority to mortgage
the subject property. Although the revocation may not be annotated on TCT No. RT-18206
(106338), as the RTC pointed out, neither the Registry of Deeds of Quezon City nor
respondent denied that Perla’s 23 January 1996 letter was received by and filed with the
Registry of Deeds of Quezon City. Respondent would have undoubtedly come across said
letter if it indeed diligently investigated the subject property and the circumstances surrounding
its mortgage.
The final issue to be threshed out by this Court is whether the respondent is a
mortgagee-in-good faith. Respondent fervently asserts that it exercised reasonable diligence
required of a prudent man in dealing with the subject property.
Elaborating, respondent claims to have carefully verified Julian’s authority over the subject
property which was validly contained in the SPA. It stresses that the SPA was annotated at the
back of the TCT of the subject property. Finally, after conducting an investigation, it found that
the property covered by TCT No. 106338, registered with the Registry of Deeds of Pasig (now
Makati) referred to in the SPA, and the subject property, covered by TCT No. 18206 (106338)
registered with the Registry of Deeds of Quezon City, are one and the same property. From
the foregoing, respondent concluded that Julian was indeed authorized to constitute a
mortgage over the subject property.
We are unconvinced. The property listed in the real estate mortgages Julian executed in favor
of PNB is the one covered by "TCT#RT-18206(106338)." On the other hand, the Special
Power of Attorney referred to TCT No. "RT-106338 – 805 Square Meters of the Registry of
Deeds of Pasig now Makati." The palpable difference between the TCT numbers referred to in
the real estate mortgages and Julian’s SPA, coupled with the fact that the said TCTs are
registered in the Registries of Deeds of different cities, should have put respondent on guard.
Respondent’s claim of prudence is debunked by the fact that it had conveniently or otherwise
overlooked the inconsistent details appearing on the face of the documents, which it was
relying on for its rights as mortgagee, and which significantly affected the identification of the
property being mortgaged. In Arrofo v. Quiño,20 we have elucidated that:
[Settled is the rule that] a person dealing with registered lands [is not required] to inquire
further than what the Torrens title on its face indicates. This rule, however, is not absolute but
admits of exceptions. Thus, while its is true, x x x that a person dealing with registered
lands need not go beyond the certificate of title, it is likewise a well-settled rule that a
purchaser or mortgagee cannot close his eyes to facts which should put a reasonable
man on his guard, and then claim that he acted in good faith under the belief that there
was no defect in the title of the vendor or mortgagor. His mere refusal to face up the fact
that such defect exists, or his willful closing of his eyes to the possibility of the existence of a
defect in the vendor’s or mortgagor’s title, will not make him an innocent purchaser for value, if
it afterwards develops that the title was in fact defective, and it appears that he had such notice
of the defect as would have led to its discovery had he acted with the measure of precaution
which may be required of a prudent man in a like situation.
By putting blinders on its eyes, and by refusing to see the patent defect in the scope of Julian’s
authority, easily discernable from the plain terms of the SPA, respondent cannot now claim to
be an innocent mortgagee.
Further, in the case of Abad v. Guimba,21 we laid down the principle that where the mortgagee
does not directly deal with the registered owner of real property, the law requires that a higher
degree of prudence be exercised by the mortgagee, thus:
While [the] one who buys from the registered owner does not need to look behind the
certificate of title, one who buys from [the] one who is not [the] registered owner is expected to
examine not only the certificate of title but all factual circumstances necessary for [one] to
determine if there are any flaws in the title of the transferor, or in [the] capacity to transfer the
land. Although the instant case does not involve a sale but only a mortgage, the same rule
applies inasmuch as the law itself includes a mortgagee in the term "purchaser."22
This principle is applied more strenuously when the mortgagee is a bank or a banking
institution. Thus, in the case of Cruz v. Bancom Finance Corporation,23 we ruled:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike
private individuals, it is expected to exercise greater care and prudence in its dealings,
including those involving registered lands. A banking institution is expected to exercise due
diligence before entering into a mortgage contract. The ascertainment of the status or
condition of a property offered to it as security for a loan must be a standard and indispensable
part of its operations.24
Hence, considering that the property being mortgaged by Julian was not his, and there are
additional doubts or suspicions as to the real identity of the same, the respondent bank should
have proceeded with its transactions with Julian only with utmost caution. As a bank,
respondent must subject all its transactions to the most rigid scrutiny, since its business is
impressed with public interest and its fiduciary character requires high standards of integrity
and performance.25 Where respondent acted in undue haste in granting the mortgage loans in
favor of Julian and disregarding the apparent defects in the latter’s authority as agent, it failed
to discharge the degree of diligence required of it as a banking corporation.1awphil
Thus, even granting for the sake of argument that the subject property and the one identified in
the SPA are one and the same, it would not elevate respondent’s status to that of an innocent
mortgagee. As a banking institution, jurisprudence stringently requires that respondent should
take more precautions than an ordinary prudent man should, to ascertain the status and
condition of the properties offered as collateral and to verify the scope of the authority of the
agents dealing with these. Had respondent acted with the required degree of diligence, it could
have acquired knowledge of the letter dated 23 January 1996 sent by Perla to the Registry of
Deeds of Quezon City which recorded the same. The failure of the respondent to investigate
into the circumstances surrounding the mortgage of the subject property belies its contention
of good faith.
On a last note, we find that the real estate mortgages constituted over the subject property are
unenforceable and not null and void, as ruled by the RTC. It is best to reiterate that the said
mortgage was entered into by Julian on behalf of Perla without the latter’s authority and
consequently, unenforceable under Article 1403(1) of the Civil Code. Unenforceable contracts
are those which cannot be enforced by a proper action in court, unless they are ratified,
because either they are entered into without or in excess of authority or they do not comply
with the statute of frauds or both of the contracting parties do not possess the required legal
capacity.26 An unenforceable contract may be ratified, expressly or impliedly, by the person in
whose behalf it has been executed, before it is revoked by the other contracting
party.27 Without Perla’s ratification of the same, the real estate mortgages constituted by Julian
over the subject property cannot be enforced by any action in court against Perla and/or her
successors in interest.
In sum, we rule that the contracts of real estate mortgage constituted over the subject property
covered by TCT No. RT – 18206 (106338) registered with the Registry of Deeds of Quezon
City are unenforceable. Consequently, the foreclosure proceedings and the auction sale of the
subject property conducted in pursuance of these unenforceable contracts are null and void.
This, however, is without prejudice to the right of the respondent to proceed against Julian, in
his personal capacity, for the amount of the loans.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The
Decision dated 12 October 2005 and its Resolution dated 15 February 2006 rendered by the
Court of Appeals in CA-G.R. CV No. 82636, are hereby REVERSED. The Decision dated 23
September 2003 of the Regional Trial Court of Quezon City, Branch 220, in Civil Case No.
Q-99-37145, is hereby REINSTATED and AFFIRMED with modification that the real estate
mortgages constituted over TCT No. RT – 18206 (106338) are not null and void but
UNENFORCEABLE. No costs.
SO ORDERED.
EN BANC
G.R. No. L-42958 October 21, 1936
C. N. HODGES vs. CARLOTA SALAS and PAZ SALAS
IMPERIAL, J.:
The action was brought by the plaintiff to foreclose a certain real estate mortgage constituted
by the defendants to secure a loan. The plaintiff appealed from the judgment of the Court of
First Instance of Occidental Negros absolving the defendants from the complaint and stating:
That of the capital of P28,000 referred to in Exhibit A, the defendants were liable only for the
sum of P14,451.71; that the transactions and negotiations specified in Exhibit A as well as the
interest charged are usurious; that the sum of P14,778.77 paid by the defendants to the
plaintiff should be applied to the payment of the capital of P14,451.71; that the plaintiff must
refund the sum of P3,327.06 to the defendants and, lastly, he must pay the costs.
On September 2, 1923, the defendants executed a power of attorney in favor of their
brother-in-law Felix S. Yulo to enable him to obtain a loan and secure it with a mortgage on the
real property described in transfer certificate of title No. 3335. The power of attorney was
registered in the registry of deeds of the Province of Occidental Negros and the pertinent
clauses thereof read as follows: Check No. 4597 in the name of Rafael Santos, paid to him to
cancel the mortgage constituted by the defendants ..... 9,200.00
That we confer upon our brother-in-law Mr. Felix S. Yulo, married, of age and resident
of the municipality of Bago, Province of Occidental Negros, P. I., as required by law, a
Check No. 4598 delivered to Felix S. Yulo ........................... 1,860.00
special power of attorney to obtain, in our respective names and representation, a
loan in any amount which our said brother-in-law may deem necessary, being
empowered, by virtue of the authority conferred in this power of attorney, to constitute
a mortgage on a parcel of land absolutely belonging to us, the technical description of
Total ........................................................................ 28,000.00
which is as follows:
"TRANSFER CERTIFICATE OF TITLE NO. 3335 The defendants failed to pay at maturity the interest stipulated which should have been paid
one year in advance. All the sums paid by them on account of accrued interest up to March 27,
"A parcel of land (lot No. 2464 of the Cadastral Survey of Bago) with the 1934, on which the complaint was filed, together with the corresponding exhibits, are as
improvements thereon, situated in municipality of Bago. Bounded on the NE. and NW. follows:
by the Lonoy Sapa and lot No. 2465; on the SE. by the Ilabo Sapa; and on the SW. by
the Ilabo Sapa, lot No. 2508 and the Sapa Talaptapan. Containing an area of one Date Amount
million nine hundred ninety-four thousand eight hundred and thirty-four square meters
(1,994,834), more or less." Exhibit 1 April 5, 1927 ............................................................... P1,500.00
That we confer and grant to our said brother-in-law Mr. Felix S. Yulo power and Exhibit 2 May 2, 1927 ................................................................ 500.00
authority to perform and execute each and every act necessary to the performance of
his trust, which acts shall be for all purposes as if we had performed or executed them Exhibit 4 August 30, 1927 ......................................................... 336.00
personally, hereby ratifying and confirming everything that our said brother-in-law Mr.
Felix S. Yulo may execute or cause to be executed. Exhibit 7 June 4, 1928 ................................................................ 3,360.00
Acting under said power of attorney, Felix S. Yulo, on March 27, 1926, obtained a loan of
P28,000 from the plaintiff, binding his principals jointly and severally, to pay it within ten (10) Exhibit 8 May 15, 1929 .............................................................. 67.20
years, together with interest thereon at 12 per cent per annum payable annually in advance, to
which effect he signed a promissory note for said amount and executed a deed of mortgage of Exhibit 9 June 19, 1929 .............................................................. 67.20
the real property described in transfer certificate of title No. 3335 and the improvements
thereon consisting in concrete buildings. It was stated in the deed that in case the defendants Exhibit 10 July 25,
33.60
failed to pay the stipulated interest and the taxes on the real property mortgaged and if the 1929 ...............................................................
plaintiff were compelled to bring an action to recover his credit, said defendants would be
obliged to pay 10 per cent more on the unpaid capital, as fees for the plaintiff's attorneys. The Exhibit 11 August 26, 1929 ......................................................... 33.60
mortgage so constituted was registered in the registry of deeds of the Province of Occidental
Negros and noted on the back of the transfer certificate of title. Exhibit 12 October 7,
392.55
1929 ..........................................................
The sum of P28,000 was not delivered to Felix S. Yulo, but by agreement between him and the
plaintiff, it was employed as follows: Exhibit 13 October 7,
30.00
1929 ..........................................................
Interest for one year from March 27, 1926, to March 26, 1927,
collected in advance by the plaintiff ......................... P3,360.00 Exhibit 14 November 9,
29.67
1929 ......................................................
Paid for the mortgage constituted by Felix S. Yulo, cancelled
Exhibit 15 November 9,
on the date of the loan .......................................................... 8,188.29 938.95
1929 ......................................................

Paid by Felix S. Yulo on account of the purchase price of the Exhibit 16 February 8,
real property bought by him on Ortiz Street ........................ 2,000.00 61.04
1930 ........................................................

Check No. 4590 delivered to Felix S. Yulo .......................... 3,391.71 Exhibit 17 February 8, 936.46
 1930 ........................................................ At the trial of the case, the attorney for the plaintiff did not present the mortgage deed showing
the registration thereof in the registry, or the owner's transfer certificate of title. In their stead
Exhibit 18 No the plaintiff testified that the mortgage had been duly registered in the registry of deeds of
498.75 Occidental Negros and had been noted on the back of the transfer certificate of title. The oral
date .......................................................................
evidence was admitted without any objection on the part of the attorney for the defendants. In
Exhibit 19 February 10, the appealed decision the court held that the plaintiff had failed to substantiate his foreclosure
498.75 suit and, not having presented competent evidence, the action arising from his evidence was
1931 ......................................................
merely a personal action for the recovery of a certain sum of money. The plaintiff excepted to
Exhibit 20 August 20, 1931 ......................................................... 498.75 this conclusion and assigns it in his brief as the first error of law committed by the court.

Exhibit 21 July 7, Section 284 of the Code of Civil Procedure requires the contents of a writing to be proven by
498.75 the writing itself, except in cases therein specified. Section 313, No. 6, provides that official or
1932 .................................................................
public documents must be proven by presenting the original or a copy certified by the legal
Exhibit 22 July 29, keeper thereof. According to this, the plaintiff was obliged to present the original or a certified
500.00 copy of the mortgage deed showing the registration thereof, as well as the owner's transfer
1932 ...............................................................
certificate of title. Both would have been the best evidence to prove the registration of the
Exhibit 23 September 23, mortgage and the notation thereof on the back of the title. Had the defendants objected to the
500.00 oral evidence offered, there is no doubt that it would have been rejected as incompetent. But it
1932 ....................................................
is universally accepted that when secondary or incompetent evidence is presented and
Exhibit 24 December 17, accepted without any objection on the part of the other party, the latter is bound thereby and
997.50 the court is obliged to grant it, the probatory value it deserves. (City of Manila vs. Cabangis, 10
1932 .....................................................
Phil., 151; Bersabal vs. Bernal, 13 Phil., 463; Kuenzle & Streiff vs. Jiongco, 22 Phil., 110; U.
Exhibit 25 No S. vs. Choa Tong, 22 Phil., 562; U. S. vs. Ong Shiu, 28 Phil., 242; De Leon vs. Director of
1,000.00 Prisons, 31 Phil., 60: U. S. vs. Hernandez, 31 Phil., 342; 23 C. J., 39, section 1783, and the
date ........................................................................
cases therein cited; 10 R. C. L., 1008, paragraph 197, and the cases therein cited.)
Exhibit 26 January 23, Inasmuch as the registration of the mortgage and the notation thereof on the back of the
500.00
1934 ......................................................... transfer certificate of title have been established by the oral evidence above stated, the court
was without authority to conclude that the action was personal in character and, consequently,
Total ........................................................................................... the first assignment of error is well founded.
.. 14,779.77 II. The court held that the loan and the mortgage were usurious and illegal for two reasons:
First, because the plaintiff charged compound interest notwithstanding the fact that it had not
To the foregoing amount must be added the sum of P3,360 deducted by the plaintiff upon
been stipulated, and second, because the plaintiff charged interest yearly in advance in
granting the loan, as interest for one year, thereby making the total amount of interest paid by
accordance with the agreement. These conclusions are the subject matter of the plaintiff's
the defendants and received by the plaintiff P18,138.77.
second assignment of error.
The foregoing are facts inferred from the evidence and are not controverted by the parties, with
The plaintiff categorically denied having charged compound interest, stating in his brief that all
the exception of the existence of the promissory note, the registration of the mortgage deed
the interest charged by him should be applied to the interest unpaid by the defendants. We
and the notation on the back of the certificate of title.lâwphi1.nêt
have examined Exhibits 8 to 17 of the defendants, which are the evidence offered to establish
I. The action brought by the plaintiff was for the foreclosure of a mortgage in accordance with the fact that compound interest had been charged, and we have, without any difficulty, arrived
the provisions of sections 254 to 261 of the Code of Civil Procedure. It was not expressly at the conclusion that the plaintiff has really charged said unauthorized and unstipulated
alleged in the complaint that the mortgage deed had been registered in accordance with Act interest. If there is any doubt on this fact, it is dispelled by Exhibit 10, in the handwriting of the
No. 496, which was the law applicable in the case of the real property registered under the plaintiff himself, wherein it appears that the sum of P33.60 was charged by him on account of
Torrens system. A copy of the mortgage deed was attached to the complaint and made a part interest on unpaid interest. But the fact of charging illegal interest that may be charged, does
thereof, but said copy did not show that the original had been duly registered. In paragraph 3 of not make the loan or the mortgage usurious because the transactions took place subsequent
the complaint, however, it was alleged that the mortgage deed had been noted on the back of to the execution of said contracts and the latter do not appear to be void ab initio (66 C. J.,
transfer certificate of title No. 3335 by the register of deeds of the Province of Occidental pages 243, 244, section 194). Said interest should be applied first to the payment of the
Negros, in accordance with the provisions of the Mortgage Law. This specific allegation is stipulated and unpaid interest and, later, to that of the capital. (Aguilar vs. Rubiato and
equivalent to a statement that the mortgage deed had been duly registered. Gonzalez Vila, 40 Phil., 570; Go Chioco vs. Martinez, 45 Phil., 256; Gui Jong & Co. vs. Rivera
and Avellar, 45 Phil., 778; Lopez and Javelona vs.El Hogar Filipino, 47 Phil., 249;
Sajo vs. Gustilo, 48 Phil, 451.)
The plaintiff admits having charged in advance the interest corresponding to the first year. The
mortgage deed contains the stipulation that the defendants should pay in advance the
stipulated interest corresponding to each year. The court declared the contract usurious for
this reason, basing its opinion upon some American authorities holding the same point of view.
This court cannot adopt said doctrine in this jurisdiction. Section 5 of Act No. 2655, as
amended by section 3 of Act No. 3291, expressly permit a creditor to charge in advance
interest corresponding to not more than one year, whatever the duration of the loan. What is
prohibited is the charging in advance of interest for more than one year. Section 6 reiterates
said rule in exempting a creditor found guilty of usury from the obligation to return the interest
and commissions collected by him in advance, provided said interest and commissions are not
for a period of more than one year and the rate of interest does not exceed the maximum limit
fixed by law.
This court concludes, therefore, that the second assignment of error is well founded in the
sense that both the loan and the mortgage are not usurious or illegal.
III. In his third assignment of error, the plaintiff contends that the court should have declared
the action for the usury interposed by the defendants in their cross-complaint barred by the
statute of limitations, in accordance with the provision of section 6 of Act No. 2655, as
amended by section 4 of Act No. 3291. It is true that according to the evidence more than two
years have already elapsed from the time the defendants paid and the plaintiff received the
usurious interest to the registration of the cross-complaint, but the plaintiff cannot successfully
invoke the defense of prescription because he failed to allege it in his reply to the
cross-complaint. In order that prescription may constitute a valid defense and it may be
considered on appeal, it must be specifically pleaded in the answer and proven with the same
degree of certainty with which an essential allegation in a civil action is established. Otherwise
it will not be taken into consideration, much less if it is alleged for the first time on appeal.
(Aldeguer vs. Hoskyn, 2 Phil., 500; Domingo vs. Osorio, 7 Phil, 405; Marzon vs. Udtujan, 20
Phil., 232; Pelaez vs. Abreu, 26 Phil., 415; Corporacion de PP. Agustinos
Recoletos vs. Crisostomo, 32 Phil., 427; Karagdag vs. Barado, 33 Phil., 529.)
IV. The defendants proved that their attorney's fees were contracted at P3,000. The evidence
has not been contradicted. The amount so fixed is not unreasonable or unconscionable. In the
fourth assignment of error, the plaintiff questions that part of the judgment ordering him to pay
said fees. He contends that he is not responsible for the payment thereof because neither the
loan nor the mortgage is usurious. However, this court has already stated that the plaintiff
violated the Usury Law in charging compound interest notwithstanding the fact that it has not
been so stipulated and that adding these sums to the stipulated interest the average exceeds
the maximum rate of interest that may be charged for the loan which has been the subject
matter of the transaction. This violation falls under the precept of section 6 of the Usury Law
and the plaintiff is obliged to pay the fees of the attorney for the defendants. This court holds
that the fourth assignment of error is unfounded.
V. In the fifth assignment of error, the plaintiff alleges that the judgment is erroneous for not
having declared that the defendants ratified all the obligations contracted by their attorney in
fact. In the sixth assignment of error he contends that an error was likewise committed in not
declaring that by virtue of the authority conferred by the defendants, agent Yulo was
authorized to borrow money and invest it as he wished, without being obliged to apply it
necessarily for the benefit of his principals. In the seventh assignment of error the plaintiff
alleges that the court erred in fixing the capital, which the defendants are obliged to pay him by
virtue of the power of attorney executed by them, at only P14,451.71. In the eighth and last
assignment of error, he insists that the court should have ordered the defendants to pay the
entire capital owed, with interest thereon in accordance with the mortgage deed, together with
10 per cent thereof as attorney's fees, the action having been instituted due to nonfeasance on
the part of the defendants.
These four assignments of errors refer to the interpretation and scope of the power of attorney
and to the computation of the capital and the interest to be paid by the defendants and, finally,
to whether or not the latter are obliged to pay the fees of the attorney for the plaintiff. For this
reason, this court passes upon them jointly.
The pertinent clauses of the power of attorney from which may be determined the intention of
the principals in authorizing their agent to obtain a loan, securing it with their real property,
were quoted at the beginning. The terms thereof are limited; the agent was thereby authorized
only to borrow any amount of money which he deemed necessary. There is nothing, however,
to indicate that the defendants had likewise authorized him to convert the money obtained by
him to his personal use. With respect to a power of attorney of special character, it cannot be
interpreted as also authorizing the agent to dispose of the money as he pleased, particularly
when it does not appear that such was the intention of the principals, and in applying part of
the funds to pay his personal obligations, he exceeded his authority (art. 1714, Civil Code;
Bank of the Philippine Islands vs. De Coster, 47 Phil., 594 and 49 Phil., 574). In the case like
the present one, it should be understood that the agent was obliged to turn over the money to
the principals or, at least, place it at their disposal. In the case of Manila Trading & Supply Co.,
vs. Uy Tiepo (G.R. No. 30339, March 2, 1929, not reported), referring to a power of attorney to
borrow any amount of money in cash and to guarantee the payment thereof by the mortgage of
certain property belonging to the principals, this court held that the agent exceeded his
authority in guaranteeing his personal account for automobile parts by the mortgage, not
having been specially authorized to do so. This court then said:
Inasmuch as Jose S. Uy Tiepo, as agent of Daniel Ramos and Emilio Villarosa, was
only authorized to "borrow any amount of cash", and to guaranty the payment of the
sums of money so borrowed by the mortgage of the property stated in the power of
attorney, he exceeded the authority conferred upon him in mortgaging his principal's
property to secure the payment of his personal debt for automobile parts, and the
guaranties so made are null and void, the principals in question not being responsible
for said obligations.
The plaintiff contends that the agent's act of employing part of the loan to pay his personal
debts was ratified by the defendants in their letter to him dated August 21, 1927 (Exhibit E).
This court has carefully read the contents of said document and has found nothing implying
ratification or approval of the agent's act. In it the defendants confined themselves to stating
that they would notify their agent of the maturity of the obligation contracted by him. They said
nothing about whether or not their agent was authorized to use the funds obtained by him in
the payment of his personal obligations.
In view of the foregoing, this court concludes that the fifth and sixth assignments of error are
unfounded.
In the seventh assignment of error, the plaintiff insists that the defendants should answer for
the entire loan plus the stipulated interest thereon. This court has already stated the manner in
which the agent employed the loan, according to the plaintiff. Of the loan of P28,000, the agent
applied the sum of P10,188.29 to the payment of his personal debt to the plaintiff. The balance
of P17,811.71 constitutes the capital which the defendants are obliged to pay by virtue of the
power conferred upon their agent and the mortgage deed.
In connection with the stipulated interest, it appears that the capital of P17,811.71 bore interest
at 12 per cent per annum from March 27, 1926, to September 30, 1936, equivalent to
P22,460.56. All the interest paid by the defendants to the plaintiff, including that which is
considered as usurious, amounts to P18,138.77, so that they are still indebted in said concept
in the sum of P4,321.79. Adding this sum to the capital of P17,811.71, makes a total of
P22,133.50, from which the sum of P3,000 constituting the fees of the attorney for the
defendants must be deducted, leaving a net balance of P19,133.50 which is all that the
defendants must pay to the plaintiff up to said date.
The foregoing disposes of the seventh assignment of error.
In the mortgage deed the defendants bound themselves to pay the fees of the attorney for the
plaintiff were to resort to the courts to foreclose the mortgage. Said fees were fixed at 10 per
cent of the capital which the defendants might owe. This penalty according to what has been
stated heretofore, amounts to P1,781.17 which would have to be added to the total amount to
be paid to the plaintiff by the defendants. The court, having declared the contracts usurious,
did not order the defendants to pay the penalty and for this reason the plaintiff assigns the
omission as the eighth and last assignment of alleged error. Inasmuch as the fees agreed
upon are neither excessive nor unreasonable, this court finds no good reason to disapprove it,
particularly because the defendants were also granted a larger amount in the same concept.
In view of the conclusions arrived at, the motion for a new trial filed by the attorneys for the
plaintiff on March 12, 1935, is denied, and the amendments to the complaint proposed by them
in their pleading of March 20 of said year are admitted.
For all the foregoing reasons, the appealed judgment is modified and the defendants are
ordered to, pay jointly and severally to the plaintiff the sums of P19,133.50 and P1,781.17.
Within three months they shall make payment of said two sums of money or deposit them with
the clerk of court, at the disposal of the plaintiff, upon failure to do which the real property
mortgaged with the improvements thereon shall be sold at public auction and the proceeds
thereof applied to the payment of the two sums of money above-stated; without special
pronouncement as to the costs of this instance. So ordered.
Avanceña, C. J., Villa-Real, Abad Santos, Diaz, and Laurel, JJ., concur.
RESOLUTION
December 29, 1936
IMPERIAL, J.:
The motion for reconsideration presented by the appellee based upon the three grounds: (1)
That the capital for which they must answer to the appellant should be only P16,422.39, not
P17,811.71 as stated in the decision; (2) that the computation of the payments made is
incorrect, and (3) that the oral evidence relative to the registration of the mortgage is
insufficient.
I. It is claimed that as the true capital for which the appellees were held responsible
amounts only to P16,422.39, excluding the sum of P3,360 paid in advance as interest
corresponding to the first year, this latter sum should not be paid in its entirety by the
appellees but only that par thereof in proportion to the capital owed. The contention is
without any foundation because, as was already stated in the decision, the agent was
expressly authorized to borrow and receive the total amount of P28,000. On the other
hand, as it was stipulated that the interest should be paid annually in advance, it is
evident and just that the entire sum of P3,360 representing said interest be paid by
the appellees who contracted the debt through an agent. The fact that after the
contract had been consummated and the interest for the first year paid, the agent,
exceeding his authority, unduly used part of the funds intrusted to him, does not
relieve the appellees of their obligation to answer for the entire interest for the first
year. For this reason, this court declares that the first ground is unfounded.
II. In the computation of the interest paid by the appellees and of that which they
should pay to the appellant by virtue of the terms of the contract, this court proceeded
to determine the time that elapsed from the date the contract became effective and
debited to the appellees the interest at the rate agreed upon, deducting therefrom
what they had paid in said concept, including the interest paid by them for the first
year because, the computation commenced from the date fixed in the contract, which
is March 27, 1926. The difference represents the interest unpaid by the appellees up
to September 30, 1936, considered by this court as the date, on which the appellees'
account with the appellant was finally liquidated and closed, and added to the capital
they represent the amount appearing in the decision. This court sees no error of
accounting in this computation.
III. The appellees insist that the oral evidence upon which this court based its opinion
in declaring that the mortgage deed is registered, is insufficient. What has been said
in the decision on this point is so clear and understandable that this court believes
itself relieved from the obligation of reproducing it. There is no merit in the last ground
of the motion.
In answering the appellees' motion for reconsideration, the appellant likewise seeks
reconsideration of the decision, alleging that he is entitled to a larger amount. Without going
into details, because this court deems it unnecessary, it is held that the appellant is not entitled
to ask for reconsideration of the decision on the ground that his petition to that effect has been
filed too late, after the decision in question became final with respect to him.
The appellees' motion for reconsideration is denied.
EN BANC
G.R. No. L-29917 December 29, 1928
JOSE M. KATIGBAK, vs. TAI HING CO.; PO SUN and PO CHING
VILLA-REAL, J.:
Po Sun Suy and Po Ching appeal to this court from the judgment of the Court of First Instance
of Manila, the dispositive part of which is as follows:
 1. Ordering the defendants Po Sun Suy and Po Ching, as lessees of the realty, to pay
the plaintiff the sum of P28,500, with legal interest from the filing of the complaint.
2. Ordering the estate of the deceased Po Tecsi to pay the defendants Po Sun Suy
and Po Ching, that they may, in turn, pay the plaintiff upon this judgment the sum
which represents the rents of te property unduly collected from the occupants of said
property by Po Tecsi while alive and by his administrator Po Sun Suy after his death,
and not paid to the plaintiff either by Po Tecsi, father of the defendant Po Sun Suy, or
by the latter, or by defendant Po Ching. Said sum thus collected, according to the
testimony of the defendant Po Sun Suy (p. 147, t. s. n.) is P745, per month, which, for
nineteen months, amounts to P14,155. The balance of the rents, that is, the
difference between the sum of P1,500 for which the property was leased by the
plaintiff to the defendants, and P745 which is the sum collected from the occupants of
the property each month by Po Tecsi and by the administrator of his estate must be
for the account of the defendants; and
3. Ordering the defendants and the intervenor each to pay one-third of the costs of
the action.
In support of their appeal the appellants assign seventeen errors which we shall take up in the
course of this decision.
The following facts have been proven by a preponderance of the evidence:
Gabino Barreto Po Ejap was the owner, with a Torrens title, of the land in litigation, with the
improvements thereon. This realty was subject to a mortgage lien in favor of the Philippine
National Bank, executed on May 5, 1919, to secure the payment of the sum of P60,000 with 7
per centum interest per annum. (Exhibit 9.)
On November 29, 1921, Po Tecsi executed a general power of attorney in favor of his brother
Gabino Barreto Po Ejap, empowering and authorizing him to perform on his behalf and as
lawful agent, among other acts, the following: "To buy, sell or barter, assign or admit in
acquittance, or in any other manner to acquire or convey all sorts of property, real and
personal, businesses and industries, credits, rights and action belonging to me, for whatever
prices and under the conditions which he may stipulate, paying and receiving payment in cash
or in installments, and to execute the proper instruments with the formalities provided by the
law." (Exhibit A.)
On December 15, 1921, Po Tecsi executed an instrument acknowledge an indebtedness to his
brother Gabino Barreto Po Ejap in the sum of P68,000, the price of the properties which the
latter had sold to him. (Exhibit U-1.) On March 31, 1923, Gabino Barreto Po Ejap executed
second mortgage on the aforesaid land with its improvements, in favor of Antonio M. H.
Limjenco for the sum of P140,000 and interest at 10 per centum per annum. (Exhibit 9.)
On April 17, 1923, Gabino Barreto Po Ejap, sold the said land with its improvements to his
brother Po Tecsi for the sum of P10,000, subject to the same encumbrances. (Exhibit 9.)
On November 22, 1923, Gabino Barreto Po Ejap, making use of the power conferred on him
by his brother Po Tecsi, sold absolutely and forever to the herein plaintiff-appellee Jose M.
Katigbak, the aforesaid land with its improvements for the sum of P10,000, mentioning in the
instrument executed to that end only the mortgage lien of P60,000 in favor of the Philippine
National Bank, and without recording either his power of attorney or the sale in the proper
certificate of title. Notwithstanding said sale Po Tecsi remained in possession of said property.
On October 22, 1924, Po Tecsi leased a part of said land to Uy Chia for a periods of five years
from October 1, 1923. The contract drawn up to thatg end was recorded in the proper
certificate of title. (Exhibit 2 and 9.)
On August 24, 1924, Po Tecsi wrote to his brother Gabino Barreto Po Ejap complaining that he
had been after him so much for the forwarding of the rents of the property and explaining his
precarious financial condition, telling him that he did not collect the rents for himself, and
promising to remit the balance after having paid all expenses of repairs and cleaning up,
together with the vouchers, so he could not blame him for anything. (Exhibits M and M-1.)
In November, 1925, Po Tecsi, answering his brother Gabino Barreto Po Ejap, wrote to the
latter telling him that in the month of October, 1925, he had sent him a draft for the sum of
P2,000, and was therefore surprised that he claimed said rent. In said reply Po Tecsi also told
his brother Gabino Barreto Po Ejap that if he wanted to lease the property in question to Smith
Bell & Co., he should not do so without first consulting him, because if someone offered him a
higher rent he wanted to exercise his right to lease it. (Exhibits N and N-1.)
On February 27, 1925, the mortgage on the land in question in favor of Antonio M. H. Limjenco
for P140,000 was cancelled, the cancellation being recorded on the proper certificate of title on
June 11, 1927. (Exhibit X and 9.) Po Tecsi died on November 26, 1926.
In December, 1926, Po Sun Suy, Po Tecsi's son, submitted to Gavino Barreto Po Ejap a
liquidation of accounts showing the rents collected on the property up to that month. (Exhibit
P.)
On February 11, 1927, Po Sun Suy was appointed administrator of the estate of his deceased
father, submitting an inventory in which he included the land in discussion as one of the
properties left by his deceased father, and obtaining the transfer of the certificate of title in his
name as said administrator.
On February 14, 1927, Po Sun Yao alias Po Sun Suy, answering a letter from his uncle
Gabino Barreto Po Ejap, told the latter that times were bad, because the price of hemp had
slumped, and the plantations had suffered damages, and begged him to let him pay the rent
later. (Exhibits C and C-1.)
On February 11, 1927, Gabino Barreto Po Ejap executed an instrument in favor of his son Po
Sun Boo, assigning to him all his rights and actions in the credit of P68,000 against Po Tecsi.
(Exhibit U.)
On May 22, 1927, Jose M. Katigbak sold the property in question to Po Sun Boo for sum of
P10,000. (Exhibit J.)
On May 27, 1927, Po Sun Boo notified Po Sun Suy and Po Ching that he had purchased the
land they occupied and that from that date they were to deal with him concerning the payment
of the rents thereof. (Exhibit I.)
Ever since the property in discussion had been sold by Gabino Barreto Po Ejap to Jose M.
Katigbak, the former had administrated it, entering into an oral contract of lease with Po Tecsi,
who occupied it at a monthly rental of P1,500, payable in advance on the first day of each
month. Later on, when Po Tecsi died, Po Sun Suy, as administrator of the estate of his father
Po Tecsi, continued renting said land on which stood Po Ching's store.
As Po Tecsi had not paid a part of the rent due up to the time of his death, and Po Sun Suy, his
son, the rent due from his father's death until Jose M. Katigbak transferred the ownership
thereof to Po Sun Boo on May 23, 1927, the present action was brought in the Court of First
Instance of Manila for the recovery of said rent which amounts to P45,280, first against the
commercial firm Tai Hing Co., and later against the members of said firm, Po Sun Suy and Po
Ching, by an amendment to the original complaint.
Po Sun Suy, as the judicial administrator of the estate of his deceased father Po Tecsi, filed an
intervention praying that judgment be rendered against Jose M. Katigbak, the plaintiff,
declaring him not to be the owner of the property described in the second paragraph of the
complaint and, therefore, not entitled to the rents of the property in question.
The first question to be determined in the present appeal is one of procedure, and that it
whether or not the trial court had jurisdiction to try the case, on its merits.
The appellants contend that they as intervenors, having raised the question of ownership, the
solution of which is necessary for the determination of the question of rent, the Court of First
Instance of Manila had no jurisdiction to try the case, the properties in question being situated
in the municipality of Tacloban, Province of Leyte.
An action for the recovery of rent is a personal action, and as such is transitory and may be
instituted in the province where the defendant or the plaintiff resides, at the election of the
plaintiff (sec. 377, Act No. 190; Boga Tan Chiao Boc vs. Sajo Vecina, 11 Phil., 409). With
respect to the collection of rents, then, the Court of First Instance of Manila had jurisdiction to
try the action instituted to that end.
The question of ownership was raised by the intervenors who thereby submitted to the
jurisdiction of the Court of First Instance of Manila and, according to the doctrine laid down in
the case of Manila Railroad Company vs. Attorney-General (20 Phil., 523), a Court of First
Instance having full and unlimited jurisdiction over realty situated in the Philippine Islands, a
Court of First Instance of a province may try a case concerning realty situated in another
province so long as no objection is entered to said court's exercise of its jurisdiction. The
intervenors having submitted to the jurisdiction of the court by filing a third-party claim, in which
they raised the question of ownership of the premises, the rent of which it is sought to recover,
they cannot consistently object to the exercise of said jurisdiction.
Having decided the question of the court's jurisdiction with respect to the venue, we shall pass
on to the question of the ownership of the land involved herein.
In first place, it is contended by the appellants that Gabino Barreto Po Ejap was not authorized
under the power executed by Po Tecsi in his favor to sell said land, for the reason that said
power had been executed before Gabino Barreto Po Ejap sold said land to his brother Po
Tecsi.
We do not think that on this point the pertinent part of the power of attorney we have quoted
above could give rise to any doubt. The power is general and authorizes Gabino Po Ejap to
sell any kind of realty "belonging" (pertenezcan) to the principal. The use of the subjunctive
"pertenezcan" (might belong) and not the indicative "pertenecen" (belong), means that Po
Tecsi meant not only the property he had at the time of the execution of the power, but also
such as the might afterwards have during the time it was in force. (2 Corpus Juris, p. 614.)
The appellants also contend that said power of attorney not having been registered in the
registry of deeds, the authority granted therein to sell realty registered in accordance with the
Torrens system is ineffective, and the sale of the property in question made by Gabino Barreto
Po Ejap in favor of Jose M. Katigbak by virtue of said power has no more effect than that of a
contract to transfer or sell.
Inasmuch as in accordance with section 39 of said Act No. 496, "Every applicant receiving a
certificate of title in pursuance of a decree of registration, and every subsequent purchaser of
registered land who takes a certificate of title for value in good faith, shall hold the same free of
all incumbrance except noted on said certificate," every document which in any manner affects
the registered land is ineffective unless it is recorded in the registry of deeds. But such
inefficacy only refers to third persons who, in good faith, may have acquired some right to the
registered land.1awphi1.net
While it is true that a power of attorney not recorded in the registry of deeds is ineffective in
order than an agent or attorney-in-fact may validly perform acts in the name of his principal,
and that any act performed by the agent by virtue of said with respect to the land is ineffective
against a third person who, in good faith, may have acquired a right thereto, it does, however,
bind the principal to acknowledge the acts performed by his attorney-in-fact regarding said
property (sec. 50, Act No. 496).
In the present case, while it is true that the non-registration of the power of attorney executed
by Po Tecsi in favor of his brother Gabino Barreto Po Ejap prevents the sale made by the latter
of the litigated land in favor of Jose M. Katigbak from being recorded in the registry of deeds, it
is not ineffective to compel Tecsi to acknowledge said sale.
From the fact that said power and sale were not recorded in the registry of deeds, and from the
omission of any mention in the deed of sale of the mortgage lien in favor of Antonio M. H.
Limjenco, and the lease of a part of said land in favor of Uy Chia, the appellants deduce that
said sale is fraudulent.
The record contains many indication that Po Tecsi was not unaware of said sale. His several
letters complaining of the pressing demands of his brother Gabino Barreto Po Ejap to send him
the rents of the land, his promises to send them to him, and the remittance of the same were a
tacit acknowledgment that he occupied the land in question no longer as an owner but only as
lessee.
The appellants have tried to explain the remittance of said rents to Gabino Barreto Po Ejap by
Po Tecsi, saying that they were in payment of a debt which the latter owed the former for
certain property which said Gabino Barreto Po Ejap had sold to Po Tecsi. But there is nothing
in any of said letters to indicate that said rents were sent on account of said debt.
The appellant deny that there has been any contract of lease between Po Tecsi and Gabino
Barreto Po Ejap of the lands in question, for the reason that there exists no document to
evidence it. The evidence is clear that the rents were payable in advance on the first day of
each month. If this is so, then there is no need of a contract to prove the existence of the lease.
Upon the death of Po Tecsi on November 26, 1926, his son Po Sun Suy succeeded him it the
possession of the land and was appointed administrator of his father's estate on February 11,
1927. On February 14, 1927, he wrote to his uncle, Gabino Barreto Po Ejap, in answer to the
latter's letter to send him what he collected of the rents of the house, saying that the price of
hemp had suddenly dropped, his motor boat had been grounded, and his abaca plantations
had suffered damages, promising to send the rents later on.
Po Tecsi occupied the land as lesse from November 22, 1923, until his death on November 26,
1926, having paid up the rents accrued until October 22, 1925, and leaving unpaid the rents
due and accrued from that date until his death, a the rate of P1,500 per month. From the latter
date estate of his father Po Tecsi, and continued to collect the rents of said land from the
lessees, amounting to P745.
It does not clearly appear from what date the land was leased to the defendants Po Sun Suy
and Po Ching for the sum of P1,500 a month. If Po Tecsi had rented it until his death, then the
defendants Po Sun Suy and Po Ching could not have rented it until after the death of Po Tecsi.
The rights of the sub-lessee Uy Chia, whose lease for five years from October 1, 1923, was
duly recorded in the registry of deeds, are valid, for it does not appear that he had only
knowledge of the sale of the subleased property in favor of Jose M. Katigbak, which sale, as
we have said, has not been recorded in the registry of deeds and cannot, therefore, affect the
rights of third persons acquired in good faith and duly registered.
To summarize, then: the sale made on November 22, 1923, by Gabino Barreto Po Ejap, as
attorney-in-fact of Po Tecsi, in favor of Jose M. Katigbak of the land in question is valid; after
said sale, Po Tecsi leased the property sold, from Gabino Barreto Po Ejap, who administered it
in the name of Jose M. Katigbak, at a rental of P1,500 per month, payable in advance, leaving
unpaid the rents accrued from that date until his death which occurred on November 26, 1926,
having paid the accrued rents up to October 22, 1925; from November 26, 1926, the
defendants Po Sun Suy and Po Ching leased said land for the sum of P1,500 per month; on
February 11, 1927, Po Sun Suy was appointed administrator of the estate of his father Po
Tecsi, and filed with the court an inventory of said estate including the land in question; and on
May 23, 1927, Jose M. Katigbak sold the same property to Po Sun Boo.
The claim for rents due and unpaid by Po Tecsi, deceased, and proceedings for the settlement
of whose estate have been instituted, should be presented to the committee on claims and
appraisal appointed in said intestate proceeding in accordance with the provisions of section
703 of the Code of Civil Procedure and cannot be collected by an ordinary action.
As to the rents accrued and unpaid since the death of Po Tecsi, his son Po Sun Suy, as
administrator of his property, having included said property in the inventory of the latter, the
same is in custodia legis, and hence, the rents collected by said administrator of said property
are also in custodia legis. The claim then of Jose M. Katigbak for the rents accrued and unpaid
up to the date when said property was sold to Po Sun Boo, as well as the accrued and unpaid
rents from the time the latter acquired it up to the present date, must be presented in the court
taking cognizance of the intestate proceeding for the settlement of Po Tecsi's estate.
For the foregoing, we are of opinion and so hold: (1) That Jose M. Katigbak was the absolute
owner of the property in controversy, subject to the encumbrances on the same appearing in
the registry of deeds; (2) that his claim for the rents of the property in litigation accrued and
unpaid by Po Tecsi before his death must be presented to the committee on claims and
appraisal appointed in the intestate proceedings for the settlement of the estate of said Po
Tecsi; (3) that the claim of Jose M. Katigbak for the rents of the said property collected by Po
Sun Suy, as administrator of the porperty of the intestate estate of his father Po Tecsi, must be
presented to the court having cognizance of said intestate proceedings.
By virtue whereof, and with the modifications above indicated, the judgment appealed from is
affirmed, without special pronouncement as to costs. So ordered.
Separate Opinions
MALCOLM, J., dissenting:
Until the rules formally annouced in Briones vs. Garcia ([1919]), 40 Phil., 68) relating to the
approval of bills of exceptions, an authority often followed, shall be reconsidered and set aside,
the said rules should be given indiscriminate application to all cases, and this being done in the
instant case, the petition presented on behalf of the appellee should be decided in favor of the
petition, with the result that the appeal should be ordered dismissed.
EN BANC
G.R. No. L-11840 July 26, 1960
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.
GOQUIOLAY vs. WASHINGTON Z. SYCIP, ET AL.
REYES, J. B. L., J.:
Direct appeal from the decision of the Court of First Instance of Davao (the amount involved
being more than P200,00) dismissing the plaintiffs-appellants' complaint.
From the stipulation of facts of the parties and the evidence on record, it would appear that on
May 29, 1940, Tan Sin An and Antonio C. Goquiolay", entered into a general commercial
partnership under the partnership name "Tan Sin An and Antonio C. Goquiolay", for the
purpose in dealing in real state. The partnership had a capital of P30,000.00, P18,000.00 of
which was contributed by Goquiolay and P12,000.00 by Tan Sin An. The agreement lodge
upon Tan Sin An the sole management of the partnership affairs, stipulating that —
III. The co-partnership shall be composed of said Tan Sin An as sole managing and
partner (sic), and Antonio C. Goquiolay as co-partner.
IV. Vhe affairs of co-partnership shall be managed exclusively by the managing and
partner (sic) or by his authorized agent, and it is expressly stipulated that the
managing and partner (sic) may delegate the entire management of the affairs of the
co-partnership by irrevocable power of attorney to any person, firm or corporation he
may select upon such terms as regards compensation as he may deem proper, and
vest in such persons, firm or corporation full power and authority, as the agent of the
co-partnership and in his name, place and stead to do anything for it or on his behalf
which he as such managing and partner (sic) might do or cause to be done.
V. The co-partner shall have no voice or participation in the management of the
affairs of the co-partnership; but he may examine its accounts once every six (6)
months at any time during ordinary business hours, and in accordance with the
provisions of the Code of Commerce. (Article of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that —
In the event of the death of any of the partners at any time before the expiration of
said term, the co-partnership shall not be dissolved but will have to be continued and
the deceased partner shall be represented by his heirs or assigns in said
co-partnership (Art. XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated at any time upon mutual
agreement in writing of the partners (Art. XIII, articles of Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this effect:
That besides the powers and duties granted the said Tan Sin An by the articles of
co-partnership of said co-partnership "Tan Sin An and Antonio Goquiolay", that said
Tan Sin An should act as the Manager for said co-partnership for the full period of the
term for which said co-partnership was organized or until the whole period that the
said capital of P30,000.00 of the co-partnership should last, to carry on to the best
advantage and interest of the said co-partnership, to make and execute, sign, seal
and deliver for the co-partnership, and in its name, all bills, bonds, notes, specialties,
and trust receipts or other instruments or documents in writing whatsoever kind or
nature which shall be necessary to the proper conduction of the said businesses,
including the power to mortgage and pledge real and personal properties, to secure
the obligation of the co-partnership, to buy real or personal properties for cash or
upon such terms as he may deem advisable, to sell personal or real properties, such
as lands and buildings of the co-partnership in any manner he may deem advisable
for the best interest of said co-partnership, to borrow money on behalf of the
co-partnership and to issue promissory notes for the repayment thereof, to deposit
the funds of the co-partnership in any local bank or elsewhere and to draw checks
against funds so deposited ... .
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three (3)
parcels of land, known as Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao,
subject-matter of the instant litigation, assuming the payment of a mortgage obligation of
P25,000.00, payable to "La Urbana Sociedad Mutua de Construccion y Prestamos" for a
period of ten (10) years, with 10% interest per annum. Another 46 parcels were purchased by
Tan Sin An in his individual capacity, and he assumed payment of a mortgage debt thereon for
P35,000.00 with interest. The downpayment and the amortization were advanced by Yutivo
and Co., for the account of the purchasers.
On September 25, 1940, the two separate obligations were consolidated in an instrument
executed by the partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in
favor of the "Banco Hipotecario de Filipinas" (as successor to "La Urbana") and the
covenantors bound themselves to pay, jointly and severally, the remaining balance of their
unpaid accounts amounting to P52,282.80 within eight 8 years, with 8% annual interest,
payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and
four minor children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan.
Defendant Kong Chai Pin was appointed administratrix of the intestate estate of her deceased
husband.
In the meantime, repeated demands for payment were made by the Banco Hipotecario on the
partnership and on Tan Sin An. In March, 1944, the defendant Sing Yee and Cuan, Co., Inc.,
upon request of defendant Yutivo Sans Hardware Co., paid the remaining balance of the
mortgage debt, and the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims in
the intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13, respectively, as
alleged obligations of the partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin An,
for advances, interest and taxes paid in amortizing and discharging their obligations to "La
Urbana" and the "Banco Hipotecario". Disclaiming knowledge of said claims at first, Kong Chai
Pin later admitted the claims in her amended answer and they were accordingly approved by
the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to sell all
the 49 parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose preliminary of
settling the aforesaid debts of Tan Sin An and the partnership. Pursuant to a court order of
April 2, 1949, the administratrix executed on April 4, 1949, a deed of sale1 of the 49 parcels of
land to the defendants Washington Sycip and Betty Lee in consideration of P37,000.00 and of
vendees' assuming payments of the claims filed by Yutivo Sons Hardware Co. and Sing Yee
and Cuan Co., Inc. Later, in July, 1949, defendants Sycip and Betty Lee executed in favor of
the Insular Development Co., Inc. a deed of transfer covering the said 49 parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on or
about July 25, 1949, a petition in the intestate proceedings seeking to set aside the order of the
probate court approving the sale in so far as his interest over the parcels of land sold was
concerned. In its order of December 29, 1949, the probate court annulled the sale executed by
the administratrix with respect to the 60% interest of Antonio Goquiolay over the properties
sold. Kong Chai Pin appealed to the Court of Appeals, which court later certified the case to us
(93 Phil., 413; 49 Off. Gaz. [7] 2307). On June 30, 1953, we rendered decision setting aside
the orders of the probate court complained of and remanding the case for new trial, due to the
non-inclusion of indispensable parties. Thereafter, new pleadings were filed.
The second amended complaint in the case at bar prays, among other things, for the
annulment of the sale in favor of Washington Sycip and Betty Lee, and their subsequent
conveyance in favor of Insular Development Co., Inc., in so far as the three (3) lots owned by
the plaintiff partnership are concerned. The answer averred the validity of the sale by Kong
Chai Pin as successor partner, in lieu of the late Tan Sin An. After hearing, the complaint was
dismissed by the lower court in its decision dated October 30, 1956; hence, this appeal taken
directly to us by the plaintiffs, as the amount involved is more than P200,000.00.
Plaintiffs-appellants assign as errors that —
I — The lower court erred in holding that Kong Chai Pin became the managing
partner of the partnership upon the death of her husband, Tan Sin An, by virtue of the
articles of Partnership executed between Tan Sin An and Antonio Goquiolay, and the
general power of attorney granted by Antonio Goquiolay.
II — The lower court erred in holding that Kong Chai Pin could act alone as sole
managing partner in view of the minority of the other heirs.
III — The lower court erred in holding that Kong Chai Pin was the only heir qualified to
act as managing partner.
IV — The lower court erred in holding that Kong Chai Pin had authority to sell the
partnership properties by virtue of the articles of partnership and the general power of
attorney granted to Tan Sin An in order to pay the partnership indebtedness.
V — The lower court erred in finding that the partnership did not pay its obligation to
the Banco Hipotecario.
VI — The lower court erred in holding that the consent of Antonio Goquiolay was not
necessary to consummate the sale of the partnership properties.
 VII — The lower court erred in finding that Kong Chai Pin managed the business of
the partnership after the death of her husband, and that Antonio Goquiolay knew it.
VIII — The lower court erred in holding that the failure of Antonio Goquiolay to oppose
the management of the partnership by Kong Chai Pin estops him now from attacking
the validity of the sale of the partnership properties.
IX — The lower court erred in holding that the buyers of the partnership properties
acted in good faith.
X — The lower court erred in holding that the sale was not fraudulent against the
partnership and Antonio Goquiolay.
XI — The lower court erred in holding that the sale was not only necessary but
beneficial to the partnership.
XII — The lower court erred in dismissing the complaint and in ordering Antonio
Goquiolay to pay the costs of suit.
There is a merit in the contention that the lower court erred in holding that the widow, Kong
Chai Pin, succeeded her husband, Tan Sin An, in the sole management of the partnership,
upon the latter's death. While, as we previously stated in our narration of facts, the Articles of
Co-Partnership and the power of attorney executed by Antonio Goquiolay, conferred upon Tan
Sin An the exclusive management of the business, such power, premised as it is upon trust
and confidence, was a mere personal right that terminated upon Tan's demise. The provision
in the articles stating that "in the event of death of any one of the partners within the 10-year
term of the partnership, the deceased partner shall be represented by his heirs", could not
have referred to the managerial right given to Tan Sin An; more appropriately, it related to the
succession in the proprietary interest of each partner. The covenant that Antonio Goquiolay
shall have no voice or participation in the management of the partnership, being a limitation
upon his right as a general partner, must be held coextensive only with Tan's right to manage
the affairs, the contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co-partnership providing for the
continuation of the firm notwithstanding the death of one of the partners, the heirs of the
deceased, by never repudiating or refusing to be bound under the said provision in the articles,
became individual partners with Antonio Goquiolay upon Tan's demise. The validity of like
clauses in partnership agreements is expressly sanctioned under Article 222 of the Code of
Commerce.2
Minority of the heirs is not a bar to the application of that clause in the articles of co-partnership
(2 Vivante, Tratado de Derecho Mercantil, 493; Planiol, Traite Elementaire de Droit Civil,
English translation by the Louisiana State Law Institute, Vol. 2, Pt. 2, p. 177).
Appellants argue, however, that since the "new" members' liability in the partnership was
limited merely to the value of the share or estate left by the deceased Tan Sin An, they became
no more than limited partners and, as such, were disqualified from the management of the
business under Article 148 of the Code of Commerce. Although ordinarily, this effect follows
from the continuance of the heirs in the partnership,3 it was not so with respect to the widow
Kong Chai Pin, who, by her affirmative actions, manifested her intent to be bound by the
partnership agreement not only as a limited but as a general partner. Thus, she managed and
retained possession of the partnership properties and was admittedly deriving income
therefrom up to and until the same were sold to Washington Sycip and Betty Lee. In fact, by
executing the deed of sale of the parcels of land in dispute in the name of the partnership, she
was acting no less than as a managing partner. Having thus preferred to act as such, she
could be held liable for the partnership debts and liabilities as a general partner, beyond what
she might have derived only from the estate of her deceased husband. By allowing her to
retain control of the firm's property from 1942 to 1949, plaintiff estopped himself to deny her
legal representation of the partnership, with the power to bind it by the proper contracts.
The question now arises as to whether or not the consent of the other partners was necessary
to perfect the sale of the partnership properties to Washington Sycip and Betty Lee. The
answer is, we believe, in the negative. Strangers dealing with a partnership have the right to
assume, in the absence of restrictive clauses in the co-partnership agreement, that every
general partner has power to bind the partnership, specially those partners acting with
ostensible authority. And so, we held in one case:
. . . Third persons, like the plaintiff, are not bound in entering into a contract with any
of the two partners, to ascertain whether or not this partner with whom the transaction
is made has the consent of the other partner. The public need not make inquiries as
to the agreements had between the partners. Its knowledge is enough that it is
contracting with the partnership which is represented by one of the managing
partners.
"There is a general presumption that each individual partner is an agent for the firm
and that he has authority to bind the firm in carrying on the partnership transactions."
[Mills vs. Riggle, 112 Pac., 617]
"The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of the members of the firm acting apparently in its
behalf and within the scope of his authority." [Le Roy vs. Johnson, 7 U.S. Law, Ed.,
391] (George Litton vs. Hill & Ceron, et al., 67 Phil., 513-514).
We are not unaware of the provision of Article 129 of the Code of Commerce to the effect
that —
If the management of the general partnership has not been limited by special
agreement to any of the members, all shall have the power to take part in the
direction and management of the common business, and the members present shall
come to an agreement for all contracts or obligations which may concern the
association. (Emphasis supplied)
but this obligation is one imposed by law on the partners among themselves, that does not
necessarily affect the validity of the acts of a partner, while acting within the scope of the
ordinary course of business of the partnership, as regards third persons without notice. The
latter may rightfully assume that the contracting partner was duly authorized to contract for and
in behalf of the firm and that, furthermore, he would not ordinarily act to the prejudice of his
co-partners. The regular course of business procedure does not require that each time a third
person contracts with one of the managing partners, he should inquire as to the latter's
authority to do so, or that he should first ascertain whether or not the other partners had given
their consent thereto. In fact, Article 130 of the same Code of Commerce provides that even if
a new obligation was contracted against the express will of one of the managing partners, "it
shall not be annulled for such reason, and it shall produce its effects without prejudice to the
responsibility of the member or members who contracted it, for the damages they may have
caused to the common fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:
367. Primera hipotesis. — A falta de pactos especiales, la facultad de administrar
corresponde a cada socio personalmente. No hay que esperar ciertamente concordia
con tantas cabezas, y para cuando no vayan de acuerdo, la disciplina del Codigo no
ofrece un sistema eficaz que evite los inconvenientes. Pero, ante el silencio del
contrato, debia quiza el legislador privar de la administracion a uno de los socios en
beneficio del otro? Seria una arbitrariedad. Debera quiza declarar nula la Sociedad
que no haya elegido Administrador? El remedio seria peor que el mal. Debera, tal vez,
pretender que todos los socios concurran en todo acto de la Sociedad? Pero este
concurso de todos habria reducido a la impotencia la administracion, que es asunto d
todos los dias y de todas horas. Hubieran sido disposiciones menos oportunas que lo
adoptado por el Codigo, el cual se confia al espiritu de reciproca confianza que
deberia animar la colaboracion de los socios, y en la ley inflexible de responsabilidad
que implica comunidad en los intereses de los mismos.
En esta hipotesis, cada socio puede ejercer todos los negocios comprendidos en el
contrato social sin dar de ello noticia a los otros, porque cada uno de ellos ejerce la
administracion en la totalidad de sus relaciones, salvo su responsabilidad en el caso
de una administracion culpable. Si debiera dar noticia, el beneficio de su simultania
actividad, frecuentemente distribuida en lugares y en tiempos diferentes, se echaria a
perder. Se objetara el que de esta forma, el derecho de oposicion de cada uno de los
socios puede quedar frustrado. Pero se puede contestar que este derecho de
oposicion concedido por la ley como un remedio excepcional, debe subordinarse al
derecho de ejercer el oficio de Administrador, que el Codigo concede sin limite: "se
presume que los socios se han concedido reciprocamente la facultad de
administrar uno para otro." Se haria precipitar esta hipotesis en la otra de una
administracion colectiva (art. 1,721, Codigo Civil) y se acabaria con pedir el
consentimiento, a lo menos tacito, de todos los socios — lo que el Codigo
excluye ........, si se obligase al socio Administrador a dar noticia previa del negocio a
los otros, a fin de que pudieran oponerse si no consintieran.
Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II, 147-148)
opines:
Para obligar a las Compañias enfrente de terceros (art. 128 del Codigo), no es
bastante que los actos y contratos hayan sido ejecutados por un socio o varios en
nombre colectivo, sino que es preciso el concurso de estos dos elementos, uno, que
el socio o socios tengan reconocida la facultad de administrar la Compañia, y otro,
que el acto o contrato haya sido ejecutado en nombre de la Sociedad y usando de su
firma social. Asi se que toda obligacion contraida bajo la razon social, se presume
contraida por la Compañia. Esta presunion es impuesta por motivos de necesidad
practica. El tercero no puede cada vez que trata con la Compañia, inquirir si
realmente el negocio concierne a la Sociedad. La presuncion es juris tantum y no
juris et de jure, de modo que si el gerente suscribe bajo la razon social una obligacion
que no interesa a la Sociedad, este podra rechazar la accion del tercero probando
que el acreedor conocia que la obligacion no tenia ninguna relacion con ella. Si tales
actos y contratos no comportasen la concurrencia de ambos elementos, seria nulos y
podria decretarse la responsabilidad civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente aprobados por la
Compañia, o contabilizados en sus libros, si el acto o contrato ha sido convalidado
sin protesta y se trata de acto o contrato que ha producido beneficio social, tendria
plena validez, aun cuando le faltase algunos o ambos de aquellos requisitos antes
señalados.
Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al
nombramiento o designacion de uno o mas de un socio para administrar la
Compañia (art. 129 del Codigo) todos tienen por un igual el derecho de concurir a la
decision y manejo de los negocios comunes. . . .
Although the partnership under consideration is a commercial partnership and, therefore, to be
governed by the Code of Commerce, the provisions of the old Civil Code may give us some
light on the right of one partner to bind the partnership. States Art. 1695 thereof:
Should no agreement have been made with respect to the form of management, the
following rules shall be observed:
1. All the partners shall be considered agents, and whatever any one of the may do
individually shall bind the partnership; but each one may oppose any act of the others
before it has become legally binding.
The records fail to disclose that appellant Goquiolay made any opposition to the sale of the
partnership realty to Washington Z. Sycip and Betty Lee; on the contrary, it appears that he
(Goquiolay) only interposed his objections after the deed of conveyance was executed and
approved by the probate court, and, consequently, his opposition came too late to be effective.
Appellants assails the correctness of the amounts paid for the account of the partnership as
found by the trial court. This question, however, need not be resolved here, as in the deed of
conveyance executed by Kong Chai Pin, the purchasers Washington Sycip and Betty Lee
assumed, as part consideration of the purchase, the full claims of the two creditors, Sing Yee
and Cuan Co., Inc. and Yutivo Sons Hardware Co.
Appellants also question the validity of the sale covering the entire firm realty, on the ground
that it, in effect, threw the partnership into dissolution, which requires consent of all the
partners. This view is untenable. That the partnership was left without the real property it
originally had will not work its dissolution, since the firm was not organized to exploit these
precise lots but to engage in buying and selling real estate, and "in general real estate agency
and brokerage business". Incidentally, it is to be noted that the payment of the solidary
obligation of both the partnership and the late Tan Sin An, leaves open the question of
accounting and contribution between the co-debtors, that should be ventilated separately.
Lastly, appellants point out that the sale of the partnership properties was only a fraudulent
device by the appellees, with the connivance of Kong Chai Pin, to ease out Antonio Goquiolay
from the partnership. The "devise", according to the appellants, started way back sometime in
1945, when one Yu Khe Thai sounded out Antonio Goquiolay on the possibility of selling his
share in the partnership; and upon his refusal to sell, was followed by the filing of the claims of
Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. in the intestate estate
proceedings of Tan Sin An. As creditors of Tan Sin An and the plaintiff partnership (whose
liability was alleged to be joint and several), Yutivo Sons Hardware Co., and Sing Yee Cuan
Co., Inc. had every right to file their claims in the intestate proceedings. The denial of the
claims at first by Kong Chai Pin ( for lack of sufficient knowledge) negatives any conspiracy on
her part in the alleged fraudulent scheme, even if she subsequently decided to admit their
validity after studying the claims and finding it best to admit the same. It may not be amiss to
remark that the probate court approved the questioned claims.
There is complete failure of proof, moreover, that the price for which the properties were sold
was unreasonably low, or in any way unfair, since appellants presented no evidence of the
market value of the lots as of the time of their sale to appellees Sycip and Lee. The alleged
value of P31,056.58 in May of 1955 is no proof of the market value in 1949, specially because
in the interval, the new owners appear to have converted the land into a subdivision, which
they could not do without opening roads and otherwise improving the property at their own
expense. Upon the other hand, Kong Chai Pin hardly had any choice but to execute the
questioned sale, as it appears that the partnership had neither cash nor other properties with
which to pay its obligations. Anyway, we cannot consider seriously the inferences freely
indulged in by the appellants as allegedly indicating fraud in the questioned transactions,
leading to the conveyance of the lots in dispute to the appellee Insular Development Co., Inc.
Wherefore, finding no reversible error in the appealed judgment, we affirm the same, with
costs against appellant Antonio Goquiolay.
Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera, and
Gutierrez David, JJ., concur.
RESOLUTION
December 10, 1963
REYES, J. B. L., J.:
The matter now pending is the appellant's motion for reconsideration of our main decision,
wherein we have upheld the validity of the sale of the lands owned by the partnership
Goquiolay & Tan Sin An, made in 1949 by the widow of the managing partner, Tan Sin An
(executed in her dual capacity of Administratrix of her husband's estate and as partner, in lieu
of the husband), in favor of buyers Washington Sycip and Betty Lee for the following
consideration:
Cash paid P37,000.00
Debts assumed by purchase:
To Yutivo 62,415.91
To Sing Yee Cuan & Co. 54,310.13
TOTAL P153,726.04
Appellant Goquiolay, in his motion for reconsideration, insists that, contrary to our holding,
Kong Chai Pin, widow of the deceased partner Tan Sin An, never became more than
a limited partner, incapacitated by law to manage the affairs of the partnership; that the
testimony of her witnesses Young and Lim belies that she took over administration of the
partnership property; and that, in any event, the sale should be set aside because it was
executed with the intent to defraud appellant of his share in the properties sold.
Three things must be always held in mind in the discussion of this motion to reconsider, being
basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership property by one partner, acting in
behalf of the firm, to a stranger. There is no question between partners inter se, and this
aspects of the case was expressly reserved in the main decision of 26 July 1960;
(b) That the partnership was expressly organized "to engage in real estate business, either
by buying and selling real estate". The Article of co-partnership, in fact, expressly provided
that:
IV. The object and purpose of the co-partnership are as follows:
1. To engage in real estate business, either by buying and selling real estates; to
subdivide real estates into lots for the purpose of leasing and selling them.;
(c) That the properties sold were not part of the contributed capital (which was in cash) but
land precisely acquired to be sold, although subject a mortgage in favor of the original owners,
from whom the partnership had acquired them.
With these points firmly in mind, let us turn to the points insisted upon by appellant.
It is first averred that there is "not one iota evidence" that Kong Chai Pin managed and retained
possession of the partnership properties. Suffice it to point out that appellant Goquiolay himself
admitted that —
. . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to
manage the properties (as) she had no other means of income. Then I said, because
I wanted to help Mrs. Kong Chai Pin, she could just do it and besides I am not
interested in agricultural lands. I allowed her to take care of the properties in order to
help her and because I believe in God and I wanted to help her.
Q. — So the answer to my question is you did not take any steps?
A. — I did not.
Q. — And this conversation which you had with Mrs. Yu Eng Lai was few months
after 1945?
A. — In the year 1945. (Emphasis supplied)
The appellant subsequently ratified this testimony in his deposition of 30 June 1956, page 8-9,
wherein he sated:
that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of
course they are receiving quite a lot of benefit from that plantation.
Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled
to greater weight than those of Hernando Young and Rufino Lim, having been made against
the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando Young, that the witness
found the properties "abandoned and undeveloped", omits to mention that said part of the
testimony started with the question:
 Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs.
Kong Chai Pin there in Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership were
undeveloped, and the family of the widow (Kong Chai Pin) did not receive any income from the
partnership properties, was given in answer to the question:
According to Mr. Goquiolay, during the Japanese occupation Tan Sin An and his
family lived on the plantation of the partnership and derived their subsistence from
that plantation. What can you say to that? (Dep. 19 July 1956, p. 8)
And also —
What can you say so to the development of these other properties of the partnership
which you saw during the occupation?" (Dep., p. 13, Emphasis supplied)
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is in Tigatto
is about eleven (11) hectares and planted with abaca seedlings planted by Mr. Sin
An. When I went there with Hernando Young we saw all the abaca destroyed. The
place was occupied by the Japanese Army. They planted camotes and vegetables to
feed the Japanese Army. Of course they never paid any money to Tan Sin An or his
family. (Dep., Lim. pp. 13-14.) (Emphasis supplied)
Plainly, Both Young and Lim's testimonies do not belie, or contradict, Goquiolay's admission
that he told Mr. Yu Eng Lai that the widow "could just do it" (i e., continue to manage the
properties. Witnesses Lim and Young referred to the period of Japanese occupation; but
Goquiolay's authority was, in fact, given to the widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out no
acts of management during the Japanese occupation (1942-1944) does not mean that she did
not do so from 1945 to 1949.
We thus fine that Goquiolay did not merely rely on reports from Lim and Young; he actually
manifested his willingness that the widow should manage the partnership properties. Whether
or not she complied with this authority is a question between her and the appellant, and is not
here involved. But the authority was given, and she did have it when she made the questioned
sale, because it has never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only
to manage the property, and that it did not include the power to alienate, citing Article 1713 of
the Civil Code of 1889. What this argument overlooks is that the widow was not a mere agent,
because she had become a partner upon her husband's death, as expressly provided by the
articles of co-partnership. Even more, granting that by succession to her husband, Tan Sin An,
the widow only a became the limited partner, Goquiolay's authorization to manage the
partnership property was proof that he considered and recognized her has general partner, at
least since 1945. The reason is plain: Under the law (Article 148, last paragraph, Code of
Commerce), appellant could not empower the widow, if she were only a limited partner, to
administer the properties of the firm, even as a mere agent:
Limited partners may not perform any act of administration with respect to the
interests of the co-partnership, not even in the capacity agents of the managing
partners.(Emphasis supplied)
By seeking authority to manage partnership property, Tan Sin An's widow showed that she
desired to be considered a general partner. By authorizing the widow to manage partnership
property (which a limited partner could not be authorized to do), Goquiolay recognized her as
such partner, and is now in estoppel to deny her position as a general partner, with authority to
administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not
say "necessarily") becomes a limited partner for his own protection, because he would
normally prefer to avoid any liability in excess of the value of the estate inherited so as not to
jeopardize his personal assets. But this statutory limitation of responsibility being designed to
protect the heir, the latter may disregard it and instead elect to become a collective or general
partner, with all the rights and privileges of one, and answering for the debts of the firm not only
with the inheritance bud also with the heir's personal fortune. This choice pertains exclusively
to the heir, and does not require the assent of the surviving partner.
It must be remembered that the articles of co-partnership here involved expressly stipulated
that:
In that event of the death of any of the partners at any time before the expiration of
said term, the co-partnership shall not be dissolved but will have to be continued and
the deceased partner shall be represented by his heirs or assigns in said
co-partnership" (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be merely limited partner; on
the contrary they expressly stipulated that in case of death of either partner
"the co-partnership ... will have to be continued" with the heirs or assigns. It certainly could not
be continued if it were to be converted from a general partnership into a limited partnership,
since the difference between the two kinds of associations is fundamental; and specially
because the conversion into a limited association would leave the heirs of the deceased
partner without a share in the management. Hence, the contractual stipulation does actually
contemplate that the heirs would become general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner should they refuse
to assume personal and unlimited responsibility for the obligations of the firm. The heirs, in
other words, can not be compelled to become general partners against their wishes. But
because they are not so compellable, it does not legitimately follow that they may not
voluntarily choose to become general partners, waiving the protective mantle of the general
laws of succession. And in the latter event, it is pointless to discuss the legality of any
conversion of a limited partner into a general one. The heir never was a limited partner, but
chose to be, and became, a general partner right at the start.
It is immaterial that the heirs name was not included in the firm name, since no conversion of
status is involved, and the articles of co-partnership expressly contemplated the admission of
the partner's heirs into the partnership.
It must never be overlooked that this case involves the rights acquired by strangers, and does
not deal with the rights arising between partners Goquiolay and the widow of Tan Sin An. The
issues between the partners inter se were expressly reversed in our main decision. Now, in
determining what kind of partner the widow of partner Tan Sin An had elected to become,
strangers had to be guided by her conduct and actuations and those of appellant Goquiolay.
Knowing that by law a limited partner is barred from managing the partnership business or
property, third parties (like the purchasers) who found the widow possessing and managing
the firm property with the acquiescense (or at least without apparent opposition) of the
surviving partners were perfectly justified in assuming that she had become a general partner,
and, therefore, in negotiating with her as such a partner, having authority to act for, and in
behalf of, the firm. This belief, be it noted, was shared even by the probate court that approved
the sale by the widow of the real property standing in the partnership name. That belief was
fostered by the very inaction of appellant Goquiolay. Note that for seven long years, from
partner Tan Sin An's death in 1942 to the sale in 1949, there was more than ample time for
Goquiolay to take up the management of these properties, or at least ascertain how its affairs
stood. For seven years Goquiolay could have asserted his alleged rights, and by suitable
notice in the commercial registry could have warned strangers that they must deal with him
alone, as sole general partner. But he did nothing of the sort, because he was not interested
(supra), and he did not even take steps to pay, or settle, the firm debts that were overdue since
before the outbreak of the last war. He did not even take steps, after Tan Sin An died, to cancel,
or modify, the provisions of the partnership articles that he (Goquiolay) would have no
intervention in the management of the partnership. This laches certainly contributed to confirm
the view that the widow of Tan Sin An had, or was given, authority to manage and deal with the
firm's properties, apart from the presumption that a general partner dealing with partnership
property has the requisite authority from his co-partners (Litton vs. Hill and Ceron, et al., 67
Phil., 513; quoted in our main decision, p. 11).
The stipulation in the articles of partnership that any of the two managing partners
may contract and sign in the name of the partnership with the consent of the other,
undoubtedly creates an obligation between the two partners, which consists in asking
the other's consent before contracting for the partnership. This obligation of course
is not imposed upon a third person who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the managing partner with whom he
contracts has previously obtained the consent of the other. A third person may
and has a right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his co-partner; for otherwise
he would not enter into the contract. The third person would naturally not presume
that the partner with whom he enters into the transaction is violating the articles of
partnership, but on the contrary, is acting in accordance therewith. And this finds
support in the legal presumption that the ordinary course of business has been
followed (No. 18, section 334, Code of Civil Procedure), and that the law has been
obeyed (No. 31, section 334). This last presumption is equally applicable to contracts
which have the force of law between the parties. (Litton vs. Hill & Ceron, et al., 67
Phil., 509, 516) (Emphasis supplied)
It is next urged that the widow, even as a partner, had no authority to sell the real estate of the
firm. This argument is lamentably superficial because it fails to differentiate between real
estate acquired and held as stock-in-trade and real state held merely as business
site (Vivante's "taller o banco social") for the partnership. Where the partnership business is to
deal in merchandise and goods, i.e., movable property, the sale of its real property
(immovables) is not within the ordinary powers of a partner, because it is not in line with the
normal business of the firm. But where the express and avowed purpose of the partnership is
to buy and sell real estate (as in the present case), the immovables thus acquired by the firm
form part of its stock-in-trade, and the sale thereof is in pursuance of partnership purposes,
hence within the ordinary powers of the partner. This distinction is supported by the opinion of
Gay de Montella1, in the very passage quoted in the appellant's motion for reconsideration:
La enajenacion puede entrar en las facultades del gerente: cuando es conforme a los
fines sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los
fines sociales, viene limitada a los objetos de comecio o a los productos de la fabrica
para explotacion de los cuales se ha constituido la Sociedad. Ocurrira una cosa
parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en
cuyo caso el gerente estaria facultado para otorgar las ventas que fuere
necesario. (Montella) (Emphasis supplied)
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either partner has the legal
right to sell the firm real estate
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner has
ample power, as a general agent of the firm, to enter into an executory contract for
the sale of real estate.
And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:
If the several partners engaged in the business of buying and selling real estate can
not bind the firm by purchases or sales of such property made in the regular course of
business, then they are incapable of exercising the essential rights and powers of
general partners and their association is not really a partnership at all, but a several
agency.
Since the sale by the widow was in conformity with the express objective of the partnership, "to
engage * * * in buying and selling real estate" (Art IV, No. 1, Articles of Copartnership), it can
not be maintained that the sale was made in excess of her powers as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in McGrath,
et al., vs. Cowen, et al., 49 N. E., 338. But the facts of that case are vastly different from the
one before us. In the McGrath case, the Court expressly found that:
The firm was then, and for some time had been, insolvent, in the sense that its
property was insufficient to pay its debts, though it still had good credit, and was
actively engaged in the prosecution of its business. On that day, which was Saturday,
the plaintiff caused to be prepared, ready for execution, the four chattel mortgages in
question, which cover all the tangible property then belonging to the firm, including
the counters, shelving, and other furnishings and fixtures necessary for, and used in
carrying on, its business, and signed the same in this form: "In witness whereof, the
said Cowen & McGrath, a firm, and Owen McGrath, surviving partner of said firm, and
Owen McGrath, individually, have here-unto set their hands, this 20th day of May, A.
D. 1893. Cowen & McGrath, by Owen McGrath. Owen McGrath, Surviving partner of
Cowen & McGrath. Owen McGrath" At the same time, the plaintiff had prepared,
ready for filing, the petition for the dissolution of the partnership and appointment of a
receiver, which he subsequently filed, as hereinafter stated. On the day the
 mortgages were signed, they were placed in the hands of the mortgagees, which was
the first intimation to them that there was any intention to make then. At that
time none of the claims secured by the mortgages were due, except, it may be, a
small part of one of them, and none of the creditors to whom the mortgages were
made had requested security, or were pressing for the payment of their debts. ... The
mortgages appear to be without a sufficient condition of defeasance, and contain a
stipulation authorizing the mortgagees to take immediate possession of the property,
which they did as soon as the mortgages were filed, through the attorney who then
represented them, as well as the plaintiff; and the stores were at once
closed, andpossession delivered by them to the receiver appointed upon the filing of
the petition. The avowed purpose of the plaintiff in the course pursued by him, was to
terminate the partnership, place its property beyond the control of the firm, and insure
the preference of the mortgages, all of which was known to them at the time: ... . (Cas
cit., p. 343, Emphasis supplied)
It is natural that from these facts the Supreme Court of Ohio should draw the conclusion that
conveyances were made with intent to terminate the partnership, and that they were not within
the powers of McGrath as partner. But there is no similarly between those acts and the sale by
the widow of Tan Sin An. In the McGrath case, the sale included even the fixtures used in the
business, in our case, the lands sold were those acquired to be sold. In the McGrath case,
none of the creditors were pressing for payment; in our case, the creditors had been unpaid for
more than seven years, and their claims had been approved by the probate court for payment.
In the McGrath case, the partnership received nothing beyond the discharge of its debts; in the
present case, not only were its debts assumed by the buyers, but the latter paid, in addition,
P37,000.00 in cash to the widow, to the profit of the partnership. Clearly, the McGrath ruling is
not applicable.
We will now turn to the question to fraud. No direct evidence of it exists; but appellant points
out, as indicia thereof, the allegedly low price paid for the property, and the relationship
between the buyers, the creditors of the partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold for a total of
P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debts assumed by
the purchaser. These debts (P62,415.91 to Yutivo, and P54,310.13 to Sing Yee Cuan & Co.)
are not questioned; they were approved by the Court, and its approval is now final. The claims
were, in fact, for the balance on the original purchase price of the land sold (due first to La
Urbana, later to the Banco Hipotecario) plus accrued interests and taxes, redeemed by the two
creditors-claimants. To show that the price was inadequate, appellant relies on the testimony
of the realtor Mata, who in 1955, six years after the sale in question, asserted that the land was
worth P312,000.00. Taking into account the continued rise of real estate values since
liberation, and the fact that the sale in question was practically a forced sale because the
partnership had no other means to pay its legitimate debts, this evidence certainly does not
show such "gross inadequacy" as to justify rescission of the sale. If at the time of the sale
(1949 the price of P153,726.04 was really low, how is it that appellant was not able to raise the
amount, even if the creditor's representative, Yu Khe Thai, had already warned him four years
before (1946) that the creditors wanted their money back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum needed to discharge the
debts. But the lands were already mortgaged, and had been mortgaged since 1940, first to La
Urbana, and then to the Banco Hipotecario. Was it reasonable to expect that other persons
would loan money to the partnership when it was unable even to pay the taxes on the property,
and the interest on the principal since 1940? If it had been possible to find lenders willing to
take a chance on such a bad financial record, would not Goquiolay have taken advantage of it?
But the fact is clear on the record that since liberation until 1949 Goquiolay never lifted a finger
to discharge the debts of the partnership. Is he entitled now to cry fraud after the debts were
discharged with no help from him?
With regard to the relationship between the parties, suffice it to say that the Supreme Court
has ruled that relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil.,
243; also Hermandad de Smo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is
no evidence that the original buyers, Washington Sycip and Betty Lee, were without
independent means to purchase the property. That the Yutivos should be willing to extend
credit to them, and not to appellant, is neither illegal nor immoral; at the very least, these
buyers did not have a record of inveterate defaults like the partnership "Tan Sin An &
Goquiolay".
Appellant seeks to create the impression that he was the victim of a conspiracy between the
Yutivo firm and their component members. But no proof is adduced. If he was such a victim, he
could have easily defeated the conspirators by raising money and paying off the firm's debts
between 1945 and 1949; but he did; he did not even care to look for a purchaser of the
partnership assets. Were it true that the conspiracy to defraud him arose (as he claims)
because of his refusal to sell the lands when in 1945 Yu Khe Thai asked him to do so, it is
certainly strange that the conspirators should wait 4 years, until 1949, to have the sale effected
by the widow of Tan Sin An, and that the sale should have been routed through the probate
court taking cognizance of Tan Sin An's estate, all of which increased the risk that the
supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan & Co.,
(as subrogees of the Banco Hipotecario) in proceedings for the settlement of the estate of Tan
Sin An. This for two reasons: First, Tan Sin An and the partnership "Tan Sin An & Goquiolay"
were solidary (joint and several) debtors (Exhibit "N" mortgage to the Banco Hipotecario), and
Rule 87, section 6, is to the effect that:
Where the obligation of the decedent is joint and several with another debtor, the
claim shall be filed against the decedent as if he were the only debtor, without
prejudice to the right of the estate to recover contribution from the other debtor.
(Emphasis supplied)
Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the
partnership and those of Tan Sin An personally, and a mortgage in indivisible, in the sense that
each and every parcel under mortgage answers for the totality of the debt (Civ. Code of 1889,
Article 1860; New Civil Code, Art. 2089).
A final and conclusive consideration. The fraud charged not being one used to obtain a party's
consent to a contract (i.e., not being deceit or dolus in contrahendo), if there is fraud at all, it
can only be a fraud of creditors that gives rise to a rescission of the offending contract. But by
express provision of law (Article 1294, Civil Code of 1889; Article 1383, New Civil Code), "the
action for rescission is subsidiary; it can not be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same". Since there is no
allegation, or evidence, that Goquiolay can not obtain reparation from the widow and heirs of
Tan Sin An, the present suit to rescind the sale in question is not maintenable, even if the fraud
charged actually did exist.
Premises considered, the motion for reconsideration is denied.
Bengzon, C. J., Padilla, Concepcion, Barrera, and Dizon, JJ., concur.
Separate Opinions
BAUTISTA ANGELO, J., dissenting:
This is an appeal from a decision of the Court of First Instance of Davao dismissing the
complaint filed by Antonio C. Goquiolay, et al., seeking to annul the sale made by Kong Chai
Pin of three parcels of land to Washington Z. Sycip and Betty Y. Lee on the ground that it was
executed without proper authority and under fraudulent circumstances. In a decision rendered
on July 26, 1960, we affirmed this decision although on grounds different from those on which
the latter is predicated. The case is once more before us on a motion for reconsideration filed
by appellants raising both questions of fact and of law.
On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City a commercial
partnership for a period of ten years with a capital of P30,000.00 of which Goquiolay
contributed P18,000.00 representing 60% while Tan Sin An P12,000.00 representing 40%.
The business of the partnership was to engage in buying real estate properties for subdivision,
resale and lease. The partnership was duly registered, and among the conditions agreed upon
in the partnership agreement which are material to this case are: (1) that Tan Sin An would be
the exclusive managing partner, and (2) in the event of the death of any of the partners the
partnership would continue, the deceased to be represented by his heirs. On May 31, 1940,
Goquiolay executed a general power of attorney in favor of Tan Sin An appointing the latter
manager of the partnership and conferring upon him the usual powers of management.
On May 29, 1940, the partnership acquired three parcels of land known as Lots Nos. 526, 441
and 521 of the cadastral survey of Davao, the only assets of the partnership, with the capital
originally invested, financing the balance of the purchase price with a mortgage in favor of "La
Urbana Sociedad Mutua de Construccion Prestamos" in the amount of P25,000.00 payable in
ten years. On the same date, Tan Sin An, in his individual capacity, acquired 46 parcels of land
executing a mortgage thereon in favor of the same company for the sum of P35,000.00. On
September 25, 1940, these two mortgage obligations were consolidated and transferred to the
Banco Hipotecario de Filipinas and as a result Tan Sin An, in his individual capacity, and the
partnership bound themselves to pay jointly and severally the total amount of P52,282.80, with
8% annual interest thereon within the period of eight years mortgaging in favor of said entity
the 3 parcels of land belonging to the partnership to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow, defendant Kong Chai Pin,
and four children, all of whom are minors of tender age. On March 18, 1944, Kong Chai Pin
was appointed administratrix of the intestate estate of Tan Sin An. And on the same date, Sing,
Yee and Cuan Co., Inc. paid to the Banco Hipotecario the remaining unpaid balance of the
mortgage obligation of the partnership amounting to P46,116.75 in Japanese currency.
Sometime in 1945, after the liberation of Manila, Yu Khe Thai, president and general manager
of Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc., called for Goquiolay and the
two had a conference in the office of the former during which he offered to buy the interest of
Goquiolay in the partnership. In 1948, Kong Chai Pin, the widow, sent her counsel, Atty.
Dominador Zuño, to ask Goquiolay to execute in her favor a power of attorney. Goquiolay
refused both to sell his interest in the partnership as well as to execute the power of attorney.
Having failed to get Goquiolay to sell his share in the partnership, Yutivo Sons Hardware Co.,
and Sing, Yee and Cuan Co., Inc. filed in November, 1946 a claim each in the intestate
proceedings of Tan Sin An for the sum of P84,705.48 and P66,529.91, respectively, alleging
that they represent obligations of both Tan Sin An and the partnership. After first denying any
knowledge of the claims, Kong Chai Pin, as administratrix, admitted later without qualification
the two claims in an amended answer she filed on February 28, 1947. The admission was
predicated on the ground that she and the creditors were closely related by blood, affinity and
business ties. On due course, these two claims were approved by the court.
On March 29, 1949, more than two years after the approval of the claims, Kong Chai Pin filed a
petition in the probate court to sell all the properties of the partnership as well as some of the
conjugal properties left by Tan Sin An for the purpose of paying the claims. Following approval
by the court of the petition for authority to sell, Kong Chai Pin, in her capacity as administratrix,
and presuming to act as managing partner of the partnership, executed on April 4, 1949 a
deed of sale of the properties owned by Tan Sin An and by the partnership in favor of Betty Y.
Lee and Washington Z. Sycip in consideration of the payment to Kong Chai Pin of the sum of
P37,000.00, and the assumption by the buyers of the claims filed by Yutivo Sons Hardware Co.
and Sing, Yee and Cuan Co., Inc. in whose favor the buyers executed a mortgage on the
properties purchased. Betty Y. Lee and Washington Z. Sycip subsequently executed a deed of
sale of the same properties in favor of their co-defendant Insular Development Company, Inc.
It should be noted that these transactions took place without the knowledge of Goquiolay and it
is admitted that Betty Y. Lee and Washington Z. Sycip bought the properties on behalf of the
ultimate buyer, the Insular Development Company, Inc., with money given by the latter.
Upon learning of the sale of the partnership properties, Goquiolay filed on July 25, 1949 in the
intestate proceedings a petition to set aside the order of the court approving the sale. The court
granted the petition. While the order was pending appeal in the Supreme Court, Goquiolay
filed the present case on January 15, 1953 seeking to nullify the sale as stated in the early part
of this decision. In the meantime, the Supreme Court remanded the original case to the
probate court for rehearing due to lack of necessary parties.
The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the
partnership properties on the ground that she had no authority to sell because even granting
that she became a partner upon the death of Tan Sin An the power of attorney granted in favor
of the latter expired after his death.
Defendants, on the other hand, defended the validity of the sale on the theory that she
succeeded to all the rights and prerogatives of Tan Sin An as managing partner.
The trial court sustained the validity of the sale on the ground that under the provisions of the
articles of partnership allowing the heirs of the deceased partner to represent him in the
partnership after hid death Kong Chai Pin became a managing partner, this being the capacity
held by Tan Sin An when he died.
In the decision rendered by this Court on July 26, 1960, we affirmed this decision but on
different grounds, among which the salient points are: (1) the power of attorney given by
Goquiolay to Tan Sin An as manager of the partnership expired after his death; (2) his widow
Kong Chai Pin did not inherit the management of the partnership, it being a personal right; (3)
as a general rule, the heirs of a deceased general partner come into the partnership in the
capacity only of limited partners; (4) Kong Chai Pin, however, became a general partner
because she exercised certain alleged acts of management; and (5) the sale being necessary
to pay the obligations of the partnership, she was therefore authorized to sell the partnership
properties without the consent of Goquiolay under the principle of estoppel, the buyers having
the right to rely on her acts of management and to believe her to be in fact the managing
partner.
Considering that some of the above findings of fact and conclusions of law are without legal or
factual basis, appellants have in due course filed a motion for reconsideration which because
of the importance of the issues therein raised has been the subject of mature deliberation.
In support of said motion, appellants advanced the following arguments:
1. If the conclusion of the Court is that heirs as a general rule enter the partnership as
limited partners only, therefore Kong Chai Pin, who must necessarily have entered
the partnership as a limited partner originally, could have not chosen to be a general
partner by exercising the alleged acts of management, because under Article 148 of
the Code of Commerce a limited partner cannot intervene in the management of the
partnership even if given a power of attorney by the general partners. An Act
prohibited by law cannot give rise to any right and is void under the express
provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them being members of the
Yu (Yutivo) family, the rest, members of the law firm which handles the Yutivo
interests and handled the papers of sale. They did not rely on the alleged acts of
management — they believed (this was the opinion of their lawyers) that Kong Chai
Pin succeeded her husband as a managing partner and it was on this theory alone
that they submitted the case in the lower court.
3. The alleged acts of management were denied and repudiated by the very
witnesses presented by the defendants themselves.
The arguments advanced by appellants are in our opinion well-taken and furnish sufficient
basis to reconsider our decision if we want to do justice to Antonio C. Goquiolay. And to justify
this conclusion, it is enough that we lay stress on the following points: (1) there is no sufficient
factual basis to conclude that Kong Chai Pin executed acts of management to give her the
character of general manager of the partnership, or to serve as basis for estoppel that may
benefit the purchasers of the partnership properties; (2) the alleged acts of management, even
if proven, could not give Kong Chai Pin the character of general manager for the same is
contrary to law and well-known authorities; (3) even if Kong Chai Pin acted as general
manager she had no authority to sell the partnership properties as to make it legal and valid;
and (4) Kong Chai Pin had no necessity to sell the properties to pay the obligation of the
partnership and if she did so it was merely to favor the purchasers who were close relatives to
the prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of management imputed to
her our ruling we apparently gave particular importance to the fact that it was Goquiolay
himself who tried to prove the acts of management. Appellants, however, have emphasized
the fact, and with reason, that the appellees themselves are the ones who denied and refuted
the so-called acts of management imputed to Kong Chai Pin. To have a clear view of this
factual situation, it becomes necessary that we analyze the evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-examination that he had a conversation
with one Hernando Young in Manila in the year 1945 who informed him that Kong Chai Pin
"was attending to the properties and deriving some income therefrom and she had no other
means of livelihood except those properties and some rentals derived from the properties." He
went on to say by way of remark that she could continue doing this because he wanted to help
her. On point that he emphasized was that he was "not interested in agricultural lands."
On the other hand, defendants presented Hernando Young, the same person referred to by
Goquiolay, who was a close friend of the family of Kong Chai Pin, for the purpose of denying
the testimony of Goquiolay. Young testified that in 1945 he was still in Davao, and insisted no
less than six times during his testimony that he was not in Manila in 1945, the year when he
allegedly gave the information to Goquiolay, stating that he arrived in Manila for the first time in
1947. He testified further that he had visited the partnership properties during the period
covered by the alleged information given by him to Goquiolay and that he found them
"abandoned and underdeveloped," and that Kong Chai Pin was not deriving any income from
them.
The other witness for the defendants, Rufino Lim, also testified that he had seen the
partnership properties and corroborated the testimony of Hernando Young in all respects: "the
properties in Mamay were underdeveloped, the shacks were destroyed in Tigato, and the
family of Kong Chai Pin did not receive any income from the partnership properties." He
specifically rebutted the testimony of Goquiolay in his deposition given on June 30, 1956 that
Kong Chai Pin and her family were living in the partnership properties and stated that the
'family never actually lived in the properties of the partnership even before the war or after the
war."
It is unquestionable that Goquiolay was merely repeating an information given to him by a third
person, Hernando Young — he stressed this point twice. A careful analysis of the substance of
Goquiolay's testimony will show that he merely had no objection to allowing Kong Chai Pin to
continue attending to the properties in order to give her some means of livelihood, because,
according to the information given him by Hernando Young, which he assumed to be true,
Kong Chai Pin had no other means of livelihood. But certainly he made it very clear that he did
not allow her tomanage the partnership when he explained his reason for refusing to sign a
general power of attorney for Kong Chai Pin which her counsel, Atty. Zuño, brought with him to
his house in 1948. He said:
. . . Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuño and he asked me
if I could execute a general power of attorney for Mrs. Kong Chai Pin. Then I told Atty.
Zuño what is the use of executing a general power of attorney for Mrs. Kong Chai Pin
when Mrs. Kong Chai Pin had already got that plantation for agricultural purposes, I
said for agricultural purposes she can use that plantation ... (T.s.n., p. 9, Hearing on
May 5, 1955)
It must be noted that in his testimony Goquiolay was categorically stating his opposition to the
management of the partnership by Kong Chai Pin and carefully made the distinction that his
conformity was for her to attend to the partnership properties in order to give her merely a
means of livelihood. It should be stated that the period covered by the testimony refers to the
period of occupation when living condition was difficult and precarious. And Atty. Zuño, it
should also be stated, did not deny the statement of Goquiolay.
It can therefore be seen that the question as to whether Kong Chai Pin exercised certain acts
of management of the partnership properties is highly controverted. The most that we can say
is that the alleged acts are doubtful more so when they are disputed by the defendants
themselves who later became the purchasers of the properties, and yet these alleged acts, if at
all, only refer to management of the properties and not to management of the partnership,
which are two different things.
In resume, we may conclude that the sale of the partnership properties by Kong Chai Pin
cannot be upheld on the ground of estoppel, first, because the alleged acts of management
have not been clearly proven; second, because the record clearly shows that the defendants,
or the buyers, were not misled nor did they rely on the acts of management, but instead they
acted solely on the opinion of their counsel, Atty. Quisumbing, to the effect that she succeeded
her husband in the partnership as managing partner by operation of law; and third, because
the defendants are themselves estopped to invoke a defense which they tried to dispute and
repudiate.
2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are true, could
such acts give her the character of general manager of the partnership as we have concluded
in our decision?
Out answer is in the negative because it is contrary to law and precedents. Garrigues, a
well-known commentator, is clearly of the opinion that mere acceptance of the inheritance
does not make the heir of a general partner a general partner himself. He emphasized that the
heir must declare that he is entering the partnership as a general partner unless the deceased
partner has made it an express condition in his will that the heir accepts the condition of
entering the partnership as a prerequisite of inheritance, in which case acceptance of the
inheritance is enough.1But here Tan Sin An died intestate.
Now, could Kong Chai Pin be deemed to have declared her intention to become general
partner by exercising acts of management? We believe not, for, in consonance with out ruling
that as a general rule the heirs of a deceased partner succeed as limited partners only by
operation of law, it is obvious that the heir, upon entering the partnership, must make a
declaration of his character, otherwise he should be deemed as having succeeded as limited
partner by the mere acceptance of inheritance. And here Kong Chai Pin did not make such
declaration. Being then a limited partner upon the death of Tan Sin An by operation of law, the
peremptory prohibition contained in Article 1482 of the Code of Commerce became binding
upon her and as a result she could not change her status by violating its provisions not only
under the general principle that prohibited acts cannot produce any legal effect, but also
because under the provisions of Article 1473 of the same Code she was precluded from
acquiring more rights than those pertaining to her as a limited partner. The alleged acts of
management, therefore, did not give Kong Chai Pin the character of general manager to
authorize her to bind the partnership.
Assuming also arguendo that the alleged acts of management imputed to Kong Chai Pin gave
her the character of a general partner, could she sell the partnership properties without
authority from the other partners?
Our answer is also in the negative in the light of the provisions of the articles of partnership and
the pertinent provisions of the Code of Commerce and the Civil Code. Thus, Article 129 of the
Code of Commerce says:
If the management of the general partnership has not been limited by special
agreement to any of the members, all shall have the power to take part in the
direction and management of the common business, and the members present shall
come to an agreement for all contracts or obligations which may concern the
association.
And the pertinent portions of the Articles of partnership provides:
VII. The affairs of the co-partnership shall be managed exclusively by the managing
partner or by his authorized agent, and it is expressly stipulated that the managing
partner may delegate the entire management of the affairs of the co-partnership by
irrevocable power of attorney to any person, firm or corporation he may select, upon
such terms as regards compensation as he may deem proper, and vest in such
person, firm or corporation full power and authority, as the agent of the co-partnership
and in his name, place and stead to do anything for it or on his behalf which he as
such managing partner might do or cause to be done. (Page 23, Record on Appeal)
It would thus be seen that the powers of the managing partner are not defined either under the
provisions of the Code of Commerce or in the articles of partnership, a situation which, under
Article 2 of the same Code, renders applicable herein the provisions of the Civil Code, And
since, according to well-known authorities, the relationship between a managing partner and
the partnership is substantially the same as that of the agent and his principal,4the extent of the
power of Kong Chai Pin must, therefore, be determined under the general principles governing
agency. And, on this point, the law says that an agency created in general terms includes only
acts of administration, but with regard to the power to compromise, sell, mortgage, and other
acts of strict ownership, an express power of attorney is required.5 Here Kong Chai Pin did not
have such power when she sold the properties of the partnership.
Of course, there is authority to the effect that a managing partner, even without express power
of attorney, may perform acts affecting ownership if the same are necessary to promote or
accomplish a declared object of the partnership, but here the transaction is not for this purpose.
It was effected not to promote any avowed object of the partnership.6 Rather, the sale was
effected to pay an obligation of the partnership by selling its real properties which Kong Chai
Pin could not do without express authority. The authorities supporting this view are
overwhelming.
La enajenacion puede entrar en las facultades del gerente, cuando es conforme a los
fines sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los
fines sociales, viene limitada a los objetos de comercio, o los productos de la fabrica
para explotacion de los cuales se ha constituido la Sociedad. Ocurrira una cosa
parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en
cuyo caso el gerente estaria facultado para otorgar las ventas que fuere
necesario. Por el contrario, el gerente no tiene atribuciones para vender las
instalaciones del comercio ni la fabrica, ni las maquinarias, vehiculos de transporte,
etc., que forman parte de la explotacion social. En todos estas casos, igualmente que
si tratase de la venta de una marca o procedimiento mecanico o quimico, etc., siendo
actos de disposicion seria necesario contar con la conformidad expresa de todos los
socios. (R. Gay de Montella, id., pp. 223-224, Emphasis supplied)
Los poderes de los Administradores no tienen ante el silencio del contrato otros
limites que los señalados por el objeto de la Sociedad y, por consiguiente, pueden
llevar a cabo todas las operaciones que sirven para aquel ejercicio, incluso
cambiando repetidas veces los propios acuerdos segun el interes convenido de la
Sociedad. Pueden contratar y despedir a los empleados, tomar en arriendo
almacenas y tiendas, expedir cambiales, girarlas, avalarlas, dar en prenda o en
hipoteca los bienes de la sociedad y adquirir inmuebles destinados a su explotacion
o al empleo estable de sus capitales. Pero no podran ejecutar los actos que estan en
contradiccion con la explotacion que les fue confiada no podran cambiar el objeto, el
 domicilio la razon social; fundir a la Sociedad en otra; ceder la accion, y por tanto, el
uso de la firma social a otro renunciar definitivamente el ejercicio de uno de otro ramo
comercio que se les haya confiado y enajenar o piqnorar el taller o el banco social
excepto que la venta o piqnoracion tengan por el objeto procurar los medios
necesarios para la continuacion de la empresa social. (Cesar Vivante, Tratado de
Derecho Mercantil, pp. 124-125, Vol II, la. ed.; Emphasis supplied)
The act of one partner to bind the firm, must be necessary for the carrying on of its
business. If all that can be said of it was that it was convenient, or that it facilitated the
transaction of the business of the firm, that is not sufficient, in the absence of
evidence of saction by other partners. Nor, it seems, will necessity itself be sufficient if
it be an extraordinary necessity. What is necessary for carrying on the business of the
firm under ordinary circumstances and in the usual way, is the test. Lindl. Partn. Sec.
126. While, within this rule, one member of a partnership may, in the usual and
ordinary course of its business, make a valid sale or pledge, by way of mortgage or
otherwise, of all or part of its effects intended for sale, to a bona fide purchaser or
mortgage, without the consent of the other members of the firm, it is not within the
scope of his implied authority to make a final disposition of all of its effects, including
those employed as the means of carrying on its business, the object and effect of
which is to immediately terminate the partnership, and place its property beyond its
control. Such a disposition, instead of being within the scope of the partnership
business, or in the usual and ordinary way of carrying it on, is necessarily subversive
of the object of the partnership, and contrary to the presumed intention of the
partnership in its formation. (McGrath, et al. vs. Cowen, et al., 49 N.F. 338, 343;
Emphasis supplied)
Since Kong Chai Pin sold the partnership properties not in line with the business of the
partnership but to pay its obligation without first obtaining the consent of the other partners, the
sale is invalid being in excess of her authority.
4. Finally, the same under consideration was effected in a suspicious manner as may be
gleaned from the following circumstances:
(a) The properties subject of the instant sale which consist of three parcels of land situated in
the City of Davao have an area of 200 hectares more or less, or 2,000,000 square meters.
These properties were purchased by the partnership for purposes of subdivision. According to
realtor Mata, who testified in court, these properties could command at the time he testified a
value of not less than P312,000.00, and according to Dalton Chen, manager of the firm which
took over the administration, since the date of sale no improvement was ever made thereon
precisely because of this litigation. And yet, for said properties, aside from the sum of
P37,000.00 which was paid for the properties of the deceased and the partnership, only the
paltry sum of P66,529.91 was paid as a consideration therefor, of which the sum of
P46,116.75 was even paid in Japanese currency.
(b) Considering the area of the properties Kong Chai Pin had no valid reason to sell them if her
purpose was only to pay the partnership's obligation. She could have negotiated a loan if she
wanted to pay it by placing the properties as security, but preferred to sell them even at such
low prices because of her close relationship with the purchasers and creditors who
conveniently organized a partnership to exploit them, as may be seen from the following
relationship of their pedigree:
KONG CHAI PIN, the administratrix, was a granddaughter of Jose P. Yutivo, founder
of the defendant Yutivo Sons Hardware Co. YUTIVO SONS HARDWARE CO, and
SIN YEE CUAN CO, INC., alleged creditors, are owned by the heirs of Jose P. Yutivo
(Sing, Yee & Cuan are the three children of Jose). YU KHE THAI is a grandson of the
same Jose P. Yutivo, and president of the two alleged creditors. He is the
acknowledged head of the Yu families. WASHINGTON Z. SYCIP, one of the original
buyers, is married to Ana Yu, a daughter of Yu Khe Thai, BETTY Y. LEE, the other
original buyer is also a daughter of Yu Khe Thai. The INSULAR DEVELOPMENT CO.,
the ultimate buyer, was organized for the specific purpose of buying the partnership
properties. Its incorporators were: Ana Yu and Betty V. Lee, Atty. Quisumbing and
Salazar the lawyers who studied the papers of sale and have been counsel for the
Yutivo interests; Dalton Chen a brother-in-law of Yu Khe Thai and an executive of
Sing Yee & Cuan Co; Lillian Yu, daughter of Yu Eng Poh, an executive of Yutivo Sons
Hardware, and Simeon Daguiwag, a trusted employee of the Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close relatives of Kong
Chai Pin, have already conceived the idea of possessing the lands for purposes of subdivision,
excluding Goquiolay from their plan, and this is evident from the following sequence of events:
Tan Sin An died in 1942 and intestate proceedings were opened in 1944. In 1946, the
creditors of the partnership filed their claim against the partnership in the intestate
proceedings. The creditors studied ways and means of liquidating the obligation of
the partnership, leading to the formation of the defendant Insular Development Co.,
composed of members of the Yutivo family and the counsel of record of the
defendants, which subsequently bought the properties of the partnership and
assumed the obligation of the latter in favor of the creditors of the partnership, Yutivo
Sons Hardware and Sing, Yee & Cuan, also of the Yutivo family. The buyers took
time to study the commercial potentialities of the partnership properties and their
lawyers carefully studied the document and other papers involved in the transaction.
All these steps led finally to the sale of the three partnership properties.
Upon the strength of the foregoing considerations, I vote to grant motion for
reconsideration.
FIRST DIVISION
G.R. No. 70909 January 5, 1994
CONCHITA T. VDA. DE CHUA, THELMA CHUA, assisted by her husband, CHARLIE DY,
CHARLITO CHUA, REYNALDO CHUA, SUSAN CHUA, ALEX CHUA, EDDIE CHUA,
SIMON CHUA, AND ERNESTO CHUA vs. THE INTERMEDIATE APPELLATE COURT,
VICENTE GO, VICTORIA T. GO, AND HERMINIGILDA HERRERA
QUIASON, J.:
This is an appeal by certiorari under Rule 45 of the Revised Rules of Court from the decision of
the Court of Appeals in AC-G.R. CV No. 67692 entitled "Conchita Vda. de Chua, et al. v.
Herminigilda Herrera, et al.," affirming with modification the decision of the Court of First
Instance of Cebu in Civil Case No. R-16589.
The facts as found by the Court of Appeals, are summarized as follows:
 Sometime in 1950, defendant Herminigilda Herrera executed a Contract of
Lease (Exh. "A") in favor of Tian On (sic) (or Sy Tian On) whereby the former
leased to the latter Lots. Nos. 620 and 7549 containing an area of 151
square meters, located at Manalili Street (now V. Gullas Street) Cebu City,
for a term of ten (10) years, renewable for another five (5) years. The
contract of lease (Exh. "A") contains a stipulation giving the lessee an option
to buy the leased property (Exh. A-2) and that the lessor guarantees to leave
the possession of said property to the lessee for a period of ten (10) years or
as long as the lessee faithfully fulfills the terms and conditions of their
contract (Exh. A-5).
In accordance with the said contract of lease, the lessee, Tian On, erected a
residential house on the leased premises.
On February 2, 1954, or within four (4) years from the execution of the said
contract of lease (Exh. "A"), the lessee, Sy Tian On, executed a Deed of
Absolute Sale of Building (Exh. "B") in favor of Chua Bok, the
predecessor-in-interest of the plaintiffs herein, whereby the former sold to
the latter the aforesaid residential house for and in consideration of the sum
of P8,000.00. Pertinent provisions of this deed of sale (Exh. "B") read as
follows:
. . . That with the sale of the said house and as a legal consequence, I hereby assign all
my rights and privileges as a lessee of the lot on which the said building is constructed
together with its corresponding obligations as contained and expressly stipulated in the
Contract of Lease executed in 1950 between myself and the lot owner, Herminigilda
Herrera, to the said vendee, Chua Bok who hereby accepts the said assignment of the
said lease and hereby promises and bind himself to abide by all the terms and
conditions thereof, a copy of the Lease Contract is hereby attached as Appendix "A"
and made a part hereof.
That the present sale is made with the knowledge and express consent of the lot-owner
and lessor, Herminigilda Herrera who is represented herein by her attorney-in-fact,
Vicenta R. de Reynes who hereby also honors the annulment of the lease made by Sy
Tian On in favor of Chua Bok, and hereby promises and binds herself to respect and
abide by all the terms and conditions of the lease contract which is now assigned to the
said Chua Bok.
IN WITNESS WHEREOF, the parties have hereunto affixed their signatures on this 2nd
day of February 1954, in the City of Cebu, Philippines.
(Sgd.) CHUA BOK
Vendee-Lessee-Assignee
(Sgd.) SY TIAN ON
Vendor-Lessor-Assignor
HERMINIGILDA HERRERA
By:
(Sgd.) VICENTA R. DE REYNES
Attorney-in-fact
Lot-owner-Lessor
SIGNED IN THE PRESENCE OF:
(Sgd.) ILLEGIBLE
AND
(Sgd.) ILLEGIBLE
After the said sale transaction, Chua Bok and his family (plaintiffs herein) resided in the
said residential building and they faithfully and religiously paid the rentals thereof.
When the Original Contract of Lease expired in 1960, Chua Bok and defendant
Herminigilda Herrera, through her alleged attorney-in-fact executed the following —
CONTRACT OF LEASE.
THIS CONTRACT OF LEASE made and entered into
this ___ day of August, 1960, in the City of Cebu, Philippines, by and between:
HERMINIGILDA HERRERA, of legal age, single, Filipino and a resident of Cebu City,
Philippines, hereinafter known as Party of the First Part;
and
CHUA BOK of legal age, married and a resident of Cebu City, Philippines, hereinafter
known as the Party of the Second Part.
WITNESSETH:
That the Party of the First Part who is the owner of a parcel of land located at Manalili
Street, Cebu City containing of an area of about 151 (One Hundred Fifty-One) square
meters, more or less, known as Lot. No. ________ of the Cadastral Survey of Cebu,
hereby lets and leases unto the Party of the Second Part who hereby accepts in lease
the abovementioned lot under the following terms and conditions:
1. That the term of this contract shall be for a period of FIVE (5) years from August 1,
1960 to August 1, 1965, at a monthly rental of SIXTY PESOS (P60.00) Philippine
Currency;
2. That the rental of P60.00 will be paid within the first 10 days of every month, to the
Party of the First Part without express demand and in advance;
xxx xxx xxx
4. That the Party of the Second Part is given an option to buy the said leased premises
if he is qualified and when the Party of the First Part decides to sell the same and that
the Party of the second Part is also given the option to renew the Contract of Lease
upon terms and conditions to be agreed by both parties;
 xxx xxx xxx
6. That it is hereby expressly reserved that should the property leased be sold by the
Party of the First part to any other party, the terms and conditions of this Contract shall
be valid and will continue for the duration of this contract. The Third party shall be
expressed (sic) bound to respect the terms of this Contract of Lease;
xxx xxx xxx
That the parties herein, do hereby mutually and reciprocally stipulate that they will
comply with the terms and conditions herein before set forth. That the Party of the First
Part hereby (sic) these presents guarantees that she will leave the property in the
possession of the Party of the Second Part for five (5) years or as long as the Party of
the second Part faithfully fulfills with the terms and conditions herein set forth.
IN WITNESS WHEREOF, we have hereunto affixed our signatures on this 9th day of
September, 1960, in the City of Cebu, Philippines.
(Sgd.) CHUA BOK
Party of the Second Part
HERMINIGILDA HERRERA
By: Party of the First Part
(Sgd.) VICENTA R. DE REYNES
Attorney-in-Fact
SIGNED IN THE PRESENCE OF:
(Sgd.) ILLEGIBLE
(Sgd.) B.E. SUN
After the expiration of the contract of lease in question (Exh. "C") the plaintiffs herein, who are
the successors-in-interest of Chua Bok (who had meanwhile died) continued possession of the
premises up to
April 1978, with adjusted rental rate of P1,000.00 (Exh. "D"); later readjusted to P2,000.00.
On July 26, 1977, defendant Herrera through her attorney-in-fact, Mrs. Luz Tormis, who was
authorized with a special power of attorney, sold the lots in question to defendants-spouses,
Vicente and Victoria Go. The defendants-spouses were able to have aforesaid sale registered
with the Register of Deeds of the City of Cebu and the titles of the two parcels of land were
transferred in their names (Exhs. "5-Herrera", or "5-Go" and "6-Herrera" or "6-Go").
Thereafter, or on November 18, 1977, plaintiffs filed the instant case seeking the annulment of
the said sale between Herminigilda Herrera and spouses Vicente and Victoria Go, alleging that
the conveyance was in violation of the plaintiffs' right of option to buy the leased premises as
provided in the Contract of Lease (Exh. "C") and that the defendants-spouses acted in bad
faith in purchasing the said lots knowing fully well that the said plaintiffs have the option to buy
those lots.
After due trial, the lower court rendered judgment, the dispositive portion of which reads as
follows:
WHEREFORE, in view of the foregoing, this Court ORDERS:
1) The DISMISSAL of plaintiffs' complaint, as against defendant spouses GO;
2) The plaintiffs to VACATE Lot No. 620 and
Lot No. 7549, ownership over by which defendants Vicente and Victoria Go being found valid
and legitimate, and to peacefully turn over the same to said spouses, and to REMOVE the
building thereon at plaintiffs' own expense, or such removal may be done by the declared
land-owners, likewise at plaintiffs' expense.
3) Defendant Herrera to pay the spouses Go, the sum of P15,000.00 as reimbursement to
them for what they already paid to their lawyer;
4) Defendant Herrera to pay plaintiffs the sum of P50,000.00 (later reduced to P20,000.00, on
motion of defendant Herrera, which the court a quo granted) in concept of moral damages
suffered by the latter; and
5) Defendant Herrera to pay the costs of the proceedings (Record on Appeal, pp. 229-230)
(Rollo, pp. 63-68).
Plaintiffs and defendant Herrera appealed from the decision of the trial court to the Court of
Appeals.
In said court, plaintiffs-appellants claimed that the trial court erred: (a) in dismissing their
complaint as against defendants-spouses Go, (b) in ordering them to vacate the lots in
question and to remove the improvements they had introduced in the premises, and (c) in
ordering the execution of the judgment pending appeal. Defendant-appellant Herrera, on her
part, claimed that the trial court erred in ordering her to pay P15,000.00 as attorney's fees to
defendants-spouses Go and P50,000.00 as moral damages to plaintiffs-appellants.
The Court of Appeals affirmed with modification the decision of the trial court, thus:
WHEREFORE, premises considered the appealed decision is hereby
MODIFIED by eliminating the award of P20,000.00 moral damages in favor
of the plaintiffs-appellants, the award of P15,000.00 attorney's fees in favor
of defendants-appellees (Go spouses) and the costs of the proceedings. In
all other respects the appealed decision is hereby AFFIRMED (Rollo, p. 78).
In their petition filed with us, petitioners (plaintiffs-appellants in AC-G.R. No. 67692) gave up
their demand for the nullification of the sale of the lots in question to respondent-spouses Go
and limited their appeal to questioning the affirmance by the Court of Appeals of the decision of
the trial court, ordering their ejectment from the premises in question and the demolition of the
improvements introduced thereon.
In support of their right to possess the premises in question, petitioners rely on the contract of
lease (Exh. "C") entered into by and between Chua Bok and Vicenta R. de Reynes, as
attorney-in-fact of respondent Herrera, as well as on the tacit renewal thereof by respondent
Herrera (Rollo, pp. 35-48).
In declaring the contract of lease (Exh. "C") void, the Court of Appeals noted that Vicenta R. de
Reynes was not armed with a special power of attorney to enter into a lease contract for a
period of more than one year.
We agree with the Court of Appeals.
The lease contract (Exh. "C"), the linchpin of petitioners' cause of action, involves the lease of
real property for a period of more than one year. The contract was entered into by the agent of
the lessor and not the lessor herself. In such a case, the law requires that the agent be armed
with a special power of attorney to lease the premises.
Article 1878 of the New Civil Code, in pertinent part, provides:
Special Power of Attorney are necessary in the following cases:
xxx xxx xxx
(8) To lease any real property to another person for more than one year.
It is true that respondent Herrera allowed petitioners to occupy the leased premises after the
expiration of the lease contract (Exh. "C") and under
Article 1670 of the Civil Code of the Philippines, a tacit renewal of the lease (tacita
reconduccion) is deemed to have taken place. However, as held in Bernardo M. Dizon
v. Ambrosio Magsaysay, 57 SCRA 250 (1974), a tacit renewal is limited only to the terms of
the contract which are germane to the lessee's right of continued enjoyment of the property
and does not extend to alien matters, like the option to buy the leased premises.
In said case, Magsaysay leased to Dizon a parcel of land for a term of two years, expiring on
April 1, 1951. Under the lease contract, Dizon was given the preferential right to purchase the
land under the same conditions as those offered to other buyers. After the lease contract
expired, Dizon continued to occupy the leased premises and to pay the monthly rentals, which
Magsaysay accepted. On March 24, 1954, Dizon learned that Magsaysay had sold the
property to a third party without giving him the opportunity to exercise the preferential right to
purchase given him under the lease contract. Dizon then filed an action against Magsaysay
and the buyer to annul the sale of the property or in the alternative, to recover damages from
Magsaysay. The trial court dismissed the action and the Court of Appeals affirmed the
dismissal. In the Supreme Court, Dizon claimed that a new lease contract was impliedly
created when Magsaysay allowed him to continue to occupy the premises after the expiration
of the original lease contract and that the other terms of the said contract, including the
lessee's preferential right to purchase, were deemed revived. Dizon invoked Article 1670 of the
Civil Code of the Philippines, which provides:
Art. 1670. If at the end of the contract the lessee should continue enjoying
the thing leased for fifteen days with the acquiescence of the lessor, and
unless a notice to the contrary by either party has previously been given, it is
understood that there is an implied new lease, not for the period of the
original contract, but for the time established in Articles 1682 and 1687. The
other terms of the original contract shall be revived (Emphasis supplied).
We dismissed Dizon's appeal and sustained the interpretation of the Court of Appeals that "the
other terms of the original contract" mentioned in Article 1670, are only those terms which are
germane to the lessee's right of continued enjoyment of the property leased. We held:
This is a reasonable construction of the provision, which is based on the
presumption that when the lessor allows the lessee to continue enjoying
possession of the property for fifteen days after the expiration of the contract
he is willing that such enjoyment shall be for the entire period corresponding
to the rent which is customarily paid — in this case up to the end of the
month because the rent was paid monthly. Necessarily, if the presumed will
of the parties refers to the enjoyment of possession, the presumption covers
the other terms of the contract related to such possession, such as the
amount of the rental, the date when it must be paid, the care of the property,
the responsibility of repairs, etc. But no such presumption may be indulged
in with respect to special agreements which by nature are foreign to the right
of occupancy or enjoyment inherent in a contract of lease.
Petitioners also question the jurisdiction of the trial court in Civil Case No. R-16589 in ordering
their ejectment from the leased premises and the removal of the improvements introduced
thereon by them. They claim that the action in Civil Case No. R-16589 was for the annulment
of the sale of the property by defendant Herrera to defendants-spouses Go, and not an
appropriate case for an ejectment. The right of possession of petitioners of the leased
premises was squarely put in issue by defendants-spouse Go in their counterclaim to
petitioner's complaint, where they asked that ". . . the plaintiff should vacate their premises as
soon as feasible or as the Honorable Court may direct" (Record on Appeal, CA-G.R. No.
67692-R; p. 45).
The said counterclaim in effect was an accion publiciana for the recovery of the possession of
the leased premises.
Clearly the Court of First Instance had jurisdiction over actions which involve the possession of
real property or any interest therein, except forcible entry and detainer actions (Section 44[b],
Judiciary Act of 1948; Concepcion v. Presiding Judge, Br. V, CFI Bulacan, 119 SCRA 222
[1982]).
A counterclaim is considered a complaint, only this time, it is the original defendant who
becomes the plaintiff (Valisno v. Plan, 143 SCRA 502 [1986]). It stands on the same footing
and is to be tested by the same rules as if it were an independent action. Hence, the same
rules on jurisdiction in an independent action apply to a counterclaim (Vivar v. Vivar, 8 SCRA
847 [1963]; Calo v. Ajax International, Inc. v. 22 SCRA 996 [1968]; Javier v. Intermediate
Appellate Court, 171 SCRA 605 [1989]; Quiason, Philippine Courts and Their Jurisdictions,
1993 ed., p. 203).
Finally, petitioners claim that the Court of Appeals erred in eliminating the award of moral
damages in the amount of P20,000.00 given to them by the trial court (Rollo, pp. 48-52). The
elimination of said award is a logical consequence of the finding that petitioners had no right of
option to purchase the leased premises that can be enforced against respondent Herrera.
WHEREFORE, the petition is DENIED.
SO ORDERED.
EN BANC
G.R. No. L-18377 December 29, 1962
ANASTACIO G. DUÑGO vs. ADRIANO LOPENA, ROSA RAMOS and HON. ANDRES
REYES, Judge of the Court of First Instance of Rizal
REGALA, J.:
On September 10, 1959, herein petitioner Anastacio Duñgo and one Rodrigo S. Gonzales
purchased 3 parcel of land from the respondents Adriano Lopena and Rosa Ramos for the
total price of P269,804.00. Of this amount P28.000.00 was given as down payment with the
agreement that the balance of P241,804.00 would be paid in 6 monthly installments.
To secure the payment of the balance Anastacio Duñgo and Rodrigo S. Gonzales, the
vendees, on September 11, 1958, executed over the same 3 parcels of land Deed of Real
Estate Mortgage in favor of the respondent Adriano Lopena and Rosa Ramos. This deed was
duly registered with the Office of the Register of Deeds Rizal, with the condition that failure of
the vendees to pay any of the installments on their maturity dates shall automatically cause the
entire unpaid balance to become due and demandable.
The vendees defaulted on the first installment. It resulted then that on November 7, 1959, the
vendors, herein respondents Adriano Lopena and Rosa Ramos, filed a complaint for the
foreclosure of the aforementioned real estate mortgage with the Court of First Instance of Rizal
the Hon. Judge Andres Reyes, presiding. This complaint was answered by the herein
petitioner and the other vendee, Rodrigo S. Gonzales, on December 7, 1959.
Meanwhile, there were 2 other civil cases filed in the same lower court against the same
defendants Anastacio Duñgo and Rodrigo S. Gonzales. The plaintiff in one was a certain
Dionisio Lopena, and in the other case, the complainants were Bernardo Lopena and Maria de
la Cruz.
Both complaints involved the same cause of action as that of herein respondents Adriano
Lopena and Rosa Ramos. As a matter of fact all three cases arose out of one transaction. In
view of the identical nature of the above three cases, they were consolidated by the lower court
into just one proceeding.
It must be made clear, however, that this present decision refers solely to the interests and
claim of Adriano Lopena against Anastacio Duñgo alone.
Before the cases could be tried, a compromise agreement dated January 15, 1960 was
submitted to the lower court for approval. It was signed by herein respondents Adriano Lopena
and Rosa Ramos on one hand, and Rodrigo S. Gonzales, on the other. It was not signed by
the herein petitioner. However, Rodrigo S. Gonzales represented that his signature was for
both himself and the herein petitioner. Moreover, Anastacio Duñgo's counsel of record, Atty.
Manuel O. Chan, the same lawyer who signed and submitted for him the answer to the
complaint, was present at the preparation of the compromise agreement and this counsel
affixed his signature thereto.
The text of this agreement is hereunder quoted:
COMPROMISE AGREEMENT
COME NOW the parties in the above entitled cases and unto this Hon. Court
respectfully set forth:
That, the plaintiffs, have agreed to give the defendants up to June 30, 1960 to pay the
mortgage indebtedness in each of the said cases;
That, should the defendants fail to pay the said mortgage indebtedness, judgments of
foreclosure shall thereafter be entered against the said defendants;
That, the defendants hereby waive the period of redemption provided by law after
entry of judgments;
That, in the event of sale of the properties involved in these three cases, the
defendants agree that the said properties shall be sold at one time at public auction,
that is, one piece of property cannot be sold without the others.
This compromise agreement was approved by the lower court on the same day it was
submitted, January 15, 1960.
Subsequently, on May 3, 1960, a so-called Tri-Party Agreement was drawn. The signatories to
it were Anastacio Duñgo (herein petitioner) and Rodrigo S. Gonzales as debtors, Adriano
Lopena and Rosa Ramos (herein respondents) as creditors, and, one Emma R. Santos as pay
or. The stipulations of the Tri-Party Agreement were as follows: .
A TRI-PARTY AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This contract entered into by and between —
(1) MMA R. SANTOS, Filipino, of legal age, single, with residence and postal address
at ..........., Rizal Avenue, Manila, hereinafter referred to as the PAYOR,
(2) ANASTACIO C. DUÑGO Filipino, of legal age, single, with residence and postal
address at 137 N. Domingo, Quezon City, and RODRIGO S. GONZALES, Filipino, of
legal age, married to Magdalena Balatbat, with residence and postal address at 73
Maryland, Quezon City, hereinafter referred to as the DEBTOR,
and
(3) DIONISIO LOPENA, married to Teofila Nofuente, LIBRADA LOPENA, married to
Arellano Cawagas, BERNARDO LOPENA, married to Maria de la Cruz, and
ADRIANO LOPENA, married to Rosa Ramos, all of whom are Filipinos, of legal ages,
with residence and postal address at Sucat, Muntinlupa, Rizal, hereinafter
represented by their attorney of record, ANTONIO LOPENA, hereinafter referred to
as the CREDITOR,
W I T N E S S E T H:
WHEREAS, the DEBTOR is indebted to the CREDITOR as of this date in the
aggregate amount of P503,000.00 for the collection of which, the latter as party
plaintiffs have institute foreclosure proceedings against the former as party defendant
in Civil Cases Nos. 5872, 5873 and 5874 now pending in the Court of First Instance,
Pasig, Rizal;
WHEREAS, the PAYOR, hereby submits and binds herself to the force and effect of
the Order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal,
Branch VI, which order is hereby made an integral part of this agreement as ANNEX
"A";
 WHEREAS, the PAYOR with due knowledge and consent of the DEBTOR, hereby
proposes to pay the aforesaid indebtedness in the sum of P503,000.00 to the
CREDITOR for and in behalf of the DEBTOR under the following terms and condition
petitions:
(a) To pay the said P503,000.00 in installments in the following schedule of amounts
and time: P50,000.00 on or before May 31, 1960 70,000.00 on or before June 30,
1960 70,000.00 on or before July 31, 1960 313,000.00 on or before Aug. 31, 1960.
(b) That the DEBTOR and the PAYOR hereby waive any right to object and oblige
themselves not to oppose the motion that the CREDITOR may file during the first
week of July 1960, or subsequently thereafter, informing the Court of the exact
money obligation of the DEBTOR which shall be P503,000.00 minus whatever
payments, if any, made before June 30, 1960 by the PAYOR and praying for the
issuance of an order to sell the property covered by the mortgage.
(c) That the CREDITOR, once he has the order referred to, should not execute the
same by giving it to the sheriff if the PAYOR is regular and punctual in the payment of
all of the installments stated above. PROVIDED, however, if the PAYOR defaults or
fails to pay anyone of the installments in the manner stated above, the PAYOR and
the DEBTOR hereby permit the CREDITOR to execute the order of sale referred to
above, and they (PAYOR and DEBTOR) hereby waive any and all objection's or
oppositions to the propriety of the public auction sale and to the confirmation of the
sale to be made by the court.
(d) That the CREDITOR, at his option, may execute the August installment stated in
letter (a) of this paragraph if the PAYOR has paid regularly the May, June, and July
installments, and provided further that one half (½) of the August installment in the
amount of P156,500.00 is paid on the said date of August 31, 1960.
NOW, THEREFORE, for and in consideration of the foregoing stipulations, the
DEBTOR and CREDITOR hereby accept, approve and ratify the above-mentioned
propositions of the PAYOR and all the parties herein bind and oblige themselves to
comply to the covenants and stipulations aforestated;
That by mutual agreements of all the parties herein, this TRI-PARTY AGREEMENT
may be submitted to Court to form integral parts of the records of the Civil Cases
mentioned above;
IN WITNESS WHEREOF, the parties hereunto affix their signature on this 3rd day of
May, 1960 in the City of Manila, Philippines.
When Anastacio Duñgo (herein petitioner) and Rodrigo S. Gonzales failed to pay the balance
of their indebtedness on June 30, 1960, herein respondents Lopena and Ramos filed on July 5,
1960, a Motion for the Sale of Mortgaged Property. Although this last motion was filed ex parte,
Anastacio Duñgo and Rodrigo S. Gonzales were notified of it by the lower court. Neither of
them, however, despite the notice, filed any opposition thereto. As a result, the lower court
granted the above motion on July 19, 1960, and ordered the sale of the mortgaged property.
On August 25, 1960, the 3 parcels of land above-mentioned were sold by the Sheriff at a public
auction where at herein petitioners, together with the plaintiffs of the other two cases won as
the highest bidders. The said sheriff's sale was later confirmed by the lower court on August 30,
1960. In this connection, it should also made of record that before confirming the sale, the
lower court gave due notice of the motion for the confirmation to the herein petitioner who filed
no opposition therefore.
On August 31, 1960, Anastacio Duñgo filed a motion to set aside all the proceedings on the
ground that the compromise agreement dated January 15, 1960 was void ab initio with respect
to him because he did not sign the same. Consequently, he argued, all subsequent
proceedings under and by virtue of the compromise agreement, including the foreclosure sale
of August 25, 1960, were void and null as regards him. This motion to set aside, however, was
denied by the lower court in its order of December 14, 1960.
Upon denial of the said motion to set aside, Anastacio Duñgo filed a Notice of Appeal from the
order of August 31, 1960 approving the foreclosure sale of August 25, 1960, as well as the
order of December 14, 1960, denying his motion to set aside. The approval of the record on
appeal however, was opposed by the herein respondent spouses who claimed that the
judgment was not appealable having been rendered by virtue of the compromise agreement.
The opposition was contained in a motion to dismiss the appeal. Anastacio Duñgo filed a reply
to the above motion. Soon thereafter, the lower court dismissed the appeal.
Two issues were raised to this Court for review, to wit:
(1) Was the compromise agreement of January 15, 1960, the Order of the same date
approving the same, and, all the proceedings subsequent thereto, valid or void insofar as the
petitioner herein is concerned?
(2) Did the lower court abuse its discretion when it dismissed the appeal of the herein
petitioner?
Petitioner Anastacio Duñgo insists that the Compromise Agreement was void ab initio and
could have no effect whatsoever against him because he did not sign the same. Furthermore,
as it was void, all the proceedings subsequent to its execution, including the Order approving it,
were similarly void and could not result to anything adverse to his interest.
The argument was not well taken. It is true that a compromise is, in itself, a contract. It is as
such that the Civil Code speaks of it.
ART. 2028. A compromise is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already commenced.
Moreover, under Art. 1878 of the Civil Code, a third person cannot bind another to a
compromise agreement unless he, the third person, has obtained a special power of
attorney for that purpose from the party intended to be bound.
ART. 1878. Special powers of attorney are necessary in the following cases:
xxx xxx xxx
xxx xxx xxx
(3) To compromise, to submit questions to arbitration, to renounce the right to appeal
from a judgment, to waive objections to the venue of an action or to abandon a
prescription already acquired;
However, although the Civil Code expressly requires a special power of attorney in order that
one may compromise an interest of another, it is neither accurate nor correct to conclude that
its absence renders the compromise agreement void. In such a case, the compromise is
merely unenforceable. This results from its nature is a contract. It must be governed by the
rules and the law on contracts.
ART. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;
Logically, then, the next inquiry in this case should be whether the herein petitioner, Anastacio
Duñgo had or had not ratified the compromise agreement. If he had, then the compromise
agreement was legally enforced against him; otherwise, he should be sustained in his
contention that it never bound him, nor ever could it be made to bind him.
The ratification of the compromise agreement was conclusively established by the Tri-Party
Agreement of May 1960. It is to be noted that the compromise agreement was submitted to
and approved by the lower court January 15, 1960. Now, the Tri-Party Agreement referred
itself to that order when it stipulated thus:
WHEREAS, the MAYOR, hereby submits and binds herself to the force and effect of
the order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal,
Branch which order is hereby made an integral part of this agreement as Annex
"A".lawphil.net
Having so consented to making that court order approving the compromise
agreement an integral part of the Tri-Party Agreement, how can the petitioner herein
now repudiate the compromise agreement and claim he has not authorized it?
When it appears that the client, on becoming aware the compromise and the judgment thereon,
fails to repudiate promptly the action of his attorney, he will not afterwards be heard to contest
its validity (Rivero vs. Rivero, 59 Phil. 15).
Besides, this Court has not overlooked the fact that which indeed Anastacio Duñgo was not a
signatory to the compromise agreement, the principal provision of the said instrument was for
his benefit. Originally, Anastacio Duñgo's obligation matured and became demandable on
October 10, 1959. However, the compromise agreement extended the date of maturity to June
30, 1960. More than anything, therefore, the compromise agreement operated to benefit the
herein petitioner because it afforded him more time and opportunity to fulfill his monetary
obligations under the contract. If only for this reason, this Court believes that the herein
petitioner should not be heard to repudiate the said agreement.
Lastly, the compromise agreement stated "that, should the defendants fail to pay the said
mortgage indebtedness, judgment of foreclosure shall thereafter be entered against the said
defendants:" Beyond doubt, this was ratified by the Tri-Party Agreement when it covenanted
that —
If the MAYOR defaults or fails to pay anyone of the installments in the manner stated
above, the MAYOR and the DEBTOR hereby permit the CREDITOR to execute the
order of sale referred to above (the Judgment of Foreclosure), and they (PAYOR and
DEBTOR) hereby waive any and all objections or oppositions to the propriety of the
public auction sale and to the confirmation of the sale to be made by the Court.
Petitioner Duñgo finally argued that even assuming that the compromise agreement was valid,
it nevertheless could not be enforced against him because it has been novated by the Tri-Party
Agreement which brought in a third party, namely, Emma R. Santos, who assumed the
mortgaged obligation of the herein petitioner.
This Court cannot accept the argument. Novation by presumption has never been favored. To
be sustained, it need be established that the old and new contracts are incompatible in all
points, or that the will to novate appears by express agreement of the parties or in acts of
similar import. (Martinez v. Cavives, 25 Phil. 581; Tiy Sinco vs. Havana, 45 Phil. 707; Asia
Banking Corp. vs. Lacson Co.. 48 Phil. 482; Pascual vs. Lacsamana, 53 O.G. 2467, April
1957).
An obligation to pay a sum of money is not novated, in a new instrument wherein the old is
ratified, by changing only the term of payment and adding other obligations not incompatible
with the old one (Inchausti vs. Yulo, 34 Phil. 978; Pablo vs. Sapungan, 71 Phil. 145) or wherein
the old contract is merely supplemented by the new one Ramos vs. Gibbon, 67 Phil. 371).
Herein petitioner claims that when a third party Emma R. Santos, came in and assumed the
mortgaged obligation, novation resulted thereby inasmuch as a new debtor was substituted in
place of the original one. In this kind of novation, however, it is not enough that the juridical
relation of the parties to the original contract is extended to a third person; it is necessary that
the old debtor be released from the obligation, and the third person or new debtor take his
place in the new relation. Without such release, there is no novation; the third person who has
assumed the obligation of the debtor merely becomes a co-debtor or surety. If there is no
agreement as to solidarity, the first and the new debtors are considered obligation jointly. (IV
Tolentino, Civil Code, p. 360, citing Manresa. There was no such release of the original debtor
in the Tri-Party Agreement.
It is a very common thing in the business affairs for a stranger to a contract to assume its
obligations; an while this may have the effect of adding to the number of persons liable, it does
not necessarily imply the extinguishment of the liability of the first debtor (Rios v Jacinto, etc.,
49 Phil. 7; Garcia vs. Khu Yek Ching, 65 Phil. 466). The mere fact that the creditor receives a
guaranty or accepts payments from a third person who has agreed to assume the obligation,
when there is no agreement that the first debtor shall be released from responsibility, do not
constitute a novation, and the creditor can still enforce the obligation against the original debtor
(Straight vs. Haskell, 49 Phil. 614; Pacific Commercial Co. vs. Sotto, 34 Phil. 237; Estate of
Mota vs. Serra, 47 Phil. 446).
In view of all the foregoing, We hold that the Tri-Party Agreement was an instrument intended
to render effective the compromise agreement. It merely complemented an ratified the same.
That a third person was involved in it is inconsequential. Nowhere in the new agreement may
the release of the herein petitioner be even inferred.
Having held that the compromise agreement was validity and enforceable against the herein
petitioner, it follows that the lower court committed no abuse of discretion when it dismissed
the appeal of the herein petitioner.
WHEREFORE, the petition for certiorari and mandamus filed by the herein petitioner is hereby
dismissed. The order of the lower court dismissing the appeal is her by affirmed, with costs.
EN BANC
G.R. No. L-32473 July 31, 1973
IGNACIO VICENTE and MOISES ANGELES vs. HON. AMBROSIO M. GERALDEZ, as
Judge of the Court of First Instance of Bulacan, Branch V (Sta. Maria), and HI CEMENT
CORPORATION
G.R. No. L-32483 July 31, 1973
JUAN BERNABE vs. HI CEMENT CORPORATION and THE HON. AMBROSIO M.
GERALDEZ, Presiding Judge, Branch V, Court of First Instance of Bulacan,
ANTONIO, J.:
There are two original actions of certiorari with prayer for preliminary injunction wherein
petitioners seek to annul the orders dated April 24, May 18, and July 18, 1970 of respondent
Judge of the Court of First Instance of Bulacan in Civil Case No. SM-201 (Hi Cement
Corporation vs. Juan Bernabe, Ignacio Vicente and Moises Angeles). The two cases are
herein decided jointly because they proceed from the same case and involve in substance the
same question of law.
On September 9, 1967 herein private respondent Hi Cement Corporation filed with the Court of
First Instance of Bulacan a complaint for injunction and damages against herein petitioners
Juan Bernabe, Ignacio Vicente and Moises Angeles. In said complaint the plaintiff alleged that
it had acquired on October 27, 1965, Placer Lease Contract No. V-90, from the Banahaw
Shale Mining Association, under a deed of sale and transfer which was duly registered with the
Office of the Mining Recorder of Bulacan on November 4, 1965 and duly approved by the
Secretary of Agriculture and Natural Resources on December 15, 1965; that the said Placer
Lease Contract No. V-90 was for a period of twenty-five years commencing from August 1,
1960 and covered two mining claims (Red Star VIII & IX) with a combined area of about
fifty-one hectares; that within the limits of Placer Mining Claim Red Star VIII are three parcels
of land claimed by the defendants Juan Bernabe (about two hectares), Ignacio Vicente (about
two hectares) and Moises Angeles (about one-fourth hectare); that the plaintiff had, on several
occasions, informed the defendants, thru its representatives, of the plaintiff's acquisition of the
aforesaid placer mining claims which included the areas occupied by them; that the plaintiff
had requested the defendants to allow its workers to enter the area in question for exploration
and development purposes as well as for the extraction of minerals therefrom, promising to
pay the defendants reasonable amounts as damages, but the defendants refused to allow
entry of the plaintiff's representatives; that the defendants were threatening the plaintiff's
workers with bodily harm if they entered the premises, for which reason the plaintiff had
suffered irreparable damages due to its failure to work on and develop its claims and to extract
minerals therefrom, resulting in its inability to comply with its contractual commitments, for all
of which reasons the plaintiff prayed the court to issue preliminary writs of mandatory injunction
perpetually restraining the defendants and those cooperating with them from the commission
or continuance of the acts complained of, ordering defendants to allow plaintiff, or its agents
and workers, to enter, develop and extract minerals from the areas claimed by defendants, to
declare the injunction permanent after hearing, and to order the defendants to pay damages to
the plaintiff in the amount of P200,000.00, attorney's fees, expenses of litigation and costs.
On September 12, 1967 the trial court issued a restraining order and required the defendants
to file their answers. The defendants filed their respective answers, which contained the usual
admissions and denials and interposed special and affirmative defenses, namely, among
others, that they are rightful owners of certain portions of the land covered by the supposed
mining claims of the plaintiff; that it was the plaintiff and its workers who had committed acts of
force and violence when they entered into and intruded upon the defendants' lands; and that
the complaint failed to state a cause of action. The defendants set up counter-claims against
the plaintiff for actual and moral damages, as well as for attorney's fees.
In another pleading filed on the same date, defendant Juan Bernabe opposed the issuance of
a writ of preliminary mandatory or prohibitory injunction. In its Order dated September 30, 1967,
the trial court, however, directed the issuance of a writ of preliminary mandatory injunction
upon the plaintiff's posting of a bond in the amount of P100,000.00. In its order, the court
suggested the relocation of the boundaries of the plaintiff's claims in relation to the properties
of the defendants, and to this end named as Commissioner, a Surveyor from the Office of the
District Engineer of Bulacan to relocate the boundaries of the plaintiff's mining claims, to show
in a survey plan the location of the areas thereof in conflict with the portions whose ownership
is claimed by the defendants and to submit his report thereof to the court on or before October
31, 1967. The court also directed the parties to send their representatives to the place of the
survey on the date thereof and to furnish the surveyor with copies of their titles. The
Commissioner submitted his report to the Court on November 24, 1967 containing the
following findings:
1. In the attached survey plan, the area covered and embraced full and
heavy lines is the Placer Mining Claims of the Plaintiff containing an area of
107 hectares while the area bounded by fine-broken lines are the properties
of the Defendants.
2. The property of the Defendant MOISES ANGELES, consisting of two (2)
parcels known as Lot 1-B and Lot 2 of Psu-103374, both described in O.C.T.
No. O-1769 with a total area of 34,984 square meters were totally covered
by the Claims of the Plaintiff.
3. The property of the Defendant IGNACIO VICENTE, containing an area of
32,619 square meters, is also inside the Claims of the Plaintiff.
4. The property of the defendant JUAN BERNABE known as Psu-178969,
described in O.C.T. No. 0-2050 is partially covered by the Claims of the
Plaintiff and the area affected is 57,539 square meters.
In an Order issued on December 14, 1967, the court approved the report "with the conformity
of all the parties in this case."
Thereafter, on April 2, 1968 plaintiff HI Cement Corporation filed a motion to amend the
complaint "so as to conform to the facts brought out and/or impliedly admitted in the pre-trial.
This motion was granted by the court on April 6, 1968. Accordingly, on October 21, 1968, the
plaintiff filed its amended complaint. The amendments consisted in the statement of the correct
areas of the land belonging to defendants Bernabe (57,539 square meters), Vicente (32,619
square meters) and Angles (34,984 square meters), as well as the addition of allegations to
the effect, among others, that at the pre-trial the defendants Angeles and Vicente declared
their willingness to sell to the plaintiff their properties covered by the plaintiff's mining claims for
P10.00 per square meter, and that when the plaintiff offered to pay only P0.90 per square
meter, the said defendants stated that they were willing to go to trial on the issue of what would
be the reasonable price for the properties of defendants sought to be taken by plaintiff. With
particular reference to defendant Bernabe, the amended complaint alleged that the said
defendant neither protested against nor prohibited the predecessor-in-interest of the plaintiff
from prospecting, discovering, locating and contracting minerals from the aforementioned t/ ENRIQUETO I. MAGPANTAY
claims, or from conducting the survey thereon, or filed any opposition against the application
for lease by the Red Star Mining Association, and that as a result of the failure of said For Juan Bernabe:
defendant to object to the acts of possession or occupation over the said property by plaintiff, (Sgd.) ANDRECIANO F. CABALLERO
defendant is now estopped from claiming that plaintiff committed acts of usurpation on said
property. The plaintiff prayed the court, among other things, to fix the reasonable value of the t/ ANDRECIANO F. CABALLERO
defendants' properties as reasonable compensation for any resulting damage.
For Ignacio Vicente and
Defendant Bernabe filed an amended answer substantially reproducing his original answer
and denying the averments concerning him in the amended complaint. Moises Angeles:

The respective counsels of the parties then conferred among themselves on the possibility of (Sgd.) CONRADO MANZANO
terminating the case by compromise, the defendants having previously signified their
t/ CONRADO MANZANO
willingness to sell to the plaintiff their respective properties at reasonable prices.
The Clerk of Court
On January 30, 1969 the counsels of the parties executed and submitted to the court for its
approval the following Compromise Agreement: CFI, Sta. Maria, Bulacan
COMPROMISE AGREEMENT GREETINGS:
COME NOW the plaintiff and the defendants, represented by their respective counsel, Please submit the foregoing Compromise Agreement to the Honorable Court for the
and respectfully submit the following agreement: consideration and approval immediately upon receipt hereof.
1. That the plaintiff is willing to buy the properties subject of litigation, and the VENTURA, CARDENAS & MAGPANTAY
defendants are willing to sell their respective properties;
By:
2. That this Honorable Court authorizes the plaintiff and the defendants to appoint their
respective commissioners, that is, one for the plaintiff and one for each defendant; (Sgd.) FRANCISCO VENTURA

3. That the parties hereby agree to abide by the decision of the Court based on the t/ FRANCISCO VENTURA
findings of the Commissioners;
On the same date, the foregoing Compromise Agreement was approved by the trial court,
4. That the fees of the Commissioners shall be paid as follows: which enjoined the parties to comply with the terms and conditions thereof.

For those appointed by the parties shall be paid by them respectively; and for the one Pursuant to the terms of the said compromise agreement the counsels of both parties
appointed by the Court, his fees shall be paid pro-rata by the parties; submitted the names of the persons designated by them as their respective commissioners,
and in conformity therewith, the trial court, in its Order dated February 26, 1969, appointed the
5. That the names of the Commissioners to be appointed by the parties shall be following as Commissioners: Mr. Larry G. Marquez, to represent the plaintiff; Mr. Demetrio M.
submitted to the Court on or before February 8, 1969. Aquino, to represent defendant Bernabe; Mr. Moises Correa, to represent defendant Angeles;
Mr. Santiago Cabungcal, to represent defendant Vicente; and Mr. Liberato Barrameda, to
WHEREFORE, the undersigned respectfully pray that the foregoing agreement be
represent the court, and directed that said Commissioners should appear before the court on
approved.
March 17, 1969, to take their oath and qualify as such Commissioners, and then meet on
Sta. Maria, Bulacan, January 30, 1969. March 31, 1969 in the court for their first session and to submit their report not later than April
30, 1969.
For the Plaintiff:
On September 15, 1969, Commissioner Liberato Barrameda submitted to the court for its
(Sgd. ) FRANCISCO VENTURA approval a Consolidated Report, containing the three reports of the Commissioners of the
plaintiff and the three defendants, together with an analysis of the said reports and a summary
t/ FRANCISCO VENTURA. of the important facts and conclusions. The following unit prices for the three defendants'
(Sgd.) FLORENTINO V. CARDENAS properties were recommended in the Consolidated Report:

t/ FLORENTINO V. CARDENAS A — JUAN BERNABE at P12.00 per square meter, wherefrom plaintiff has
been extracting its first output, and would still continue to extract therefrom
(Sgd.) ENRIQUETO I. MAGPANTAY as the property consists of a mountain of limestone and shale;
 B — IGNACIO VICENTE:
a) 60% or 19,571.4 sq. m. (mineral land) at P12.00 per sq. m.
b) 40% or 13,047.6 sq. m. (riceland) at P8.00 per sq. m.
C — MOISES ANGELES (riceland) at P8.00 per sq. m.
It is worthy of note that in the individual report of the Commissioner nominated by plaintiff HI
Cement Corporation, the price recommended for defendant Juan Bernabe's property was
P0.60 per square meter, while in the individual report of the Commissioner nominated by the
said defendant, the price recommended was P50.00 per square meter. The Commissioners
named by defendants Vicente and Angeles recommended was P15.00 per square meter for
the lands owned by the said two defendants, while the Commissioners named by the said two
defendants, while the Commissioner named by the plaintiff recommended P0.65 per square
meter for Vicente's land, and P0.55 per square meter for Angeles' land.
On October 21, 1969, Atty. Francisco Ventura, one of the three lawyers for plaintiff HI Cement
Corporation, filed with the trial court a manifestation stating that on September 1, 1969 he sent
a copy of the Compromise Agreement to Mr. Antonio Diokno, President of the corporation,
requesting the latter to intercede with the Board of Directors for the confirmation or approval of
the commitment made by the plaintiff's lawyers to abide by the decision of the Court based on
the reports of the Commissioners; and that on October 15, 1969 he received a letter from Mr.
Diokno, a copy of which was attached to the manifestation. In that letter Mr. Diokno said:
While I realize your interest in cooperating with the Court in its desire to
expedite the disposition of the case, this commitment would deprive us of
the right to appeal if we do not agree with the valuation set by the Court. Our
Board, therefore, cannot waive its rights; only when it knows the value set by
the Court on the properties can it decide whether to abide by it or appeal
therefrom. I would like to stress that, under the law, the compromise
agreement requires the express approval of our Board of Directors to be
binding on our corporation. Such an approval, I regret to say, cannot be
obtained at this time.
On November 5, 1969, defendant Bernabe filed an answer to Atty. Ventura's manifestation,
praying the court to ignore, disregard and, if possible, order striken from the record, the
plaintiff's manifestation on the following grounds: that its filing after the Consolidated Report of
the Commissioners had been submitted and approved, and long after the signing of the
Compromise Agreement on January 30, 1969, cast suspicion on the sincerity of the plaintiff's
motive; that when the Compromise Agreement was being considered, the court inquired from
the parties and their respective lawyers if all the attorneys appearing in the case had been duly
authorized and/or empowered to enter into a compromise agreement, and the three lawyers
for the plaintiff answered in the affirmative; that in fact it was Atty. Ventura himself who
prepared the draft of the Compromise Agreement in his own handwriting and was the first to
sign the agreement; that one of the three lawyers for the plaintiff, Atty. Florentino V. Cardenas,
who also signed the Compromise Agreement, was the official representative, indeed was an
executive official, of plaintiff corporation; that the Compromise Agreement, having been
executed pursuant to a pre-trial conference, partakes the nature of a stipulation of facts
mutually agreed upon by the parties and approved by the court, hence, was binding and
conclusive upon the parties; and that the nomination by the plaintiff of Mr. Larry G. Marquez as
its Commissioner pursuant to the Compromise Agreement, was a clear indication of the
plaintiff's tacit approval of the terms and conditions of the Compromise Agreement, if not an
implied ratification of Atty. Ventura's acts.
On March 13, 1970 the court rendered a decision in which the terms and conditions of the
Compromise Agreement are reproduced, and the Consolidated Report of the Commissioners
is extensively quoted. The rationale and dispositive portion of the decision read:
What is fair and just compensation?
"Just compensation includes all elements of value that inheres in the
property, but it does not exceed market value fairly determined. The sum
required to be paid the owner does not depend upon the usage to which he
has devoted his land but is to be arrived at upon just consideration of all the
uses for which it is suitable. The highest and most profitable use for which
the property is adoptable and needed or likely to be needed in the
reasonably near future is to be considered, not necessarily as the measure
of value, but to the full extent that the prospect of demand for such use
affects the market value while the property is privately held."
The term fair and just compensation as applied in expropriation or eminent
domain proceedings need not necessarily be applied in the present case. In
expropriation proceedings the government is the party involved and its use
is for public purpose. In the instant case, however, private parties are
involved and the use of the land is a private venture and for profit.
It appears that defendants' properties are practically adjacent to plaintiff's
plant site. It also appears that practically all the surrounding areas were
acquired by the plaintiff by purchase.
In the report submitted by the commissioner representing the plaintiff, it is
claimed that the surrounding areas were acquired thru purchase by the
plaintiff in the amount of less than P1.00 per square meter. On the other
hand, it appears from the reports submitted by the commissioners
representing the defendants that there were some recorded sales around
the area from P20.00 to P25.00 per square meter and there were
subdivision lots which command even higher prices.
The properties are reported to consist of mineral land which are rocky and
barren containing limestone and shale. From viewpoint of the owners their
property which is described as rocky and barren mineral land must
necessarily command a higher price, and this Court believes that the plaintiff
will adopt the same attitude from the viewpoint of its business.
While it may be true that the plaintiff acquired properties within the area in
question at a low price, we cannot overlook the fact that this was so at the
time when plaintiff corporation was not yet in operation and that the land
owners were not as yet aware of the potential value of their landholdings.
Irrespective of the different classifications of the properties owned by the
defendants, and considering the benefits that will enure to the plaintiff and
bearing in mind the property rights and privileges to which the property
owners are entitled both under the constitution and the mining law, coupled
with the fact that the plaintiff had already taken advantage of the properties
 even long before the rightful acquisition of the same, this Court believes that
the just and fair market value of the land should be in the amount P15.00 per
square meter.
In view of the above findings, the plaintiff pursuant to the compromise
agreement, is hereby ordered to pay the defendants the amount of P15.00
per square meter for the subject properties, and upon full payment, the
restraining order earlier issued by this Court shall be deemed lifted.
On March 23, 1970 defendant Juan Bernabe filed an urgent motion for execution of judgment
anchored on the proposition that the judgment, being based on a compromise agreement, is
not appealable and is, on the other hand, immediately executory. The other two defendants,
Moises Angeles and Ignacio Vicente, likewise filed their respective motions for execution.
These motions were granted by the court in its Order of April 14, 1970.
On April 17, 1970 the plaintiff filed a motion for reconsideration of the April 14, 1970 Order,
alleging that it had an opposition to the defendants' motions for execution, and that the
Compromise Agreement had been repudiated by the plaintiff corporation through its Vice
President, as earlier manifested by the plaintiff. The plaintiff prayed for ten days from the date
of the hearing of the motion within which to file its written opposition to the motions for
execution. Defendant Juan Bernabe filed an opposition to the plaintiff's motion on April 21,
1970.
On April 22, 1970 the plaintiff filed with the court a motion for new trial on the ground that the
decision of the court dated March 13, 1970 is null and void because it was based on the
Compromise Agreement of January 30, 1969 which was itself null and void for want of a
special authority by the plaintiff's lawyers to enter into the said agreement. The plaintiff also
prayed that the decision dated March 13, 1970 and the Order dated April 14, 1970 granting the
defendants' motions for execution, be set aside. Defendant Juan Bernabe filed on April 27,
1970 an opposition to the plaintiff's motion on the grounds that the decision of the court is in
accordance with law, for three lawyers for the plaintiff signed the Compromise Agreement, and
one of them, Atty. Cardenas, was an official representative of plaintiff corporation, hence,
when he signed the Compromise Agreement, he did so in the dual capacity of lawyer and
representative of the management of the corporation; that the plaintiff itself pursued, enforced
and implemented the agreement by appointing Mr. Larry Marquez as its duly accredited
Commissioner; and that the plaintiff is conclusively bound by the acts of its lawyers in entering
into the Compromise Agreement.
In the meantime, or on April 24, 1970, the court issued an Order setting aside its Order of April
14, 1970 under which the defendants' motions for execution of judgment had been granted,
and gave the plaintiff ten days within which to file an opposition to the defendants' motions for
execution.
On May 9, 1970 the plaintiff filed an opposition to the motions for execution of judgment, on the
grounds that the decision dated March 13, 1970 is contrary to law for it is based on a
compromise agreement executed by the plaintiff's lawyers who had no special power of
attorney as required by Article 1878 of the Civil Code, or any special authority as required by
Section 23, Rule 138 of the Rules of Court; and that the judgment is void for lack of jurisdiction
of the court because the same is based on a void compromise agreement.
On May 18, 1970 the court issued an Order setting aside its decision dated March 13, 1970,
denying the defendants' motions for execution of judgment, and setting for June 23, 1970 a
pre-trial conference in the case. The three defendants moved for reconsideration, but their
motions were denied in an Order dated July 18, 1970.
It is in these factual premises that the defendants in Civil Case No. SM-201 came to this Court
by means of the present petitions. In G.R. No. L-32473, petitioners Vicente and Angeles pray
this Court to issue a writ of preliminary injunction, and, after hearing, to annul and set aside the
Order dated May 18,1970 issued by respondent Judge setting aside the decision dated March
13, 1970; to declare the said decision legal, effective and immediately executory; to dissolve
the writ of preliminary mandatory injunction issued by respondent Judge on September 30,
1967 commanding petitioners to allow private respondent to enter their respective properties
and excavate thereon; to make the preliminary injunction permanent; and to award treble costs
in favor of petitioners and against private respondent. In G.R. No. L-32483, petitioner Juan
Bernabe prays this Court to issue a writ of preliminary injunction or, at least a temporary
restraining order, and, after hearing, to annul and set aside the Order dated April 24, 1970
issued by respondent Judge setting aside his Order of April 14, 1970 and allowing private
respondent to file an opposition to petitioners' motion for execution, the Order dated May 18,
1970, and the Order dated July 18, 1970. Petitioner Bernabe also seeks the reinstatement of
the trial court's decision dated May 13, 1970 and its Order dated April 14, 1970 granting his
motion for execution of judgment, and an award in his favor of attorney's fees and of actual,
moral and exemplary damages.
At issue is whether the respondent court, in setting aside its decision of March 13, 1970 and
denying the motions for execution of said decision, had acted without or in excess of its
jurisdiction or with grave abuse of discretion. We hold that said court did not, in view of the
following considerations:
1. Special powers of attorney are necessary, among other cases, in the following: to
compromise and to renounce the right to appeal from a judgment.1 Attorneys have authority to
bind their clients in any case by any agreement in relation thereto made in writing, and in
taking appeals, and in all matters of ordinary judicial procedure, but they cannot, without
special authority, compromise their clients' litigation, or receive anything in discharge of their
clients' claims but the full amount in cash.2
The Compromise Agreement dated January 30, 1969 was signed only by the lawyers for
petitioners and by the lawyers for private respondent corporation. It is not disputed that the
lawyers of respondent corporation had not submitted to the Court any written authority from
their client to enter into a compromise.
This Court has said that the Rules3 "require, for attorneys to compromise the litigation of their
clients, a special authority. And while the same does not state that the special authority be in
writing the court has every reason to expect that, if not in writing, the same be duly established
by evidence other than the self-serving assertion of counsel himself that such authority was
verbally given him."4
2. The law specifically requires that "juridical persons may compromise only in the form and
with the requisites which may be necessary to alienate their property."5 Under the corporation
law the power to compromise or settle claims in favor of or against the corporation is ordinarily
and primarily committed to the Board of Directors. The right of the Directors "to compromise a
disputed claim against the corporation rests upon their right to manage the affairs of the
corporation according to their honest and informed judgment and discretion as to what is for
the best interests of the corporation."6 This power may however be delegated either expressly
or impliedly to other corporate officials or agents. Thus it has been stated, that as a general
rule an officer or agent of the corporation has no power to compromise or settle a claim by or
against the corporation, except to the extent that such power is given to him either expressly or
by reasonable implication from the circumstances.7 It is therefore necessary to ascertain
whether from the relevant facts it could be reasonably concluded that the Board of Directors of
the HI Cement Corporation had authorized its lawyers to enter into the said compromise
agreement.
Petitioners claim that private respondent's attorneys admitted twice in open court on January
30, 1969, that they were authorized to compromise their client's case, which according to them,
was never denied by the said lawyers in any of the pleadings filed by them in the case. The
claim is unsupported by evidence. On the contrary, in private respondent's "Reply to
Defendant Bernabe's Answer Dated November 8, 1969," said counsels categorically denied
that they ever represented to the court that they were authorized to enter into a compromise.
Indeed, the complete transcript of stenographic notes taken at the proceedings on January 30,
1969 are before Us, and nowhere does it appear therein that respondent corporation's lawyers
ever made such a representation. In any event, assuming arguendo that they did, such a
self-serving assertion cannot properly be the basis for the conclusion that the respondent
corporation had in fact authorized its lawyers to compromise the litigation.
3. Petitioners however insist that there was tacit ratification on the part of the corporation,
because it nominated Mr. Larry Marquez as its commissioner pursuant to the agreement, paid
his services therefor, and Atty. Florentino V. Cardenas, respondent corporation's
administrative manager, not only did not object but even affixed his signature to the agreement.
It is also argued that respondent corporation having represented, through its lawyers, to the
court and to petitioners that said lawyers had authority to bind the corporation and having
induced by such representations the petitioners to sign the compromise agreement, said
respondent is now estopped from questioning the same.
The infirmity of these arguments is in their assumption that Atty. Cerdenas as administrative
manager had authority to bind the corporation or to compromise the case. Whatever authority
the officers or agents of a corporation may have is derived from the board of directors, or other
governing body, unless conferred by the charter of the corporation. A corporation officer's
power as an agent of the corporation must therefore be sought from the statute, the charter,
the by-laws, or in a delegation of authority to such officer, from the acts of board of directors,
formally expressed or implied from a habit or custom of doing business.8 In the case at bar no
provision of the charter and by-laws of the corporation or any resolution or any other act of the
board of directors of HI Cement Corporation has been cited, from which We could reasonably
infer that the administrative manager had been granted expressly or impliedly the power to
bind the corporation or the authority to compromise the case. Absent such authority to enter
into the compromise, the signature of Atty. Cardenas on the agreement would be legally
ineffectual.
4. As regards the nomination of Mr. Marquez as commissioner, counsel for respondent
corporation has explained — and this has not been disproven — that Atty. Cardenas,
apparently on his own, submitted the same to the court. There is no iota of proof that at the
time of the submission to the Court, on February 26, 1969, of the name of Mr. Marquez,
respondent corporation knew of the contents of the compromise agreement. As matter of fact,
according to the manifestation of Atty. Ventura to the court, it was only on September 1, 1969
that he sent to Mr. Antonio Diokno, Vice-President of the corporation, a copy of the
compromise agreement for the approval by the board of directors and on October 22, 1969, Mr.
Diokno informed him that the approval of the Board cannot be obtained, as under the
agreement the corporation is deprived of its right to appeal from the judgement.
In the absence of any proof that the governing body of respondent corporation had knowledge,
either actual or constructive, or the contents of the compromise agreement before September
1, 1969, why should the nomination of Mr. Marquez as commissioner, by Attys. Ventura,
Cardenas and Magpantay, on February 26, 1969, be considered as a form of tacit ratification
of the compromise agreement by the corporation? In order to ratify the unauthorized act of an
agent and make it binding on the corporation, it must be shown that the governing body or
officer authorized to ratify had full and complete knowledge of all the material facts connected
with the transaction to which it relates.9 It cannot be assumed also that Atty. Cardenas, as
administrative manager of the corporation, had authority to ratify. For ratification can never be
made "on the part of the corporation by the same persons who wrongfully assume the power to
make the contract, but the ratification must be by the officer or governing body having authority
to make such contract and, as we have seen, must be with full knowledge." 10
5. Equally inapposite is petitioners' invocation of the principle of estoppel. In the case at bar,
except those made by Attys. Ventura, Cardenas and Magpantay, petitioners have not
demonstrated any act or declaration of the corporation amounting to false representation or
concealment of material facts calculated to mislead said petitioners. The acts or conduct for
which the corporation may be liable under the doctrine of estoppel must be those of the
corporation, its governing body or authorized officers, and not those of the purported agent
who is himself responsible for the misrepresentation. 11
It having been found by the trial court that "the counsel for the plaintiff entered into the
compromise agreement without the written authority of his client and the latter did not ratify, on
the contrary it repudiated and disowned the same ...", 12 We therefore declare that the orders
of the court a quo subject of these two petitions, have not been issued in excess of its
jurisdictional authority or in grave abuse of its discretion.
WHEREFORE, the petitions in these two cases are hereby dismissed. Costs against the
petitioners.
EN BANC
G.R. No. L-38816 November 3, 1933
INSULAR DRUG CO., INC. vs. THE PHILIPPINE NATIONAL BANK, ET AL., THE
PHILIPPINE NATIONAL BANK
MALCOLM, J.:
This is an appeal taken by Philippine National Bank from a judgment of the Court of First
Instance of Manila requiring bank to pay to the Insular Drug Co., Inc., the sum of P18,285.92
with legal interest and costs.
The record consists of the testimony of Alfred Von Arend, President and Manager of the
Insular Drug Co., Inc., and of exhibits obtained from the Philippine National Bank showing
transactions of U.E. Foerster with the bank. The Philippine National Bank was content to
submit the case without presenting evidence in its behalf. The meagre record and the
statement of facts agreed upon by the attorneys for the contending parties disclose the
following facts:
The Insular Drug Co., Inc., is a Philippine corporation with offices in the City of Manila. U.E.
Foerster was formerly a salesman of drug company for the Islands of Panay and Negros.
Foerster also acted as a collector for the company. He was instructed to take the checks which
came to his hands for the drug company to the Iloilo branch of the Chartered Bank of India,
Australia and China and deposit the amounts to the credit of the drug company. Instead,
Foerster deposited checks, including those of Juan Llorente, Dolores Salcedo, Estanislao
Salcedo, and a fourth party, with the Iloilo branch of the Philippine National Bank. The checks
were in that bank placed in the personal account of Foerster. Some of the checks were drawn
against the Bank of Philippine National Bank. After the indorsement on the checks was written
"Received payment prior indorsement guaranteed by Philippine National bank, Iloilo Branch,
Angel Padilla, Manager." The indorsement on the checks took various forms, some being
"Insular Drug Company, Inc., By: (Sgd.) U. Foerster, Agent. (Sgd.) U. Foerster" other being
"Insular Drug Co., Inc., By: (Sgd.) Carmen E. de Foerster, Agent (Sgd.) Carmen E. de
Foerster"; others "Insular Drug Co., Inc., By: (Sgd.) Carmen E. de Foerster, Carmen E. de
Froster"; others "(Sgd.) Carmen E. de Foerster, (Sgd.) Carmen E. de Foerster"; one (Sgd.) U.
Foerster. (Sgd.) U. Foerster"; others; "Insular Drug Co., Inc., Carmen E. de Foerster, By: (Sgd.)
V. Bacaldo," etc. In this connection it should be explained that Carmen E. de Foerster was his
stenographer. As a consequence of the indorsements on checks the amounts therein stated
were subsequently withdrawn by U. E., Foerster and Carmen E. de Foerster.
errors specified by the bank, it is sufficient to state that no trust fund was involved; that the fact
that bank acted in good faith does not relieve it from responsibility; that no proof was adduced,
admitting that Foerster had right to indorse the checks, indicative of right of his wife and clerk
to do the same , and that the checks drawn on the Bank of the Philippine Islands can not be
differentiated from those drawn on the Philippine National Bank because of the indorsement by
the latter.
In brief, this is a case where 132 checks made out in the name of the Insular Drug Co., Inc.,
were brought to the branch office of the Philippine National Bank in Iloilo by Foerster, a
salesman of the drug company, Foerster's wife, and Foerster's clerk. The bank could tell by the
checks themselves that the money belonged to the Insular Drug Co., Inc., and not to Foerster
or his wife or his clerk. When the bank credited those checks to the personal account of
Foerster and permitted Foerster and his wife to make withdrawals without there being made
authority from the drug company to do so, the bank made itself responsible to the drug
company for the amounts represented by the checks. The bank could relieve itself from
responsibility by pleading and proving that after the money was withdrawn from the bank it
passed to the drug company which thus suffered no loss, but the bank has not done so. Much
more could be said about this case, but it suffices to state in conclusion that bank will have to
stand the loss occasioned by the negligence of its agents.

Eventually the Manila office of the drug company investigated the transactions of Foerster. Overruling the errors assigned, judgment of the trial court will be affirmed, the costs of this
Upon the discovery of anomalies, Foerster committed suicide. But there is no evidence instance to be paid by appellant.
showing that the bank knew that Foerster was misappropriating the funds of his principal. The
Insular Drug Company claims that it never received the face value of 132 checks here in the
question covering a total of P18,285.92.lawphil.net
There is no Philippine authority which directly fits the proven facts. The case of Fulton Iron
Works Co., vs. China Banking Corporation ([1930], 55 Phil., 208), mentioned by both parties
rest on a different states of facts. However, there are elementary principles governing the
relationship between a bank and its customers which are controlling.
In first place, the bank argues that the drug company was never defrauded at all. While the
evidence on the extent of the loss suffered by the drug company is not nearly as clear as it
should be, it is a sufficient answer to state that no such special defense was relied upon by the
bank in the trial court. The drug company saw fit to stand on the proposition that checks drawn
in its favor were improperly and illegally cashed by the bank for Foerster and placed in his
personal account, thus making it possible for Foerster to defraud the drug company, and the
bank did not try to go back of this proposition.
The next point relied upon by the bank, to the effect that Foerster had implied authority to
indorse all checks made out in the name of the Insular Drug Co., Inc., has even less force. Not
only did the bank permit Foerster to indorse checks and then place them to his personal
account, but it went farther and permitted Foerster's wife and clerk to indorse the checks. The
right of an agent to indorse commercial paper is a very responsible power and will not be lightly
inferred. A salesman with authority to collect money belonging to his principal does not have
the implied authority to indorse checks received in payment. Any person taking checks made
payable to a corporation, which can act only by agent does so at his peril, and must same by
the consequences if the agent who indorses the same is without authority. (Arcade Realty
Co. vs. Bank of Commerce [1919], 180 Cal., 318; Standard Steam Specialty Co., vs. Corn
Exchange Bank [1917], 220 N.Y., 278; People vs. Bank of North America [1879], 75 N.Y., 547;
Graham vs. United States Savings Institution [1870], 46 Mo., 186.) Further speaking to the