[G.R. No. 22604. February 3, 1925.

GUADALUPE GONZALES and LUIS GOMEZ, Plaintiffs-Appellants, v. E. J. HABERER, Defendant-

Appellee. 

Feria & La O for Appellants. 

Paredes, Buencamino & Yulo for Appellee. 

SYLLABUS

1. REAL PROPERTY; CONTRACT TO SELL; INABILITY TO PLACE VENDOR IN POSSESSION GROUND FOR
RESCISSION. — A contract for the sale of land which provides that the purchaser "shall have the right to
take possession of the aforesaid land immediately after the execution of this document, together with all the
improvements now existing on the same land, such as palay plantations and others" renders it incumbent
upon the vendor to place the purchaser in possession and his inability to do so constitutes a breach of the
contract sufficient to justify its rescission. 

2. ID.; ID.; MISREPRESENTATIONS BY VENDOR’S AGENT. — Where a sale of land is effected on the strength
of misrepresentations of the agent of the vendor, the latter cannot accept the benefit of such
representations and at the same time deny the responsibility for them.

DECISION

OSTRAND, J. :

This action is brought to recover the sum of P34,260 alleged to be due the plaintiffs from the defendant
upon a written agreement for the sale of a tract of land situated in the Province of Nueva Ecija. The plaintiffs
also ask for damages in the sum of P10,000 for the alleged failure of the defendant to comply with his part
of the agreement. 

The defendant in his answer admits that of the purchase price stated in the agreement a balance of P31,000
remains unpaid, but by way of special defense, cross-complaint and counter-claim alleges that at the time of
entering into the contract the plaintiffs through false representations lead him to believe that they were in
possession of the land and that the title to the greater portion thereof was not in dispute; that on seeking to
obtain possession he found that practically the entire area of the land was occupied by adverse claimants
and the title thereto disputed; that he consequently has been unable to obtain possession of the land; and
that the plaintiffs have made no efforts to prosecute the proceedings for the registration of the land. He
therefore asks that the contract be rescinded; that the plaintiffs be ordered to return to him the P30,000
already paid by him to them and to pay P25,000 as damages for breach of the contract. 

The court below dismissed the plaintiffs’ complaint, declared the contract rescinded and void and gave the
defendant judgment upon his counterclaim for the sum of P30,000, with interest from the date upon which
the judgment becomes final. The case is now before this court upon appeal by the plaintiffs from the
judgment. 

The contract in question reads as follows: jgc:chanrobles.com.ph

"Know all men by these presents: jgc:chanrobles.com.ph

"That I, Guadalupe Gonzalez y Morales de Gomez, married with Luis Gomez, of age, and resident of the
municipality of Bautista, Province of Pangasinan, Philippine Islands, do hereby state: jgc:chanrobles.com.ph

"1. That I am the absolute and exclusive owner of a parcel of land situated in the barrio of Partida,
municipality of Guimba, Nueva Ecija, described as follows: jgc:chanrobles.com.ph

"Bounded on the north by the land of Don Marcelino Santos; on the east, by the land of Dona Cristina
Gonzalez; on the south by the Binituan River; and on the west, by the land of Dona Ramona Gonzalez;
containing an area of 488 hectares approximately. 

"2. That an application was filed for the registration of the above described land in the registry of property of
Nueva Ecija, which application is still pending in the Court of First Instance of Nueva Ecija. 

"3. That in consideration of the sum of P125 per hectare I do hereby agree and bind myself to sell and
transfer by way of real and absolute sale the land above described to Mr. E. J. Haberer, binding myself to
execute the deed of sale immediately after the decree of the court adjudicating said land in my favor is
registered in the registry of property of the Province of Nueva Ecija. The conditions of this obligation to sell
are as follows:jgc:chanrobles.com.ph

"‘1. That Mr. E. J. Haberer has at this moment paid me the sum of P30,000 on account of the price of the
aforesaid land. 

"‘2. That said Mr. E. J. Haberer agrees and binds himself to pay within six months from the date of the
execution of this document the unpaid balance of the purchase price. 

"‘3. That said Mr. E. J. Haberer shall have the right to take possession of the aforesaid land immediately
after the execution of this document together with all the improvements now existing on the same land,
such as palay plantations and others. 

"‘4. That said Mr. E. J. Haberer agrees and binds himself to pay the expenses to be incurred from this date
in the registration of the aforesaid land up to the filing of the proper decree in the office of the register of
deeds of the Province of Nueva Ecija. 

"‘5. That in the event that the court should hold that I am not the owner of all or any part of the aforesaid
land, I agree and bind myself to return without interest all such amounts of money as I have received or
may receive from Mr. E. J. Haberer as the purchase price of said land, but, in the event that the court
should adjudicate a part of the aforesaid land to me, then I agree and bind myself to sell said portion
adjudicated to me, returning all the amounts received from Mr. E. J. Haberer in excess of the price of said
portion at the rate of P125 per hectare. 

"‘6. That Mr. E. J. Haberer does hereby waive any interest or indemnity upon the amount that I am to return
to him and which I have received from Mr. E. J. Haberer as the purchase price of the aforesaid land.’

"I, E. J. Haberer, married, of age, and resident of the municipality of Talavera, Nueva Ecija, do hereby state
that, having known the contents of this document, I accept the same with all the stipulations and conditions
thereof. 

"I, Luis Gomez, married, of age, and resident of the municipality of Bautista, Province of Pangasinan, do
hereby grant my wife, Dna. Guadalupe Gonzalez y Morales de Gomez, the due marital license to execute
this document and make effective the definite sale of the land as above stipulated, she being empowered to
execute the deed of sale and other necessary documents in order that the full ownership over the aforesaid
land may be transferred to Mr. E. J. Haberer, as stipulated in this document. 

"In testimony whereof, we hereunto set our hands at Manila, this 7th day of July, 1920. 

(Sgd.) "GUADALUPE G. DE GOMEZ

"E. J. HABERER

"LUIS GOMEZ

"Signed in the presence of the witnesses;

(Sgd.) "EMIGDIO DOMINGO

"L. G. ALVAREZ

"(Acknowledged before notary.)" 

It is conceded by the plaintiffs that the defendant never obtained actual or physical possession of the land,
but it is argued that under the contract quoted the plaintiffs were under no obligation to place him
possession. This of the contract gave the defendant the right to take possession of the land immediately
upon the execution of the contract and necessarily created the obligation on the part of the plaintiffs to
make good the right thus granted; it was one of the essential conditions of the agreement and the failure of
the plaintiffs to comply with this condition, without fault on the part of the defendant, is in itself sufficient
ground for the rescission, even in the absence of any misrepresentation on their part. (Civil Code, art. 1124;
Pabalan v. Velez, 22 Phil., 29.) 

It is therefore unnecessary to discuss the question whether the defendant was induced to enter into the
agreement through misrepresentations made by the plaintiff Gomez. We may say, however, that the
evidence leaves no doubt that some misrepresentations were made and that but for such misrepresentations
the defendant would not have been likely to enter into the agreement in the form it appeared. As to the
contention that the plaintiff Gonzalez cannot be charged with the misrepresentations of Gomez, it is
sufficient to say that the latter in negotiating for the sale of the land acted as the agent and representative
of the other plaintiff, his wife; having accepted the benefit of the land acted as the agent and representative
of the other plaintiff, his wife; having accepted the benefit of the representations of her agent she cannot, of
course, escape liability for them. (Haskell v. Starbird, 152 Mass., 117; 23 A.S.R., 809.) 

The contention of the appellants that the symbolic delivery effected by the execution and delivery of the
agreement was a sufficient delivery of the possession of the land, is also without merit. The possession
referred to in the contract is evidently physical; if it were otherwise it would not have been necessary to
mention it in the contract. (See Cruzado v. Bustos and Escaler, 34 Phil., 17.) 

The judgment appealed from is in accordance with the law, is fully sustained by the evidence, and is
therefore affirmed, with the costs against the appellants. so ordered. 

Johnson, Street, Malcolm, Villamor, Johns, and Romualdez, JJ., concur.

[G.R. No. 20726. December 20, 1923. ]

ALBALADEJO Y CIA., S. en C., Plaintiff-Appellant, v. The PHILIPPINE REFINING CO., as successor

to The Visayan Refining Co., Defendant-Appellant. 

Eduardo Gutierrez Repide and Felix Socias, for Plaintiff-Appellant. 

Manly, Goddard & Lockwood, for Defendant-Appellant. 

Fisher, DeWitt, Perkins & Brady of counsel. 

SYLLABUS

1. CONTRACT; NEGLIGENCE IMPUTED TO DEFENDANT IN PERFORMANCE OF CONTRACTUAL DUTY. — By

contract between the plaintiff and the Visayan Refining Company it was agreed that the latter would take, at
current prices, all the copra which the former should buy in a designated territory; and it was made the duty
of the Visayan Refining Company to send boats at opportune times to convey the copra collected by the
plaintiff to the point where it was to be used in the manufacture of coconut oil. In its first cause of action the
plaintiff alleged that the company mentioned had at various times negligently failed to send boats to
transport the copra purchased by the plaintiff and that as a result of this delay the copra awaiting shipment
had unduly diminished in weight in the process of drying, thereby inflicting heavy loss upon the plaintiff. The
trial judge having found that transportation had been supplied with reasonable promptitude, and that the
company mentioned had not been guilty of the alleged negligence, said finding is affirmed by this court. 

2. ID.; CONTRACT ONE OF PURCHASE, NOT OF AGENCY. — Under the contract of purchase above referred
to the plaintiff was not the agent of the Visayan Refining Company as regards the original purchase of copra
by the plaintiff from the producers. On the contrary those purchases were made by the plaintiff in its own
behalf. The defendant therefore was not liable to reimburse the plaintiff for expenses incurred by the
plaintiff in maintaining its purchasing organization intact over a period during which the actual buying of
copra was suspended. 
3. ID., DETRIMENT INCURRED AT REQUEST OF ANOTHER; ABSENCE OF INTENTION TO INCUR
CONTRACTUAL LIABILITY. — The circumstance that the Visayan Refining Company encouraged the plaintiff
to keep its organization intact during such period of suspension and suggested that when the company
resumed buying (which was expected to occur at some time in the future) the plaintiff would be
compensated for all loss which it had suffered, meaning that the profits then to be made would justify such
expenses, does not render the company liable for such losses upon its subsequent failure to resume the
buying of copra. The inducements thus held out to the plaintiff were not intended to lay the basis of any
contractual liability, and the law will not infer the existence of a contract contrary to the revealed intention
of the parties.

DECISION

STREET, J. :

This action was instituted in the Court of First Instance of the Province of Albay by Albaladejo y Cia., S. en
C., to recover a sum of money from the Philippine Refining Co., as successor to the Visayan Refining Co.,
two causes of action being stated in the complaint. Upon hearing the cause the trial judge absolved the
defendant from the first cause of action but gave judgment for the plaintiff to recover the sum of
P49,626.68, with costs, upon the second cause of action. From this judgment that plaintiff appealed with
respect to the action taken upon the first cause of action, and the defendant appealed with respect to the
action taken upon the second cause of action. It results that, by the appeal of the two parties, the decision
of the lower court is here under review as regards the action taken upon both grounds of action set forth in
the complaint. 

It appears that Albaladejo Y Cia. is a limited partnership, organized in conformity with the laws of these
Islands, and having its principal place of business at Legaspi, in the Province of Albay; and during the
transactions which gave origin to this litigation said firm was engaged in the buying and selling of the
products of the country, especially copra, and in the conduct of a general mercantile business in Legaspi and
in other places where it maintained agencies, or sub-agencies, for the prosecution of its commercial
enterprises. 

The Visayan Refining Co. is a corporation organized under the laws of the Philippine Islands; and prior to
July 9, 1920, it was engaged in operating its extensive plant at Opon, Cebu, for the manufacture of coconut
oil. 

On August 28, 1918, the plaintiff made a contract with the Visayan Refining Co., the material parts of which
are as follows:jgc:chanrobles.com.ph

"Memorandum of Agreement Re Purchase of Copra. — This memorandum of agreement, made and entered
into by and between Albaladejo y Compania, S. en C., of Legaspi, Province of Albay, Philippine Islands, party
of the first part, and the Visayan Refining Company, Inc., of Opon, Province of Cebu, Philippine Islands,
party of the second part,

"Witnesseth That. — Whereas, the party of the first part is engaged in the purchase of copra in the Province
of Albay; and, Whereas, the party of the second part is engaged in the business of the manufacture of
coconut oil, for which purpose it must continually purchase large quantities of copra; Now, Therefore, in
consideration of the premises and covenants hereinafter set forth, the said parties have agreed and do
hereby contract and agree as follows, to wit: jgc:chanrobles.com.ph

"1. The party of the first part agrees and binds itself to sell to the party of the second part, and the party of
the second part agrees and binds itself to buy from the party of the first part, for a period of one (1) year
from the date of these presents, all the copra purchased by the party of the first part in the Province of
Albay. 

"2. The party of the second part agrees to pay the party of the first part for the said copra the market price
thereof in Cebu at date (of) purchase, deducting, however, from such price the cost of transportation by sea
to the factory of the party of second part at Opon, Cebu, the amount deducted to be ascertained from the
rates established, from time to time, by the public utility commission, or such entity as shall succeed to its
functions, and also a further deduction for the shrinkage of the copra from the time of its delivery to the
party of the second part to its arrival at Opon, Cebu, plus one-half of real per picul in the event the copra is
delivered to boats which will unload it on the pier of the party of the second part at Opon, Cebu, plus one
real per picul in the event that the party of the first part shall employ its own capital exclusively in its
purchase. 

"3. During the continuance of this contract the party of the second part will not appoint any other agent for
the purchase of copra in Legaspi, nor buy copra from any vendor in Legaspi. 

"4. The party of the second part will, so far as practicable, keep the party of the first part advised of the
prevailing prices paid for copra in the Cebu market. 

"5. The party of the second part will provide transportation by sea to Opon, Cebu, for the copra delivered to
it by the party of the first part, but the party of the first part must deliver such copra to the party of the
second part free on board the boats of the latter’s ships or on the pier alongside the latter’s ships, as the
case may be." cralaw virtua1aw library

Pursuant to this agreement the plaintiff, during the year therein contemplated, bought copra extensively for
the Visayan Refining Co. At the end of said year both parties found themselves satisfied with the existing
arrangement, and they therefore continued by tacit consent to govern their future relations by the same
agreement. In this situation affairs remained until July 9, 1920, when the Visayan Refining Co. closed down
its factory at Opon and withdrew from the copra market. 

When the contract above referred to was originally made, Albaladejo y Cia. apparently had only one
commercial establishment, i.e., that at Legaspi; but the large requirements of the Visayan Refining Co. for
copra appeared so far to justify the extension of the plaintiff’s business that during the course of the next
two or three years it established some twenty agencies, or subagencies, in various ports and places of the
Province of Albay and neighboring provinces. 

After the Visayan Refining Co. had ceased to buy copra, as above stated, of which fact the plaintiff was duly
notified, the supplies of copra already purchased by the plaintiff were gradually shipped out and accepted by
the Visayan Refining Co., and in the course of the next eight or ten months the accounts between the two
parties were liquidated. The last account rendered by the Visayan Refining Co. to the plaintiff was for the
month of April, 1921, and it showed a balance of P288 in favor of the defendant. Under date of June 25,
1921, the plaintiff company addressed a letter from Legaspi to the Philippine Refining Co. (which had now
succeeded to the rights and liabilities of the Visayan Refining Co.) , expressing its approval of said account.
In this letter no dissatisfaction was expressed by the plaintiff as to the state of affairs between the parties;
but about six weeks thereafter the present action was begun. 

Upon reference to paragraph five of the contract reproduced above it will be seen that the Visayan Refining
Co. obligated itself to provide transportation by sea to Opon, Cebu, for the copra which should be delivered
to it by the plaintiff; and the first cause of action set forth in the complaint is planted upon the alleged
negligent failure of the Visayan Refining Co. to provide opportune transportation for the copra collected by
the plaintiff and deposited for shipment at various places. In this connection we reproduce the following
allegations from the complaint: jgc:chanrobles.com.ph

"6. That, from the month of September, 1918, until the month of June, 1920, the plaintiff opportunely
advised the Visayan of the stocks that the former had for shipment, and, from time to time, requested the
Visayan to send vessels to take up said stocks; but that the Visayan culpably and negligently allowed a great
number of days to elapse before sending the boats for the transportation of the copra to Opon, Cebu, and
that due to the fault and negligence of the Visayan, the stocks of copra prepared for shipment by the
plaintiff had to remain an unnecessary length of time in warehouses and could not be delivered to the
Visayan, nor could they be transmitted to this letter because of the lack of boats, and that for this reason
the copra gathered by the plaintiff and prepared for delivery to the Visayan suffered the diminishment of
weight herein below specified, through shrinkage or excessive drying, and, in consequence thereof, an
important diminishment in its value. 

x          x          x

"8. That the diminishment in weight suffered as shrinkage through excessive drying by all the lots of copra
sold by the plaintiff to the Visayan, due to the fault and negligence of the Visayan in the sending of boats to
take up said copra, represents a total of 9,695 piculs and 56 cates, the just and reasonable value of which,
at the rates fixed by the purchaser as the price in its liquidation, is a total of two hundred and one thousand,
five hundred and ninety nine pesos and fifty-three centavos (P201,599.53), Philippine currency, in which
amount the plaintiff has been damaged and injured by the negligent and culpable acts and omissions of the
Visayan, as herein above stated and alleged." cralaw virtua1aw library

In the course of the appealed decision the trial judge makes a careful examination of the proof relative to
the movements of the fleet of boats maintained by the Visayan Refining Co. for the purpose of collecting
copra from the various ports where it was gathered for the said company, as well as of the movements of
other boats chartered or hired by said company for the same purpose; and upon consideration of all the
facts revealed in evidence, his Honor found that the Visayan Refining Co. had used reasonable promptitude
in its efforts to get out the copra from the places where it had been deposited for shipment, notwithstanding
occasional irregularities due at times to the condition of the weather as related to transportation by sea and
at other times to the inability of the Visayan Refining Co. to dispatch boats to the more remote ports. This
finding of the trial judge, that no negligence of the kind alleged can properly be imputed to the Visayan
Refining Co., is in our opinion supported by the proof. 

Upon the point of the loss of weight of the copra by shrinkage, the trial judge found that this is a product of
which necessarily undergoes considerable shrinkage in the process of drying, and intelligent witnesses who
are conversant with the matter testified at the trial that shrinkage of copra varies from twenty to thirty per
centum of the original gross weight. It is agreed that the shrinkage shown in all of the copra which the
plaintiff delivered to the Visayan Refining Co. amounted to only 8.187 per centum of the whole, and amount
which is notably below the normal. This showing was undoubtedly due in part, as the trial judge suggests, to
the fact that in purchasing the copra directly from the producers the plaintiff’s buyers sometimes estimated
the picul at sixty-eight kilos, or somewhat less, but in no case at the true weight of 63.25 kilos. The plaintiff
was therefore protected in a great measure from loss by shrinkage by purchasing upon a different basis of
weight from that upon which he sold, otherwise the shrinkage shown in the result must have been much
greater than that which actually appeared. But even considering this fact, it is quite evident that the
demonstrated shrinkage of 8.187 per centum was an extremely moderate average; and this fact goes to
show that there was no undue delay on the part of the Visayan Refining Co. in supplying transportation for
the copra collected by the plaintiff. 

In the course of his well-reasoned opinion upon this branch of the case, the trial judge calls attention to the
fact that it is expressly provided in paragraph two of the contract that the shrinkage of copra from the time
of its delivery to the party of the second part till its arrival at Opon should fall upon the plaintiff, from
whence it is to be inferred that the parties intended that the copra should be paid for according to its weight
upon arrival at Opon regardless of its weight when first purchased; and such appears to have been the
uniform practice of the parties in settling their accounts for the copra delivered over a period of nearly two
years. 

From what has been said it follows that the first cause of action set forth in the complaint is not well
founded, and the trial judge committed no error in absolving the plaintiff therefrom. 

It appears that in the first six months of the year 1919, the plaintiff found that its transactions with the
Visayan Refining Co. had not been productive of reasonable profit, a circumstance which the plaintiff
attributed to loss of weight or shrinkage in the copra from the time of purchase to its arrival at Opon; and
the matter was taken up with the officials of said company, with the result that a bounty amounting to
P15,610.41 was paid to the plaintiff by the Visayan Refining Co. In the ninth paragraph of the complaint the
plaintiff alleges that this payment was made upon account of shrinkage, for which the Visayan Refining Co.
admitted itself to be liable; and it is suggested that making of this payment operated as a recognition on the
part of the Visayan Refining Co. of the justice of the plaintiff’s claim with respect to the shrinkage in all
subsequent transactions. With this proposition we cannot agree. At most the payment appears to have been
in recognition of an existing claim, without involving any commitment as to liability on the part of the
defendant in the future; and furthermore it appears to have been in the nature of a mere gratuity in order to
encourage the plaintiff and to assure that the plaintiff’s organization would be kept in efficient state for
future activities. It is certain that no general liability for plaintiff’s losses was assumed for the future; and
the defendant on more than one occasion thereafter expressly disclaimed liability for such losses. 

As already stated purchases of copra by the defendant were suspended in the month of July, 1920. At this
time the plaintiff had an expensive organization which had been built up chiefly, we suppose, with a view to
the buying of copra; and this organization was maintained practically intact for nearly a year after the
suspension of purchases by the Visayan Refining Co. Indeed in October, 1920, the plaintiff added an
additional agency at Gubat to the twenty or more already in existence. As a second cause of action the
plaintiff seeks to recover the sum of P110,000, the alleged amount expended by the plaintiff in maintaining
and extending its organization as above stated. As a basis for the defendant’s liability in this respect it is
alleged that said organization was maintained and extended at the express request, or requirement of the
defendant, in conjunction with the repeated assurances that the defendant would soon resume activity as a
purchaser of copra. 

With reference to this cause of action the trial judge found that the plaintiff, as claimed, had incurred
expenses at the request of the defendant and upon its representation that the plaintiff would be fully
compensated therefor in the future. Instead, however, of allowing the plaintiff the entire amount claimed,
his Honor gave judgment for only thirty per centum of said amount, in view of the fact that the plaintiff’s
transactions in copra had amounted in the past only to about thirty per centum of the total business
transacted by it. Estimated upon this basis, the amount recognized as constituting a just claim was found to
be P49,626.68, and for this amount judgment was rendered against the defendant. 

The discussion of this branch of the appeal involves the sole question whether the plaintiff’s expenses in
maintaining and extending its organization for the purchase of copra in the period between July, 1920, to
July, 1921, were incurred at the instance and request of the defendant, or upon any promise of the
defendant to make that expenditure good. A careful examination of the evidence, mostly of a documentary
character, is, in our opinion, convincing that the supposed liability does not exist. 

By recurring to paragraph four of the contract between the plaintiff and the Visayan Refining Co. it will be
seen that the latter agreed to keep the plaintiff advised of the prevailing prices paid for copra in the Cebu
market. In compliance with this obligation the Visayan Refining Co. was accustomed to send out "trade
letters" from time to time to its various clients in the southern provinces of whom the plaintiff was one. In
these letters the manager of the company was accustomed to make comment upon the state of the market
and to give such information as might be of interest or value to the recipients of the letters. From the series
of letters thus sent to Albaladejo y Cia. during the latter half of 1920, we here reproduce the following
excerpts: chanrob1es virtual 1aw library

(Letter of July 2, 1920, from K. B. Day, General Manager, of the Visayan Refining Co., to Albaladejo y Cia.) 

"The copra market is still very weak. I have spent the past two weeks in Manila studying conditions and find
that practically no business at all is being done. A few of the mills having provincial agents are accepting
small deliveries, but I do not suppose that 500 piculs of copra are changing, hands a day. Buyers are
offering from P13 to P15, depending on quality, and sellers are offering to sell at anywhere from P16 to P18,
but no business can be done for the simple reason that the banks will not lend the mills any money to buy
copra with at this time. 

"Reports from the United States are to the effect that the oil market is in a very serious and depressed
condition and that the large quantities of oil cannot be disposed of at any price. 

x          x          x

"Under these conditions it is imperative that this mill buy no more copra than it can possibly help at the
present time. We are not anxious to compete, nor do we wish to purchase same in competition with others.
We do, however, desire to keep our agents doing business and trust that they will continue to hold their
parroquianos (customers), buying only minimum quantities at present. 

"The local market has not changed since last week, and our liquidating price is P14." cralaw virtua1aw library

(Letter of July 9, 1920, from Visayan Refining Co. to Albaladejo y Cia.) 

"Notify your subagents to drop out of the market temporarily. We do not desire to purchase at present." cralaw virtua1aw library

(Letter of July 10, 1920, from K. B. Day, General Manager, to Albaladejo y Cia.) 

"The market continues to grow weaker. Conditions are so uncertain that this company desires to drop out of
the copra market until conditions have a chance to readjust themselves. We request therefore that our
agents drop out of active competition for copra temporarily. Stocks that are at present on hand will, or
course, be liquidated, but no new stocks should be acquired. Agents should do their best to keep their
organizations together temporarily, for we expect to be in the market again soon stronger than ever. We
expect the cooperation of agents in making this effective; and if they give us this cooperation, we will
endeavor to see that they do not lose by the transaction in the long run. This company has been receiving
copra from its agents for a long time at prices which have netted it a loss. The company has been
supporting its agents during this period. It now expects the same support from its agents. Agents having
stocks actually on hand in their bodegas should telegraph us the quantity immediately and we will protect
same. But stocks not actually in bodegas cannot be considered." cralaw virtua1aw library

(Letter of July 17, 1920, from K. B. Day to Albaladejo y Cia.) 

"Conditions have changed very little in the copra market since last reports. . . . We are in the same position
as last week and are out of the market. 

"For the benefit of our agents, we wish to explain in a few words just why we are out of the market. Our
tanks are full of oil and we have been forced to close down our mill until the arrival of a boat to load some of
our stocks on hand. We have large stocks of copra. The market for oil is so uncertain that we do not care to
increase these stocks until such time as we know that the market has touched the bottom. As soon as this
period of uncertainty is over, we expect to be in the market again stronger than ever, but it is only the part
of business wisdom to play safe at such times as these. 

"Owing to the very small amounts of copra now in the provinces, we do not think that our agents will lose
anything by our being out of the market. On the contrary, the producers of copra will have a chance to allow
their nuts to mature on the trees so that the quality of copra which you will receive when we again are in
the market should be much better than what you have been receiving in the past. Due to the high prices
and scarcity of copra a large proportion of the copra we have received has been made from unripe coconuts
and in order to keep revenue coming in the producers have kept harvesting these coconuts without giving
them the chance to let their nuts ripen and should give you a better copra in the future which will shrink less
and be more satisfactory both from your standpoint and ours. Please do all you can to assist us at this time.
We shall greatly appreciate your cooperation." cralaw virtua1aw library

(Letter of August 7, 1920, from H. U. Umstead, Assistant General Manager, to Albaladejo y Cia.) 

"The copra situation in Manila remains unchanged and the outlook is still uncertain. Arrivals continue small. 

"We are still out of the market and are not yet in a position to give you buying orders. We trust, however,
that within the next few weeks we may be able to reenter the market and resume our former activity. 

x          x          x

"While we are out of the market we have no objection whatever to our agents selling copra to other
purchasers, if by doing so they are able to keep themselves in the market and retain their parroquianos
(customers). We do not, however, wish you to use our money for this purpose, nor do we want you to buy
copra on speculation with the idea in mind that we will take it off your hands at high prices when we reenter
the market. We wish to warn you against this now so that you will not be working under any
misapprehension. 

"In this same mail, we are sending you a notice of change of organization. In your dealings with us
hereafter, will you kindly address all communications to the Philippine Refining Corporation, Cebu, which you
will understand will be delivered to us."
cralaw virtua1aw library

(Letter of August 21, 1920, from Philippine Refining Corporation, by K. B. Day, to Albaladejo y Cia.) 

"We are not yet in the market, but as we have indicated before, are hopeful of renewing our activities soon.
We shall advise all our agents seasonably of our return to the market. . . . 

"We are preparing new forms of agreement between ourselves and our agents and hope to have them
completed in time to refer them to our agents in the course of the next week or ten days. 

"All agents should endeavor to liquidate outstanding advances at this time because this is a particularly good
time to clean out old accounts and be on a business basis when we return to the market. We request that
our agents concentrate their attention on this point during the coming week." cralaw virtua1aw library

(Letter of October 16, 1920, from K. B. Day, Manager to Albaladejo y Cia.) 

"Copra in Manila and coconut oil in the United States have taken a severe drop during the past week. The
Cebu price seems to have remained unchanged, but we look for an early drop in the local market. 

"We have received orders from our president in New York to buy no more copra until the situation becomes
more favorable. We had hoped and expected to be in the market actively before this time, but this most
unexpected reaction in the market makes the date of our entry in it more doubtful. 

"With this in view, we hereby notify our agents that we can accept no more copra and advance no more
money until we have permission from our president to do so. We request, therefore, that you go entirely out
of the market, so far as we are concerned, with the exception of receiving copra against outstanding
accounts. 

"In any case agent be compelled to take in copra and desire to send same to us, we will be glad to sell same
for him to the highest bidder in Cebu. We will make no charge for our services in this connection, but the
copra must be forwarded to us on consignment only so that we will not appear as buyers and be required to
pay the internal-revenue tax. 

"We are extremely sorry to be compelled to make the present announcement to you, but the market is such
that our president does not deem it wise for us to purchase copra at present, and, with this in view, we have
no alternative other than to comply with his orders. We hope that our agents will realize the spirit in which
these orders are given, and will do all they can to remain faithful to us until such time as we can reenter the
market, which we hope and believe will be within a comparatively short time." cralaw virtua1aw library

(Special Letter of October 16, 1929, from Philippine Refining Corporation, by K. B. Day, to Albaladejo y
Cia.) 

"We have received very strict instructions from New York temporarily to suspend the purchase of copra, and
of course we must comply therewith. However, should you find yourselves obliged to buy copra in
connection with your business, and cannot dispose of it advantageously in Cebu, we shall be glad to receive
your copra under the condition that we shall sell it in the market on your account to the highest bidder, or,
in other words, we offer you our services free, to sell your copra to the best possible advantages that the
local market may offer, provided that, in doing so, we be not obliged to accept your copra as a purchase
when there be no market for this product. 

"Whenever you find yourselves obliged to buy copra in order to liquidate pending advances, we can accept it
provided that, so long as present conditions prevail, we be not required to make further cash advances." cralaw virtua1aw library

We shall quote no further from letters written by the management of the Philippine Refining Corporation to
the plaintiff, as we find nothing in the correspondence which reflects an attitude different from that reflected
in the matter above quoted. It is only necessary to add that the hope so frequently expressed in the letters,
to the effect that the Philippine Refining Corporation would soon enter the market as a buyer of copra on a
more extensive scale than its predecessor, was not destined to be realized, and the factory at Opon
remained closed. 

But it is quite obvious that there is nothing in these letters on which to hold the defendant liable for the
expenses incurred by the plaintiff in keeping its organization intact during the period now under
consideration. Nor does the oral testimony submitted by the plaintiff materially change the situation in any
respect. Furthermore, the allegation in the complaint that one agency in particular (Gubat) had been opened
on October 1, 1920, at the special instance and request of the defendant, is not at all sustained by the
evidence. 

We note that in his letter of July 10, 1920, Mr. Day suggested that if the various purchasing agents of the
Visayan Refining Co. would keep their organization intact, the company would endeavor to see that they
should not lose by the transaction in the long run. These words afford no sufficient basis for the conclusion,
which the trial judge deduced therefrom, that the defendant is bound to compensate the plaintiff for the
expenses incurred in maintaining its organization. The correspondence sufficiently shows on its face that
there was no intention on the part of the company to lay a basis for contractual liability of any sort; and the
plaintiff must have understood the letters in that light. The parties could undoubtedly have contracted about
it, but there was clearly no intention to enter into contractual relation; and the law will not raise a contract
by implication against the intention of the parties. The inducement held forth was that, when purchasing
should resumed, the plaintiff would be compensated by the profits then to be earned for any expense that
would be incurred in keeping its organization intact. It is needless to say that there is no proof showing that
the officials of the defendant acted in bad faith in holding out this hope. 

In the appellant’s brief contention is advanced that the contract between the plaintiff and the Visayan
Refining Co. created the relation of principal and agent between the parties, and reliance is placed upon
article 1729 of the Civil Code which requires the principal to indemnify the agent for damages incurred in
carrying out the agency. Attentive perusal of the contract is, however, convincing to the effect that the
relation between the parties was not that of principal and agent in so far as relates to the purchase of copra
by the plaintiff. It is true that the Visayan Refining Co. made the plaintiff one of its instruments for the
collection of copra; but it is clear that in making its purchases from the producers the plaintiff was buying
upon its own account and that when it turned over the copra to the Visayan Refining Co., pursuant to that
agreement, a second sale was effected. In paragraph three of the contract it is declared that during the
continuance of this contract the Visayan Refining Co. would not appoint any other agent for the purchase of
copra in Legaspi; and this gives rise indirectly to the inference that the plaintiff was considered its buying
agent. But the use of this term in one clause of the contract cannot dominate the real nature of the
agreement as revealed in other clauses, no less than in the caption of the agreement itself. In some of the
trade letters also the various instrumentalities used by the Visayan Refining Co. for the collection of copra
are spoken of as agents. But this designation was evidently used for convenience; and it is very clear that in
its activity as a buyer the plaintiff was acting upon its own account and not as agent, in the legal sense, of
the Visayan Refining Co. The title to all of the copra purchased by the plaintiff undoubtedly remained in it
until it was delivered by way of subsequent sale to said company. 

For the reasons stated we are of the opinion that no liability on the part of the defendant is shown upon the
plaintiff’s second cause of action, and the judgment of the trial court on this part of the case is erroneous. 

The appealed judgment will therefore be affirmed in so far as it absolves the defendant from the first cause
of action and will be reversed in so far as it gives judgment against the defendant upon the second cause of
action; and the defendant will be completely absolved from the complaint. So ordered, without express
finding as to costs of either instance. 

Johnson, Malcolm, Avanceña, Villamor, Johns and Romualdez, JJ., concur.

[G.R. No. 8169. December 29, 1913. ]

ANTONIO M.A BARRETO, Plaintiff-Appellant, v. JOSE SANTA MARINA, Defendant-Appellee. 

Hausserman, Cohn & Fisher, for Appellant. 

W. A. Kincaid and Thos. L. Hartigan, for Appellee. 

SYLLABUS

1. PRINCIPAL AND AGENT; REVOCATION OF AGENT’S AUTHORITY. — The time during which the agent may
hold his position is indefinite or undetermined, when no period has been fixed in his commission and so long
as the confidence reposed in him by the principal exists; but as soon as this confidence disappears the
principal has a right to revoke the power he conferred upon the agent, especially when the latter has
resigned his position for good reasons. (Art. 1733, Civil Code; art. 279, Code of Commerce.) 

2. ID.; ID.; RIGHT OF PRINCIPAL TO DISMISS AGENT. — Even though a period is stipulated during which
the agent or employee is to hold his position in the service of the owner or head of a mercantile
establishment, yet the latter may, for any of the special reasons specified in article 300 of the Code of
Commerce, dismiss such agent or employee even before the termination of the period. 

3. ID.; ID.; ID.; DAMAGES. — No period having been stipulated and the principal owner of the business
having acted within his powers in relieving his agent and appointing another person in his stead, for good
reasons and because of the express written resignation by the employee or agent of the position he was
holding, it would be improper to award him damages, which were not proven, except his right to collect the
salary due for one month prior to quitting the position, as accorded by article 302 of the Code of Commerce.

DECISION

TORRES, J. :

These cases were appealed by counsel for the plaintiff, through a bill of exceptions, from the judgment of
January 17, 1912, and the order of February 5 of the same year, whereby the Honorable S. del Rosario,
judge, sentenced the defendant to pay to the plaintiff the salary to which he was entitled for the first eight
days of January, 1910, also that for the following month, at the rate of P3,083.33 per month, without
special finding as to costs, and dismissed the second cause of action contained in the complaint presented in
that case. 

On January 5, 1911, counsel for the plaintiff Antonio M.a Barretto filed suit against Jose Santa Marina,
alleging that the defendant, a resident of Spain, was then the owner and proprietor of the business known
as the La Insular Cigar and Cigarette Factory, established in these Islands, which business consisted in the
purchase of leaf tobacco and other raw material, in the preparation of the same, and in the sale of cigars
and cigarettes in large quantities; that on January 8, 1910, and for a long time prior thereto, the plaintiff
held and had held the position of agent of the defendant in the Philippine Islands for the management of the
said business in the name and for the account of the said defendant; that the plaintiff’s services were
rendered in pursuance of a contract whereby the defendant obligated himself in writing to hire the said
services for so long a time as the plaintiff should not show discouragement and to compensate such services
at the rate of P37,000 Philippine currency per annum; that, on the aforesaid 8th day of January, 1910, the
defendant, without reason, justification, or pretext and in violation of the contract before mentioned,
summarily and arbitrarily dispensed with the plaintiff’s services and removed him from the management of
the business, since which date the defendant had refused to pay him the compensation, or any part thereof,
due him and payable in full for services rendered subsequent to December 31, 1909; and that, as a second
cause of action based upon the facts aforestated, the plaintiff had suffered losses and damages in the sum
of P100,000 Philippine currency. Said counsel therefore prayed that judgment be rendered against the
defendant by sentencing him to pay to the plaintiff P137,000 Philippine currency, and the interest thereon at
the legal rate, in addition to the payment of the costs, together with such other equitable remedies as the
law allows. 

By an order of March 14, 1911, the Honorable A. S. Crossfield, judge, overruled the demurrer to the first
cause of action, but sustained that to the second. Counsel for the plaintiff entered an exception to this order
in so far as it sustained the demurrer interposed by the defendant to the second cause of action. 

By his written answer to the complaint, on July 19, 1911, counsel for the defendant, reserving his exception
to the order of the court overruling his demurrer filed against the first cause of action, denied each and all of
the allegations contained in the complaint, relative to such first cause of action. 

As a special defense of the latter, he set forth that the plaintiff had no contract whatever with the defendant
in which any period of time was stipulated during which the former was to render his services as manager of
the La Insular factory; that the defendant revoked for just cause the power conferred upon the plaintiff; that
subsequent to the revocation of such power, and on the occasion of the plaintiff’s having sold all his rights
and interests in the business of the La Insular factory to the defendant, in consideration of the sum received
by him, the plaintiff renounced all action, intervention and claim that he might have against the defendant
relative to the business aforementioned, whereby all the questions that might have arisen between hem
were settled. 

On December 19, 1911, counsel for each of the parties presented to the court a stipulation of the following
purport: jgc:chanrobles.com.ph

"In clause 11 of the will executed by Don Joaquin Santa Marina y Perez in Madrid before a notary public on
August 4, 1901, and duly legalized in these Islands, there appears the following: jgc:chanrobles.com.ph

"‘The testator provides that the testamentary executor who is holding office as such shall enjoy a salary,
allotment, or emolument of 4,000 pesos per annum which shall be paid out of the testators estate; but that
in case of consultation, the testamentary executors consulted shall not be entitled to this allotment, nor to
any other, on account of such consultation.’" 

According to the statement of the sums collected by Antonio M.a Barretto as the judicial administrator of the
estate of Joaquin Santa Marina from November, 1908, to March, 1910, and during twenty-three days of
April of the latter year, the total amount so collected was P5,923.28. 

Antonio M.a Barretto ceased to manage the La Insular factory, as the judicial administrator of the estate of
the deceased Joaquin Santa Marina, in October, 1909, and not on November 7, 1908, as erroneously set out
in the stenographic notes. 

The remuneration paid to Barretto as judicial administrator of the estate of Santa Marina was independent of
that which pertained to him for his services as manager of the La Insular factory both before and after the
date on which he ceased to administer the said factory as such judicial administrator. 

In the stipulation before mentioned there also appears the following: "The facts above stated are true, but
there is a controversy between the attorneys for the plaintiff and the defendant, as to whether such facts
are relevant as evidence in the said case. They therefore submit this question to the court and if it
determines that they are relevant as evidence they should be admitted as such, with exception by the
defendant, but if it determines as such, with exception by the plaintiff." cralaw virtua1aw library

After the hearing of the case, with the introduction of evidence by both parties, the court, on January 17,
1912, rendered the judgment aforementioned, to which an exception was taken by counsel for the plaintiff,
who by written motion asked that the said judgment be set aside and a new trial granted, because such
judgment was not sufficiently warranted by the evidence and was contrary to law and because the findings
of fact therein contained were openly and manifestly contrary to the weight of the evidence. This motion
was denied, with exception by the plaintiff. By an order of the 5th of the following month of February, issued
in view of a petition presented by counsel for the plaintiff, the court dismissed the second cause of action set
out in the complaint, to which order said counsel likewise excepted. 

Upon presentation of the proper bill of exceptions, the same was approved, certified, and forwarded to the
clerk of this court. 

Demand is made in this suit for the payment of the considerable sum of P137,000, together with the legal
interest thereon. Two amounts make up this sum: One of P37,000, as salary for the year 1910, claimed to
be due for services rendered by the plaintiff as agent and manager of the tobacco factory known as La
Insular; and the other of P100,000 as an indemnity for losses and damages, on account of the plaintiff’s
removal without just cause from his position as agent and manager of said factory, effected arbitrarily and
in violation of the contract of hire of services between the parties, the plaintiff claiming to be still entitled to
hold the position from which he was dismissed. 

The most important fact in this case, which stands out prominently from the evidence regarded as a whole,
is that of the plaintiff Barretto’s renunciation or resignation of the position he held as agent and manager of
the said factory, which was freely and voluntarily made by him on the occasion of the insolvency and
disappearance of the Chinaman Uy Yan, who had bought from the factory products aggregating in value the
considerable sum of P97,000 and, without paying this large debt, disappeared and has not been seen since. 

Antonio M.a Barretto, the agent and manager of the said factory, said among other things the following, in
the letter, Exhibit 3, addressed by him to Jose Santa Marina, on January 2, 1909: jgc:chanrobles.com.ph

"I have to report to you an exceedingly disagreeable matter. This Chinaman Uy Yan, with whose name I
begin this paragraph, has failed and owes the factory the considerable sum of P97,000. We will see what I
can get from him, although when these Chinamen fail it is because they have spent everything. I have
turned the matter over to my attorney in order that he may sue the party. I am not attempting to make
light of this matter. I acknowledge that I have been rather more generous with this fellow than I should
have been; but this is the way of doing business here . . . 

"I have always thought that when the manager of a business trips up in a matter like this he should tender
his resignation, and I still think so. The position is at your disposal to do as you like."
cralaw virtua1aw library

This letter is authentic and was neither denied nor rejected by the plaintiff, Barretto. 

Although Santa Marina did not immediately reply and tell him what opinion he may have formed and the
decision he had reached in the matter, it is no less true that the silence and lack of reply on the part of the
chief owner of the factory were sufficient indications that the resignation had been virtually accepted and
that if he did not reply immediately it was because he intended to act cautiously. As the addressee, the chief
owner of the factory, knew of no one at the time whom he could appoint to relieve the writer, who had
resigned, it was to be presumed that he was thereafter looking for some trustworthy person who might
substitute the plaintiff in his position of agent and manager of the factory, for in fact eleven months
afterwards the defendant communicated to the plaintiff that he had revoked the power conferred upon him
and had appointed Mr. J. McGavin to substitute him in his position of manager of the La Insular factory,
whereby the plaintiff’s resignation, tendered in his aforesaid letter of January 2, 1909, Exhibit 3, was
expressly accepted. 

After the plaintiff had resigned the position he held, and notwithstanding the lapse of several months before
its express acceptance, it cannot be understood that he has any right to demand an indemnity for losses and
damages particularly since he ostensibly and frankly acknowledged that he had been negligent in the
discharge of his duties and that he had overstepped his authority in the management of the factory, with
respect to the Chinaman mentioned. The record does not show that Santa Marina, his principal, required
him to resign his position as manager, but that Barretto himself voluntarily stated by letter to his principal
that, for the reasons therein mentioned, he resigned and placed at the latter’s disposal the position of agent
and manager of the La Insular factory; and if the principal, Santa Marina, deemed it suitable to relieve the
agent, for having been negligent and overstepping his authority in the discharge of his office, and
furthermore because of his having expressly resigned his position, and placed it at the disposal of the chief
owner of the business, it cannot be explained how such person can be entitled to demand an indemnity for
losses and damages, from his principal, who merely exercised his lawful right of relieving the plaintiff from
the position which he had voluntarily given up. 

So, the agent and manager Barretto was not really dismissed or removed by the defendant Santa Marina.
What did occur was that, in view of the resignation tendered by the plaintiff for the reasons which he himself
conscientiously deemed to warrant his surrender of the position he was holding in the La Insular factory, the
principal owner of this establishment, the defendant Santa Marina, had to look for and appoint another
agent and manager to relieve and substitute him in the said employment — a lawful act performed by the
principal owner of the factory and one which cannot serve as a ground upon which to demand from the
latter an indemnity for losses and damages, inasmuch as, in view of the facts that occurred and were
acknowledged and confessed by Barretto in is letters, Exhibits 3 and 6, the plaintiff could not expect, nor
ought to have expected, that the defendant should have insisted on the unsuccessful agent’s continuance in
his position, or that he should not have accepted the resignation tendered by the plaintiff in his first letter.
By the mere fact that the defendant remained silent and designated another person, Mr. J. McGavin, to
discharge in the plaintiff’s stead the powers and duties of agent and manager of the said factory, Barretto
should have understood that his resignation had been accepted and that if its acceptance was not
communicated to him immediately it was owing to the circumstance that the principal owner of the factory
did not then have, nor until several months afterwards, any other person whom he could appoint and place
in his stead, for, as soon as the defendant Santa Marina could appoint the said McGavin, he revoked the
power he had conferred upon the plaintiff and communicated this fact to the latter, by means of the letter,
Exhibit D, which was presented to him by the bearer thereof, McGavin himself, the new manager and agent
appointed. 

Omitting consideration for the moment of the first error attributed to the trial judge by his sustaining the
demurrer filed against the second cause of action, relative to the collection of P100,000 as the amount of
the losses and damages occasioned to the plaintiff, and turning our attention to the second error imputed to
him by his refusal to sentence the defendant, for the first cause of action, to the payment of P37,000 or of
any sum over P3,083.33, we shall proceed to examine the question whether any period or term for the
duration of the position of agent and manager was fixed in the verbal contract made between the deceased
Joaquin Santa Marina, the defendant’s predecessor in interest, and the plaintiff Antonio M.a Barretto — a
contract which, after Joaquin Santa Marina’s death, was ratified by his brother and heir, the defendant Jose
Santa Marina. 
The defendant acknowledged the said verbal contract and also its ratification by him after his brother’s
death; but he denied any stipulation therein that Barretto should hold his office for any specific period of
time fixed by and between the contacting parties, for the deceased Joaquin Santa Marina, in conferring
power upon the plaintiff, did not do so for any specific time, nor did he set any period within which he should
hold his office of agent and manager of the La Insular factory; neither did he fix the date for the termination
of such services, in the instrument of power of attorney executed by the defendant Santa Marina before a
notary on the 25th of September, 1908. (Record, p. 20.) 

From the context of the instrument just mentioned it can not be concluded that any time whatever was fixed
during which the plaintiff should hold his position of agent. The defendant, in executing that instrument,
whereby the agreement made between his brother Joaquin and Barretto was ratified, did no more than
accord to the plaintiff the same confidence that the defendant’s predecessor in interest had in him; and so
long as this merely subjective condition of trust lodged in the agent existed, the time during which the latter
might hold his office could be considered indefinite or undetermined, but as soon as that indispensable
condition of a power of attorney disappeared and the conduct of the agent ceased to inspire confidence, the
principal had a right to revoke the power he had conferred upon his agent, especially when the latter, for
good reasons, gave up the office he was holding. 

Article 1733 of the Civil Code, applicable to the case at bar, according to the provisions of article 2 of the
Code of Commerce, prescribes: "The principal may, at his will, revoke the power and compel the agent to
return the instrument containing the same in which the authority was given." cralaw virtua1aw library

Article 279 of the Code of Commerce provides: "The principal may revoke the commission intrusted to an
agent at any stage of the transaction, advising him thereof, but always being liable for the result of the
transactions which took place before the latter was informed of the revocation." cralaw virtua1aw library

From the above legal provisions it is clearly to be inferred that the contract of agency can subsist only so
long as the principal has confidence in his agent, because, from the moment such confidence disappears and
although there be a fixed period for the exercise of the office of agent, a circumstance that does not appear
in the present case, the principal has a perfect right to revoke the power that he had conferred upon the
agent owing to the confidence he had in him and which for sound reasons had ceased to exist. 

The record does not show it to have been duly proved, notwithstanding the plaintiff’s allegation, that a
period was fixed for holding his agency or office of agent and manager of the La Insular factory. It would be
improper, for the purpose of supplying such defect, to apply to the present case the provisions of article
1128 of the Civil Code. This article relates to obligations for which no period has been fixed for their
fulfillment, but which, from their nature and circumstances, allow the inference that there was an intention
to grant such period to the debtor, wherefore the courts are authorized to fix the duration of the same, and
the reason why it is inapplicable is that the rights and obligations existing between Barretto and Santa
Marina are absolutely different from those to which it refers, for, according to article 1732 of the Civil Code,
agency is terminated: jgc:chanrobles.com.ph

"1. By revocation. 

"2. By withdrawal of the agent. 

"3. By death, interdiction, bankruptcy, or insolvency of the principal or of the agent." cralaw virtua1aw library

It is not incumbent upon the courts to fix the period during which contracts for services shall last. Their
duration is understood to be implicitly fixed, in default of express stipulation, by the period for the payment
of the salary of the employee. Therefore the doctrine of the tacit renewal of leases of property, established
in article 1566 of the Civil Code, is not applicable to the case at bar. And even though the annual salary
fixed for the year are collected and paid in monthly installments as they fall due, and so the plaintiff
collected and was paid his remuneration; therefore, on the latter’s discontinuance in his office as agent, he
would at most be entitled to the salary for one month and some odd days, allowed in the judgment of the
lower court. 

Article 302 of the Code of Commerce reads thus: jgc:chanrobles.com.ph

"In cases in which no special time is fixed in the contracts of service, any one of the parties thereto may
dissolve it, advising the other party thereof one month in advance. 
"The factor or shop clerk shall be entitled, in such case, to the salary due for the month." cralaw virtua1aw library

From the mere fact that the principal no longer had confidence in the agent, he is entitled to withdraw it and
to revoke the power he conferred upon the latter, even before the expiration of the period of the period of
the engagement or of the agreement made between them; but, in the present case, once it has been shown
that, between the deceased Joaquin Santa Marina and the latter’s heir, now the defendant, on the one hand,
and the plaintiff Barretto, on the other, no period whatever was stipulated during which the last-named
should hold the office of agent manager of the said factory, it is unquestionable that the defendant, even
without good reasons, could lawfully revoke the power conferred upon the plaintiff and appoint in his place
Mr. McGavin, and thereby contracted no liability whatever other than the obligation to pay the plaintiff the
salary pertaining to one month and some odd days, as held in the judgment below. 

Barretto himself acknowledged in his aforesaid letter, Exhibit 3, that he had exceeded his authority and
acted negligently in selling on credit to the said Chinaman a large quantity of the products of the factory
under the plaintiff’s management, reaching the considerable value of P97,000; whereby he confessed one of
the causes which led to his removal, the revocation of the power conferred upon him and the appointment of
a new agent in his place. 

The defendant, Jose Santa Marina, in his letter of December 2, 1909, whereby he communicated to the
plaintiff the revocation of the power he had conferred upon him and the appointment of another new agent,
Mr. McGavin, stated among other things that the loan contracted by the agent Barretto, without the
approval of the principal, caused a great panic among the stockholders of the factory and that the defendant
hoped to allay it by the new measure that he expected to adopt. This, then, was still another reason that
induced the principal to withdraw the confidence placed in the plaintiff and to revoke the power he had
conferred upon him. Therefore, even omitting consideration of the resignation before mentioned, we find
duly warranted the reasons which impelled the defendant to revoke the said power and relieve the plaintiff
from the position of agent and manager of the La Insular factory. 

In accordance with the provisions of article 283 of the Code of Commerce, the manager of an enterprise or
manufacturing or commercial establishment, authorized to administer it and direct it, with more or less
powers, as the owner may have considered advisable, shall have the legal qualifications of an agent. 

Article 300 of the same code prescribes: "The following shall be special reasons for which principals may
discharge their employees, even though the time of service of the contract has not elapsed: Fraud or breach
of trust in the business intrusted to them . . ."
cralaw virtua1aw library

By reason of these legal provisions the defendant, in revoking the authority conferred upon the plaintiff,
acted within his unquestionable powers and did not thereby violate any statute whatever that may have
limited them; consequently, he could not have caused the plaintiff any harm or detriment to his right and
interests, for not only had Santa Marina a justifiable reason to proceed as he did, but also no period
whatever had been stipulated during which the plaintiff should be entitled to hold his position; and
furthermore, because, in relieving the latter and appointing another person in his place, the defendant acted
in accordance with the renunciation and resignation which the plaintiff had tendered. If the plaintiff is
entitled to any indemnity in accordance with law, such was awarded to him in the judgment of the lower
court by granting him the right to collect salary for one month and some odd days. 

As for the other features of the case, the record does not show that the plaintiff has any good reason or
legal ground upon which to claim an indemnity for losses and damages in the sum of P100,000, for it was
not proved that he suffered to that extent, and the judgment appealed from has awarded him the month’s
salary to which he is entitled. Therefore that judgment and the order of March 14 sustaining the demurrer to
the second cause of action are both in accordance with the law. 

For the foregoing reasons, whereby the errors assigned to the said judgment and order are deemed to have
been refuted, both judgment and order are hereby affirmed, with costs against the Appellant. 

Arellano, C.J., Johnson and Carson, JJ., concur. 

Moreland, J., concurs in the result.

EN BANC

[G.R. No. L-18616. March 31, 1964.]

VICENTE M. COLEONGCO, Plaintiff-Appellant, v. EDUARDO L. CLAPAROLS, Defendant-Appellee.

San Juan, Africa & Benedicto, for Plaintiff-Appellant.

Alberto Jamir, for Defendant-Appellee.

SYLLABUS

1. PARTNERSHIP; POWER OF ATTORNEY COUPLED WITH INTEREST REVOCABLE FOR CAUSE. — A power of
attorney although coupled with interest in a partnership can be revoked for a just cause, such as when the
attorney-in-fact betrays the interest of the principal as happened in the case at bar.

2. DAMAGES; MORAL DAMAGES FOR MALICIOUSLY UNDERMINING PLAINTIFF’S BANK CREDIT. — Material,
moral and exemplary damages may be awarded a plaintiff for a defendant’s acts in maliciously undermining
said plaintiff’s credit that led the bank to secure an unwarranted writ of execution against said plaintiff.

DECISION

REYES, J.B.L., J.:

Appeal by plaintiff Vicente Coleongco from a decision of the Court of First Instance of Negros Occidental (in
its Civil Case No. 4170) dismissing plaintiff’s action for damages, and ordering him to pay defendant
Eduardo Claparols the amount of P81,387.27 plus legal interest from the filing of the counterclaim till
payment thereof; P50,000 as moral and compensatory damages suffered by defendant; and costs.

A writ of preliminary attachment for the sum of P100,000 was subsequently issued against plaintiff’s
properties, in spite of opposition thereto.

Plaintiff Coleongco, not being in conformity with the judgment, appealed to this Court directly, the claims
involved being in excess of P200,000.

The antecedent facts, as found by the trial court and shown by the records, are as follows: chanrob1es virtual 1aw library

Since 1951, defendant-appellee, Eduardo L. Claparols, operated a factory for the manufacture of nails in
Talisay, Occidental Negros, under the style of "Claparols Steel & Nail Plant." The raw material, nail wire, was
imported from foreign sources, specially from Belgium; and Claparols had a regular dollar allocation
therefor, granted by the Import Control Commission and the Central Bank. The marketing of the nails was
handled by the "ABCD Commercial" of Bacolod, which was owned by a chinaman named Kho To.

Losses compelled Claparols in 1953 to look for someone to finance his imports of nail wire. At first, Kho To
agreed to do the financing, but on April 25, 1953, the Chinaman introduced his compadre, appellant Vicente
Coleongco, to the appellee, recommending said appellant to be the financier in the stead of Kho To.
Claparols agreed, and on April 25 of that year a contract (Exhibit B) was perfected between them whereby
Coleongco undertook to finance and put up the funds required for the importation of the nail wire, which
Claparols bound himself to convert into nails at his plant. It was agreed that Coleongco would have the
exclusive distribution of the product, and the "absolute care in the marketing of these nails and the
promotion of sales all over the Philippines", except the Davao Agency; that Coleongco would "share the
control of all the cash" from sales or deposited in banks; that he would have a representative in the
management; that all contracts and transactions should be jointly approved by both parties; that proper
books would be kept and annual accounts rendered; and that profits and losses would be shared "on a 50-
50 basis." The contract was renewed from year to year until 1958, and Coleongco’s share subsequently
increased by 5% of the net profit of the factory (Exhibit D, E, F).

Two days after the execution of the basic agreement, Exhibit "B", on April 27, 1953, Claparols executed in
favor of Coleongco, at the latter’s behest, a special power of attorney (Exhibit C) to open and negotiate
letters of credit, to sign contracts, bills of lading, invoices, and papers covering transactions; to represent
appellee and the nail factory; and to accept payments and cash advances from dealers and distributors.
Thereafter, Coleongco also became the assistant manager of the factory, and took over its business
transactions, while Claparols devoted most of his time to the nail manufacture processes.

Around mid-November of 1956, appellee Claparols was disagreeably surprised by service of an alias writ of
execution to enforce a judgment obtained against him by the Philippine National Bank, despite the fact that
on the preceding September he had submitted an amortization plan to settle the account. Worried and
alarmed, Claparols immediately left for Manila to confer with the bank authorities. Upon arrival, he learned
to his dismay that the execution had been procured because of derogatory information against appellee that
had reached the bank from his associate, appellant Coleongco. On July 6, 1956, the latter, without
appellee’s knowledge, had written to the bank —

"in connection with the verbal offer — for the acquisition by me of the whole interest of Mr. Eduardo L.
Claparols in the Claparols Steel and Nail Plant and the Claparols Hollow Blocks Factory" (Exhibit 36);

and later, on October 29, 1956, Coleongco had written to the bank another letter (Exhibit 35), also behind
the back of appellee, wherein Coleongco charged Claparols with taking machines mortgaged to the bank,
and added —

"In my humble personal opinion I presume that Mr. Eduardo L. Claparols is not serious in meeting his
obligations with your bank, otherwise he had not taken these machines and equipments a sign of bad faith
since the factory is making a satisfactory profit of my administration." cralaw virtua1aw library

Fortunately, Claparols managed to arrange matters with the bank and to have the execution levy lifted.
Incensed at what he regarded as disloyalty of his attorney-in-fact, he consulted lawyers. The upshot was
that appellee revoked the power of attorney (Exhibit "C"), and informed Coleongco thereof (Exhibits T, T-1),
by registered mail, demanding a full accounting at the same time. Coleongco, as would be expected,
protested these acts of Claparols, but the latter insisted, and on the first of January, 1957 wrote a letter to
Coleongco dismissing him as assistant manager of the plant and asked C. Miller & Company, auditors, to go
over the books and records of the business with a view to adjusting the accounts of the associates. These
last steps were taken in view of the revelation made by his machinery superintendent, Romulo Agsam, that
in the course of the preceding New Year celebrations, Coleongco had drawn Agsam aside and proposed that
the latter should pour acid on the machinery to paralyze the factory. The examination by the auditors,
summarized in Exhibits 80 and 87, found that Coleongco owed the Claparols Nail Factory the amount of
P81,387.37, as of June 30, 1957.

In the meantime, Claparols had found in the factory files certain correspondence in February, 1955 between
Coleongco and the nail dealer Kho To whereby the former proposed to Kho that the latter should cut his
monthly advances to Claparols from P2,000 to P1,000 a month, because —

"I think it is time that we do our plan to take advantage of the difficulties of Eddie with the banks for our
benefit. If we can squeeze him more, I am sure that we can extend our contract with him before it ends
next year, and perhaps on better terms. If we play well our cards we might yet own his factory" (Exhibit
32);

and conformably to Coleongco’s proposal, Kho To had written to Claparols that "due to present business
conditions" the latter could only be allowed to draw P1,000 a month beginning April, 1955 (Exhibit 33).

As the parties could not amicably settle their accounts, Coleongco filed a suit against Claparols charging
breach of contract, asking for accounting, and praying for P528,762.19 as damages, and attorney’s fees, to
which Claparols answered, denying the charge, and counterclaiming for the rescission of the agreement with
Coleongco for P561,387.39 by way of damages. After trial, the court rendered judgment, as stated at the
beginning of this opinion.
In this appeal, it is first contended by the appellant Coleongco that the power of attorney (Exhibit "C") was
made to protect his interest under the financing agreement (Exhibit "B"), and was one coupled with an
interest that the appellee Claparols had no legal power to revoke. This point can not be sustained. The
financing agreement itself already contained clauses for the protection of appellant’s interest, and did not
call for the execution of any power of attorney in favor of Coleongco. But granting appellant’s view, it must
not be forgotten that a power of attorney can be made irrevocable by contract only in the sense that the
principal may not recall it at his pleasure; but coupled with interest or not, the authority certainly can be
revoked for a just cause, such as when the attorney- in-fact betrays the interest of the principal, as
happened in this case. It is not open to serious doubt that the irrevocability of the power of attorney may
not be used to shield the perpetration of acts in bad faith, breach of confidence, or betrayal of trust, by the
agent, for that would amount to holding that a power, coupled with an interest authorizes the agent to
commit frauds against the principal.

Our new Civil Code, in Article 1172, expressly provides the contrary in prescribing that responsibility arising
from fraud is demandable in all obligations, and that any waiver of action for future fraud is void. It is also
on this principle that the Civil Code, in its Article 1800, declares that the powers of a partner, appointed as
manager, in the articles of copartnership are irrevocable without just or lawful cause; and an agent with
power coupled with an interest can not stand on better ground than such a partner in so far as irrevocability
of the power is concerned.

That the appellant Coleongco acted in bad faith towards his principal Claparols is, on the record,
unquestionable. His letters to the Philippine National Bank (Exhibits 35 and 36) attempting to undermine the
credit of the principal and to acquire the factory of the latter, without the principal’s knowledge; Coleongco’s
letter to his cousin, Kho To (Exhibit 32), instructing the latter to reduce to one-half the usual monthly
advances to Claparols on account of nail sales in order to squeeze said appellee and compel him to extend
the contract entitling Coleongco to share in the profits of the nail factory in better terms, and ultimately
"own his factory", a plan carried out by Kho’s letter, Exhibit "33", reducing the advances to Claparols;
Coleongco’s attempt to have Romulo Agsam pour acid on the machinery; his illegal diversion of the profits of
the factory to his own benefit; and the surreptitious disposition of the Yates band resaw machine in favor of
his cousin’s Hong Shing Lumber Yard, made while Claparols was in Baguio in July and August of 1956, are
plain acts of deliberate sabotage by the agent that fully justified the revocation of the power of attorney
(Exhibit "C") by Claparols and his demand for an accounting from his agent Coleongco.

Appellant attempts to justify his letters to the Philippine National Bank (Exhibits 35 and 36), claiming that
Claparols mal-administration of the business endangered the security for the advances that he had made
under the financing contract (Exhibit "B"). But if that were the case, it is to be expected that Coleongco
would have first protested to Claparols himself, which he never did. Appellant likewise denies the authorship
of the letter to Kho (Exhibit 32) as well as the attempt to induce Agsam to damage the machinery of the
factory. Between the testimony of Agsam and Claparols and that of Coleongco, the court below chose to
believe the former, and we see no reason to alter the lower court’s conclusion on the value of the evidence
before it, considering that Kho’s letter to Claparols (Exhibit 33) plainly corroborates and dovetails with the
plan outlined in Coleongco’s own letter (Exhibit 32), signed by him, and that the credibility of Coleongco is
affected adversely by his own admission of his having been previously convicted of estafa (t.s.n., p. 139,
276), a crime that implies moral turpitude. Even disregarding Coleongco’s letter to his son-in-law (Exhibit
82) that so fully reveals Coleongco’s lack of business scruples, the clear preponderance of evidence is
against Appellant.

The same remarks apply to the finding of the trial court that it was appellant Coleongco, and not Claparols,
who disposed of the band resawing equipment, since said machine was received in July, 1956 and sold in
August of that year to the Hong Shing Lumber Co., managed by appellant’s cousin, Vicente Kho. The untruth
of Coleongco’s charge that Claparols, upon his return from Baguio in September, 1956, admitted having sold
the machines behind his associate’s back is further evidenced by (a) Coleongco’s letter, Exhibit "V", dated
October 29, 1956, inquiring the whereabouts of the resaw equipment from Claparols (an inquiry
incompatible with Claparols previous admission); (b) by the undenied fact that the appellee was in Baguio
and Coleongco was acting for him during the months of July and August when the machine was received and
sold; and (c) the fact that as between the two it is Coleongco who had a clear interest in selling the sawing
machine to his cousin Kho To’s lumber yard. If Claparols wished to sell the machine without Coleongco’s
knowledge, he would not have picked the latter’s cousin for a buyer.

The action of plaintiff-appellant for damages and lost profits due to the discontinuance of the financing
agreement, Exhibit "B", may not prosper, because the record shows that the appellant likewise breached his
part of the contract. It will be recalled that under paragraph 2 of the contract, Exhibit "B", it was
stipulated: jgc:chanrobles.com.ph

"That the Party of the Second Part (Coleongco) has agreed to finance and put up all the necessary money
which may be needed to pay for the importation of the raw material needed by such nail factory and
allocated by the ICC from time to time either in cash or with whatever suitable means which the Party of the
Second Part may be able to make by suitable arrangements with any well known banking institution
recognized by the Central Bank of the Philippines." cralaw virtua1aw library

Instead of putting up all the necessary money needed to finance the imports of raw material, Coleongco
merely advanced 25% in cash on account of the price and had the balance covered by surety agreements
executed by Claparols and others as solidary (joint and several) guarantors (see Exhibits G, H, I). The
upshot of this arrangement was that Claparols was made to shoulder 3/4 of the payment for the imports,
contrary to the financing agreement. Paragraph 11 of the latter expressly denied Coleongco any power or
authority to bind Claparols without previous consultation and authority. When the balances for the cost of
the importations became due, Coleongco in some instances, paid it with the dealers’ advances to the nail
factory against future sales without the knowledge of Claparols (Exhibits "K" to K-11, K-13). Under
paragraphs 8 and 11 of the financing agreement, Coleongco was to give preference to the operating
expenses before sharing profits, so that until the operating costs were provided for, Coleongco had no right
to apply the factory’s income to pay his own obligations.

Again, the examination of the books by accountant Atienza of C. Miller and Co., showed that from 1954
onwards Coleongco (who had the control of the factory’s cash and bank deposits, under paragraph 11 of
Exhibit "B") never liquidated and paid in full to Claparols his half of the profits, so that by the end of 1956
there was due to Claparols P38,068.41 on this account (Exhibit 91). For 1957 to 1958 Claparols financed the
imports of nail wire without the help of appellant, and in view of the latter’s infringement of his obligations,
his acts of disloyalty previously discussed, and his diversions of factory funds (he even bought two motor
vehicles with them), we find no justification for his insistence in sharing in the factory’s profit for these
years, nor for the restoration of the revoked power of attorney.

The accountant’s reports and testimony (specially Exhibits 80 and 87) prove that as of June 30, 1957,
Coleongco owed to Claparols the sum of P83,466.34 that after some adjustment was reduced to
P81,387.37, practically accepted even by appellant’s auditor. The alleged discrepancies between the general
ledger and the result thus arrived at was satisfactorily explained by accountant Atienza in his testimony
(t.s.n., 1173-1178).

No error was, therefore, committed by the trial court in declaring the financing contract (Exh. B) properly
resolved by Claparols or in rendering judgment against appellant in favor of appellee for the said amount of
P81,387.37. The basic rule of contracts requires parties to act loyally toward each other, in the pursuit of
the common end, and appellant clearly violated the rule of good faith prescribed by Art. 1315 of the new
Civil Code.

The lower court also allowed Claparols P50,000 for damages, material, moral and exemplary, caused by the
appellant Coleongco’s acts in maliciously undermining appellee’s credit that led the Philippine National Bank
to secure a writ of execution against Claparols. Undeniably, the attempts of Coleongco to discredit and
"squeeze" Claparols out of his own factory and business could not but cause the latter mental anguish and
serious anxiety, as found by the court below, for which he is entitled to compensation; and the malevolence
that lay behind appellee’s actions justified also the imposition of exemplary or deterrent damages (Civ.
Code, Art. 2232). While the award could have been made larger without violating the canons of justice, the
discretion in fixing such damages primarily lay in the trial court, and we feel that the same should be
respected.

IN VIEW OF THE FOREGOING, the decision appealed from is affirmed. Costs against appellant Vicente
Coleongco.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Dizon, Regala and
Makalintal, JJ., concur.
EN BANC

[G.R. No. 40681. October 2, 1934.]

DY BUNCIO & COMPANY, INC., plaintiff and appellee, v. ONG GUAN CAN, ET AL., Defendants.
JUAN TONG and PUA GIOK ENG, Appellants. 
Pedro Escolin for Appellants. 

G. Viola Fernando for Appellee. 

SYLLABUS

1. PRINCIPAL AND AGENT; TERMINATION OF POWER OF ATTORNEY. — Article 1732 of the Civil Code is
silent over the partial termination of an agency. The making and accepting of a new power of attorney,
whether it enlarges or decreases the power of the agent under a prior power of attorney, must be held to
supplant and revoke the latter when the two are inconsistent. If the new appointment with limited powers
does not revoke the general power of attorney, the execution of the second power of attorney would be a
mere futile gesture.

DECISION

HULL, J.:

This is a suit over a rice-mill and camarin situated at Dao, Province of Capiz. Plaintiff claims that the
property belongs to its judgment debtor, Ong Guan Can, while defendants Juan Tong and Pua Giok Eng
claim as owner and lessee of the owner by virtue of a deed dated July 31, 1931, by Ong Guan Can, Jr. 

After trial the Court of First Instance of Capiz held that the deed was invalid and that the property was
subject to the execution which had been levied on said properties by the judgment creditor of the owner.
Defendants Juan Tong and Pua Giok Eng bring this appeal and insist that the deed of the 31st of July, 1931,
is valid. 

The First recital of the deed is that Ong Guan Can, jr., as agent of Ong Guan Can, the proprietor of the
commercial firm of Ong Guan Can & Sons, sells the rice-mill and camarin for P13,000 and gives as his
authority the power of attorney dated the 23d of May, 1928, a copy of this public instrument being attached
to the deed and recorded with the deed in the office of the register of deeds of Capiz. The receipt of the
money acknowledged in the deed was to the agent, and the deed was signed by the agent in his own name
and without any words indicating that he was signing it for the principal. 

Leaving aside the irregularities of the deed and coming to the power of attorney referred to in the deed and
registered therewith, it is at once seen that it is not a general power of attorney but a limited one and does
not give the express power to alienate the properties in question. (Article 1713 of the Civil Code.) 

Appellants claim that this defect is cured by Exhibit 1, which purports to be a general power of attorney
given to the same agent in 1920. Article 1732 of the Civil Code is silent over the partial termination of an
agency. The making and accepting of a new power of attorney, whether it enlarges or decreases the power
of the agent under a prior power of attorney, must be held to supplant and revoke the latter when the two
are inconsistent. If the new appointment with limited powers does not revoke the general power of attorney,
the execution of the second power of attorney would be a mere futile gesture. 

The title of Ong Guan Can not having been divested by the so- called deed on July 31, 1931, his properties
are subject to attachment and execution. 

The judgment appealed from is therefore affirmed. Costs against appellants. So ordered. 

Avanceña, C.J., Abad Santos, Vickers and Diaz, JJ., concur.

G.R. No. L-14248. April 28, 1960.]

NEW MANILA LUMBER COMPANY, INC., Plaintiff-Appellant, v. REPUBLIC OF THE

PHILIPPINES, Defendant-Appellee. 
S. F. Alidio & Associates for Appellant. 

Solicitor General Edilberto Barot and Solicitor Ceferino S. Gaddi for Appellee.

SYLLABUS

1. PUBLIC WORKS; RECOVERY OF PAYMENT BY SUPPLIER OF MATERIAL AND LABOR. — The legal remedy of
any person, company, or corporation who has furnished materials used in the construction of any public
building or public works, the payment for which has not been made, is not to bring suit against the
Government, there being no privity of contract between them, but to intervene in the action instituted by
the Government on the bond of the contractor. If no suit should be brought by the Government within six
months from the completion and final settlement of contract, or if the Government expressly waives its right
to institute action on the penal bond, the person or persons supplying the contractor with materials, may file
an action in the name of the Government against said contractor or his bond. 

2. PRINCIPAL AND AGENT; REVOCATION OF AGENCY; WHAT CONSTITUTE. — Where a contractor, after
executing powers of attorney in favor of another to collect whatever amounts may be due him from the
Government, demands and collects from the latter the money the collection of which he entrusted to his
attorney-in-fact, the agency is thereby revoked. (Articles 1920 and 1924, new Civil Code.) 

3. ID.; POWERS OF ATTORNEY OBLIGATORY ONLY ON PRINCIPAL; THIRD PERSON NOT AFFECTED. —
Powers of attorney executed by one in favor of another are obligatory only on the principal who executed
the agency, and though irrevocable and coupled with interest, cannot affect a person who is not a party
thereto. 

4. CONTRACTS; CONSTRUCTION OF PUBLIC SCHOOL BUILDINGS; LIMITED AUTHORITY OF DIRECTOR OF

PUBLIC SCHOOLS. — While the Director of Public Schools may have authority to enter into contract with a
contractor for the construction of school buildings, payment of the price is not within his exclusive control
but subject to approval under existing laws not only by the Department Head (Sec. 568, Rev. Adm. Code),
but also by the Auditor General. 

5. ID.; ID.; CLAIMS FOR MONEY AGAINST GOVERNMENT TO BE LODGED WITH AUDITOR GENERAL;
IMMUNITY OF STATE FROM SUIT. — A claim for a sum of money arising from an alleged implied contract
between the claimant and the Republic of the Philippines should be lodged with the Auditor General. The
State cannot be sued without its consent.

DECISION

GUTIERREZ DAVID, J.:

Appeal from an order of dismissal of the Court of First Instance of Manila. 

On May 8, 1958, the plaintiff lumber company filed in the court below a complaint against the defendant
Republic of the Philippines for the recovery of a sum of money. The complaint alleges, among other things,
that defendant, thru the Director of Schools, entered into a contract with one Alfonso Mendoza to build two
school houses; that plaintiff furnished the lumber materials in the construction of the said buildings; that
prior to the payment by defendant of any amount due the contractor, the latter executed powers of attorney
in favor of the plaintiff "constituting it as his sole, true and lawful attorney- in-fact with specific and
exclusive authority to collect and receive from the defendant any and all amounts due or may be due to said
contractor from the defendant in connection with the construction of the aforesaid school buildings, as may
be necessary to pay materials supplied by the plaintiff" ; and that originals of the powers of attorney were
received by defendant (thru the Director of Public Schools) who promised to pay plaintiff, but that it,
nevertheless, paid the contractor several amounts on different occasions without first making payment to
plaintiff. The complaint, therefore, prays that defendant be ordered to pay plaintiff the sum of P18,327.15,
the unpaid balance of the cost of lumber supplied and used in the construction of the school buildings, with
interest at the legal rate from the date same was due, plus attorney’s fees and costs. 
Served with a copy of the complaint, the defendant Republic of the Philippines, through the Solicitor
General, moved to dismiss the same on the grounds (1) that it does not allege a sufficient cause of action,
(2) that plaintiff has no right to institute the action under Act No. 3688, and (3) that the court is without
jurisdiction to entertain the same against the defendant. 

The motion was opposed by plaintiff, but after hearing, the court below — holding that "there is no juridical
tie between plaintiff- supplier and defendant-owner — sustained the motion to dismiss on the first ground,
and on June 23, 1958 issued an order dismissing plaintiff’s complaint. Its motion for reconsideration having
been denied, plaintiff took the present appeal. 

The appeal is without merit. 

Briefly stated, plaintiff’s complaint seeks to enforce against the Republic of the Philippines a money claim for
the payment of materials it furnished for the construction of two public school buildings undertaken by
contractor Alfonso Mendoza, on the basis of powers of attorney executed by the latter authorizing said
plaintiff to collect and receive from defendant Republic any amount due or may be due to said contractor as
contract price for the payment of the materials so supplied. 

Section one of Public Act No. 3688, entitled "An Act for the protection of persons furnishing material and
labor for the construction of public works", reads in part as follows: jgc:chanrobles.com.ph

"SECTION 1. Any person, partnership or corporation entering into a formal contract with the Government of
the Philippine Islands for the construction of any public building, or the prosecution and completion of any
public work, or for repairs upon any public building or public work, shall be required, before commencing
such work, to execute the usual penal bond, with good and sufficient sureties, with the additional obligation
that such contractor or his or its sub- contractors shall promptly make payments to all persons supplying
him or them with labor and materials in the prosecution of the work provided for in such contract; and any
person, company or corporation who has furnished labor or materials used in the construction or repair of
any public building or public work, and payment for which has not been made, shall have the right to
intervene and be made a party to any action instituted by the Government of the Philippine Islands on the
bond of the contractor, and to have their rights and claims adjudicated in such action and judgment
rendered thereon, subject, however, to the priority of the claim and judgment of the Government of the
Philippine Islands. If the full amount of the liability of the surety on said bond is insufficient to pay the full
amount of said claims and demands, then, after paying the full amount due the Government, the remainder
shall be distributed pro rata among said intervenors. If no suit should be brought by the Government of the
Philippine Islands within six months from the completion and final settlement of said contract, or if the
Government expressly waives its right to institute action on the penal bond, then the person or persons
supplying the contractor with labor and materials shall, upon application therefor, and furnishing affidavit to
the department under the direction of which said work has been prosecuted, that labor or materials for the
prosecution of such work have been supplied by him or them, and payment for which has not been made,
be furnished with a certified copy of said contract and bond, upon which he or they shall have a right of
action, and shall be, and are hereby, authorized to bring suit in the name of the Government of the
Philippine Islands in the Court of First Instance in the district in which said contract was to be performed and
executed, and not elsewhere, for his or their use and benefit, against said contractor and his sureties, and to
prosecute the same to final judgment and execution, . . . ." cralaw virtua1aw library

In the case at bar, it is not disputed that defendant Republic has already instituted a suit against the
contractor for the forfeiture of the latter’s bond posted to secure the faithful performance of stipulations in
the construction contract with regards to one of the two school buildings (Civil Case No. 26815, Court of
First Instance of Manila). The contractor has a similar bond with respect to the other school building.
Pursuant to Act 3688, plaintiff’s legal remedy is, not to bring suit against the Government, there being no
privity of contract between them, but to intervene in the civil case above-mentioned as an unpaid supplier
or materials to the contractor, or file an action in the name of the Republic against said contractor on the
latter’s other bond. 

Plaintiff argues than an implied contract between it and the defendant Republic arose, when the latter, thru
the Director of Public Schools, on being furnished copies of the powers of attorney executed by the
contractor, promised to make payment to plaintiff for the materials supplied for the construction of the
school buildings. It will be observed, however, that defendant was not a party to the execution of the
powers of attorney. Besides, the Director of Public Schools had no authority to bind defendant on the
payment. While he was the official who entered into contract with the contractor for the construction of the
school buildings, payment of the contract price was not within his exclusive control but subject to approval
under existing laws not only by the Department Head (Sec. 568, Rev. Adm. Code), but also by the Auditor
General. 

At any rate, under the facts alleged in the complaint, the powers of attorney in question made plaintiff the
contractor’s agent in the collection of whatever amounts may be due the contractor from the defendant. And
since it is also alleged that, after the execution of the powers of attorney, the contractor (principal)
demanded and collected from defendant the money the collection of which he entrusted to plaintiff, the
agency apparently has already been revoked. (Articles 1920 and 1924, new Civil Code.) 

The point is made by plaintiff that the powers of attorney executed by the contractor in its favor are
irrevocable and are coupled with interest. But even supposing that they are, still their alleged irrevocability
cannot affect defendant who is not a party thereto. They are obligatory only on the principal who executed
the agency. 

Plaintiff also cites Article 1729 of the new Civil Code, which provides that —

"Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have
an action against the owner up to the amount owing from the latter to the contractor at the time the claim is
made. . . . ."
cralaw virtua1aw library

This article, however, as expressly provided in its last paragraph, "is subject to the provisions of special
law." The special law governing in the present case, as already seen, is Act No. 3688. 

There is another reason for upholding the order of dismissal complained of. Plaintiff’s action being a claim
for a sum of money arising from an alleged implied contract between it and the Republic of the Philippines,
the same should have been lodged with the Auditor General. The State cannot be sued without its consent. 

In view of the foregoing, the order of dismissal appealed from is affirmed, with costs against plaintiff-
appellant. 

EN BANC

[G.R. No. L-5180. August 31, 1953.]

CONSEJO INFANTE, Petitioner, v. JOSE CUNANAN, JUAN MIJARES and THE COURT OF APPEALS,
Second Division, Respondents. 

Yuseco, Abdon & Yuseco for Petitioner. 

Jose E. Erfe and Maria Luisa Gomez for Respondents.

SYLLABUS

1. EVIDENCE; PAROLE EVIDENCE RULE; CONTRACTS AND OBLIGATIONS; PRINCIPAL AND AGENT; AGENT’S
COMMISSION. — Oral evidence is presented to the effect that while the agents agreed to cancel the written
authority given them by their principal, they did so merely upon the principal’s verbal assurance that, should
the property subject of their contract of agency be sold to their own buyer, they would be given the
commission agreed upon. Held: The cancellation of the written authority being in writing, parole evidence is
not admissible under section 22 of Rule 123. 

2. ID.; ID.; ID.; ID.; ID. — If there is other evidence which would justify the agents’ claim for commission,
even if such parol evidence is disregarded, they are entitled to such commission. 

3. PRINCIPAL AND AGENT; AGENT’S COMMISSION CANCELLATION OF AGENTS’ AUTHORITY; EFFECT OF

CANCELLATION ON COMMISSION. — The principal took advantage of the agents’ services consisting in
locating a buyer for the principal’s land. The principal, perhaps by stratagem, advised the agents that she
was no longer interested in the deal and was able to prevail upon them to sign a document agreeing to the
cancellation of the written authority she had originally given the agents, believing that she could evade
payment of their commission. Then she sold the property to the buyer found by the agents. Held: The
principals act is unfair as would amount to bad faith, and cannot be sanctioned without according to the
agents the reward which is due them.

DECISION

BAUTISTA ANGELO, J.:

This is a petition for review of a decision of the Court of Appeals affirming the judgment of the court of origin
which orders the defendant to pay the plaintiffs the sum of P2,500 with legal interest thereon from February
2, 1949 and the costs of action. 

Consejo Infante, defendant herein, was the owner of two parcels of land, together with a house built
thereon, situated in the City of Manila and covered by Transfer Certificate of Title No. 61786. On or before
November 30, 1948, she contracted the services of Jose Cunanan and Juan Mijares, plaintiffs herein, to sell
the above-mentioned property for a price of P30,000 subject to the condition that the purchaser would
assume the mortgage existing thereon in favor of the Rehabilitation Finance Corporation. She agreed to pay
them a commission of 5 per cent on the purchase price plus whatever overprice they may obtain for the
property. Plaintiffs found one Pio S. Noche who was willing to buy the property under the terms agreed upon
with defendant, but when they introduced him to defendant, the latter informed them that she was no
longer interested in selling the property and succeeded in making them sign a document stating therein that
the written authority she had given them was already cancelled. However, on December 20, 1948,
defendant dealt directly with Pio S. Noche selling to him the property for P31,000. Upon learning this
transaction, plaintiffs demanded from defendant the payment of their commission, but she refused and so
they brought the present action. 

Defendant admitted having contracted the services of the plaintiffs to sell her property as set forth in the
complaint, but stated that she agreed to pay them a commission of P1,200 only on condition that they buy
her a property somewhere in Taft Avenue to where she might transfer after selling her property. Defendant
avers that while plaintiffs took steps to sell her property as agreed upon, they sold the property at Taft
Avenue to another party and because of this failure it was agreed that the authority she had given them be
cancelled. 

The lower court found that the preponderance of evidence was in favor of the plaintiffs and rendered
judgment sentencing the defendant to pay the plaintiffs the sum of P2,500 with legal interest thereon from
February 2, 1949 plus the costs of action. This decision was affirmed in toto by the Court of Appeals. 

There is no dispute that respondents were authorized by petitioner to sell her property for the sum of
P30,000 with the understanding that they will be given a commission of 5 percent plus whatever overprice
they may obtain for the property. Petitioner, however, contends that that authority has already been
withdrawn on November 30, 1948 when, by the voluntary act of respondents, they executed a document
stating that said authority shall be considered cancelled and without any effect, so that when petitioner sold
the property to Pio S. Noche on December 20, 1948, she was already free from her commitment with
respondents and, therefore, was not in duty bound to pay them any commission for the transaction. 

If the facts were as claimed by petitioner, there is indeed no doubt that she would have no obligation to pay
respondents the commission which was promised them under the original authority because, under the old
Civil Code, her right to withdraw such authority is recognized. A principal may withdraw the authority given
to an agent at will. (Article 1733.) But this fact is disputed. Thus, respondents claim that while they agreed
to cancel the written authority given to them, they did so merely upon the verbal assurance given by
petitioner that, should the property be sold to their own buyer, Pio S. Noche, they would be given the
commission agreed upon. True, this verbal assurance does not appear in the written cancellation, Exhibit 1,
and, on the other hand, it is disputed by petitioner, but respondents were allowed to present oral evidence
to prove it, and this is now assigned as error in this petition for review. 

The plea that oral evidence should not have been allowed to prove the alleged verbal assurance is well taken
it appearing that the written authority given to respondents has been cancelled in a written statement. The
rule on this matter is that "When the terms of an agreement have been reduced to writing, it is to be
considered as containing all those 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."
(Section 22, Rule 123, Rules of Court.) The only exceptions to this rule are:" (a) Where a mistake or
imperfection of the writing, or its failure to express the true intent and agreement of the parties, or the
validity of the agreement is put in issue by the pleadings" ; and" (b) Where there is an intrinsic ambiguity in
the writing." (Ibid.) There is no doubt that the point raised does not come under any of the cases excepted,
for there is nothing therein that has been put in issue by respondents in their complaint. The terms of the
document, Exhibit 1, seem to be clear and they do not contain any reservation which may in any way run
counter to the clear intention of the parties. 

But even disregarding the oral evidence adduced by respondents in contravention of the parole evidence
rule, we are, however, of the opinion that there is enough justification for the conclusion reached by the
lower court as well as by the Court of Appeals to the effect that respondents are entitled to the commission
originally agreed upon. It is a fact found by the Court of Appeals that after petitioner had given the written
authority to respondents to sell her land for the sum of P30,000, respondents found a buyer in the person of
one Pio S. Noche who was willing to buy the property under the terms agreed upon, and this matter was
immediately brought to the knowledge of petitioner. But the latter, perhaps by way of stratagem, advised
respondents that she was no longer interested in the deal and was able to prevail upon them to sign a
document agreeing to the cancellation of the written authority. 

That petitioner had changed her mind even if respondents had found a buyer who was willing to close the
deal, is a matter that would not give rise to a legal consequence if respondents agree to call off the
transaction in deference to the request of petitioner. But the situation varies if one of the parties takes
advantage of the benevolence of the other and acts in a manner that would promote his own selfish interest.
This act is unfair as would amount to bad faith. This act cannot be sanctioned without according to the party
prejudiced the reward which is due him. This is the situation in which respondents were placed by petitioner.
Petitioner took advantage of the services rendered by respondents, but believing that she could evade
payment of their commission, she made use of a ruse by inducing them to sign the deed of cancellation
Exhibit 1. This act of subversion cannot be sanctioned and cannot serve as basis for petitioner to escape
payment of the commission agreed upon. 

Wherefore, the decision appealed from is hereby affirmed, with costs against petitioner. 

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Montemayor, Reyes and Jugo, JJ., concur. 

Separate Opinions

LABRADOR, J., concurring and dissenting: chanrob1es virtual 1aw library

I concur in the result. I can not agree, however, to the ruling made in the majority decision that the
petitioners can not introduce evidence of the circumstances under which the document was signed, i. e.
upon promise by respondent that should the property be sold to petitioner’s buyer they would nevertheless
be entitled to the commission agreed upon. Such evidence is not excluded by the parole evidence rule,
because it does not tend to alter or vary the terms of the document. This document was merely a
withdrawal of the authority granted the petitioner to sell the property, not an agreement that they shall not
be paid their commission.

[G.R. No. 28050. March 13, 1928.]

FEDERICO VALERA, Plaintiff-Appellant, v. MIGUEL VELASCO, Defendant-Appellee. 

Jose Martinez San Agustin, for Appellant. 

Vicente O. Romualdez, Crispulo T. Manubay and Placido P. Reyes, for Appellee. 

SYLLABUS
1. AGENCY; TERMINATION OF; RENUNCIATION. — The filing of a complaint by an agent against his principal
for the collection of a balance in his favor resulting from a liquidation of the agency accounts between them,
and his rendering of a final account of his operations, are equivalent to an express renunciation of the
agency and terminate the juridical relation between them. 

2. ID.; ID.; ID.; PURCHASE BY AGENT OF PROPERTY INVOLVED IN AGENCY. — The purchase at public
auction by the agent after having renounced and thus terminated the agency, of the property involved in the
agency sold at said auction for the purpose of satisfying a judgment rendered against the principal in favor
of the agent, is valid. 

3. EXECUTION; RIGHT OF REDEMPTION; NULLITY OF; PERIOD FOR ITS ANNULMENT. — Even supposing the
sale of a right of redemption to be void, yet when said right is levied upon as pertaining to the purchaser,
said vendor does not present a third party claim, not file a complaint to recover said right before the period
for redemption expires, he can no longer contests the validity of said sale of the right of redemption, for it
has already ceased to exist at the expiration of the time within which it could be exercised. 

4. ID.; ID.; RENTS DURING PERIOD OF REDEMPTION. — A purchaser at public auction is entitled to received
the rent of the realty purchased, from the date of its sale until its redemption, the same to be considered as
a part of the redemption price, and is not bound to account for said rents, if the right of redemption has not
been exercised within the legal period, the purchaser’s title thereby becoming absolute.

DECISION

VILLA-REAL, J.:

This is an appeal taken by Federico Valera from the judgment of the Court of First Instance of Manila
dismissing his complaint against Miguel Velasco, on the ground that he has not satisfactorily proven his right
of action. 

In support of his appeal, the appellant assigns the following alleged errors as committed by the trial court in
its judgment, to wit: (1) The lower court erred in holding that one of the ways of terminating an agency is
by the express or tacit renunciation of the agent; (2) the lower court erred in holding that the institution of a
civil action and the execution of the judgment obtained by the agent against his principal is but a
renunciation of the powers conferred on the agent; (3) the lower court erred in holding that, even if the sale
by Eduardo Hernandez to the plaintiff Federico Valera be declared void, such a declaration could not prevail
over the rights of the defendant Miguel Velasco inasmuch as the right of redemption was exercised by
neither Eduardo Hernandez nor the plaintiff Federico Valera; (4) the lower court erred in not finding that the
defendant Miguel Velasco was, and at present is, an authorized representative of the plaintiff Federico
Valera; (5) the lower court erred in not annulling the sale made by the sheriff at public auction to defendant
Miguel Velasco, Exhibit K; (6) the lower court erred in failing to annul the sale executed by Eduardo
Hernandez to the plaintiff Federico Valera, Exhibit C; (7) the lower court erred in not annulling Exhibit L,
that is, the sale at public auction of the right to repurchase the land in question to Salvador Vallejo; (8) the
lower court erred in not declaring Exhibit M null and void, which is the sale by Salvador Vallejo to defendant
Miguel Velasco; (9) the lower court erred in not ordering the defendant Miguel Velasco to liquidate his
accounts as agent of the plaintiff Federico Valera; (10) the lower court erred in not awarding plaintiff the
P5,000 damages prayed for. 

The pertinent facts necessary for the solution of the questions raised by the above quoted assignments of
error are contained in the decision appealed from and are as follows: jgc:chanrobles.com.ph

"By virtue of the powers of attorney, Exhibits X and Z, executed by the plaintiff on April 11, 1919, and on
August 8, 1922, the defendant was appointed attorney-in-fact of the said plaintiff with authority to manage
his property in the Philippines, consisting of the usufruct of a real property located on Echague Street, City
of Manila. 

"The defendant accepted both powers of attorney, managed plaintiff’s property reported his operations, and
rendered accounts of his administration and on March 31, 1923 presented Exhibit F, to plaintiff, which is the
final account of his administration for said month, wherein it appears that there is a balance of P3,058.33 in
favor of the plaintiff. 

"The liquidation of accounts revealed that the plaintiff owed the defendant P1,100, and as a
misunderstanding arose between them the defendant brought suit against the plaintiff, civil case No. 23447
of this court. Judgment was rendered in his favor on March 28, 1923, and after the writ of execution was
issued, the sheriff levied upon the plaintiff’s right of usufruct, sold it at public auction and adjudicated it to
the defendant in payment of all of his claim. 

"Subsequently, on May 11, 1923, the plaintiff sold his right of redemption to one Eduardo Hernandez, for
the sum of P200 (Exhibit A). On September 4, 1923, this purchaser conveyed the same right of redemption,
for the sum of P200, to the plaintiff himself, Federico Valera (Exhibit C). 

"After the plaintiff had recovered his right of redemption, one Salvador Vallejo, who had an execution upon
a judgment against the plaintiff rendered in a civil case against the latter, levied upon said right of
redemption, which was sold by the sheriff at public auction to Salvador Vallejo for P250 and was definitely
adjudicated to him. Later, he transferred said right to redemption to the defendant Velasco. This is how the
title to the right of usufruct to the aforementioned property later came to vest in the said defendant." cralaw virtua1aw library

As the first two assignments of error are very closely related to each other, we will consider them jointly. 

Article 1732 of the Civil Code reads as follows: jgc:chanrobles.com.ph

"Art. 1732. Agency is terminated: jgc:chanrobles.com.ph

"1. By revocation;

"2. By the withdrawal of the agent;

"3. By the death, interdiction, bankruptcy, or insolvency of the principal or of the agent." cralaw virtua1aw library

And Article 1736 of the same Code provides that: jgc:chanrobles.com.ph

"Art. 1736. An agent may withdraw from the agency by giving notice to the principal. Should the latter
suffer any damage through the withdrawal, the agent must indemnify him therefore, unless the agent’s
reason for his withdrawal should be the impossibility of continuing to act as such without serious detriment
to himself."cralaw virtua1aw library

In the case of De la Peña v. Hidalgo (16 Phil., 450), this court laid down the following rule: jgc:chanrobles.com.ph

"1 AGENCY; ADMINISTRATION OF PROPERTY; IMPLIED AGENCY. —When the agent and administrator of
property informs his principal by letter that for reasons of health and medical treatment he is about to
depart from the place where he is executing his trust and wherein the said property is situated, and
abandons the property, turns it over to a third party, renders accounts of its revenues up to the date on
which he ceases to hold his position and transmits to his principal a general statement which summarizes
and embraces all the balances of his accounts since he began the administration to the date of the
termination of his trust, and, without stating when he may return to take charge of the administration of the
said property, asks his principal to execute a power of attorney in due form in favor of and transmit the
same to another person who took charge of the administration of the said property, it is but reasonable and
just to conclude that the said agent had expressly and definitely renounced his agency and that such agency
was duly terminated, in accordance with the provisions of article 1732 of the Civil Code, and, although the
agent in his aforementioned letter did not use the words "renouncing the agency," yet such words, were
undoubtedly so understood and accepted by the principal, because of the lapse of nearly nine years up to
the time of the latter’s death, without his having interrogated either the renouncing agent, disapproving
what he had done or the person who substituted the latter." cralaw virtua1aw library

The misunderstanding between the plaintiff and the defendant over the payment of the balance of P1,000
due the latter, as a result of the liquidation of the accounts between them arising from the collections by
virtue of the former’s usufructuary right, who was the principal, made by the latter as his agent, and the
fact that the said defendant brought suit against the said principal on March 28, 1928 for the payment of
said balance. more than prove the breach of the juridical relation between them; for although the agent has
not expressly told his principal that he renounced the agency, yet neither dignity nor decorum permits the
latter to continue representing a person who has adopted such an antagonistic attitude towards him. When
the agent filed a complaint against his principal for the recovery of a sum of money arising from the
liquidation of the accounts between them in connection with the agency, Federico Valera could not have
understood otherwise than that Miguel Velasco renounced the agency because his act was more expressive
than words and could not have caused any doubt. (2 C. J., 543.) In order to terminate their relations by
virtue of the agency, the defendant, as agent, rendered his final account on March 31, 1923 to the plaintiff,
as principal. 

Briefly, then, the fact that an agent institutes an action against his principle for the recovery of the balance
in his favor resulting from the liquidation of the accounts be favor resulting from the liquidation of the
accounts between them arising from the agency and renders a final accounts of his operations is equivalent
to an express re-account of his operations, is equivalent to an express renunciation of the agency and
terminates the juridical relation between them. 

If, as we have found, the defendant-appellee Miguel Velasco, in adopting a hostile attitude towards his
principal, suing him for the collection of the balance in his favor, resulting from the liquidation of the agency
accounts, ceased ipso facto to be agent of the plaintiff-appellant, said agents’s purchase of the aforesaid
principal’s right of usufruct at public auction held by virtue of an execution issued upon the judgment
rendered in favor of the former and against the latter, is valid and legal, and the lower court did not commit
the fourth and fifth assignments of error attributed to it by the plaintiff to it by the plaintiff-appellant. 

In regard to the third assignment of error, it is deemed unnecessary to discuss the validity of the sale made
by Federico Valera to Eduardo Hernandez of his right of redemption in the sale of his usufructuary right
made by the sheriff by virtue of the execution of the judgment in favor of Miguel Velasco and against the
said Federico Valera; and the same thing is true as to the validity of the resale of the same right of
redemption made by Eduardo Hernandez to Federico Valera; inasmuch as Miguel Velasco’s purchase at
public auction held by virtue of an execution of Federico Valera’s usufructuary right is valid and legal, and as
neither the latter nor Eduardo Hernandez exercised his right of redemption within the legal period, the
purchaser’s title became absolute. 

Moreover, the defendant-appellee, Miguel Velasco, having acquired Federico Valera’s right of redemption
from Salvador Vallejo, who had acquired it at public auction by virtue of a writ of execution issued upon the
judgment obtained by the said Vallejo against the said Valera, the latter lost all right to said usufruct. 

And even supposing that Eduardo Hernandez had been tricked by Miguel Velasco into selling Federico
Valera’s right of repurchase to the latter so that Salvador Vallejo might levy an execution on it, and even
supposing that said resale was null for lack of consideration, yet, inasmuch as Eduardo Hernandez did not
present a third party claim when the right was levied upon for the execution of the judgment obtained by
Vallejo against Federico Valera, nor did he file a complaint to recover said right before the period of
redemption expired said Eduardo Hernandez, and much less Federico Valera, cannot now contest the validity
of said resale, for the reason that the one-year period of redemption has already elapsed. 

Neither did the trial court err in not ordering Miguel Velasco to render a liquidation of accounts from March
31, 1923, inasmuch as he had acquired the rights of the plaintiff by purchase at the execution sale, and, as
purchaser, he was entitled to receive the rents from the date of the sale until the date of the repurchase,
considering them as a part of the redemption price; but not having exercised the right of repurchase during
the legal period, and the title of the purchaser having become absolute, the latter did not have to account
for said rents. 

Summarizing, the conclusion is reached that the disagreements between an agent and his principle with
respect to the agency, the filing of the civil action by the former against the latter for the collection of the
balance in favor of the agent, resulting from a liquidation of the agency accounts, are facts showing a
rupture of relations, and the complaint is equivalent to an express renunciation of the agency, and is more
expressive than if the agent had merely said, "I renounce the agency." cralaw virtua1aw library

By virtue of the foregoing, and finding no error in the judgment appealed from, the same is hereby affirmed
in all its parts, with costs against the appellants. So ordered. 

Johnson, Malcolm, Villamor, Ostrand and Johns, JJ., concur.

[G.R. No. L-11415. May 25, 1959.]

MANUEL BUASON and LOLITA M. REYES, Plaintiffs-Appellants, v. MARIANO PANUYAS, Defendant-

Appellee. 

Garcia & Jacinto, for Appellants. 

Servando Cleto for Appellee.

SYLLABUS

1. SALES; DOUBLE SALE OF LAND REGISTERED UNDER ACT 496; BETTER RIGHT IN FAVOR OF REGISTERED
SALE. — If it does not appear that the second purchasers had actual knowledge of the previous sale to the
appellants, they had a right to rely on the face of the certificate of title of the registered owners and of the
authority conferred by them upon the agent with a power of attorney recorded on the back of the certificate.
In case of double sale of land registered under the Land Registration Act, he who records the sale in the
Registry of Deeds has a better right than he who did not. 

2. AGENCY; ACTS DONE BY AN AGENT AFTER DEATH OF PRINCIPAL WITHOUT HIS KNOWLEDGE OF SUCH
DEATH. — The contention that as the death of the principal ended the authority of the agent, the sale made
by the latter of the land in question after the death of the principal is null and void, is untenable, it not
having been shown that the agent knew of his principal’s demise, and for that reason the sale made by the
agent is valid and effective with respect to third persons who have contracted wiht him in good faith. (Art.
1723, Old Civil Code, 1931, New Civil Code).

DECISION

PADILLA, J.:

This is an appeal from a judgment of the Court of First Instance of Nueva Ecija dismissing an action brought
by the spouses Manuel Buason and Lolita M. Reyes for annulment of a deed of sale in favor of the
defendant, cancellation of transfer certificate of title No. 8419 issued in the name of the defendant and his
wife, declaration that the sale in their favor is valid, recovery of possession of te parcel of land described in
the complaint from the defendant, damages, attorney’s fees and costs. (Civil No. 2144.) 

In their lifetime the spouses Buenaventura Dayao and Eugenia Vega acquired by homestead patent a parcel
of land situated at barrio Gabaldon, municipality of Munoz, province of Nueva Ecija, containing an area of
14.8413 hectares covered by original certificate of title No.1187 (Exhibit C). On 29 October 1930 they
executed a power of attorney authorizing Eustaquio Bayuga to engage the sevices of an attorney to
prosecute their case against Leonardo Gambito for annulment of a contract of sale of the parcel of land (civil
No. 5787 of the same court) and after the termination of the case in their favor to sell it, and from the
proceeds of the sale to deduct whatever expenses he had incurred in the litigation (Exhibit B). On 14 March
1934 Buenaventura Dayao died leaving his wife Eugenia Vega and children Pablo, Teodoro, Fortunata and
Juliana, all surnamed Dayao. On 21 March 1939 his four children executed a deed of sale conveying 12.8413
hectares of the parcel of land to the appellants, the spouses Manuel Buason and Lolita M. Reyes (Exhibit A).
Their mother Eugenia Vega affixed her thumbmark to the deed of sale as witness (Exhibit A). The appellants
took possession of the parcel of land through their tenants in 1939. On 18 July 1944 Eustaquio Bayuga sold
8 hectares of the same parcel of land to the spouses Mariano Panuyas (appellee herein) and Sotera B. Cruz
(Exhibit D). Eustaquio Bayuga died on 25 March 1946 and Eugenia Vega in 1954. 

The appellant and the appellee calim ownership to the same parcil of land. In their complaint the appellants
prayed that the appellee be ordered to deliver possession of the part of the parcel of land held by him; that
the deed of sale of that part of the parcel of land held by the appellee executed by Eustaquio Bayuga in his
favor and of his wife (Exhibit D) be declared null and void and that transfer certificate of title No. 8419
issued in their name be cancelled; that the deed of sale of the parcel of land executed by the children and
heirs of Buenaventura Dayao in their fabor (Exhibit A) be declared valid; that the appellee be ordered to pay
them damages and attorney’s fees in the sum of P9,600; and that he be ordered to pay the costs of the suit.
The appellee’s affirmative defenses are that he and his wife were buyer in good faith and for valuable
consideration; that appellants’ causes of action are barred by the statute of limitations; that the complaint
states no cause of action; that the claim on which their action is based is unenforceable under the statute of
frauds; and that the appellants are guilty of laches. By way of counter-claim, he prayed that for bringing a
clearly unfounded suit against him which depreciated the value of the land and injured his good reputation,
the appellants be ordered to pay him the sums of P5,000 as actual damages and P10,000 as moral
damages. 

After trial on 20 August 1956 the Court rendered judgment holding that the appellants’ action is barred by
the statute of limitation and dismissing their complaint. Their motion for reconsideration filed on 23 August
1956 was denied on 28 August 1956. Hence this appeal upon questions of law. 

It appears that the appellants did not register the sale of 12.8413 hectares of the parcel of land in question
executed in their favor by the Dayao children on 21 March 1939 after death of their father Buenaventura
Dayao. On the other hand, the power of attorney executed by Buenaventura Dayao on 29 October 1930
authorizing Eustaquio Bayuga to sell the parcel of land (Exhibit B) was annotated or inscribed on the back of
original certificate of title No. 1187 (Exhibit C) as Entry No. 16836/H-1187, and the sale executed by
Eustaquio Bayuga in favor of the appellee Mariano Panuyas and his wife Sotera B. Cruz under the aforesaid
power of attorney was annotated or incribed on the back of the same original certificate of title (Exhibit C)
as Entry No. 778/H-1187. It does not appear that the appellee and his wife had actual knowledge of the
previous sale. In the absence of such knowledge, thay had a right to rely on the face of the cetificate of title
of the registered owners and of the authority conferred by them upon the agent also recorded on the back
of the certificate of title. As this is a case of double sale of land registered under the Land Registration Act,
he who recorded the sale in the Registry of Deeds has a better right than he who did not. 1 

As to the appellants’ contention that, as the death of the principal on 14 March 1934 ended the authority of
the agent, 2 the sale of 8 hectares of the parcel of land by the agent to the appellee Mariano Panuyas and
his wife Sotera B. Cruz was null and void, suffice it to state that it has not been shown that the agent knew
of his principal’s demise, and for that reason article 1738, old Civil Code or 1931, new Civil Code, which
provides: chanrob1es virtual 1aw library

Anything done by the agent, without knowledge of the death of the principal or of any other cause which
extinguishes the agence, is valid and shall be fully effective with respect to third persons who may have
contracted with him in good faith. 

is the law applicable to the point raised by the appellants. 

The judgment appealed from is affirmed, with costs against the appellants. 

Paras, C.J., Bengzon, Montemayour, Reyes, A., Bautista Angelo, Labrador, Concepcion and Endencia, JJ.,
concur. 

[G.R. No. L-17043. January 31, 1961.]

NATIVIDAD HERRERA, assisted by her husband EMIGDIO SALAZAR, Plaintiffs-Appellants, v. LUY

KIM GUAN and LINO BANGAYAN, Defendants-Appellees. 

T. de los Santos, for Plaintiffs-Appellants. 

Rafael C. Climaco and Abelardo S. Fernandez for Defendants-Appellees.

SYLLABUS

1. AGENCY; DEATH OF PRINCIPAL, EFFECT OF. — The death of the principal does not render the act of an
agent unenforceable, where the latter had no knowledge of such extinguishment of the agency. (Article
1738, Old Civil Code.) 

2. REGISTERED LANDS; SALE TO AN ALIEN AND THEN BY THE LATTER TO A FILIPINO CITIZEN. — Although
the property in question was sold to a Chinese citizen but later on, the same property was acquired by a
Filipino citizen, who obtained a new transfer certificate of title therefor, the validity of the title thus obtained
can no longer be questioned after the lapse of the period within which it may be impugned. 

3. ATTORNEY’S FEES; ABSENCE OF STIPULATION; WHEN WINNING PARTY ENTITLED TO ATTORNEY’S FEES.
— In the absence of stipulation, a winning party may be awarded attorney’s fees only in case the plaintiff’s
action or defendant’s stand is so untenable as to amount to gross and evident bad faith. Whereas in the
case at bar, the complaint was filed in good faith, attorney’s fees cannot be awarded to defendants simply
because the judgment was favorable to them and adverse to plaintiff, for it may amount to imposing a
premium on the right to redress grievances in court. 

4. EXPENSES OF LITIGATION; WHEN WINNING PARTY ENTITLED TO THE SAME. — A winning party may be
entitled to expenses of litigation only where he, by reason of plaintiff’s clearly unjustifiable claims or
defendant’s unreasonable refusal to his demands, was compelled to incur said expenditures.

DECISION

BARRERA, J.:

This is an appeal from the decision of the Court of First Instance of Zamboanga City (a) dismissing plaintiff-
appellant’s complaint for the recovery of three (3) parcels of land and their produce in the sum of
P320,000.00; and (b) instead, sentencing plaintiff to pay P2,000.00 for attorney’s fees and P1,000.00 for
expenses of litigation, to defendant Lino Bangayan, and P2,000.00 as attorney’s fees and P500.00 as
expenses of litigation, to the other defendant Luy Kim Guan. 

The pertinent facts as found by the trial court and upon which its decision was predicated are set forth in the
following portion of the decision appealed from: jgc:chanrobles.com.ph

"The plaintiff Natividad Herrera is the legitimate daughter of Luis Herrera, now deceased and who died in
China sometime after he went to that country in the last part of 1931 or early part of 1932. The said Luis
Herrera in his lifetime was the owner of three (3) parcels of land and their improvements, known as Lots
1740, 4465 and 4467 of Expediente No. 5, G.L.R.O. Record 477 and the area, nature, improvements and
Boundaries of each and every of these three (3) lots are sufficiently described in the complaint filed by the
plaintiffs. 

"Before leaving for China, however, Luis Herrera executed on December 1, 1931, a deed of General Power of
Attorney, Exhibit ‘B’, which authorized and empowered the defendant Luy Kim Guan, among others to
administer and sell the properties of said Luis Herrera. 

"Lot 1740 was originally covered by Original Certificate of Title 8601 registered in the name of Luis Herrera,
married to Go Bang. This lot was sold by the defendant Luy Kim Guan in his capacity as attorney-in-fact of
the deceased Luis Herrera to Luy Chay on September 11, 1939, as shown in Exhibit ‘2’, the corresponding
deed of sale. Transfer Certificate of Title No. 3162, Exhibit ‘3’, was issued to Luy Chay by virtue of said deed
of sale. On August 28, 1941, to secure a loan of P2,000.00, a deed of mortgage to the Zamboanga Mutual
Building and Loan Association was executed by Luy Chay, Exhibit ‘4’. On January 31, 1947, the said Luy
Chay executed a deed of sale, Exhibit ‘E’, in favor of Lino Bangayan. By virtue of this sale, Transfer
Certificate of Title T-2567 was issued to Lino Bangayan on June 24, 1949, Exhibit ‘1’. 

"Lots 4465 and 4467 were originally registered in the name of Luis Herrera, married to Go Bang, under
Original Certificate of Title No. 0-14360, Exhibit ‘5’. On December 1, 1931, Luis Herrera sold one- half (1/2)
undivided share and to Luis Herrera and Go Bang, the other half (1/2), as shown Exhibit ‘12’ and Exhibit
‘12-A’, the latter an annotation made by the Register of Deeds of the City of Zamboanga, in which it is
stated as follows:chanrob1es virtual 1aw library

‘Cancelado el presente Certificado en virtud de una escritura de traspaso y en su lugar se ha expedido el

Certificado de Titulo No. 494-(T-13045) del Tomo 2 el Libro de Certificados de Transferencias.’

(Fdo.) R. D. MACROHON

Registrador de Titulos
Ciudad de Zamboanga" 

"On July 23, 1937, Luis Herrera thru his attorney-in-fact Luy Kim Guan, one of the defendants, sold to
Nicomedes Salazar his one-half 1/2 participation in these two (2) lots, as shown in Exhibit ‘C’, the
corresponding deed of sale for P3,000.00. Transfer Certificate of Title No. T-494-(T-13045) was issued to
Nicomedes Salazar and to the defendant Luy Kim Guan, Exhibit ‘7’. On August 4, 1936, the defendant Luy
Kim Guan and Nicomedes Salazar executed a deed of mortgage in favor of the Bank of the Philippine Island
to secure a loan of P3,500.00, Exhibit ‘6’. On August 17, 1937, the defendant Luy Kim Guan and Nicomedes
Salazar sold Lot 4465 to Carlos Eijansantos for the sum of P100.00 as shown in Exhibits ‘9’, corresponding
deed of sale, and Transfer Certificate of Title No. T-2653 was issued on September 7, 1939 to Carlos
Eijasantos Exhibit ‘10’. Nicomedes Salazar sold his half 1/2 interest on Lot 4467 to the defendant Lino
Bangayan for P3,000.00 on February 22, 1949, Exhibit ‘B’, and the corresponding Transfer Certificate of Title
T-2654 was issued to Lino Bangayan and to Luy Kim Guan, both are co-owners in equal shares, Exhibits ‘8’.
opinion of the City Attorney, Exhibit ‘p’, and an affidavit of Atty. Jose T. Atilano, Exhibit ‘O’, state that Lino
Bangayan is a Filipino citizen. 

"As admitted by both parties (plaintiffs and defendants) Luis Herrera is now deceased, but as to the specific
and precise date of his death the evidence of both parties failed to show." cralaw virtua1aw library

It is the contention of plaintiff-appellant that all the transactions mentioned in the preceding quoted portion
of the decision were fraudulent and were executed after the death of Luis Herrera and, consequently, when
the power of attorney was no longer operative. It is also claimed that the defendants Lino Bangayan and Luy
Kim Guan who now claim to be the owners of Lots Nos. 1740 and 4467 are Chinese by nationality and,
therefore, are disqualified to acquire real properties. Plaintiff-appellant, in addition, questions the supposed
deed of sale allegedly executed by Luis Herrera on December 1, 1931 in favor of defendant Luy Kim Guan,
conveying one-half interest on the two lots, Nos. 4465 and 4467, asserting that what was actually executed
on that date, jointly with the general power of attorney, was a lease contract over the same properties for a
period of 20 years for which Luy Kim Guan paid the sum of P2,000.00. 

We find all the contentions of plaintiff-appellant untenable. Starting with her claim that the second deed
executed on December 1, 1931 by Luis Herrera was a lease contract instead of a deed of sale as asserted by
defendant Luy Kim Guan, we find that the only evidence in support of her contention is her own testimony
and that of her husband to the effect that the deceased Luis Herrera showed the said document to them,
and they remembered the same to be a lease contract on the three properties for a period of 20 years in
consideration of P2,000.00. Their testimony was sought to be corroborated by the declaration of the clerk of
Atty. Enrique A. Fernandez, who allegedly notarized the document. Outside of this oral testimony, given
more than 23 years after the supposed instrument was read by them, no other evidence was adduced. On
the other hand, defendant Luy Kim Guan produced in evidence a certification 1 signed by the Register of
Deeds of Dipolog, Zamboanga (Exh. 11) to the effect that a deed of sale, dated December 1, 1931, was
executed by Luis Herrera in favor of Luy Kim Guan and entered in the primary Book No. 4 as duly registered
on September 30,1936 under Original Certificate of Title No. 14360. It is to be noted that the deed of sale
was registered shortly after the issuance in the name of Luis Herrera of Original Certificate of Title No.
14360 pursuant to Decree No. 59093, covering the two lots, Nos. 4465 and 4467 (Exh. 5), dated April 7,
1936. In virtue of said deed of sale of December 1, 1931, Original Certificate of Title No. 14360 was
cancelled and Transfer Certificate of Title No. 13045 (Exh. 12) in the names of the conjugal partnership of
the spouses Luis Herrera and Go Bang, one-half share, and Luy Kim Guan, single, one-half share, was
issued on September 30, 1936. Later, or on July 23, 1937, Luy Kim Guan, in his capacity as attorney-in-fact
of Luis Herrera, sold the half interest of the latter in the two parcels of land, in favor of Nicomedes Salazar,
whereupon TCT No. 13045 was cancelled and TCT No. RT-657 (494-T-13045) (Exh. 7) was issued in the
names of Luy Kim Guan and Nicomedes Salazar in individual equal shares. On August 4, 1937, both Luy Kim
Guan and Nicomedes Salazar mortgaged the two parcels in favor of the Bank of the Philippine Islands for the
sum of P3,500.00 (Exh. 6). On August 17, 1937, Nicomedes Salazar and Luy Kim Guan sold their respective
shares in Lot No. 4465 to Carlos Eijansantos (Exh. 9), subject to the mortgage, resulting in the issuance of
TCT No. 2653 (Exh. 10) covering the entire lot No. 4465 in the name of said Carlos Eijansantos. On
February 23, 1949, Nicomedes Salazar sold his half share in Lot No. 4467 to Lino Bangayan, as a
consequence of which, TCT No. 2654 (Exh. B) was issued covering said Lot No. 4467 in the names of Luy
Kim Guan and Lino Bangayan in undivided equal shares. 

With respect to Lot No. 1740, the same was sold by Luy Kim Guan, in his capacity as attorney-in-fact of Luis
Herrera, on September 11, 1939 to Lui Chay (See Exh. 2) who, in August, 1941, mortgaged the same (Exh.
4) to the Zamboanga Mutual Loan and Building Association (See TCT No. 3162 [Exh. 3] issued in the name
of Lui Chay). Later on, Lui Chay sold the entire lot to defendant Lino Bangayan by virtue of the deed of sale
dated January 31, 1947 (Exh. E), and as a consequence thereof, TCT No. 2567 was issued in the name of
said vendee. (See Exh. 1). As a result of these various transactions, duly recorded in the corresponding
office of the Register of Deeds, and covered by appropriate transfer certificates of title, the properties are
now registered in the following manner: Lot No. 1740, in the name of Lino Bangayan; Lot No. 4465, in the
name of Carlos Eijansantos; and Lot No. 4467, in the names of Lino Bangayan and Luy Kim Guan in
undivided equal shares. 

In the face of these documentary evidence presented by the defendants, the trial court correctly upheld the
contention of the defendants as against that of plaintiff-appellant who claims that the second deed executed
by Luis Herrera in 1931 was a lease contract. It is pertinent to note what the lower court stated in this
regard, that is, if the second deed executed by Luis Herrera was a lease contract covering the 3 lots in
question for a period of twenty (20) years, there would have been no purpose for him to constitute Luy Kim
Guan as his attorney-in-fact to administer and take charge of the same properties already covered by the
lease contract. 

Coming now to the contention that these transactions are null and void and of no effect because they were
executed by the attorney-in- fact after the death of his principal, suffice it to say that as found by the lower
court, the date of death of Luis Herrera has not been satisfactorily proven. The only evidence presented by
the plaintiff- appellant in this respect is a supposed letter received from a certain "Candi", dated at Amoy in
November, 1936, purporting to give information that Luis Herrera (without mentioning his name) had died
in August of that year. This piece of evidence was properly rejected by the lower court for lack of
identification. On the other hand, we have the testimony of the witness Lu Chung Lian to the effect that
when he was in Amoy in the year 1940, Luis Herrera visited him and had a conversation with him, showing
that the latter was still alive at the time. Since the documents had been executed by the attorney-in- fact
one in 1937 and other in 1939, it is evident, if we are to believe this testimony, that the documents were
executed during the lifetime of the principal. Be that as it may, even granting arguendo that Luis Herrera did
die in 1936, plaintiffs presented no proof and there is no indication in the record, that the agent Luy Kim
Guan was aware of the death of his principal at the time he sold the property. The death of the principal
does not render the act of an agent unenforceable, where the latter had no knowledge of such
extinguishment of the agency. 2 

Appellants also raise the question of the legality of the titles acquired by Lui Chay and Lino Bangayan, on
the ground that they are disqualified to acquire real properties in the Philippines. This point is similarly
without merit because there is no evidence to support the claim. In fact, in the deed of sale as well as in
TCT No. 3162 issued to Lui Chay, the latter was referred to as a citizen of the Philippines. Nevertheless, the
lower court acknowledged the probability that Lui Chay could have been actually a Chinese citizen. 3 At any
rate, the property was subsequently purchased by Lino Bangayan, as a result of which TCT No. 3162 in the
name of Lui Chay was cancelled and another certificate (TCT No. T-2567) was issued in favor of said
vendee. 

As to Bangayan’s qualification, the lower court held that said defendant had sufficiently established his
Philippine citizenship through Exhibit P, concurred in by the Secretary of Justice. We find no reason to
disturb such ruling. 

With respect to Luy Kim Guan, while it is true that he is a Chinese citizen, nevertheless, inasmuch as he
acquired his one-half share in Lot No. 4467 in 1931, long before the Constitution was adopted, his
ownership can not be attacked on account of his citizenship. 

Appellants, in this appeal, contest the judgment of the court a quo awarding defendants Lino Bangayan and
Luy Kim Guan attorney’s fees in the sum of P2,000.00 each, and expenses of litigation in the amounts of
P1,000.00 and P500.00, respectively. We agree with the appellant in this regard. 

This Court has laid down the rule that in the absence of stipulation, a winning party may be awarded
attorney’s fees only in case plaintiff’s action or defendant’s stand is so untenable as to amount to gross and
evident bad faith. 4 The same thing, however, can not be said of the case at bar. As a matter of fact, the
trial court itself declared that the complaint was filed in good faith. Attorney’s fees, therefore, can not be
awarded to defendants simply because the judgment was favorable to them and adverse to plaintiff, for it
may amount to imposing a premium on the right to redress grievances in court. And so with expenses of
litigation. A winning party may be entitled to expenses of litigation only where he, by reason of plaintiff’s
clearly unjustifiable claims or defendant’s unreasonable refusal to his demands, was compelled to incur said
expenditures. Evidently, the facts of this case do not warrant the granting of such litigation expenses to
defendants. In the absence of proof, that the action was intended for reasons other than honest, we may
agree with the trial court that the same must have been instituted by plaintiffs in their belief that they have
a valid cause against the defendants. 

WHEREFORE, and with the above modification, the decision appealed from is hereby affirmed in all other
respects, without prejudice to appellants’ right to demand from the agent (Luy Kim Guan) an accounting of
the proceeds of the agency, if such right is still available. No costs. So ordered. 

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes and Dizon, JJ.,
concur. 

[G.R. No. L-10881. September 30, 1958.]

EULOGIO DEL ROSARIO, AURELIO DEL ROSARIO, BENITO DEL ROSARIO, BERNARDO DEL
ROSARIO, ISIDRA DEL ROSARIO, DOMINGA DEL ROSARIO and CONCEPCION
BORROMEO, Plaintiffs-Appellees, v. PRIMITIVO ABAD and TEODORICO ABAD, Defendants-
Appellants. 

Bautista & Bautista for Appellees. 

Agustin C. Bagasao for appellants.

SYLLABUS

1. AGENCY; POWER OF ATTORNEY WHEN COUPLED WITH INTEREST; TERMINATION OF; CASE AT BAR. —
Within the prohibitive period of five years, the homesteader mortgaged the improvements of the homestead
in favor of defendant P. A. At the same time, he executed an "irrevocable special power of attorney coupled
with interest" in favor of the mortgagee authorizing him to sell the land. After the lapse of the prohibitive
period, the mortgagor died leaving the mortgage debt unpaid. Thereafter, acting on the power of attorney,
the mortgagee sold the land. Held: The power of attorney executed by the homesteader in favor of
defendant did not create an agency with interest nor did it clothe the agency with irrevocable character. A
mere statement in the power of attorney that it is coupled with interest is not enough. In what does such
interest consist must be stated in the power of attorney. The mortgage has nothing to do with the power of
attorney and may be foreclosed by the mortgagee upon failure of the mortgagor to comply with his
obligation. As the agency was not coupled with an interest, it was terminated upon the death of the
principal, and the agent could no longer validly convey the land. Hence, the sale was null and void. 

2. PUBLIC LAND; ENCUMBRANCE MADE WITHIN PROHIBITIVE PERIOD, NULL AND VOID. — Granting that
the power of attorney in question was valid it would subject the land to an encumbrance. And the
encumbrance having been executed within the five-year period from and after the issuance of the patent,
the same is null and void.

DECISION

PADILLA, J.:

Appeal from a judgment rendered by the Court of First Instance of Nueva Ecija in civil case No. 1084. 

The facts are undisputed, the parties having entered into an agreed statement thereof, the pertinent and
materials part of which are: The plaintiffs are the children and heirs of the late Tiburcio del Rosario. On 12
December 1936, the Secretary of Agriculture and Commerce, by authority of the President of the
Commonwealth of the Philippines, issued under the provisions of the Public Land Act (Act No. 2874)
homestead patent No. 40596 to Tiburcio del Rosario. The homestead with an area of 9 hectares, 43 ares
and 14 centares is situate in barrio San Mauricio, municipality of San José, province of Nueva Ecija. On 11
February 1937, the Registrar of Deeds in and for the province of Nueva Ecija issued original certificate of
title No. 4820 in the name of the homesteader (Annex A, stipulation of facts, pp. 25-30, Rec. on App.) . On
24 February 1937, Tiburcio del Rosario obtained a loan from Primitivo Abad in the sum of P2,000 with
interest at the rate of 12% per annum, payable on 31 December 1941. As security for the payment thereof
he mortgaged the improvements of the parcel of land in favor of the creditor (Annex B, complaint, pp. 10-
13, Rec. on App.) . On the same day, 24 February, the mortgagor executed an ‘irrevocable special power of
attorney coupled with interest" in favor of the mortgagee, authorizing him, among others, to sell and convey
the parcel of land (Annex A, complaint, pp. 7-9, Rec. on App.) . Thereafter the mortgagor and his family
moved to Santiago, Isabela, and there established a new residence. Sometime in December 1945 the
mortgagor died leaving the mortgage debt unpaid. On 9 June 1947, Primitivo Abad, acting as attorney-in-
fact of Tiburcio del Rosario, sold the parcel of land to his son Teodorico Abad for and in consideration of the
token sum of P1.00 and the payment by the vendee of the mortgage debt of Tiburcio del Rosario to
Primitivo Abad (Annex C, complaint, pp. 13-16, Rec. on App.) . The vendee took possession of the parcel of
land. Upon the filing and registration of the last deed of sale, the Registrar of Deeds in and for the province
of Nueva Ecija cancelled original certificate of title No. 4820 in the name of Tiburcio del Rosario and in lieu
thereof issued transfer certificate of title No. 1882 in favor of the vendee Teodorico Abad. 

On 29 December 1952 the plaintiffs brought suit against the defendants to recover possession and
ownership of the parcel of land, damages, attorney’s fees and costs. The defendants answered the complaint
and prayed for the dismissal thereof, damages, attorney’s fees and costs. 

On 25 October 1954, after the parties had submitted the case upon a stipulation of facts, the Court rendered
judgment, the dispositive part of which is: chanrob1es virtual 1aw library

WHEREFORE, the deed of sale executed by Primitivo Abad in favor of Teodorico, Abad, Annex C, is hereby
declared null and void; and Teodorico Abad is hereby ordered to execute a deed of reconveyance of the land
originally with OCT No. 4820, now covered by Transfer Certificate of Title No. 1880, in favor of the plaintiffs.
No pronouncement as to costs. 

The defendants appealed to the Court of Appeals, which certified the case to this Court as no question of
fact is involved. 

Section 116 of the Public Land Act (Act No. 2874), under which the homestead was granted to the appellees’
father, provides:chanrob1es virtual 1aw library

Lands acquired under the free patent or homestead provisions shall not be subject to encumbrance or
alienation from the date of the approval of the application and for a term of five years from and after the
date of the issuance of the patent or grant, nor shall they become liable to the satisfaction of any debt
contracted prior to the expiration of said period; but the improvements or crops on the land may be
mortgaged or pledged to qualified persons, associations, or corporations. 

The encumbrance or alienation of lands acquired by free patent or homestead in violation of this section is
null and void. 1 

There is no question that the mortgage on the improvements of the parcel of land executed by Tiburcio del
Rosario in favor of Primitivo Abad (Annex B, complaint, pp. 10-13, Rec. on App) is valid. 

The power of attorney executed by Tiburcio del Rosario in favor of Primitivo Abad (Annex A, complaint, pp.
7-9, Rec. on App.) providing, among others, that is coupled with an interest in the subject matter thereof in
favor of the said attorney and are therefore irrevocable, and . . . conferring upon my said attorney full and
ample power and authority to do and perform all things reasonably necessary and proper for the due
carrying out of the said powers according to the true tenor and purport of the same, . . ." does not create an
agency coupled with an interest nor does it clothe the agency with an irrevocable character. A mere
statement in the power of attorney that it is coupled with an interest is not enough. In what does such
interest consist must be stated in the power of attorney. The fact that Tiburcio del Rosario, the principal,
had mortgaged the improvements of the parcel of land to Primitivo Abad, the agent, (Annex B, complaint,
pp. 10-13, Rec. on App.) is not such an interest as could render irrevocable the power of attorney executed
by the principal in favor of the agent. In fact no mention of it is made in the power of attorney. The
mortgage on the improvements of the parcel of land has nothing to do with the power of attorney and may
be foreclosed by the mortgagee upon failure of the mortgagor to comply with his obligation. As the agency
was not coupled with an interest, it was terminated upon the death of Tiburcio del Rosario, the principal,
sometime in December 1945, and Primitivo Abad, the agent, could no longer validly convey the parcel of
land to Teodorico Abad on 9 June 1947. The sale, therefore, to the latter was null and void. But granting
that the irrevocable power of attorney was lawful and valid it would subject the parcel of land to an
encumbrance. As the homestead patent was issued on 12 December 1936 and the power of attorney was
executed on 24 February 1937, it was in violation of the law that prohibits the alienation or encumbrance of
lands acquired by homestead from the date of the approval of the application and for a term of five years
from and after the issuance of the patent or grant. Appellants contend that the power of attorney was to be
availed of by the agent after the lapse of the prohibition period of five years, and that in fact Primitivo Abad
sold the parcel of land on 9 June 1947, after the lapse of such period. Nothing to that effect is found in the
power of attorney. 

Appellants claim that the trial court should have directed the appellees to reimburse Teodorico Abad for
what he had paid to Primitivo Abad to discharge the mortgage in the latter’s favor as part of the
consideration of the sale. As the sale to Teodorico Abad is null and void, the appellees can not be compelled
to reimburse Teodorico Abad for what he had paid to Primitivo Abad. The former’s right of action is against
the latter, without prejudice to the right of Primitivo Abad to foreclose the mortgage on the improvements of
the parcel of land if the mortgage debt is not paid by the appellees, as heirs and successors-in-interest of
the mortgagor. 

The judgment appealed from is affirmed, with costs against the appellants. 

Paras, C.J., Bengzon, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. and Endencia, JJ.,
concur. 

Estate of the deceased Gabina Labitoria. ENRIQUE M. PASNO, Petitioner-Appellee, v. FORTUNATA

RAVINA and PONCIANO RAVINA, Oppositors-Appellants. PHILIPPINE NATIONAL
BANK, Appellant. 

Manuel Jose and Anastasio Javelosa, for oppositors-appellants. 

Camus & Delgado, for appellant National Bank. 

Domingo Lopez, for Appellee. 

SYLLABUS

1. WILLS; VALIDITY; SECTION 618, AS AMENDED, OF THE CODE OF CIVIL PROCEDURE, CONSTRUED;
ERRONEOUS DATE. — The law does not require that a will shall be dated. A will without a date is valid. An
erroneous date will not defeat a will. 

2. REAL ESTATE MORTGAGES; SALE OF MORTGAGED PROPERTY UNDER POWER OF SALE; ACT NO. 3135
AND SECTION 708 OF THE CODE OF CIVIL PROCEDURE, CONSTRUED. — The power of sale given in a real
estate mortgage is a power coupled with an interest which survives the death of the grantor. The mortgagee
with a power of sale should, on the death of the mortgagor, foreclose the mortgage in accordance with the
procedure pointed out in section 708 of the Code of Civil Procedure. 

3. STATUTES; CONSTRUCTION. — Statutes in pari materia are to be read together.

DECISION

MALCOLM, J.:

There are two appeals in this case. One appeal has been taken by the oppositors to the legalization of the
will of Gabina Labitoria, and concerns the validity of that will. The other appeal has been taken by the
Philippine National Bank and concerns the survivability of the right of sale of the mortgaged property under
special power while the mortgaged property is in custodia legis. We will deal with these appeals separately.
I. ENRIQUE M. PASNO, petitioner and appellee, v. FORTUNATA

RAVINA and PONCIANO RAVINA, oppositors and appellants. 

Validity of Gabina Labitoria’s will.

As the stenographic notes have not been written up and elevated to this court, any discussion of the
evidence is rendered impossible. The single question to be decided is whether the admitted fact that the will
was executed on July 27, 1928, although stating that it was executed on February 6, 1926, invalidates the
will. As said by the trial judge, the reason for the error was on account of the will being in great part a
reproduction of another will of February 6, 1926, and inadvertently retaining this date. 

Section 618, as amended, of the Code of Civil Procedure prescribes the requisites necessary to the execution
of a valid will. The law does not requisites necessary to the execution of a valid will. The law does not
require that the will shall be dated. Accordingly, a will without a date is valid. So likewise an erroneous date
will not defeat a will. (Wright v. Wright [1854], 5 Ind., 389; Peace v. Edwards [1915], 170 N. C. 64; Ann.
Cas. 1918-A, 778; L. R. A. 1916-E, 501 note.) 

It results that the trial judge was right in admitting the will of Gabina Labitoria to probate.

II. ENRIQUE M. PASNO, petitioner and appellee, v. PHILIPPINE

NATIONAL BANK, Appellant. Right of the mortgagee, the Philippine

National Bank, to foreclose the mortgage in its favor executed by

Gabina Labitoria during her lifetime now that the mortgaged property

is in the hands of an administrator.

The facts are not in dispute. Gabina Labitoria during her lifetime mortgaged three parcels of land to the
Philippine National Bank to secure an indebtedness of P1,600. It was stipulated in the mortgage, among
other things, that the mortgagee "may remove, sell or dispose of the mortgaged property or any buildings,
improvements or other property in, on or attached to it and belonging to the mortgagor in accordance with
the provisions of Act No. 3135 or take other legal action that it may deem necessary." The mortgagor died,
and a petition was presented in court for the probate of her last will and testament. During the pendency of
these proceedings, a special administrator was appointed by the lower court who took possession of the
estate of the deceased, including the three parcels of land mortgaged to the Philippine National Bank. The
estate having failed to comply with the conditions of the mortgage, the Philippine National Bank, pursuant to
the stipulations contained in the same, asked the sheriff of Tayabas to proceed with the sale of the parcels
of land. When the attorney for the special administrator received notice of the proposed action, he filed a
motion in court in which an order was asked requiring the sheriff to vacate the attachment over the
mortgaged properties and to abstain from selling the same. The lower court granted the petition in an order
of February 14, 1929, and later denied a motion for reconsideration presented on behalf of the Philippine
National Bank. 

The mortgage makes special reference to Act No. 3135. That Act is one to regulate the sale of property
under special powers inserted in or annexed to real-estate mortgages. It fails to make provision regarding
the sale of mortgaged property which is in custodia legis. Under these circumstances, it would be logical to
suppose that the general provisions of Philippine law would govern this latter contingency. It is a familiar
rule that statutes in pari materia are to be read together. The legislative body which enacted Act No. 3135
must be presumed to have been acquainted with the provisions of such a well known law as the Code of
Civil Procedure and to have passed Act No. 3135 with reference thereto. 

The appellant practically concedes that the law applicable to the case is section 708 of the Code of Civil
Procedure. The cited section reads: "A creditor holding a claim against the deceased, secured by mortgage
or other collateral security, may abandon the security and prosecute his claim before the committee, and
share in the general distribution of the assets of the estate; or he may foreclose his mortgage or realize
upon his security, by ordinary action in court, making the executor or administrator a party defendant; and
if there is a judgment for a deficiency, after the sale of the mortgaged premises, or the property pledged, in
the foreclosure or other proceeding to realize upon the security, he may prove his deficiency judgment
before the committee against the estate of the deceased; or he may rely upon his mortgage or other
security alone, and foreclose the same at any time, within the period of the statute of limitations, and in that
event he shall not be admitted as a creditor, and shall receive no share in the distribution of the other assets
of the estate; but nothing herein contained shall prohibit the executor or administrator from redeeming the
property mortgaged or pledged, by paying the debt for which it is held as security, under the direction of the
court, if the court shall adjudge it to be for the best interest of the estate that such redemption shall be
made." In this connection, it is to be noted that the law provides two remedies (Osorio v. San Agustin
[1913], 25 Phil., 404). The creditor here is not taking advantage of the first remedy for the mortgage
security has not been abandoned. Rather is the second remedy invoked but until now unsuccessfully since
the mortgagee has not begun an ordinary action in court to foreclose the mortgage making the special
administrator a party defendant. 

The power of sale given in a mortgage is a power coupled with an interest which survives the death of the
grantor. One case, that of Carter v. Slocomb ([1898], 122 N. C., 475), has gone so far as to hold that a sale
after the death of the mortgagor is valid without notice to the heirs of the mortgagor. However that may be,
conceding that the power of sale is not revoked by the death of the mortgagor, nevertheless in view of the
silence of Act No. 3135 and in view of what is found in section 708 of the Code of Civil Procedure, it would
be preferable to reach the conclusion that the mortgagee with a power of sale should be made to foreclose
the mortgage in conformity with the procedure pointed out in section 708 of the Code of Civil Procedure.
That would safeguard the interests of the estate by putting the estate on notice while it would not jeopardize
any rights of the mortgagee. The only result is to suspend temporarily the power to sell so as not to
interfere with the orderly administration of the estate of a decedent. A contrary holding would be
inconsistent with the portion of our law governing the settlement of estates of deceased persons. 

It results that the trial judge committed no error in sustaining the petition of the administrator of the estate
of the deceased Gabina Labitoria and in denying the motion of the Philippine National Bank. 

Agreeable to the foregoing pronouncements, the judgment and orders appealed from will be affirmed, with
one-half of the costs of this instance against the oppositors and appellants Fortunata Ravina and Ponciano
Ravina, and the other half of the costs of this instance against the Philippine National Bank. 

Johnson, Johns, Romualdez and Villa-Real, JJ., concur. 

Separate Opinions

STREET, VILLAMOR and OSTRAND, JJ., concurring and dissenting: chanrob1es virtual 1aw library

We concur in so much of the opinion of the court in this case as is concerned with the probate of the will of
Gabina Labitoria, but are unable to concur in the second part of the decision wherein it is held that, after the
death of the mortgagor, the mortgage can only be foreclosed in an ordinary action in court even though it
may contain a clause expressly conferring upon the mortgagee the power to sell the property extrajudicially.
It is our opinion that, under such a power, the sale may be proceeded with under the provisions of Act No.
3135, which is expressly referred to in the mortgage now under, consideration. 

The decisions of English and American courts are almost unanimous to the effect that a power of sale
contained in a mortgage is a power coupled with an interest and is not revoked by the mortgagor’s death. In
the title Mortgages, in 41 C. J., p. 927, decisions from Great Britain and nearly twenty American States are
cited to this proposition; and the contrary rule, adopted in one or two American States, is so opposed to the
current of authority as to be entitled to no weight. 

The opinion of the court refers to section 708 of the Code of Civil Procedure as determining the proposition
that, after the death of the mortgagor, foreclosure can be effected only by an ordinary action in court; but if
this section be attentively examined, it will be seen that the bringing of an action to foreclose is necessary
only when the mortgagee wishes to obtain a judgment over for the deficiency remaining unpaid after
foreclosure is effected. In fact this section gives to the mortgagee three distinct alternatives, which are,
first, to waive his security and prove his credit as an ordinary debt against the estate of the deceased;
secondly, to foreclose the mortgage by ordinary action in court and recover any deficiency against the estate
in administration; and, thirdly, to foreclose without action at any time within the period allowed by the
statute of limitations. 

The third mode of procedure is indicated in that part of section 708 which is expressed in these words: jgc:chanrobles.com.ph
"Or he may rely upon his mortgage or other security alone, and foreclose the same at any time, within the
period of the statute of limitations, and in that event he shall not be admitted as a creditor, and shall receive
no share in the distribution of the other assets of the estate."
cralaw virtua1aw library

The alternative here contemplated is, evidently, a foreclosure under power of sale contained in the
mortgage. It must be so, since there are no other modes of foreclosure known to the law than by ordinary
action and foreclosure under power, and the procedure by action is covered in that part of section 708 which
immediately precedes the words which we have quoted above. It will be noted that the result of adopting
the last mode of foreclosure is that the creditor waives his right to recover any deficiency from the estate. 

In addition to what is said above, we submit that the policy of the court in requiring foreclosure by action in
case of the death of a mortgagor, where a power of sale is inserted in the mortgage, will prove highly
prejudicial to the estates of deceased mortgagors. Nowadays nearly every mortgage executed in this
country contains a stipulation for the payment of attorney’s fees and expenses of foreclosure, usually in an
amount not less than 20 or 25 per cent of the mortgage debt. This means, in practical effect, that the
creditor can recover, for attorney’s fees and expenses, whatever the court will allow as reasonable, within
the stipulated limit. On the other hand, if an extrajudicial foreclosure is effected under the power of sale, the
expenses of foreclosure are limited to the cost of advertising and other actual expenses of the sale, not
including the attorney’s fee. 

Again, if foreclosure is effected extrajudicially, under the power, in conformity with the provisions of Act No.
3135, the mortgagor or his representative has a full year, from the date of the sale, within which to redeem
the property, this being the same period of time that is allowed to judgment debtors for redeeming after
sale under execution. On the other hand, the provisions of the Code of Civil Procedure relative to the
foreclosure of mortgages by action allows no fixed period for redemption after sale; and although, in the
closing words of section 708 of the Code of Civil Procedure the court is authorized to permit the
administrator to redeem mortgaged property, this evidently refers to redemption to be effected before the
foreclosure becomes final. 

When account is further taken of the fact that a creditor who elects to foreclose by extrajudicial sale waives
all right to recover against the estate of the deceased debtor for any deficiency remaining unpaid after the
sale, it will be readily seen that the decision in this case will impose a burden upon the estates of deceased
persons who have mortgaged real property for the security of debts, without any compensatory advantage. 

We permit ourselves to make one more suggestion, which is that the courts ought to be friendly to the
provisions of law relating to mortgages, and they should not, by strict interpretation, deprive the mortgagee
of any right fairly deducible from the contract. In this country the contract of sale with pacto de retro, as
used in lieu of the mortgage, has an almost uncontrollable vogue, undoubtedly due to the defects of our
laws relating to mortgages, and the slender reliance that can be placed upon them. And as long as the
attitude of the Legislature and the courts remains unfriendly to the mortgage, to that extent the day is
postponed when borrowers, upon the security of real property, can be freed from the dangers incident to the
contract of sale with pacto de retro.

[G.R. No. L-21813. July 30, 1966.]

AMPARO G. PEREZ, ET AL., Plaintiffs-Appellees, v. PHILIPPINE NATIONAL BANK, Binalbagan

Branch, ET AL., Defendants-Appellants.

Tomas Besa and A. Galang, for Defendants-Appellants. 

Jose U. Carbonell and Celso B. Zamora for Plaintiffs-Appellees.

SYLLABUS

1. MORTGAGES; ALTERNATIVE COURSES OPEN TO MORTGAGE CREDITOR; RIGHT TO EXTRA-JUDICIAL

FORECLOSURE. — Section 7, Rule 87 (now Rule 86) of the Rules of Court, offers the mortgage creditor three
alternative courses, to wit: (1) to waive the mortgage and claim the entire debt from the estate of the
mortgagor as an ordinary claim; (2) to foreclose the mortgage judicially and prove any deficiency as an
ordinary claim; and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is
barred by prescription, without right to file a claim for any deficiency. The majority opinion in Pasno v.
Ravina, 54 Phil., 378, in requiring a judicial foreclosure, virtually wipes out the third alternative, which would
include extra-judicial foreclosure. This result is not warranted by the text of the Rules. In addition, the
recognition of the creditor’s right to foreclosure extrajudicially presents undoubted advantages for the estate
of the mortgagor, as pointed out by the dissenting opinion in the aforementioned case. The majority
decision in that case should therefore be overruled and the light of the mortgage creditor to foreclose extra-
judicially should be upheld.

2. ID.; ID.; ID.; NATURE OF POWER TO FORECLOSE. — The power to foreclose is not an ordinary agency
that contemplates exclusively the representation of the principal by the agent, but is primarily an authority
conferred upon the mortgagee for the latter’s own protection. It is an ancillary stipulation supported by the
same cause or consideration for the mortgage and forms an essential and inseparable part of that bilateral
agreement. That power survives the death of the mortgagor.

3. ID.; ID.; ID.; ID.; FAILURE OF MORTGAGE CREDITOR TO GIVE NOTICE OF FORECLOSURE; CASE AT BAR.
— Although the appellant Bank’s foreclosure of the mortgage was valid, it failed to give notice thereof to the
debtor’s widow and heirs, thus preventing them from blocking the foreclosure through seasonable payment
and impending their effectuating a seasonable redemption. Justice and equity would therefore be served by
permitting the appellees to redeem the foreclosed property within a reasonable time, by paying the capital
and interest of the indebtedness up to the time of redemption, plus foreclosure and useful expenses, less
any rents and profits obtained by the Bank from and after the same entered into its possession.

DECISION

REYES, J.B.L., J.:

Appeal from a decision in Civil Case No. 100 of the Court of First Instance of Negros Occidental, annulling
the extra judicial foreclosure sale of Lot No. 286-E of the Kabankalan Cadastre, standing in the name of
Vicente Perez, in favor of the Philippine National Bank, as well as the cancellation of the mortgagor’s original
Certificate of Title No. 29530 and the issuance of a new Certificate T-32066 in the Bank’s name; and
ordering the said Bank to pay the heirs of Vicente Perez P3,000 damages and P2,000 attorneys’ fees and
costs.

The antecedents of the case were as follows: chanrob1es virtual 1aw library

On August 29, 1939, Vicente Perez mortgaged Lot No. 286-E of the Kabankalan Cadastre, with Transfer
Certificate of Title No. 29530, to the appellant Philippine National Bank, Bacolod Branch, in order to secure
payment of a loan of P2,500, plus interest, payable in yearly installments. On October 7, 1942, Vicente
Perez, mortgagor, died intestate, survived by his widow and children (appellees herein). At that time, there
was an outstanding balance of P1,917.00, and corresponding interest, on the mortgage indebtedness.

On October 18, 1946, the widow of Perez instituted Special Proceedings No. 512 of the Court of First
Instance of Occidental Negros, for the settlement of the estate of Vicente Perez. The widow was appointed
Administratrix, and notice to creditors was duly published. The Bank did not file a claim. The project of
partition was submitted on July 18, 1956; it was approved and the properties distributed accordingly.
Special Proceeding No. 512 was then closed.

It appears also that, as early as March of 1947, the widow of the late Vicente Perez inquired by letter from
the Bank the status of her husband’s account and she was informed that there was an outstanding balance
thereon of P2,758.84 earning a daily interest of P0.4488. She was furnished a copy of the mortgage and, on
April 2, 1947, a copy of the Tax Declaration (Rec. App. pp. 45 48).

On January 2, 1963, the Bank, pursuant to authority granted it in the mortgage deed, caused the
mortgaged properties to be extrajudicially foreclosed. The Provincial Sheriff accordingly sold Lot No. 286-E
at auction, and it was purchased by the Bank. In the ordinary course, after the lapse of the year of
redemption, Certificate of Title No. T-29530 in the name of Vicente Perez was cancelled, and Certificate T-
32066, dated May 11, 1962, was issued in the name of the Bank. The widow and heirs of Perez were not
notified.

Three months later, on August 25, 1962, the widow and heirs of Vicente Perez instituted this case against
the Bank in the court below, seeking to annul the extra-judicial foreclosure sale and the transfer of the
Certificate of Title, as well as to recover damages, claiming that the Bank had acted illegally and in bad
faith. The Bank answered, denying the charges. After trial, the court a quo, on December 15, 1962,
rendered judgment holding that, according to the doctrine of this Supreme Court in Pasno v. Ravina, 54 Phil.
382, the Bank should have foreclosed its mortgage in court; that the power to sell contained in the deed of
mortgage had terminated upon the death of the mortgagor, Vicente Perez. Wherefore, the trial court
declared null and void the extra-judicial foreclosure sale to the Bank, as well as the cancellation of the
Certificate of Title of Vicente Perez and the issuance in its stead of a new certificate in the name of the
Bank; and ordered the Latter to pay the plaintiffs P3,000 damages and P2,000 attorneys’ fees and costs.

The Bank appealed to this Supreme Court.

The main issue in this appeal is the application of Section 7, Rule 87, of the original Rules of Court adopted
in 1941 (now Section 7, Rule 86, of the 1964 Revised Rules), and which was, in truth, a reproduction of
section 708 of the Code of Civil Procedure (Act 190). The text is as follows:jgc:chanrobles.com.ph

"Sec. 7. Mortgage debt due from estate. — A creditor holding a claim against the deceased secured by
mortgage or other collateral security, may abandon the security and prosecute his claim in the manner
provided in this rule, and share in the general distribution of the assets of the estate; or he may foreclose
his mortgage or realize upon his security, by action in court making the executor or administrator a party
defendant, and if there is a judgment for a deficiency, after the sale of the mortgaged premises, or the
property pledged, in the foreclosure or other proceeding to realize upon the security, he may claim his
deficiency judgment in the manner provided in the preceding section; or he may rely upon his mortgage or
other security alone and foreclose the same at any time within the period of the statute of limitations, and in
that event he shall not be admitted as a creditor, and shall receive no share in the distribution of the other
assets of the estate; but nothing herein contained shall prohibit the executor or administrator from
redeeming the property mortgaged or pledged by paying the debt for which it is hold as security, under the
direction of the court if the court shall adjudge it to be for the interest of the estate that such redemption
shall be made."cralaw virtua1aw library

The lower court held that the Rule inhibits any extra-judicial foreclosure of the mortgage constituted by a
deceased debtor- mortgagor, following the majority opinion of five justices in Pasno v. Ravina, 54 Phil. 378.
Said the Court in that case (382): jgc:chanrobles.com.ph

"The power of sale given in a mortgage is a power coupled with an interest which survives the death of the
grantor. One case that of Carter v. Slocomb ([1898], 122 N.C. 475), has gone so far as to hold that a sale
after the death of the mortgagor is valid without notice to the heirs of the mortgagor. However that may be,
conceding that the power of sale is not revoked by the death of the mortgagor, nevertheless in view of the
silence of Act No. 3135 and in view of what is found in section 708 of the Code of Civil Procedure, it would
be preferable to reach the conclusion that the mortgagee with a power of sale should be made to foreclose
the mortgage in conformity with the procedure pointed out in section 708 of the Code of Civil Procedure.
That would safeguard the interests of the estate by putting the estate on notice while it would not jeopardise
any rights of the mortgagee. The only result is to suspend temporarily the power to sell so as not to
interfere with the orderly administration of the estate of a decedent. A contrary holding would be
inconsistent with the portion of our law governing the settlement of estates of deceased persons." cralaw virtua1aw library

A vigorous and able dissenting opinion, subscribed by Justices Street, Villamor and Ostrand, held that an
extra judicial foreclosure was authorized (cas. cit. pp. 383-385). The dissent argues: jgc:chanrobles.com.ph

"The opinion of the court refers to section 708 of the Code of Civil Procedure as determining the proposition
that, after the death of the mortgagor, foreclosure can be effected only by an ordinary action in court but if
this section be attentively examined, it will be seen that the bringing of an action to foreclose is necessary
only when the mortgagee wishes to obtain a judgment over for the deficiency remaining unpaid after
foreclosure is effected. In fact this section gives to the mortgagee three distinct alternatives, which are,
first, to waive his security and prove his credit as an ordinary debt against the estate of the deceased;
secondly, to foreclose the mortgage by ordinary action in court and recover any deficiency against the estate
in administration and, thirdly. to foreclose without action at any time within the period allowed by the
statute of limitations.
The third mode of procedure is indicated in that part of section 708 which is expressed in these words: chanrob1es virtual 1aw library

‘Or he may rely upon his mortgage or other security alone, and foreclose the same at any time, within the
period of the statute of limitations, and in that event he shall not be admitted as a creditor, and shall receive
no share in the distribution of the other assets of the estate.’

"The alternative here contemplated is, evidently, a foreclosure under power of sale contained in the
mortgage. It must he so, since there are no other modes of foreclosure known to the law than by ordinary
action and foreclosure under power, and the procedure by action is covered in that part of section 708 which
immediately precedes the words which we have quoted above. It will be noted that the result of adopting
the last mode of foreclosure is that the creditor waives his right to recover any deficiency from the estate.

"In addition to what is said above, we submit that the policy of the court in requiring foreclosure by action in
case of the death of a mortgagor, where a power of sale is inserted in the mortgage, will prove highly
prejudicial to the estates of deceased mortgagors. Nowadays nearly every mortgage executed in this
country contains a stipulation for the payment of attorney’s fees and expenses of foreclosure, usually in an
amount not less than 20 or 25 per cent of the mortgage debt. This means. in practical effect, that the
creditor can recover, for attorney’s fees and expenses, whatever the court will allow as reasonable, within
the stipulated limit. On the other hand, if an extrajudicial foreclosure is effected under the power of sale, the
expenses of foreclosure are limited to the cost of advertising and other actual expenses of the sale, not
including the attorney’s fee.

"Again, if foreclosure is effected extrajudicially, under the power, in conformity with the provisions of Act No.
3135, the mortgagor or his representative has a full year, from the date of the sale, within which to redeem
the property, this being the same period of time that is allowed to judgment debtors for redeeming after
sale under execution. On the other hand, the provisions of the Code of Civil Procedure relative to the
foreclosure of mortgages by action allows no fixed period for redemption after sale; and although, in the
closing words of section 708 of the Code of Civil Procedure the court is authorized to permit the
administrator to redeem mortgaged property, this evidently refers to redemption to be effected before the
foreclosure becomes final.

"When account is further taken of the fact that a creditor who elects to foreclose by extrajudicial sale waives
all right to recover against the estate of the deceased debtor for any deficiency remaining unpaid after the
sale, it will be readily seen that the decision in this case will impose a burden upon the estates of deceased
persons who have mortgaged real property for the security of debts, without any compensatory
advantage." cralaw virtua1aw library

The ruling in Pasno v. Ravina not having been reiterated in any other case, we have carefully reexamined
the same, and after mature deliberation have reached the conclusion that the dissenting opinion is more in
conformity with reason and law. Of the three alternative courses that section 7, Rule 87 (now Rule 86),
offers the mortgage creditor, to wit, (1) to waive the mortgage and claim the entire debt from the estate of
the mortgagor as an ordinary claim; (2) foreclose the mortgage judicially and prove any deficiency as an
ordinary claim; and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is
barred by prescription, without right to file a claim for any deficiency, the majority opinion in Pasno v.
Ravina, in requiring a judicial foreclosure, virtually wipes out the third alternative conceded by the Rules to
the mortgage creditor, and which would precisely include extra-judicial foreclosures by contrast with the
second alternative. This result we do not consider warranted by the text of the Rules; and, in addition, the
recognition of the creditor’s right to foreclose extra-judicially presents undoubted advantages for the estate
of the mortgagor, as pointed out by the dissenting opinion in Pasno v. Ravina, supra. In the light of these
considerations, we have decided to overrule the majority decision, in said case, and uphold the right of the
mortgage creditor to foreclose extra-judicially in accordance with section 7, Rule 86, of the Revised Rules
(old Rule 87)

The argument that foreclosure by the Bank under its power of sale is barred upon death of the debtor,
because agency is extinguished by the death of the principal, under Article 1732 of the Civil Code of 1889
and Article 1919 of the Civil Code of the Philippines, neglects to take into account that the power to
foreclosure is not an ordinary agency that contemplates exclusively the representation of the principal by
the agent, but is primarily an authority conferred upon the mortgagee for the latter’s own protection. It is,
in fact, an ancillary stipulation supported by the same causa or consideration for the mortgage and forms an
essential and inseparable part of that bilateral agreement. As can be seen in the preceding quotations from
Pasno v. Ravina, 54 Phil. 382, both the majority and the dissenting opinions conceded that the power to
foreclose extrajudicially survived the death of the mortgagor, even under the law prior to the Civil Code of
the Philippines now in force.

Nevertheless, while upholding the validity of the appellant Bank’s foreclosure, we can not close our eyes to
the fact that the Bank was apprised since 1947 of the death of its debtor, Vicente Perez, yet it failed and
neglected to give notice of the foreclosure to the latter’s widow and heirs, as expressly found by the court a
quo. Such failure, in effect, prevented them from blocking the foreclosure through seasonable payment, as
well as impeded their effectuating a seasonable redemption. In view of these circumstances, it is our view
that both justice and equity would be served by permitting herein appellees to redeem the foreclosed
property within a reasonable time, by paying the capital and interest of the indebtedness up to the time of
redemption, plus foreclosure and useful expenses, less any rents and profits obtained by the Bank from and
after the same entered into its possession.

WHEREFORE, the judgment appealed from is hereby modified, as follows: chanrob1es virtual 1aw library

(1) Declaring valid and effective the extrajudicial foreclosure of the mortgage over Lot 286-E of the
Kabankalan Cadastre;

(2) Upholding and confirming the cancellation of Transfer Certificate of Title No. 29350 of the Registry of
Deeds of Occidental Negros in the name of the late Vicente Perez, as well as its replacement by Certificate of
Title T-32066 of the same Registry in the name of appellant Philippine National Bank;

(3) Declaring the appellees herein, widow and other heirs of Vicente Perez entitled to redeem the property in
question by paying or tendering to the Bank the capital of the debt of Vicente Perez, with the stipulated
interest to the date of foreclosure, plus interest thereafter at 12% per annum and reimbursing the Bank the
value of any useful expenditures on the said property but deducting from the amounts thus payable the
value of any rents and profits derived by the appellant National Bank from the property in question. Such
payment to be made within sixty (60) days after the balance is determined by the court of origin.

Neither party to recover damages or costs.

Let the records be returned to the court of origin for further proceedings in conformity with this decision. So
ordered.

Concepcion, C.J., Barrera, Dizon, Regala, Makalintal, J.P. Bengzon, Zaldivar, Sanchez and Castro, JJ.,
concur.