RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS,

petitioner,

vs.

FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF

APPEALS, respondents.

Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.

MUÑOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of

his principal, Concepcion Rallos, sold the latter's undivided share in a parcel
of land pursuant to a power of attorney which the principal had executed in
favor. The administrator of the estate of the went to court to have the sale
declared uneanforceable and to recover the disposed share. The trial court
granted the relief prayed for, but upon appeal the Court of Appeals uphold the
validity of the sale and the complaint.

Hence, this Petition for Review on certiorari.

The following facts are not disputed. Concepcion and Gerundia both
surnamed Rallos were sisters and registered co-owners of a parcel of land
known as Lot No. 5983 of the Cadastral Survey of Cebu covered by Transfer
Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the
sisters executed a special power of attorney in favor of their brother, Simeon
Rallos, authorizing him to sell for and in their behalf lot 5983. On March 3,
1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold
the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to
Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The
deed of sale was registered in the Registry of Deeds of Cebu, TCT No. 11118
was cancelled, and a new transfer certificate of Title No. 12989 was issued in
the named of the vendee.

On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of

Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the
Court of First Instance of Cebu, praying (1) that the sale of the undivided
share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and
said share be reconveyed to her estate; (2) that the Certificate of 'title issued
in the name of Felix Go Chan & Sons Realty Corporation be cancelled and
another title be issued in the names of the corporation and the "Intestate
estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be
indemnified by way of attorney's fees and payment of costs of suit. Named
party defendants were Felix Go Chan & Sons Realty Corporation, Simeon
Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was
dropped from the complaint. The complaint was amended twice; defendant
Corporation's Answer contained a crossclaim against its co-defendant, Simon
Rallos while the latter filed third-party complaint against his sister, Gerundia
Rallos While the case was pending in the trial court, both Simon and his sister
Gerundia died and they were substituted by the respective administrators of
their estates.

After trial the court a quo rendered judgment with the following dispositive
portion:

A. On Plaintiffs Complaint —

(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half
pro-indiviso share of Concepcion Rallos in the property in question, — Lot
5983 of the Cadastral Survey of Cebu — is concerned;

(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate
of Title No. 12989 covering Lot 5983 and to issue in lieu thereof another in the
names of FELIX GO CHAN & SONS REALTY CORPORATION and the
Estate of Concepcion Rallos in the proportion of one-half (1/2) share each pro-
indiviso;

(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the
possession of an undivided one-half (1/2) share of Lot 5983 to the herein
plaintiff;

(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of

Simeon Rallos, to pay to plaintiff in concept of reasonable attorney's fees the
sum of P1,000.00; and
(5) Ordering both defendants to pay the costs jointly and severally.

B. On GO CHANTS Cross-Claim:

(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the

Estate of Simeon Rallos, to pay to defendant Felix Co Chan & Sons Realty
Corporation the sum of P5,343.45, representing the price of one-half (1/2)
share of lot 5983;

(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of

Simeon Rallos, to pay in concept of reasonable attorney's fees to Felix Go
Chan & Sons Realty Corporation the sum of P500.00.

C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of

Estate of Simeon Rallos, against Josefina Rallos special administratrix of the
Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to filing either a
complaint against the regular administrator of the Estate of Gerundia Rallos or
a claim in the Intestate-Estate of Cerundia Rallos, covering the same subject-
matter of the third-party complaint, at bar. (pp. 98-100, Record on Appeal)

Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of
Appeals from the foregoing judgment insofar as it set aside the sale of the
one-half (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted
to earlier, resolved the appeal on November 20, 1964 in favor of the appellant
corporation sustaining the sale in question. 1 The appellee administrator,
Ramon Rallos, moved for a reconsider of the decision but the same was
denied in a resolution of March 4, 1965. 2

What is the legal effect of an act performed by an agent after the death of his
principal? Applied more particularly to the instant case, We have the query. is
the sale of the undivided share of Concepcion Rallos in lot 5983 valid although
it was executed by the agent after the death of his principal? What is the law
in this jurisdiction as to the effect of the death of the principal on the authority
of the agent to act for and in behalf of the latter? Is the fact of knowledge of
the death of the principal a material factor in determining the legal effect of an
act performed after such death?

Before proceedings to the issues, We shall briefly restate certain principles of

law relevant to the matter tinder consideration.

1. It is a basic axiom in civil law embodied in our Civil Code that no one may
contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him. 3 A contract entered into in the
name of another by one who has no authority or the legal representation or
who has acted beyond his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.4 Article 1403 (1) of the
same Code also provides:

ART. 1403. The following contracts are unenforceable, unless they are
justified:

(1) Those entered into in the name of another person by one who hi - been
given no authority or legal representation or who has acted beyond his
powers; ...

Out of the above given principles, sprung the creation and acceptance of the
relationship of agency whereby one party, caged the principal (mandante),
authorizes another, called the agent (mandatario), to act for and in his behalf
in transactions with third persons. The essential elements of agency are: (1)
there is consent, express or implied of the parties to establish the relationship;
(2) the object is the execution of a juridical act in relation to a third person; (3)
the agents acts as a representative and not for himself, and (4) the agent acts
within the scope of his authority. 5

Agency is basically personal representative, and derivative in nature. The

authority of the agent to act emanates from the powers granted to him by his
principal; his act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through another acts
himself". 6

2. There are various ways of extinguishing agency, 7 but her We are

concerned only with one cause — death of the principal Paragraph 3 of Art.
1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil
Code provides:

ART. 1919. Agency is extinguished.

xxx xxx xxx

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

the agent; ... (Emphasis supplied)

By reason of the very nature of the relationship between Principal and agent,
agency is extinguished by the death of the principal or the agent. This is the
law in this jurisdiction.8

Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the
rationale for the law is found in the juridical basis of agency which is
representation Them being an in. integration of the personality of the principal
integration that of the agent it is not possible for the representation to continue
to exist once the death of either is establish. Pothier agrees with Manresa that
by reason of the nature of agency, death is a necessary cause for its
extinction. Laurent says that the juridical tie between the principal and the
agent is severed ipso jure upon the death of either without necessity for the
heirs of the fact to notify the agent of the fact of death of the former. 9

The same rule prevails at common law — the death of the principal effects
instantaneous and absolute revocation of the authority of the agent unless the
Power be coupled with an interest. 10 This is the prevalent rule in American
Jurisprudence where it is well-settled that a power without an interest confer.
red upon an agent is dissolved by the principal's death, and any attempted
execution of the power afterward is not binding on the heirs or representatives
of the deceased. 11

3. Is the general rule provided for in Article 1919 that the death of the principal
or of the agent extinguishes the agency, subject to any exception, and if so, is
the instant case within that exception? That is the determinative point in issue
in this litigation. It is the contention of respondent corporation which was
sustained by respondent court that notwithstanding the death of the principal
Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling the
former's sham in the property is valid and enforceable inasmuch as the
corporation acted in good faith in buying the property in question.

Articles 1930 and 1931 of the Civil Code provide the exceptions to the general
rule afore-mentioned.

ART. 1930. The agency shall remain in full force and effect even after the
death of the principal, if it has been constituted in the common interest of the
latter and of the agent, or in the interest of a third person who has accepted
the stipulation in his favor.

ART. 1931. Anything done by the agent, without knowledge of the death of the
principal or of any other cause which extinguishes the agency, is valid and
shall be fully effective with respect to third persons who may have contracted
with him in good. faith.

Article 1930 is not involved because admittedly the special power of attorney
executed in favor of Simeon Rallos was not coupled with an interest.

Article 1931 is the applicable law. Under this provision, an act done by the
agent after the death of his principal is valid and effective only under two
conditions, viz: (1) that the agent acted without knowledge of the death of the
principal and (2) that the third person who contracted with the agent himself
acted in good faith. Good faith here means that the third person was not
aware of the death of the principal at the time he contracted with said agent.
These two requisites must concur the absence of one will render the act of the
agent invalid and unenforceable.

In the instant case, it cannot be questioned that the agent, Simeon Rallos,
knew of the death of his principal at the time he sold the latter's share in Lot
No. 5983 to respondent corporation. The knowledge of the death is clearly to
be inferred from the pleadings filed by Simon Rallos before the trial court. 12
That Simeon Rallos knew of the death of his sister Concepcion is also a
finding of fact of the court a quo 13 and of respondent appellate court when the
latter stated that Simon Rallos 'must have known of the death of his sister, and
yet he proceeded with the sale of the lot in the name of both his sisters
Concepcion and Gerundia Rallos without informing appellant (the realty
corporation) of the death of the former. 14

On the basis of the established knowledge of Simon Rallos concerning the

death of his principal Concepcion Rallos, Article 1931 of the Civil Code is
inapplicable. The law expressly requires for its application lack of knowledge
on the part of the agent of the death of his principal; it is not enough that the
third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the
Court applying Article 1738 of the old Civil rode now Art. 1931 of the new Civil
Code sustained the validity , of a sale made after the death of the principal
because it was not shown that the agent knew of his principal's demise. 15 To
the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961,
where in the words of Justice Jesus Barrera the Court stated:

... even granting arguemendo 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 6f the principal does not render the act of an agent
unenforceable, where the latter had no knowledge of such extinguishment of
the agency. (1 SCRA 406, 412)

4. In sustaining the validity of the sale to respondent consideration the Court

of Appeals reasoned out that there is no provision in the Code which provides
that whatever is done by an agent having knowledge of the death of his
principal is void even with respect to third persons who may have contracted
with him in good faith and without knowledge of the death of the principal. 16

We cannot see the merits of the foregoing argument as it ignores the

existence of the general rule enunciated in Article 1919 that the death of the
principal extinguishes the agency. That being the general rule it follows a
fortiori that any act of an agent after the death of his principal is void ab initio
unless the same fags under the exception provided for in the aforementioned
Articles 1930 and 1931. Article 1931, being an exception to the general rule, is
to be strictly construed, it is not to be given an interpretation or application
beyond the clear import of its terms for otherwise the courts will be involved in
a process of legislation outside of their judicial function.

5. Another argument advanced by respondent court is that the vendee acting

in good faith relied on the power of attorney which was duly registered on the
original certificate of title recorded in the Register of Deeds of the province of
Cebu, that no notice of the death was aver annotated on said certificate of title
by the heirs of the principal and accordingly they must suffer the
consequences of such omission. 17

To support such argument reference is made to a portion in Manresa's

Commentaries which We quote:

If the agency has been granted for the purpose of contracting with certain
persons, the revocation must be made known to them. But if the agency is
general iii nature, without reference to particular person with whom the agent
is to contract, it is sufficient that the principal exercise due diligence to make
the revocation of the agency publicity known.

In case of a general power which does not specify the persons to whom
represents' on should be made, it is the general opinion that all acts, executed
with third persons who contracted in good faith, Without knowledge of the
revocation, are valid. In such case, the principal may exercise his right against
the agent, who, knowing of the revocation, continued to assume a personality
which he no longer had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal
as a mode of terminating an agency which is to be distinguished from
revocation by operation of law such as death of the principal which obtains in
this case. On page six of this Opinion We stressed that by reason of the very
nature of the relationship between principal and agent, agency is extinguished
ipso jure upon the death of either principal or agent. Although a revocation of
a power of attorney to be effective must be communicated to the parties
concerned, 18 yet a revocation by operation of law, such as by death of the
principal is, as a rule, instantaneously effective inasmuch as "by legal fiction
the agent's exercise of authority is regarded as an execution of the principal's
continuing will. 19 With death, the principal's will ceases or is the of authority is
extinguished.

The Civil Code does not impose a duty on the heirs to notify the agent of the
death of the principal What the Code provides in Article 1932 is that, if the
agent die his heirs must notify the principal thereof, and in the meantime adopt
such measures as the circumstances may demand in the interest of the latter.
Hence, the fact that no notice of the death of the principal was registered on
the certificate of title of the property in the Office of the Register of Deeds, is
not fatal to the cause of the estate of the principal

6. Holding that the good faith of a third person in said with an agent affords the
former sufficient protection, respondent court drew a "parallel" between the
instant case and that of an innocent purchaser for value of a land, stating that
if a person purchases a registered land from one who acquired it in bad faith
— even to the extent of foregoing or falsifying the deed of sale in his favor —
the registered owner has no recourse against such innocent purchaser for
value but only against the forger. 20

To support the correctness of this respondent corporation, in its brief, cites the
case of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the
brief:

In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one
Vallejo was a co-owner of lands with Agustin Nano. The latter had a power of
attorney supposedly executed by Vallejo Nano in his favor. Vallejo delivered to
Nano his land titles. The power was registered in the Office of the Register of
Deeds. When the lawyer-husband of Angela Blondeau went to that Office, he
found all in order including the power of attorney. But Vallejo denied having
executed the power The lower court sustained Vallejo and the plaintiff
Blondeau appealed. Reversing the decision of the court a quo, the Supreme
Court, quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held:

But there is a narrower ground on which the defenses of the defendant-

appellee must be overruled. Agustin Nano had possession of Jose Vallejo's
title papers. Without those title papers handed over to Nano with the
acquiescence of Vallejo, a fraud could not have been perpetuated. When
Fernando de la Canters, a member of the Philippine Bar and the husband of
Angela Blondeau, the principal plaintiff, searched the registration record, he
found them in due form including the power of attorney of Vallajo in favor of
Nano. If this had not been so and if thereafter the proper notation of the
encumbrance could not have been made, Angela Blondeau would not have
sent P12,000.00 to the defendant Vallejo.' An executed transfer of registered
lands placed by the registered owner thereof in the hands of another operates
as a representation to a third party that the holder of the transfer is authorized
to deal with the land.

As between two innocent persons, one of whom must suffer the consequence
of a breach of trust, the one who made it possible by his act of coincidence
bear the loss. (pp. 19-21)

The Blondeau decision, however, is not on all fours with the case before Us
because here We are confronted with one who admittedly was an agent of his
sister and who sold the property of the latter after her death with full
knowledge of such death. The situation is expressly covered by a provision of
law on agency the terms of which are clear and unmistakable leaving no room
for an interpretation contrary to its tenor, in the same manner that the ruling in
Blondeau and the cases cited therein found a basis in Section 55 of the Land
Registration Law which in part provides:

xxx xxx xxx

The production of the owner's duplicate certificate whenever any voluntary

instrument is presented for registration shall be conclusive authority from the
registered owner to the register of deeds to enter a new certificate or to make
a memorandum of registration in accordance with such instruments, and the
new certificate or memorandum Shall be binding upon the registered owner
and upon all persons claiming under him in favor of every purchaser for value
and in good faith: Provided however, That in all cases of registration provided
by fraud, the owner may pursue all his legal and equitable remedies against
the parties to such fraud without prejudice, however, to the right, of any
innocent holder for value of a certificate of title. ... (Act No. 496 as amended)

7. One last point raised by respondent corporation in support of the appealed

decision is an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday
v. McKenzie wherein payments made to an agent after the death of the
principal were held to be "good", "the parties being ignorant of the death". Let
us take note that the Opinion of Justice Rogers was premised on the
statement that the parties were ignorant of the death of the principal. We
quote from that decision the following:

... Here the precise point is, whether a payment to an agent when the Parties
are ignorant of the death is a good payment. in addition to the case in
Campbell before cited, the same judge Lord Ellenboruogh, has decided in 5
Esp. 117, the general question that a payment after the death of principal is
not good. Thus, a payment of sailor's wages to a person having a power of
attorney to receive them, has been held void when the principal was dead at
the time of the payment. If, by this case, it is meant merely to decide the
general proposition that by operation of law the death of the principal is a
revocation of the powers of the attorney, no objection can be taken to it. But if
it intended to say that his principle applies where there was 110 notice of
death, or opportunity of twice I must be permitted to dissent from it.

... That a payment may be good today, or bad tomorrow, from the accident
circumstance of the death of the principal, which he did not know, and which
by no possibility could he know? It would be unjust to the agent and unjust to
the debtor. In the civil law, the acts of the agent, done bona fide in ignorance
of the death of his principal are held valid and binding upon the heirs of the
latter. The same rule holds in the Scottish law, and I cannot believe the
common law is so unreasonable... (39 Am. Dec. 76, 80, 81; emphasis
supplied)

To avoid any wrong impression which the Opinion in Cassiday v. McKenzie

may evoke, mention may be made that the above represents the minority view
in American jurisprudence. Thus in Clayton v. Merrett, the Court said.—

There are several cases which seem to hold that although, as a general
principle, death revokes an agency and renders null every act of the agent
thereafter performed, yet that where a payment has been made in ignorance
of the death, such payment will be good. The leading case so holding is that of
Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an
elaborate opinion, this view ii broadly announced. It is referred to, and seems
to have been followed, in the case of Dick v. Page, 17 Mo. 234, 57 AmD 267;
but in this latter case it appeared that the estate of the deceased principal had
received the benefit of the money paid, and therefore the representative of the
estate might well have been held to be estopped from suing for it again. . . .
These cases, in so far, at least, as they announce the doctrine under
discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v.
McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand almost, if not
quite, alone in announcing the principle in its broadest scope. (52, Misc. 353,
357, cited in 2 C.J. 549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing

out that the opinion, except so far as it related to the particular facts, was a
mere dictum, Baldwin J. said:

The opinion, therefore, of the learned Judge may be regarded more as an

extrajudicial indication of his views on the general subject, than as the
adjudication of the Court upon the point in question. But accordingly all power
weight to this opinion, as the judgment of a of great respectability, it stands
alone among common law authorities and is opposed by an array too
formidable to permit us to following it. (15 Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in
American jurisprudence, no such conflict exists in our own for the simple
reason that our statute, the Civil Code, expressly provides for two exceptions
to the general rule that death of the principal revokes ipso jure the agency, to
wit: (1) that the agency is coupled with an interest (Art 1930), and (2) that the
act of the agent was executed without knowledge of the death of the principal
and the third person who contracted with the agent acted also in good faith
(Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again
We stress the indispensable requirement that the agent acted without
knowledge or notice of the death of the principal In the case before Us the
agent Ramon Rallos executed the sale notwithstanding notice of the death of
his principal Accordingly, the agent's act is unenforceable against the estate of
his principal.

IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent

appellate court, and We affirm en toto the judgment rendered by then Hon.
Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2
and 3 of this Opinion, with costs against respondent realty corporation at all
instances.

So Ordered.

FLORENTINO RALLOS, ET AL., plaintiff-appellee, vs. TEODORO R.

YANGCO, defendant-appellant.
G.R. No. 6906, EN BANC, September 27, 1911, MORELAND, J.

Having advertised the fact that Collantes was his agent and having given them
a special invitation to deal with such agent, it was the duty of the defendant on
the termination of the relationship of principal and agent to give due and timely
notice thereof to the plaintiffs. Failing to do so, he is responsible to them for
whatever goods may have been in good faith and without negligence sent to
the agent without knowledge, actual or constructive, of the termination of such
relationship.

FACTS The plaintiffs proceeded to do a considerable business with the

defendant through the said Collantes, as his factor, sending to him as agent
for the defendant a good deal of produce to be sold on commission. Later, and
in the month of February, 1909, the plaintiffs sent to the said Collantes, as
agent for the defendant, 218 bundles of tobacco in the leaf to be sold on
commission, as had been other produce previously. The said Collantes
received said tobacco and sold it for the sum of P1,744. The charges for such
sale were P206.96. leaving in the hands of said Collantes the sum of
P1,537.08 belonging to the plaintiffs. This sum was, apparently, converted to
his own use by said agent. It appears, however, that prior to the sending of
said tobacco the defendant had severed his relations with Collantes and that
the latter was no longer acting as his factor. This fact was not known to the
plaintiffs; and it is conceded in the case that no notice of any kind was given
by the defendant to the plaintiffs of the termination of the relations between
the defendant and his agent. The defendant refused to pay the said sum upon
demand of the plaintiffs, placing such refusal upon the ground that at the time
the said tobacco was received and sold by Collantes he was acting personally
and not as agent of the defendant. This action was brought to recover said
sum.

ISSUE Whether the plaintiffs, acting in good faith and without knowledge,
having sent produce to sell on commission to the former agent of the
defendant, can recover of the defendant under the circumstances above set
forth

RULING Yes. We are of the opinion that the defendant is liable. Having
advertised the fact that Collantes was his agent and having given them a
special invitation to deal with such agent, it was the duty of the defendant on
the termination of the relationship of principal and agent to give due and timely
notice thereof to the plaintiffs. Failing to do so, he is responsible to them for
whatever goods may have been in good faith and without negligence sent to
the agent without knowledge, actual or constructive, of the termination of such
relationship.
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,

vs.

COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED,

respondents.

G.R. No. 76933 May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.

COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL

REPRESENTATIVES, INCORPORATED, respondents.

Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and
Hotel Representatives, Inc.

Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:

This case is a consolidation of two (2) petitions for review on certiorari of a

decision1 of the Court of Appeals in CA-G.R. No. CV-04294, entitled
"American Airlines, Inc. vs. Orient Air Services and Hotel Representatives,
Inc." which affirmed, with modification, the decision 2 of the Regional Trial
Court of Manila, Branch IV, which dismissed the complaint and granted
therein defendant's counterclaim for agent's overriding commission and
damages.

The antecedent facts are as follows:

On 15 January 1977, American Airlines, Inc. (hereinafter referred to as

American Air), an air carrier offering passenger and air cargo transportation in
the Philippines, and Orient Air Services and Hotel Representatives
(hereinafter referred to as Orient Air), entered into a General Sales Agency
Agreement (hereinafter referred to as the Agreement), whereby the former
authorized the latter to act as its exclusive general sales agent within the
Philippines for the sale of air passenger transportation. Pertinent provisions of
the agreement are reproduced, to wit:

WITNESSETH

In consideration of the mutual convenants herein contained, the parties hereto

agree as follows:

1. Representation of American by Orient Air Services

Orient Air Services will act on American's behalf as its exclusive General
Sales Agent within the Philippines, including any United States military
installation therein which are not serviced by an Air Carrier Representation
Office (ACRO), for the sale of air passenger transportation. The services to be
performed by Orient Air Services shall include:

(a) soliciting and promoting passenger traffic for the services of American and,
if necessary, employing staff competent and sufficient to do so;

(b) providing and maintaining a suitable area in its place of business to be

used exclusively for the transaction of the business of American;

(c) arranging for distribution of American's timetables, tariffs and promotional

material to sales agents and the general public in the assigned territory;

(d) servicing and supervising of sales agents (including such sub-agents as

may be appointed by Orient Air Services with the prior written consent of
American) in the assigned territory including if required by American the
control of remittances and commissions retained; and

(e) holding out a passenger reservation facility to sales agents and the general
public in the assigned territory.

In connection with scheduled or non-scheduled air passenger transportation

within the United States, neither Orient Air Services nor its sub-agents will
perform services for any other air carrier similar to those to be performed
hereunder for American without the prior written consent of American. Subject
to periodic instructions and continued consent from American, Orient Air
Services may sell air passenger transportation to be performed within the
United States by other scheduled air carriers provided American does not
provide substantially equivalent schedules between the points involved.
xxx xxx xxx

4. Remittances

Orient Air Services shall remit in United States dollars to American the ticket
stock or exchange orders, less commissions to which Orient Air Services is
entitled hereunder, not less frequently than semi-monthly, on the 15th and last
days of each month for sales made during the preceding half month.

All monies collected by Orient Air Services for transportation sold hereunder
on American's ticket stock or on exchange orders, less applicable
commissions to which Orient Air Services is entitled hereunder, are the
property of American and shall be held in trust by Orient Air Services until
satisfactorily accounted for to American.

5. Commissions
American will pay Orient Air Services commission on transportation sold
hereunder by Orient Air Services or its sub-agents as follows:

(a) Sales agency commission

American will pay Orient Air Services a sales agency commission for all sales
of transportation by Orient Air Services or its sub-agents over American's
services and any connecting through air transportation, when made on
American's ticket stock, equal to the following percentages of the tariff fares
and charges:

(i) For transportation solely between points within the United States and
between such points and Canada: 7% or such other rate(s) as may be
prescribed by the Air Traffic Conference of America.

(ii) For transportation included in a through ticket covering transportation

between points other than those described above: 8% or such other rate(s) as
may be prescribed by the International Air Transport Association.

(b) Overriding commission

In addition to the above commission American will pay Orient Air Services an
overriding commission of 3% of the tariff fares and charges for all sales of
transportation over American's service by Orient Air Service or its sub-agents.

xxx xxx xxx

10. Default

If Orient Air Services shall at any time default in observing or performing any
of the provisions of this Agreement or shall become bankrupt or make any
assignment for the benefit of or enter into any agreement or promise with its
creditors or go into liquidation, or suffer any of its goods to be taken in
execution, or if it ceases to be in business, this Agreement may, at the option
of American, be terminated forthwith and American may, without prejudice to
any of its rights under this Agreement, take possession of any ticket forms,
exchange orders, traffic material or other property or funds belonging to
American.

11. IATA and ATC Rules

The provisions of this Agreement are subject to any applicable rules or

resolutions of the International Air Transport Association and the Air Traffic
Conference of America, and such rules or resolutions shall control in the event
of any conflict with the provisions hereof.

xxx xxx xxx

13. Termination
American may terminate the Agreement on two days' notice in the event
Orient Air Services is unable to transfer to the United States the funds payable
by Orient Air Services to American under this Agreement. Either party may
terminate the Agreement without cause by giving the other 30 days' notice by
letter, telegram or cable.

xxx xxx x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under
the Agreement by failing to promptly remit the net proceeds of sales for the
months of January to March 1981 in the amount of US $254,400.40, American
Air by itself undertook the collection of the proceeds of tickets sold originally
by Orient Air and terminated forthwith the Agreement in accordance with
Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May 1981,
American Air instituted suit against Orient Air with the Court of First Instance
of Manila, Branch 24, for Accounting with Preliminary Attachment or
Garnishment, Mandatory Injunction and Restraining Order4 averring the
aforesaid basis for the termination of the Agreement as well as therein
defendant's previous record of failures "to promptly settle past outstanding
refunds of which there were available funds in the possession of the
defendant, . . . to the damage and prejudice of plaintiff."5

In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air
denied the material allegations of the complaint with respect to plaintiff's
entitlement to alleged unremitted amounts, contending that after application
thereof to the commissions due it under the Agreement, plaintiff in fact still
owed Orient Air a balance in unpaid overriding commissions. Further, the
defendant contended that the actions taken by American Air in the course of
terminating the Agreement as well as the termination itself were untenable,
Orient Air claiming that American Air's precipitous conduct had occasioned
prejudice to its business interests.

Finding that the record and the evidence substantiated the allegations of the
defendant, the trial court ruled in its favor, rendering a decision dated 16 July
1984, the dispositive portion of which reads:

WHEREFORE, all the foregoing premises considered, judgment is hereby

rendered in favor of defendant and against plaintiff dismissing the complaint
and holding the termination made by the latter as affecting the GSA
agreement illegal and improper and order the plaintiff to reinstate defendant
as its general sales agent for passenger tranportation in the Philippines in
accordance with said GSA agreement; plaintiff is ordered to pay defendant the
balance of the overriding commission on total flown revenue covering the
period from March 16, 1977 to December 31, 1980 in the amount of
US$84,821.31 plus the additional amount of US$8,000.00 by way of proper
3% overriding commission per month commencing from January 1, 1981 until
such reinstatement or said amounts in its Philippine peso equivalent legally
prevailing at the time of payment plus legal interest to commence from the
filing of the counterclaim up to the time of payment. Further, plaintiff is directed
to pay defendant the amount of One Million Five Hundred Thousand
(Pl,500,000.00) pesos as and for exemplary damages; and the amount of
Three Hundred Thousand (P300,000.00) pesos as and by way of attorney's
fees.

Costs against plaintiff.7

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a

decision promulgated on 27 January 1986, affirmed the findings of the court a
quo on their material points but with some modifications with respect to the
monetary awards granted. The dispositive portion of the appellate court's
decision is as follows:

WHEREFORE, with the following modifications —

1) American is ordered to pay Orient the sum of US$53,491.11 representing

the balance of the latter's overriding commission covering the period March
16, 1977 to December 31, 1980, or its Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on July 10,
1981, the date the counterclaim was filed;

2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's

overriding commission per month starting January 1, 1981 until date of
termination, May 9, 1981 or its Philippine peso equivalent in accordance with
the official rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed

3) American is ordered to pay interest of 12% on said amounts from July 10,
1981 the date the answer with counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;

5) American is ordered to pay Orient the sum of P25,000.00 as attorney's

fees.

the rest of the appealed decision is affirmed.

Costs against American.8

American Air moved for reconsideration of the aforementioned decision,

assailing the substance thereof and arguing for its reversal. The appellate
court's decision was also the subject of a Motion for Partial Reconsideration
by Orient Air which prayed for the restoration of the trial court's ruling with
respect to the monetary awards. The Court of Appeals, by resolution
promulgated on 17 December 1986, denied American Air's motion and with
respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for
affirmance of the trial court's award of exemplary damages and attorney's
fees, but granted insofar as the rate of exchange is concerned. The decision
of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive
part so that the payment of the sums mentioned therein shall be at their
Philippine peso equivalent in accordance with the official rate of exchange
legally prevailing on the date of actual payment.9

Both parties appealed the aforesaid resolution and decision of the respondent
court, Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner
in G.R. No. 76933. By resolution10 of this Court dated 25 March 1987 both
petitions were consolidated, hence, the case at bar.

The principal issue for resolution by the Court is the extent of Orient Air's right
to the 3% overriding commission. It is the stand of American Air that such
commission is based only on sales of its services actually negotiated or
transacted by Orient Air, otherwise referred to as "ticketed sales." As basis
thereof, primary reliance is placed upon paragraph 5(b) of the Agreement
which, in reiteration, is quoted as follows:

5. Commissions

a) . . .

b) Overriding Commission

In addition to the above commission, American will pay Orient Air Services an
overriding commission of 3% of the tariff fees and charges for all sales of
transportation over American's services by Orient Air Services or its sub-
agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air,
and the former not having opted to appoint any sub-agents, it is American Air's
contention that Orient Air can claim entitlement to the disputed overriding
commission based only on ticketed sales. This is supposed to be the clear
meaning of the underscored portion of the above provision. Thus, to be
entitled to the 3% overriding commission, the sale must be made by Orient Air
and the sale must be done with the use of American Air's ticket stocks.

On the other hand, Orient Air contends that the contractual stipulation of a 3%
overriding commission covers the total revenue of American Air and not
merely that derived from ticketed sales undertaken by Orient Air. The latter, in
justification of its submission, invokes its designation as the exclusive General
Sales Agent of American Air, with the corresponding obligations arising from
such agency, such as, the promotion and solicitation for the services of its
principal. In effect, by virtue of such exclusivity, "all sales of transportation
over American Air's services are necessarily by Orient Air."11
It is a well settled legal principle that in the interpretation of a contract, the
entirety thereof must be taken into consideration to ascertain the meaning of
its provisions.12 The various stipulations in the contract must be read together
to give effect to all.13 After a careful examination of the records, the Court finds
merit in the contention of Orient Air that the Agreement, when interpreted in
accordance with the foregoing principles, entitles it to the 3% overriding
commission based on total revenue, or as referred to by the parties, "total
flown revenue."

As the designated exclusive General Sales Agent of American Air, Orient Air
was responsible for the promotion and marketing of American Air's services
for air passenger transportation, and the solicitation of sales therefor. In return
for such efforts and services, Orient Air was to be paid commissions of two (2)
kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and
charges from sales by Orient Air when made on American Air ticket stock; and
second, an overriding commission of 3% of tariff fares and charges for all
sales of passenger transportation over American Air services. It is immediately
observed that the precondition attached to the first type of commission does
not obtain for the second type of commissions. The latter type of commissions
would accrue for sales of American Air services made not on its ticket stock
but on the ticket stock of other air carriers sold by such carriers or other
authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit
the basis of such overriding commissions to sales from American Air ticket
stock would erase any distinction between the two (2) types of commissions
and would lead to the absurd conclusion that the parties had entered into a
contract with meaningless provisions. Such an interpretation must at all times
be avoided with every effort exerted to harmonize the entire Agreement.

An additional point before finally disposing of this issue. It is clear from the
records that American Air was the party responsible for the preparation of the
Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be
taken "contra proferentem", i.e., construed against the party who caused the
ambiguity and could have avoided it by the exercise of a little more care.
Thus, Article 1377 of the Civil Code provides that the interpretation of obscure
words or stipulations in a contract shall not favor the party who caused the
obscurity.14 To put it differently, when several interpretations of a provision are
otherwise equally proper, that interpretation or construction is to be adopted
which is most favorable to the party in whose favor the provision was made
and who did not cause the ambiguity. 15 We therefore agree with the
respondent appellate court's declaration that:

Any ambiguity in a contract, whose terms are susceptible of different

interpretations, must be read against the party who drafted it.16

We now turn to the propriety of American Air's termination of the Agreement.

The respondent appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds
justification from paragraph 4 of the Agreement, Exh. F, which provides for
remittances to American less commissions to which Orient is entitled, and
from paragraph 5(d) which specifically allows Orient to retain the full amount
of its commissions. Since, as stated ante, Orient is entitled to the 3% override.
American's premise, therefore, for the cancellation of the Agreement did not
exist. . . ."

We agree with the findings of the respondent appellate court. As earlier

established, Orient Air was entitled to an overriding commission based on total
flown revenue. American Air's perception that Orient Air was remiss or in
default of its obligations under the Agreement was, in fact, a situation where
the latter acted in accordance with the Agreement—that of retaining from the
sales proceeds its accrued commissions before remitting the balance to
American Air. Since the latter was still obligated to Orient Air by way of such
commissions. Orient Air was clearly justified in retaining and refusing to remit
the sums claimed by American Air. The latter's termination of the Agreement
was, therefore, without cause and basis, for which it should be held liable to
Orient Air.

On the matter of damages, the respondent appellate court modified by

reduction the trial court's award of exemplary damages and attorney's fees.
This Court sees no error in such modification and, thus, affirms the same.

It is believed, however, that respondent appellate court erred in affirming the

rest of the decision of the trial court.1âwphi1 We refer particularly to the lower
court's decision ordering American Air to "reinstate defendant as its general
sales agent for passenger transportation in the Philippines in accordance with
said GSA Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect,
compels American Air to extend its personality to Orient Air. Such would be
violative of the principles and essence of agency, defined by law as a contract
whereby "a person binds himself to render some service or to do something in
representation or on behalf of another, WITH THE CONSENT OR
AUTHORITY OF THE LATTER .17 (emphasis supplied) In an agent-principal
relationship, the personality of the principal is extended through the facility of
the agent. In so doing, the agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must
not, in any way, be compelled by law or by any court. The Agreement itself
between the parties states that "either party may terminate the Agreement
without cause by giving the other 30 days' notice by letter, telegram or cable."
(emphasis supplied) We, therefore, set aside the portion of the ruling of the
respondent appellate court reinstating Orient Air as general sales agent of
American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the
decision and resolution of the respondent Court of Appeals, dated 27 January
1986 and 17 December 1986, respectively. Costs against petitioner American
Air.

SO ORDERED.

Orient Air Services vs. CA

G.R. No. 76931, May 29, 1991

PADILLA, J.:

Facts:

American Air, an air carrier offering passenger and air cargo transportation,
entered into a General Sales Agency Agreement with Orient Air, authorizing
the latter to act as its exclusive general sales agent for the sale of air
passenger transportation. Orient air failed to remit the net proceeds of sales
for several months prompting American Air to undertake the collection of the
proceeds of tickets sold originally by Orient Air and terminating their
agreement.

American air instituted suit against Orient Air for the settlement of past
outstanding funds in possession of the latter. Orient Air contended that
because of the unpaid overriding commissions it retained the sales proceeds
before remitting the balance to American Air. American Air contended that the
sale must be made by Orient Air and the sale must be done with the use of
American Air’s ticket stocks in order for it to be entitled to the overriding
commission. On the other hand, Orient Air contends that the contractual
stipulation of a 3% overriding commission covers the total revenue of
American Air and not merely that derived from ticketed sales undertaken by
Orient Air because it was an exclusive General Sales Agent. CA held that
Orient Air is entitled to commissions and ordered American Air to reinstate
Orient Air as its General Sales Agent.

Issue:

1) Whether or not Orient Air is entitled to commissions.

2) Whether CA is correct in ordering reinstatement of Orient Air as an agent.

Held:

1.) Yes. Orient Air was entitled to an overriding commission based on total
flown revenue. American Air’s perception that Orient Air was remiss or in
default of its obligations under the Agreement was, in fact, a situation where
the latter acted in accordance with the Agreement—that of retaining from the
sales proceeds its accrued commissions before remitting the balance to
American Air. Since the latter was still obligated to Orient Air by way of such
commissions. Orient Air was clearly justified in retaining and refusing to remit
the sums claimed by American Air. The latter’s termination of the Agreement
was, therefore, without cause and basis, for which it should be held liable to
Orient Air.

2.) No. CA in effect compels American Air to extend its personality to Orient
Air. Such would be violative of the principles and essence of agency, defined
by law as a contract whereby “a person binds himself to render some service
or to do something in representation or on behalf of another, WITH THE
CONSENT OR AUTHORITY OF THE LATTER. In an agent-principal
relationship, the personality of the principal is extended through the facility of
the agent. In so doing, the agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must
not, in any way, be compelled by law or by any court.

[G.R. No. 120465. September 9, 1999.]

WILLIAM UY and RODEL ROXAS, Petitioners, v. COURT OF

APPEALS, HON. ROBERT BALAO and NATIONAL HOUSING
AUTHORITY, Respondents.

DECISION

KAPUNAN, J.:

Petitioners William Uy and Rodel Roxas are agents authorized to sell

eight parcels of land by the owners thereof. By virtue of such
authority, petitioners offered to sell the lands, located in Tuba,
Tadiangan, Benguet to respondent National Housing Authority
(NHA) to be utilized and developed as a housing
project.chanroblesvirtuallawlibrary

On February 14, 1989, the NHA Board passed Resolution No. 1632
approving the acquisition of said lands, with an area of 31.8231
hectares, at the cost of P23.867 million, pursuant to which the
parties executed a series of Deeds of Absolute Sale covering the
subject lands. Of the eight parcels of land, however, only five were
paid for by the NHA because of the report 1 it received from the
Land Geosciences Bureau of the Department of Environment and
Natural Resources (DENR) that the remaining area is located at an
active landslide area and therefore, not suitable for development
into a housing project.

On 22 November 1991, the NHA issued Resolution No. 2352

cancelling the sale over the three parcels of land. The NHA, through
Resolution No. 2394, subsequently offered the amount of P1.225
million to the landowners as daños perjuicios.

On 9 March 1992, petitioners filed before the Regional Trial Court

(RTC) of Quezon City a Complaint for Damages against NHA and its
General Manager Robert Balao.

After trial, the RTC rendered a decision declaring the cancellation of

the contract to be justified. The trial court nevertheless awarded
damages to plaintiffs in the sum of P1.255 million, the same amount
initially offered by NHA to petitioners as damages.

Upon appeal by petitioners, the Court of Appeals reversed the

decision of the trial court and entered a new one dismissing the
complaint. It held that since there was "sufficient justifiable basis" in
cancelling the sale, "it saw no reason" for the award of damages.
The Court of Appeals also noted that petitioners were mere
attorneys-in-fact and, therefore, not the real parties-in-interest in
the action before the trial court.
. . . In paragraph 4 of the complaint, plaintiffs alleged themselves to
be "sellers’ agents" for several owners of the 8 lots subject matter
of the case. Obviously, William Uy and Rodel Roxas in filing this case
acted as attorneys-in-fact of the lot owners who are the real parties
in interest but who were omitted to be pleaded as party-plaintiffs in
the case. This omission is fatal. Where the action is brought by an
attorney-in-fact of a land owner in his name, (as in our present
action) and not in the name of his principal, the action was properly
dismissed (Ferrer v. Villamor, 60 SCRA 406 [1974]; Marcelo v. de
Leon, 105 Phil. 1175) because the rule is that every action must be
prosecuted in the name of the real parties-in-interest (Section 2,
Rule 3, Rules of Court).

When plaintiffs Uy and Roxas sought payment of damages in their

favor in view of the partial rescission of Resolution No. 1632 and the
Deed of Absolute Sale covering TCT Nos. 10998, 10999 and 11292
(Prayer complaint, page 5, RTC records), it becomes obviously
indispensable that the lot owners be included, mentioned and
named as party-plaintiffs, being the real party-in-interest. Uy and
Roxas, as attorneys-in-fact or apoderados, cannot by themselves
lawfully commence this action, more so, when the supposed special
power of attorney, in their favor, was never presented as an
evidence in this case. Besides, even if herein plaintiffs Uy and Roxas
were authorized by the lot owners to commence this action, the
same must still be filed in the name of the principal, (Filipino
Industrial Corporation v. San Diego, 23 SCRA 706 [1968]). As such
indispensable party, their joinder in the action is mandatory and the
complaint may be dismissed if not so impleaded (NDC v. CA, 211
SCRA 422 [1992]). 2

Their motion for reconsideration having been denied, petitioners

seek relief from this Court contending that:chanroblesvirtual|
awlibrary

I. THE RESPONDENT CA ERRED IN DECLARING THAT RESPONDENT

NHA HAD ANY LEGAL BASIS FOR RESCINDING THE SALE
INVOLVING THE LAST THREE (3) PARCELS COVERED BY NHA
RESOLUTION NO. 1632.
II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL
BASIS TO RESCIND THE SUBJECT SALE, THE RESPONDENT CA
NONETHELESS ERRED IN DENYING HEREIN PETITIONERS’ CLAIM
TO DAMAGES, CONTRARY TO THE PROVISIONS OF ART. 1191 OF
THE CIVIL CODE.

III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT

COMPLAINT FINDING THAT THE PETITIONERS FAILED TO JOIN AS
INDISPENSABLE PARTY PLAINTIFF THE SELLING LOT-OWNERS. 3

We first resolve the issue raised in the third assignment of error.

Petitioners claim that they lodged the complaint not in behalf of

their principals but in their own name as agents directly damaged
by the termination of the contract. The damages prayed for were
intended not for the benefit of their principals but to indemnify
petitioners for the losses they themselves allegedly incurred as a
result of such termination. These damages consist mainly of
"unearned income" and advances. 4 Petitioners, thus, attempt to
distinguish the case at bar from those involving agents or
apoderados instituting actions in their own name but in behalf of
their principals. 5 Petitioners in this case purportedly brought the
action for damages in their own name and in their own behalf .

We find this contention unmeritorious.

Section 2, Rule 3 of the Rules of Court requires that every action

must be prosecuted and defended in the name of the real party-in-
interest. The real party-in-interest is the party who stands to be
benefited or injured by the judgment or the party entitled to the
avails of the suit. "Interest," within the meaning of the rule, means
material interest, an interest in the issue and to be affected by the
decree, as distinguished from mere interest in the question
involved, or a mere incidental interest. 6 Cases construing the real
party-in-interest provision can be more easily understood if it is
borne in mind that the true meaning of real party-in-interest may be
summarized as follows: An action shall be prosecuted in the name
of the party who, by the substantive law, has the right sought to be
enforced. 7

Do petitioners, under substantive law, possess the right they seek

to enforce? We rule in the negative.

The applicable substantive law in this case is Article 1311 of the Civil
Code, which states:chanrob1es virtual 1aw library

Contracts take effect only between the parties, their assigns, and
heirs, except in case where the rights and obligations arising from
the contract are not transmissible by their nature, or by stipulation,
or by provision of law. . .

If a contract should contain some stipulation in favor of a third

person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a favor upon a
third person. (Emphasis supplied.)

Petitioners are not parties to the contract of sale between their

principals and NHA. They are mere agents of the owners of the land
subject of the sale. As agents, they only render some service or do
something in representation or on behalf of their principals. 8 The
rendering of such service did not make them parties to the contracts
of sale executed in behalf of the latter. Since a contract may be
violated only by the parties thereto as against each other, the real
parties-in-interest, either as plaintiff or defendant, in an action upon
that contract must, generally, either be parties to said contract. 9

Neither has there been any allegation, much less proof, that
petitioners are the heirs of their principals.

Are petitioners assignees to the rights under the contracts of sale?

In McMicking v. Banco Español-Filipino, 10 we held that the rule
requiring every action to be prosecuted in the name of the real
party-in-interest
. . . recognizes the assignments of rights of action and also
recognizes that when one has a right of action assigned to him he is
then the real party in interest and may maintain an action upon
such claim or right. The purpose of [this rule] is to require the
plaintiff to be the real party in interest, or, in other words, he must
be the person to whom the proceeds of the action shall belong, and
to prevent actions by persons who have no interest in the result of
the same. . . .chanrobles virtual lawlibrary

Thus, an agent, in his own behalf, may bring an action founded on a

contract made for his principal, as an assignee of such contract. We
find the following declaration in Section 372 (1) of the Restatement
of the Law on Agency (Second): 11

SECTION 372. Agent as Owner of Contract Right. —

(1) Unless otherwise agreed, an agent who has or who acquires an

interest in a contract which he makes on behalf of his principal can,
although not a promisee, maintain such action thereon as might a
transferee having a similar interest.

The Comment on subsection (1) states:chanrob1es virtual 1aw

library

a. Agent a transferee. One who has made a contract on behalf of

another may become an assignee of the contract and bring suit
against the other party to it, as any other transferee. The customs
of business or the course of conduct between the principal and the
agent may indicate that an agent who ordinarily has merely a
security interest is a transferee of the principal’s rights under the
contract and as such is permitted to bring suit. If the agent has
settled with his principal with the understanding that he is to collect
the claim against the obligor by way of reimbursing himself for his
advances and commissions, the agent is in the position of an
assignee who is the beneficial owner of the chose in action. He has
an irrevocable power to sue in his principal’s name. . . And, under
the statutes which permit the real party in interest to sue, he can
maintain an action in his own name. This power to sue is not
affected by a settlement between the principal and the obligor if the
latter has notice of the agent’s interest. . . Even though the agent
has not settled with his principal, he may, by agreement with the
principal, have a right to receive payment and out of the proceeds
to reimburse himself for advances and commissions before turning
the balance over to the principal. In such a case, although there is
no formal assignment, the agent is in the position of a transferee of
the whole claim for security; he has an irrevocable power to sue in
his principal’s name and, under statutes which permit the real party
in interest to sue, he can maintain an action in his own name.

Petitioners, however, have not shown that they are assignees of

their principals to the subject contracts. While they alleged that they
made advances and that they suffered loss of commissions, they
have not established any agreement granting them "the right to
receive payment and out of the proceeds to reimburse [themselves]
for advances and commissions before turning the balance over to
the principal[s]."cralaw virtua1aw library

Finally, it does not appear that petitioners are beneficiaries of a

stipulation pour autrui under the second paragraph of Article 1311
of the Civil Code. Indeed, there is no stipulation in any of the Deeds
of Absolute Sale "clearly and deliberately" conferring a favor to any
third person.

That petitioners did not obtain their commissions or recoup their

advances because of the non-performance of the contract did not
entitle them to file the action below against respondent NHA.
Section 372 (2) of the Restatement of the Law on Agency (Second)
states:chanrob1es virtual 1aw library

(2) An agent does not have such an interest in a contract as to

entitle him to maintain an action at law upon it in his own name
merely because he is entitled to a portion of the proceeds as
compensation for making it or because he is liable for its
breach.chanroblesvirtuallawlibrary:red
The following Comment on the above subsection is
illuminating:chanrob1es virtual 1aw library

The fact that an agent who makes a contract for his principal will
gain or suffer loss by the performance or nonperformance of the
contract by the principal or by the other party thereto does not
entitle him to maintain an action on his own behalf against the other
party for its breach. An agent entitled to receive a commission from
his principal upon the performance of a contract which he has made
on his principal’s account does not, from this fact alone, have any
claim against the other party for breach of the contract, either in an
action on the contract or otherwise. An agent who is not a promisee
cannot maintain an action at law against a purchaser merely
because he is entitled to have his compensation or advances paid
out of the purchase price before payment to the principal. . .

Thus, in Hopkins v. Ives, 12 the Supreme Court of Arkansas, citing

Section 372 (2) above, denied the claim of a real estate broker to
recover his alleged commission against the purchaser in an
agreement to purchase property.

In Goduco v. Court of Appeals, 13 this Court held that:chanrob1es

virtual 1aw library

. . . granting that appellant had the authority to sell the property,

the same did not make the buyer liable for the commission she
claimed. At most, the owner of the property and the one who
promised to give her a commission should be the one liable to pay
the same and to whom the claim should have been directed. . .

As petitioners are not parties, heirs, assignees, or beneficiaries of a

stipulation pour autrui under the contracts of sale, they do not,
under substantive law, possess the right they seek to enforce.
Therefore, they are not the real parties-in-interest in this case.

Petitioners not being the real parties-in-interest, any decision

rendered herein would be pointless since the same would not bind
the real parties-in-interest. 14
Nevertheless, to forestall further litigation on the substantive
aspects of this case, we shall proceed to rule on the merits. 15

Petitioners submit that respondent NHA had no legal basis to

"rescind" the sale of the subject three parcels of land. The existence
of such legal basis, notwithstanding, petitioners argue that they are
still entitled to an award of damages.

Petitioners confuse the cancellation of the contract by the NHA as a

rescission of the contract under Article 1191 of the Civil Code. The
right of rescission or, more accurately, resolution, of a party to an
obligation under Article 1191 is predicated on a breach of faith by
the other party that violates the reciprocity between them. 16 The
power to rescind, therefore, is given to the injured party. 17 Article
1191 states:chanrob1es virtual 1aw library

The power to rescind obligations is implied in reciprocal ones, in

case one of the obligors should not comply with what is incumbent
upon him.

The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

In this case, the NHA did not rescind the contract. Indeed, it did not
have the right to do so for the other parties to the contract, the
vendors, did not commit any breach, much less a substantial
breach, 18 of their obligation. Their obligation was merely to deliver
the parcels of land to the NHA, an obligation that they fulfilled. The
NHA did not suffer any injury by the performance thereof.chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph

The cancellation, therefore, was not a rescission under Article 1191.

Rather, the cancellation was based on the negation of the cause
arising from the realization that the lands, which were the object of
the sale, were not suitable for housing.
Cause is the essential reason which moves the contracting parties to
enter into it. 19 In other words, the cause is the immediate, direct
and proximate reason which justifies the creation of an obligation
through the will of the contracting parties. 20 Cause, which is the
essential reason for the contract, should be distinguished from
motive, which is the particular reason of a contracting party which
does not affect the other party. 21

For example, in a contract of sale of a piece of land, such as in this

case, the cause of the vendor (petitioner’s principals) in entering
into the contract is to obtain the price. For the vendee, NHA, it is
the acquisition of the land. 22 The motive of the NHA, on the other
hand, is to use said lands for housing. This is apparent from the
portion of the Deeds of Absolute Sale 23 stating:chanrob1es virtual
1aw library

WHEREAS, under the Executive Order No. 90 dated December 17,

1986, the VENDEE is mandated to focus and concentrate its efforts
and resources in providing housing assistance to the lowest thirty
percent (30%) of urban income earners, thru slum upgrading and
development of sites and services projects;

WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended

by Letter of Instruction No. 630, prescribed slum improvement and
upgrading, as well as the development of sites and services as the
principal housing strategy for dealing with slum, squatter and other
blighted communities;

x x x

WHEREAS, the VENDEE, in pursuit of and in compliance with the

above-stated purposes offers to buy and the VENDORS, in a gesture
of their willing to cooperate with the above policy and commitments,
agree to sell the aforesaid property together with all the existing
improvements there or belonging to the VENDORS;
NOW, THEREFORE, for and in consideration of the foregoing
premises and the terms and conditions hereinbelow stipulated, the
VENDORS hereby, sell, transfer, cede and convey unto the VENDEE,
its assigns, or successors-in-interest, a parcel of land located at Bo.
Tadiangan, Tuba, Benguet containing a total area of FIFTY SIX
THOUSAND EIGHT HUNDRED NINETEEN (56,819) SQUARE METERS,
more or less . . .

Ordinarily, a party’s motives for entering into the contract do not

affect the contract. However, when the motive predetermines the
cause, the motive may be regarded as the cause. In Liguez v. Court
of Appeals, 24 this Court, speaking through Justice J.B.L. Reyes,
held:chanrob1es virtual 1aw library

. . . It is well to note, however, that Manresa himself (Vol. 8, pp.

641-642), while maintaining the distinction and upholding the
inoperativeness of the motives of the parties to determine the
validity of the contract, expressly excepts from the rule those
contracts that are conditioned upon the attainment of the motives of
either party.

The same view is held by the Supreme Court of Spain, in its

decisions of February 4, 1941, and December 4, 1946, holding that
the motive may be regarded as causa when it predetermines the
purpose of the contract.chanrobles lawlibrary : rednad

In this case, it is clear, and petitioners do not dispute, that NHA

would not have entered into the contract were the lands not suitable
for housing. In other words, the quality of the land was an implied
condition for the NHA to enter into the contract. On the part of the
NHA, therefore, the motive was the cause for its being a party to
the sale.

Were the lands indeed unsuitable for the housing as NHA claimed?

We deem the findings contained in the report of the Land

Geosciences Bureau dated 15 July 1991 sufficient basis for the
cancellation of the sale, thus:chanrob1es virtual 1aw library
In Tadiangan, Tuba, the housing site is situated in an area of
moderate topography. There [are] more areas of less sloping
ground apparently habitable. The site is underlain by . . . thick slide
deposits (4-45m) consisting of huge conglomerate boulders (see
Photo No. 2) mix[ed] with silty clay materials. These clay particles
when saturated have some swelling characteristics which is
dangerous for any civil structures especially mass housing
development.25cralaw:red

Petitioners content that the report was merely "preliminary," and

not conclusive, as indicated in its title:chanrob1es virtual 1aw
library

MEMORANDUM

TO: EDWIN G. DOMINGO

Chief, Lands Geology Division

FROM: ARISTOTLE A. RILLON

Geologist II

SUBJECT: Preliminary Assessment of

Tadiangan Housing Project in Tuba, Benguet 26

Thus, page 2 of the report states in part:chanrob1es virtual 1aw

library

x x x

Actually there is a need to conduct further geottechnical [sic]

studies in the NHA property. Standard Penetration Test (SPT) must
be carried out to give an estimate of the degree of compaction (the
relative density) of the slide deposit and also the bearing capacity of
the soil materials. Another thing to consider is the vulnerability of
the area to landslides and other mass movements due to thick soil
cover. Preventive physical mitigation methods such as surface and
subsurface drainage and regrading of the slope must be done in the
area. 27

We read the quoted portion, however, to mean only that further

tests are required to determine the "degree of compaction," "the
bearing capacity of the soil materials," and the "vulnerability of the
area to landslides," since the tests already conducted were
inadequate to ascertain such geological attributes. It is only in this
sense that the assessment was "preliminary."cralaw virtua1aw
library

Accordingly, we hold that the NHA was justified in cancelling the

contract. The realization of the mistake as regards the quality of the
land resulted in the negation of the motive/cause thus rendering the
contract inexistent. 28 Article 1318 of the Civil Code states
that:chanrob1es virtual 1aw library

ARTICLE 1318. There is no contract unless the following requisites

concur:chanrob1es virtual 1aw library

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

(Emphasis supplied.)

Therefore, assuming that petitioners are parties, assignees or

beneficiaries to the contract of sale, they would not be entitled to
any award of damages.

WHEREFORE, the instant petition is hereby DENIED.

SO ORDERED.
PRUDENTIAL BANK, petitioner,

vs.
THE COURT OF APPEALS, AURORA CRUZ, respondents.

Monique Q. Ignacio for petitioner.

Eduardo C. Tutaan for private respondent.

CRUZ, J.:

We deal here with another controversy involving the integrity of a bank.

The complaint in this case arose when private respondent Aurora F.

Cruz, * with her sister as co-depositor, invested P200,000.00 in Central Bank

bills with the Prudential Bank at its branch in Quezon Avenue, Quezon City,
on June 23, 1986. The placement was for 63 days at 13.75% annual interest.
For this purpose, the amount of P196,122.88 was withdrawn from the
depositors' Savings Account No. 2546 and applied to the investment. The
difference of P3,877.07 represented the pre-paid interest.

The transaction was evidenced by a Confirmation of Sale 1 delivered to Cruz

two days later, together with a Debit Memo 2 in the amount withdrawn and
applied to the confirmed sale. These documents were issued by Susan
Quimbo, the employee of the bank to whom Cruz was referred and who was
apparently in charge of such transactions.3

Upon maturity of the placement on August 25, 1986, Cruz returned to the
bank to "roll-over" or renew her investment. Quimbo, who again attended to
her, prepared a Credit Memo4 crediting the amount of P200,000.00 in Cruz's
savings account passbook. She also prepared a Debit Memo for the amount
of P196,122.88 to cover the re-investment of P200,000.00 minus the prepaid
interest of P3,877.02.5

This time, Cruz was asked to sign a Withdrawal Slip6 for P196,122.98,
representing the amount to be re-invested after deduction of the prepaid
interest. Quimbo explained this was a new requirement of the bank. Several
days later, Cruz received another Confirmation of Sale7 and a copy of the
Debit Memo.8

On October 27, 1986, Cruz returned to the bank and sought to withdraw her
P200,000.00. After verification of her records, however, she was informed that
the investment appeared to have been already withdrawn by her on August
25, 1986. There was no copy on file of the Confirmation of Sale and the Debit
Memo allegedly issued to her by Quimbo. Quimbo herself was not available
for questioning as she had not been reporting for the past week. Shocked by
this information, Cruz became hysterical and burst into tears. The branch
manager, Roman Santos, assured her that he would look into the matter.9
Cruz's reaction was to file a complaint for breach of contract against
Prudential Bank in the Regional Trial Court of Quezon City. She demanded
the return of her money with interest, plus damages and attorney's fees. In its
answer, the bank denied liability, insisting that Cruz had withdrawn her
investment. The bank also instituted a third-party complaint against Quimbo,
who did not file an answer and was declared in default. 15 The bank, however,
did not present any evidence against her.

After trial, Judge Rodolfo A. Ortiz rendered judgment in favor of the plaintiffs
and disposed as follows:

ACCORDINGLY, judgment is hereby rendered ordering the defendant/third-

party plaintiff to pay to the plaintiffs the following amounts:

1. P200,000.00, plus interest thereon at the rate of 13.75% per annum from
October 27, 1986, until fully paid;
2. P30,000.00, as moral damages;

3. P20,000.00, as exemplary damages; and

4. P25,000.00, as reasonable attorney's fees.

The counterclaim and the third-party complaint of the defendant/third-party

plaintiff are dismissed.

With costs against the defendant/third-party plaintiff.

The decision was affirmed in toto on appeal to the respondent court.

The judgment of the Court of Appeals 16 is now faulted in this petition, mainly
on the ground that the bank should not have been found liable for a quasi-
delict when it was sued for breach of contract.

The petition shall fail. The petitioner is quibbling. It appears to be merely

temporizing to delay enforcement of the liability clearly established against it.

The basic issues are factual. The private respondent claims she has not yet
collected her investment of P200,000.00 and has submitted in proof of their
contention the Confirmation of Sale and the Debit Memo issued to her by
Quimbo on the official forms of the bank. The petitioner denies her claim and
points to the Withdrawal Slip, which it says Cruz has not denied having
signed. It also contends that the Confirmation of Sale and the Debit Memo are
fake and should not have been given credence by the lower courts.

The findings of the trial court on these issues have been affirmed by the
respondent court and we see no reason to disturb them. The petitioner has
not shown that they have been reached arbitrarily or in disregard of the
evidence of record. On the contrary, we find substantial basis for the
conclusion that the private respondents signed the Withdrawal Slip only as
part of the bank's new procedure of re-investment. She did not actually
receive the amount indicated therein, which she was made to understand was
being re-invested in her name. The bank itself so assured her in the
Confirmation of Sale and the Debit Memo later issued to her by Quimbo.

Especially persuasive are the following observations of the trial court: 17

What is more, it could not be that plaintiff Aurora F. Cruz withdrew only the
amount of P196,122.98 from their savings account, if her only intention was to
make such a withdrawal. For, if, indeed, it was the desire of the plaintiffs to
withdraw their money from the defendant/third-party plaintiff, they could have
withdrawn an amount in round figures. Certainly, it is unbelievable that their
withdrawal was in the irregular amount of P196,122.98 if they really received
it. On the contrary, this amount, which is the price of the Central Bank bills
rolled over, indicates that, as claimed by plaintiff Aurora F. Cruz, she did not
receive this money, but it was left by her with the defendant/third-party plaintiff
in order to buy Central Bank bills placement for another sixty-three (63) days,
for which she signed a withdrawal slip at the instance of third-party defendant
Susan Quimbo who told her that it was a new bank requirement for the roll-
over of a matured placement which she trustingly believed.

Indeed, the bank has not explained the remarkable coincidence that the
amount indicated in the withdrawal slip is exactly the same amount Cruz was
re-investing after deducting therefrom the pre-paid interest.

The bank has also not, succeeded in impugning the authenticity of the
Confirmation of Sale and the Debit Memo which were made on its official,
forms. These are admittedly not available to the general public or even its
depositors and are handled only by its personnel. Even assuming that they
were not signed by its authorized officials, as it claims, there was no obligation
on the part of Cruz to verify their authority because she had the right to
presume it. The documents had been issued in the office of the bank itself and
by its own employees with whom she had previously dealt. Such dealings had
not been questioned before, much leas invalidated. There was absolutely no
reason why she should not have accepted their authority to act on behalf of
their employer.

It is also worthy of note — and wonder — that although the bank impleaded
Quimbo in a third-party complaint, it did not pursue its suit even when she
failed to answer and was declared in default. The bank did not introduce
evidence against her although it could have done so under the rules. No less
remarkably, it did not call on her to testify on its behalf, considering that under
the circumstances claimed by it, she would have been the best witness to
show that Cruz had actually withdrawn her P200,000.00 placement. Instead,
the bank chose to rely on its other employees whose testimony was less direct
and categorical than the testimony Quimbo could have given.
We do not find that the Court of Appeals held the bank liable on a quasi-delict.
The argument of the petitioner on this issue is pallid, to say the least,
consisting as it does only of the observation that the article cited by the
respondent court on the agent's liability falls under the heading in the Civil
Code on quasi-delicts. On the other hand, the respondent court clearly
declared that:

The defendant/third-party plaintiff being liable for the return of the

P200,000.00 placement of the plaintiffs, the extent of the liability of the
defendant/third-party plaintiff for damages resultant thereof, which is
contractual, is for all damages which may be reasonably attributed to the non-
performance of the obligation, . . .

xxx xxx xxx

Because of the bad faith of the defendant/third-party plaintiff in its breach of its
contract with the plaintiffs, the latter are, therefore, entitled to an award of
moral damages . . . (Emphasis supplied)

There is no question that the petitioner was made liable for its failure or refusal
to deliver to Cruz the amount she had deposited with it and which she had a
right to withdraw upon its maturity. That investment was acknowledged by its
own employees, who had the apparent authority to do so and so could legally
bind it by its acts vis-a-vis Cruz. Whatever might have happened to the
investment — whether it was lost or stolen by whoever — was not the concern
of the depositor. It was the concern of the bank.

As far as Cruz was concerned, she had the right to withdraw her P200,000.00
placement when it matured pursuant to the terms of her investment as
acknowledged and reflected in the Confirmation of Sale. The failure of the
bank to deliver the amount to her pursuant to the Confirmation of Sale
constituted its breach of their contract, for which it should be held liable.

The liability of the principal for the acts of the agent is not even debatable.
Law and jurisprudence are clearly and absolutely against the petitioner.

Such liability dates back to the Roman Law maxim, Qui per alium facit per
seipsum facere videtur. "He who does a thing by an agent is considered as
doing it himself." This rule is affirmed by the Civil Code thus:

Art. 1910. The principal must comply with all the obligations which the agent
may have contracted within the scope of his authority.

Art. 1911. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though
he had full powers.
Conformably, we have declared in countless decisions that the principal is
liable for obligations contracted by the agent. The agent's apparent
representation yields to the principal's true representation and the contract is
considered as entered into between the principal and the third person. 18

A bank is liable for wrongful acts of its officers done in the interests of the
bank or in the course of dealings of the officers in their representative capacity
but not for acts outside the scope of their authority. (9 c.q.s. p. 417) A bank
holding out its officers and agent as worthy of confidence will not be permitted
to profit by the frauds they may thus be enabled to perpetrate in the apparent
scope of their employment; nor will it be permitted to shirk its responsibility for
such frauds, even though no benefit may accrue to the bank therefrom (10 Am
Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third
persons where the representation is made in the course of its business by an
agent acting within the general scope of his authority even though, in the
particular case, the agent is secretly abusing his authority and attempting to
perpetrate a fraud upon his principal or some other person, for his own
ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40
ALR 1021.)

Application of these principles in especially necessary because banks have a

fiduciary relationship with the public and their stability depends on the
confidence of the people in their honesty and efficiency. Such faith will be
eroded where banks do not exercise strict care in the selection and
supervision of its employees, resulting in prejudice to their depositors.

It would appear from the facts established in the case before us that the
petitioner was less than eager to present Quimbo at the trial or even to
establish her liability although it made the initial effort — which it did not
pursue — to hold her answerable in the third-party complaint. What ever
happened to her does not appear in the record. Her absence from the
proceedings feeds the suspicion of her possible misdeed, which the bank
seems to have studiously ignored by its insistence that the missing money had
been actually withdrawn by Cruz. By such insistence, the bank is absolving
not only itself but also, in effect and by extension, the disappeared Quimbo
who apparently has much to explain.

We agree with the lower courts that the petitioner acted in bad faith in denying
Cruz the obligation she was claiming against it. It was obvious that an
irregularity had been committed by the bank's personnel, but instead of
repairing the injury to Cruz by immediately restoring her money to her, it
sought to gloss over the anomaly in its own operations.

Cruz naturally suffered anxious moments and mental anguish over the loss of
the investment. The amount of P200,000.00 is not small even by present
standards. By unjustly withholding it from her on the unproved defense that
she had already withdrawn it, the bank violated the trust she had reposed in it
and thus subjected itself to further liability for moral and exemplary damages.

If a person dealing with a bank does not read the fine print in the contract, it is
because he trusts the bank and relies on its integrity. The ordinary customer
applying for a loan or even making a deposit (and so himself extending the
loan to the bank) does not bother with the red tape requirements and the
finicky conditions in the documents he signs. His feeling is that he does not
have to be wary of the bank because it will deal with him fairly and there is no
reason to suspect its motives. This is an attitude the bank must justify.

While this is not to say that bank regulations are meaningless or have no
binding effect, they should, however, not be used for covering up the fault of
bank employees when they blunder or, worse, intentionally cheat him. The
misdeeds of such employees must be readily acknowledged and rectified
without delay. The bank must always act in good faith. The ordinary customer
does not feel the need for a lawyer by his side every time he deals with a bank
because he is certain that it is not a predator or a potential adversary. The
bank should show that there is really no reason for any apprehension because
it truly deserves his faith in it.

WHEREFORE, the petition is DENIED and the appealed decision is

AFFIRMED, with costs against the petitioner. It is so ordered.

Griño-Aquino, Bellosillo and Quiason, JJ., concur.

Every day thereafter, Cruz went to the bank to inquire about her request to
withdraw her investment. She received no definite answer, not even to the
letter she wrote the bank which was received by Santos himself. 10 Finally,
Cruz sent the bank a demand letter dated November 12, 1986 for the amount
of P200,000.00 plus interest. 11 In a reply dated November 20, 1986, the
bank's Vice President Lauro J. Jocson said that there appeared to be an
anomaly

and requested Cruz to defer court action as they hoped to settle the matter
amicably. 12 Increasingly worried, Cruz sent another letter reiterating her
demand. 13 This time the reply of the bank was unequivocal and negative. She
was told that her request had to be denied because she had already
withdrawn the amount she was claiming. 14

G.R. No. 144805 June 8, 2006

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,

vs.

ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES

CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK & TRUST
COMPANY, Respondents.
DECISION

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision 1 of the Court
of Appeals (CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the
Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887,
as well as the Resolution 2 of the CA denying the motion for reconsideration
thereof.

The Eternit Corporation (EC) is a corporation duly organized and registered

under Philippine laws. Since 1950, it had been engaged in the manufacture of
roofing materials and pipe products. Its manufacturing operations were
conducted on eight parcels of land with a total area of 47,233 square meters.
The properties, located in Mandaluyong City, Metro Manila, were covered by
Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121,
451122, 451124 and 451125 under the name of Far East Bank & Trust
Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were
owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized
and registered under the laws of Belgium. 3 Jack Glanville, an Australian
citizen, was the General Manager and President of EC, while Claude
Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their
offices in Belgium.

In 1986, the management of ESAC grew concerned about the political

situation in the Philippines and wanted to stop its operations in the country.
The Committee for Asia of ESAC instructed Michael Adams, a member of
EC’s Board of Directors, to dispose of the eight parcels of land. Adams
engaged the services of realtor/broker Lauro G. Marquez so that the
properties could be offered for sale to prospective buyers. Glanville later
showed the properties to Marquez.

Marquez thereafter offered the parcels of land and the improvements thereon
to Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated
September 12, 1986, Marquez declared that he was authorized to sell the
properties for P27,000,000.00 and that the terms of the sale were subject to
negotiation.4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to
Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua
siblings offered to buy the property for P20,000,000.00 cash. Marquez
apprised Glanville of the Litonjua siblings’ offer and relayed the same to
Delsaux in Belgium, but the latter did not respond. On October 28, 1986,
Glanville telexed Delsaux in Belgium, inquiring on his position/
counterproposal to the offer of the Litonjua siblings. It was only on February
12, 1987 that Delsaux sent a telex to Glanville stating that, based on the
"Belgian/Swiss decision," the final offer was "US$1,000,000.00 and
P2,500,000.00 to cover all existing obligations prior to final liquidation." 5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by
Delsaux. Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez
conferred with Glanville, and in a Letter dated February 26, 1987, confirmed
that the Litonjua siblings had accepted the counter-proposal of Delsaux. He
also stated that the Litonjua siblings would confirm full payment within 90 days
after execution and preparation of all documents of sale, together with the
necessary governmental clearances.6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the

Security Bank & Trust Company, Ermita Branch, and drafted an Escrow
Agreement to expedite the sale.7

Sometime later, Marquez and the Litonjua brothers inquired from Glanville
when the sale would be implemented. In a telex dated April 22, 1987, Glanville
informed Delsaux that he had met with the buyer, which had given him the
impression that "he is prepared to press for a satisfactory conclusion to the
sale."8 He also emphasized to Delsaux that the buyers were concerned
because they would incur expenses in bank commitment fees as a
consequence of prolonged period of inaction.9

Meanwhile, with the assumption of Corazon C. Aquino as President of the

Republic of the Philippines, the political situation in the Philippines had
improved. Marquez received a telephone call from Glanville, advising that the
sale would no longer proceed. Glanville followed it up with a Letter dated May
7, 1987, confirming that he had been instructed by his principal to inform
Marquez that "the decision has been taken at a Board Meeting not to sell the
properties on which Eternit Corporation is situated."10

Delsaux himself later sent a letter dated May 22, 1987, confirming that the
ESAC Regional Office had decided not to proceed with the sale of the subject
land, to wit:

May 22, 1987

Mr. L.G. Marquez

L.G. Marquez, Inc.

334 Makati Stock Exchange Bldg.

6767 Ayala Avenue

Makati, Metro Manila

Philippines

Dear Sir:
Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to
proceed with the sale of the land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every
six months) and examined the position as far as the Philippines are
(sic) concerned. Considering [the] new political situation since the
departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations
in Manila. In fact, production has started again last week, and (sic)
to recognize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in
case the policy would change at a later state, we would consult you
again.

xxx
 Yours sincerely,

(Sgd.)

C.F. DELSAUX

cc. To: J. GLANVILLE (Eternit Corp.)11

When apprised of this development, the Litonjuas, through counsel, wrote EC,
demanding payment for damages they had suffered on account of the aborted
sale. EC, however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and damages
against EC (now the Eterton Multi-Resources Corporation) and the Far East
Bank & Trust Company, and ESAC in the RTC of Pasig City. An amended
complaint was filed, in which defendant EC was substituted by Eterton Multi-
Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and
Deogracias G. Eufemio were impleaded as additional defendants on account
of their purchase of ESAC shares of stocks and were the controlling
stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since

Eteroutremer was not doing business in the Philippines, it cannot be subject to
the jurisdiction of Philippine courts; the Board and stockholders of EC never
approved any resolution to sell subject properties nor authorized Marquez to
sell the same; and the telex dated October 28, 1986 of Jack Glanville was his
own personal making which did not bind EC.

On July 3, 1995, the trial court rendered judgment in favor of defendants and
dismissed the amended complaint.12 The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-
Resources Corporation and Eteroutremer, S.A. is dismissed on the ground
that there is no valid and binding sale between the plaintiffs and said
defendants.

The complaint as against Far East Bank and Trust Company is likewise
dismissed for lack of cause of action.

The counterclaim of Eternit Corporation now Eterton Multi-Resources

Corporation and Eteroutremer, S.A. is also dismissed for lack of merit.13

The trial court declared that since the authority of the agents/realtors was not
in writing, the sale is void and not merely unenforceable, and as such, could
not have been ratified by the principal. In any event, such ratification cannot
be given any retroactive effect. Plaintiffs could not assume that defendants
had agreed to sell the property without a clear authorization from the
corporation concerned, that is, through resolutions of the Board of Directors
and stockholders. The trial court also pointed out that the supposed sale
involves substantially all the assets of defendant EC which would result in the
eventual total cessation of its operation.14

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower
court erred in concluding that the real estate broker in the instant case needed
a written authority from appellee corporation and/or that said broker had no
such written authority; and (2) the lower court committed grave error of law in
holding that appellee corporation is not legally bound for specific performance
and/or damages in the absence of an enabling resolution of the board of
directors."15 They averred that Marquez acted merely as a broker or go-
between and not as agent of the corporation; hence, it was not necessary for
him to be empowered as such by any written authority. They further claimed
that an agency by estoppel was created when the corporation clothed
Marquez with apparent authority to negotiate for the sale of the properties.
However, since it was a bilateral contract to buy and sell, it was equivalent to
a perfected contract of sale, which the corporation was obliged to
consummate.

In reply, EC alleged that Marquez had no written authority from the Board of
Directors to bind it; neither were Glanville and Delsaux authorized by its board
of directors to offer the property for sale. Since the sale involved substantially
all of the corporation’s assets, it would necessarily need the authority from the
stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision of the
RTC. 16 The Litonjuas filed a motion for reconsideration, which was also
denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a special agent
within the purview of Article 1874 of the New Civil Code. Under Section 23 of
the Corporation Code, he needed a special authority from EC’s board of
directors to bind such corporation to the sale of its properties. Delsaux, who
was merely the representative of ESAC (the majority stockholder of EC) had
no authority to bind the latter. The CA pointed out that Delsaux was not even a
member of the board of directors of EC. Moreover, the Litonjuas failed to
prove that an agency by estoppel had been created between the parties.

In the instant petition for review, petitioners aver that

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE

WAS NO PERFECTED CONTRACT OF SALE.

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW

IN HOLDING THAT MARQUEZ NEEDED A WRITTEN
 AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE
SALE CAN BE PERFECTED.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT

GLANVILLE AND DELSAUX HAVE THE NECESSARY
AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE
VERY LEAST, WERE KNOWINGLY PERMITTED BY
RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF
AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO
THE PUBLIC AS POSSESSING POWER TO SELL THE SAID
PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was a
perfected contract of sale of the parcels of land and the improvements thereon
for "US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final
liquidation." Petitioners insist that they had accepted the counter-offer of
respondent EC and that before the counter-offer was withdrawn by
respondents, the acceptance was made known to them through real estate
broker Marquez.

Petitioners assert that there was no need for a written authority from the Board
of Directors of EC for Marquez to validly act as
broker/middleman/intermediary. As broker, Marquez was not an ordinary
agent because his authority was of a special and limited character in most
respects. His only job as a broker was to look for a buyer and to bring together
the parties to the transaction. He was not authorized to sell the properties or to
make a binding contract to respondent EC; hence, petitioners argue, Article
1874 of the New Civil Code does not apply.
In any event, petitioners aver, what is important and decisive was that
Marquez was able to communicate both the offer and counter-offer and their
acceptance of respondent EC’s counter-offer, resulting in a perfected contract
of sale.

Petitioners posit that the testimonial and documentary evidence on record

amply shows that Glanville, who was the President and General Manager of
respondent EC, and Delsaux, who was the Managing Director for ESAC Asia,
had the necessary authority to sell the subject property or, at least, had been
allowed by respondent EC to hold themselves out in the public as having the
power to sell the subject properties. Petitioners identified such evidence, thus:

1. The testimony of Marquez that he was chosen by Glanville as the then

President and General Manager of Eternit, to sell the properties of said
corporation to any interested party, which authority, as hereinabove
discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties
spanned SEVERAL MONTHS, from 1986 to 1987;

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its

properties to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the

properties as evidenced by the Petitioners’ ACCEPTANCE of the counter-
offer;

5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with

the Security Bank and that an ESCROW agreement was drafted over the
subject properties;

6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL

IMPLEMENT ACTION TO BUY AND SELL";

7. More importantly, Exhibits "G" and "H" of the Respondents, which

evidenced the fact that Petitioners’ offer was allegedly REJECTED by both
Glanville and Delsaux.18

Petitioners insist that it is incongruous for Glanville and Delsaux to make a

counter-offer to petitioners’ offer and thereafter reject such offer unless they
were authorized to do so by respondent EC. Petitioners insist that Delsaux
confirmed his authority to sell the properties in his letter to Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to
proceed with the sale of the land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every
six months) and examined the position as far as the Philippines are
(sic) concerned. Considering the new political situation since the
departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations
in Manila[.] [I]n fact production started again last week, and (sic) to
reorganize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in
case the policy would change at a later stage we would consult you
again.

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX19
Petitioners further emphasize that they acted in good faith when Glanville and
Delsaux were knowingly permitted by respondent EC to sell the properties
within the scope of an apparent authority. Petitioners insist that respondents
held themselves to the public as possessing power to sell the subject
properties.

By way of comment, respondents aver that the issues raised by the petitioners
are factual, hence, are proscribed by Rule 45 of the Rules of Court. On the
merits of the petition, respondents EC (now EMC) and ESAC reiterate their
submissions in the CA. They maintain that Glanville, Delsaux and Marquez
had no authority from the stockholders of respondent EC and its Board of
Directors to offer the properties for sale to the petitioners, or to any other
person or entity for that matter. They assert that the decision and resolution of
the CA are in accord with law and the evidence on record, and should be
affirmed in toto.

Petitioners aver in their subsequent pleadings that respondent EC, through

Glanville and Delsaux, conformed to the written authority of Marquez to sell
the properties. The authority of Glanville and Delsaux to bind respondent EC
is evidenced by the fact that Glanville and Delsaux negotiated for the sale of
90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given the
significance of their positions and their duties in respondent EC at the time of
the transaction, and the fact that respondent ESAC owns 90% of the shares of
stock of respondent EC, a formal resolution of the Board of Directors would be
a mere ceremonial formality. What is important, petitioners maintain, is that
Marquez was able to communicate the offer of respondent EC and the
petitioners’ acceptance thereof. There was no time that they acted without the
knowledge of respondents. In fact, respondent EC never repudiated the acts
of Glanville, Marquez and Delsaux.
The petition has no merit.

Anent the first issue, we agree with the contention of respondents that the
issues raised by petitioner in this case are factual. Whether or not Marquez,
Glanville, and Delsaux were authorized by respondent EC to act as its agents
relative to the sale of the properties of respondent EC, and if so, the
boundaries of their authority as agents, is a question of fact. In the absence of
express written terms creating the relationship of an agency, the existence of
an agency is a fact question.20 Whether an agency by estoppel was created or
whether a person acted within the bounds of his apparent authority, and
whether the principal is estopped to deny the apparent authority of its agent
are, likewise, questions of fact to be resolved on the basis of the evidence on
record.21 The findings of the trial court on such issues, as affirmed by the CA,
are conclusive on the Court, absent evidence that the trial and appellate
courts ignored, misconstrued, or misapplied facts and circumstances of
substance which, if considered, would warrant a modification or reversal of the
outcome of the case.22
It must be stressed that issues of facts may not be raised in the Court under
Rule 45 of the Rules of Court because the Court is not a trier of facts. It is not
to re-examine and assess the evidence on record, whether testimonial and
documentary. There are, however, recognized exceptions where the Court
may delve into and resolve factual issues, namely:

(1) When the conclusion is a finding grounded entirely on speculations,

surmises, or conjectures; (2) when the inference made is manifestly mistaken,
absurd, or impossible; (3) when there is grave abuse of discretion; (4) when
the judgment is based on a misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to the admissions of
both appellant and appellee; (7) when the findings of the Court of Appeals are
contrary to those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) when the
Court of Appeals manifestly overlooked certain relevant facts not disputed by
the parties, which, if properly considered, would justify a different conclusion;
and (10) when the findings of fact of the Court of Appeals are premised on the
absence of evidence and are contradicted by the evidence on record.23

We have reviewed the records thoroughly and find that the petitioners failed to
establish that the instant case falls under any of the foregoing exceptions.
Indeed, the assailed decision of the Court of Appeals is supported by the
evidence on record and the law.

It was the duty of the petitioners to prove that respondent EC had decided to
sell its properties and that it had empowered Adams, Glanville and Delsaux or
Marquez to offer the properties for sale to prospective buyers and to accept
any counter-offer. Petitioners likewise failed to prove that their counter-offer
had been accepted by respondent EC, through Glanville and Delsaux. It must
be stressed that when specific performance is sought of a contract made with
an agent, the agency must be established by clear, certain and specific
proof.24

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation

Code of the Philippines, provides:

SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in

this Code, the corporate powers of all corporations formed under this Code
shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be
elected from among the holders of stocks, or where there is no stock, from
among the members of the corporation, who shall hold office for one (1) year
and until their successors are elected and qualified.

Indeed, a corporation is a juridical person separate and distinct from its

members or stockholders and is not affected by the personal rights,
obligations and transactions of the latter.25 It may act only through its board of
directors or, when authorized either by its by-laws or by its board resolution,
through its officers or agents in the normal course of business. The general
principles of agency govern the relation between the corporation and its
officers or agents, subject to the articles of incorporation, by-laws, or relevant
provisions of law.26

Under Section 36 of the Corporation Code, a corporation may sell or convey

its real properties, subject to the limitations prescribed by law and the
Constitution, as follows:

SEC. 36. Corporate powers and capacity. – Every corporation incorporated

under this Code has the power and capacity:

xxxx

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge,

mortgage and otherwise deal with such real and personal property, including
securities and bonds of other corporations, as the transaction of a lawful
business of the corporation may reasonably and necessarily require, subject
to the limitations prescribed by the law and the Constitution.

The property of a corporation, however, is not the property of the stockholders

or members, and as such, may not be sold without express authority from the
board of directors.27 Physical acts, like the offering of the properties of the
corporation for sale, or the acceptance of a counter-offer of prospective
buyers of such properties and the execution of the deed of sale covering such
property, can be performed by the corporation only by officers or agents duly
authorized for the purpose by corporate by-laws or by specific acts of the
board of directors.28 Absent such valid delegation/authorization, the rule is that
the declarations of an individual director relating to the affairs of the
corporation, but not in the course of, or connected with, the performance of
authorized duties of such director, are not binding on the corporation.29

While a corporation may appoint agents to negotiate for the sale of its real
properties, the final say will have to be with the board of directors through its
officers and agents as authorized by a board resolution or by its by-laws.30 An
unauthorized act of an officer of the corporation is not binding on it unless the
latter ratifies the same expressly or impliedly by its board of directors. Any
sale of real property of a corporation by a person purporting to be an agent
thereof but without written authority from the corporation is null and void. The
declarations of the agent alone are generally insufficient to establish the fact
or extent of his/her authority.31

By the contract of agency, a person binds himself to render some service or to

do something in representation on behalf of another, with the consent or
authority of the latter.32 Consent of both principal and agent is necessary to
create an agency. The principal must intend that the agent shall act for him;
the agent must intend to accept the authority and act on it, and the intention of
the parties must find expression either in words or conduct between them.33

An agency may be expressed or implied from the act of the principal, from his
silence or lack of action, or his failure to repudiate the agency knowing that
another person is acting on his behalf without authority. Acceptance by the
agent may be expressed, or implied from his acts which carry out the agency,
or from his silence or inaction according to the circumstances. 34 Agency may
be oral unless the law requires a specific form. 35 However, to create or convey
real rights over immovable property, a special power of attorney is
necessary.36 Thus, when a sale of a piece of land or any portion thereof is
through an agent, the authority of the latter shall be in writing, otherwise, the
sale shall be void.37

In this case, the petitioners as plaintiffs below, failed to adduce in evidence

any resolution of the Board of Directors of respondent EC empowering
Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for
and in its behalf, the eight parcels of land owned by respondent EC including
the improvements thereon. The bare fact that Delsaux may have been
authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on
June 1, 1997, cannot be used as basis for petitioners’ claim that he had
likewise been authorized by respondent EC to sell the parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville acted
on the authority of Delsaux, who, in turn, acted on the authority of respondent
ESAC, through its Committee for Asia, 38 the Board of Directors of respondent
ESAC,39 and the Belgian/Swiss component of the management of respondent
ESAC.40 As such, Adams and Glanville engaged the services of Marquez to
offer to sell the properties to prospective buyers. Thus, on September 12,
1986, Marquez wrote the petitioner that he was authorized to offer for sale the
property for P27,000,000.00 and the other terms of the sale subject to
negotiations. When petitioners offered to purchase the property for
P20,000,000.00, through Marquez, the latter relayed petitioners’ offer to
Glanville; Glanville had to send a telex to Delsaux to inquire the position of
respondent ESAC to petitioners’ offer. However, as admitted by petitioners in
their Memorandum, Delsaux was unable to reply immediately to the telex of
Glanville because Delsaux had to wait for confirmation from respondent
ESAC.41 When Delsaux finally responded to Glanville on February 12, 1987,
he made it clear that, based on the "Belgian/Swiss decision" the final offer of
respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all
existing obligations prior to final liquidation. 42 The offer of Delsaux emanated
only from the "Belgian/Swiss decision," and not the entire management or
Board of Directors of respondent ESAC. While it is true that petitioners
accepted the counter-offer of respondent ESAC, respondent EC was not a
party to the transaction between them; hence, EC was not bound by such
acceptance.
While Glanville was the President and General Manager of respondent EC,
and Adams and Delsaux were members of its Board of Directors, the three
acted for and in behalf of respondent ESAC, and not as duly authorized
agents of respondent EC; a board resolution evincing the grant of such
authority is needed to bind EC to any agreement regarding the sale of the
subject properties. Such board resolution is not a mere formality but is a
condition sine qua non to bind respondent EC. Admittedly, respondent ESAC
owned 90% of the shares of stocks of respondent EC; however, the mere fact
that a corporation owns a majority of the shares of stocks of another, or even
all of such shares of stocks, taken alone, will not justify their being treated as
one corporation.43

It bears stressing that in an agent-principal relationship, the personality of the

principal is extended through the facility of the agent. In so doing, the agent,
by legal fiction, becomes the principal, authorized to perform all acts which the
latter would have him do. Such a relationship can only be effected with the
consent of the principal, which must not, in any way, be compelled by law or
by any court.44

The petitioners cannot feign ignorance of the absence of any regular and valid
authority of respondent EC empowering Adams, Glanville or Delsaux to offer
the properties for sale and to sell the said properties to the petitioners. A
person dealing with a known agent is not authorized, under any
circumstances, blindly to trust the agents; statements as to the extent of his
powers; such person must not act negligently but must use reasonable
diligence and prudence to ascertain whether the agent acts within the scope
of his authority.45 The settled rule is that, persons dealing with an assumed
agent are bound at their peril, and if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them
to prove it.46 In this case, the petitioners failed to discharge their burden;
hence, petitioners are not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners
but also as their agent. As gleaned from the letter of Marquez to Glanville, on
February 26, 1987, he confirmed, for and in behalf of the petitioners, that the
latter had accepted such offer to sell the land and the improvements thereon.
However, we agree with the ruling of the appellate court that Marquez had no
authority to bind respondent EC to sell the subject properties. A real estate
broker is one who negotiates the sale of real properties. His business,
generally speaking, is only to find a purchaser who is willing to buy the land
upon terms fixed by the owner. He has no authority to bind the principal by
signing a contract of sale. Indeed, an authority to find a purchaser of real
property does not include an authority to sell.47

Equally barren of merit is petitioners’ contention that respondent EC is

estopped to deny the existence of a principal-agency relationship between it
and Glanville or Delsaux. For an agency by estoppel to exist, the following
must be established: (1) the principal manifested a representation of the
agent’s authority or knowlingly allowed the agent to assume such authority; (2)
the third person, in good faith, relied upon such representation; (3) relying
upon such representation, such third person has changed his position to his
detriment.48 An agency by estoppel, which is similar to the doctrine of
apparent authority, requires proof of reliance upon the representations, and
that, in turn, needs proof that the representations predated the action taken in
reliance.49 Such proof is lacking in this case. In their communications to the
petitioners, Glanville and Delsaux positively and unequivocally declared that
they were acting for and in behalf of respondent ESAC.

Neither may respondent EC be deemed to have ratified the transactions

between the petitioners and respondent ESAC, through Glanville, Delsaux
and Marquez. The transactions and the various communications inter se were
never submitted to the Board of Directors of respondent EC for ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit.
Costs against the petitioners.

SO ORDERED.

DIGEST:
A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public
instrument shall be necessary.

FACTS Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent

Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal dispute between
them started when, Aurelio filed a suit against his brother Eduardo and herein
respondent Robert T. Yang (Yang) and several corporations for specific
performance and accounting. In his complaint, Aurelio alleged that, since June
1973, he and Eduardo are into a joint venture/partnership arrangement in the
Odeon Theater business which had expanded thru investment in Cineplex,
Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of
Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings,
among other corporations. Yang is described in the complaint as petitioner's
and Eduardo's partner in their Odeon Theater investment.

ISSUE Whether petitioner and respondent Eduardo are partners in the

theatre, shipping and realty business, as one claims but which the other
denies
RULING A partnership exists when two or more persons agree to place their
money, effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits and
losses between them. A contract of partnership is defined by the Civil Code as
one where two or more persons bound themselves to contribute money,
property, or industry to a common fund with the intention of dividing the profits
among themselves. A joint venture, on the other hand, is hardly
distinguishable from, and may be likened to, a partnership since their
elements are similar, i.e., community of interests in the business and sharing
of profits and losses. Being a form of partnership, a joint venture is generally
governed by the law on partnership. Foremost of these are the following
provisions of the Civil Code: Art. 1771. A partnership may be constituted in
any form, except where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary. Art. 1772. Every
contract of partnership having a capital of three thousand pesos or more, in
money or property, shall appear in a public instrument, which must be
recorded in the Office of the Securities and Exchange Commission. Failure to
comply with the requirement of the preceding paragraph shall not affect the
liability of the partnership and the members thereof to third persons. Art. 1773.
A contract of partnership is void, whenever immovable property is contributed
thereto, if an inventory of said property is not made, signed by the parties, and
attached to the public instrument.

Annex ' A-1 ', on its face, contains typewritten entries, personal in tone, but is
unsigned and undated. As an unsigned document, there can be no quibbling
that Annex ' A-1 does not meet the public instrumentation requirements
exacted under Article 1771 of the Civil Code. Moreover, being unsigned and
doubtless referring to a partnership involving more than P3,000.00 in money
or property, Annex ' A-1 cannot be presented for notarization, let alone
registered with the Securities and Exchange Commission (SEC), as called for
under the Article 1772 of the Code. And inasmuch as the inventory
requirement under the succeeding Article 1773 goes into the matter of validity
when immovable property is contributed to the partnership, the next logical
point of inquiry turns on the nature of petitioner's contribution, if any, to the
supposed partnership. Considering thus the value and nature of petitioner's
alleged contribution to the purported partnership, the Court, even if so
disposed, cannot plausibly extend Annex ' A-1 the legal effects that petitioner
so desires and pleads to be given. Annex ' A-1 , in fine, cannot support the
existence of the partnership sued upon and sought to be enforced. The legal
and factual milieu of the case calls for this disposition. A partnership may be
constituted in any form, save when immovable property or real rights are
contributed thereto or when the partnership has a capital of at least
P3,000.00, in which case a public instrument shall be necessary.

And if only to stress what has repeatedly been articulated, an inventory to be

signed by the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever immovable property
is contributed to it. Considering that the allegations in the complaint showed
that [petitioner] contributed immovable properties to the alleged partnership,
the 'Memorandum (Annex 'A of the complaint) which purports to establish the
said 'partnership/joint venture is NOT a public instrument and there was NO
inventory of the immovable property duly signed by the parties. As such, the
said 'Memorandum ' is null and void for purposes of establishing the existence
of a valid contract of partnership. Indeed, because of the failure to comply with
the essential formalities of a valid contract, the purported 'partnership/joint
venture is legally inexistent and it produces no effect whatsoever. Necessarily,
a void or legally inexistent contract cannot be the source of any contractual or
legal right. Accordingly, the allegations in the complaint, including the
actionable document attached thereto, clearly demonstrates that [petitioner]
has NO valid contractual or legal right which could be violated by the
[individual respondents] herein. As a consequence, [petitioner's ] complaint
does NOT state a valid cause of action because NOT all the essential
elements of a cause of action are present.

G.R. No. 188288 January 16, 2012

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners,

vs.

CONTINENTAL AIRLINES, INC.,

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the
January 30, 2009 Decision1 of the Special Thirteenth Division of the Court of
Appeals (CA) in CA-G.R. CV No. 88586 entitled "Spouses Fernando and
Lourdes Viloria v. Continental Airlines, Inc.," the dispositive portion of which
states:

WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03
April 2006, awarding US$800.00 or its peso equivalent at the time of payment,
plus legal rate of interest from 21 July 1997 until fully paid, [₱]100,000.00 as
moral damages, [₱]50,000.00 as exemplary damages, [₱]40,000.00 as
attorney’s fees and costs of suit to plaintiffs-appellees is hereby REVERSED
and SET ASIDE.

Defendant-appellant’s counterclaim is DENIED.

Costs against plaintiffs-appellees.

SO ORDERED.2

On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC)
rendered a Decision, giving due course to the complaint for sum of money and
damages filed by petitioners Fernando Viloria (Fernando) and Lourdes Viloria
(Lourdes), collectively called Spouses Viloria, against respondent Continental
Airlines, Inc. (CAI). As culled from the records, below are the facts giving rise
to such complaint.

On or about July 21, 1997 and while in the United States, Fernando
purchased for himself and his wife, Lourdes, two (2) round trip airline tickets
from San Diego, California to Newark, New Jersey on board Continental
Airlines. Fernando purchased the tickets at US$400.00 each from a travel
agency called "Holiday Travel" and was attended to by a certain Margaret
Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the
said tickets after Mager informed them that there were no available seats at
Amtrak, an intercity passenger train service provider in the United States. Per
the tickets, Spouses Viloria were scheduled to leave for Newark on August 13,
1997 and return to San Diego on August 21, 1997.

Subsequently, Fernando requested Mager to reschedule their flight to Newark

to an earlier date or August 6, 1997. Mager informed him that flights to
Newark via Continental Airlines were already fully booked and offered the
alternative of a round trip flight via Frontier Air. Since flying with Frontier Air
called for a higher fare of US$526.00 per passenger and would mean traveling
by night, Fernando opted to request for a refund. Mager, however, denied his
request as the subject tickets are non-refundable and the only option that
Continental Airlines can offer is the re-issuance of new tickets within one (1)
year from the date the subject tickets were issued. Fernando decided to
reserve two (2) seats with Frontier Air.

As he was having second thoughts on traveling via Frontier Air, Fernando

went to the Greyhound Station where he saw an Amtrak station nearby.
Fernando made inquiries and was told that there are seats available and he
can travel on Amtrak anytime and any day he pleased. Fernando then
purchased two (2) tickets for Washington, D.C.

From Amtrak, Fernando went to Holiday Travel and confronted Mager with the
Amtrak tickets, telling her that she had misled them into buying the
Continental Airlines tickets by misrepresenting that Amtrak was already fully
booked. Fernando reiterated his demand for a refund but Mager was firm in
her position that the subject tickets are non-refundable.

Upon returning to the Philippines, Fernando sent a letter to CAI on February

11, 1998, demanding a refund and alleging that Mager had deluded them into
purchasing the subject tickets.3

In a letter dated February 24, 1998, Continental Micronesia informed

Fernando that his complaint had been referred to the Customer Refund
Services of Continental Airlines at Houston, Texas.4

In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s

request for a refund and advised him that he may take the subject tickets to
any Continental ticketing location for the re-issuance of new tickets within two
(2) years from the date they were issued. Continental Micronesia informed
Fernando that the subject tickets may be used as a form of payment for the
purchase of another Continental ticket, albeit with a re-issuance fee.5

On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala

Avenue, Makati City to have the subject tickets replaced by a single round trip
ticket to Los Angeles, California under his name. Therein, Fernando was
informed that Lourdes’ ticket was non-transferable, thus, cannot be used for
the purchase of a ticket in his favor. He was also informed that a round trip
ticket to Los Angeles was US$1,867.40 so he would have to pay what will not
be covered by the value of his San Diego to Newark round trip ticket.

In a letter dated June 21, 1999, Fernando demanded for the refund of the
subject tickets as he no longer wished to have them replaced. In addition to
the dubious circumstances under which the subject tickets were issued,
Fernando claimed that CAI’s act of charging him with US$1,867.40 for a round
trip ticket to Los Angeles, which other airlines priced at US$856.00, and
refusal to allow him to use Lourdes’ ticket, breached its undertaking under its
March 24, 1998 letter.6

On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying

that CAI be ordered to refund the money they used in the purchase of the
subject tickets with legal interest from July 21, 1997 and to pay ₱1,000,000.00
as moral damages, ₱500,000.00 as exemplary damages and ₱250,000.00 as
attorney’s fees.7

CAI interposed the following defenses: (a) Spouses Viloria have no right to
ask for a refund as the subject tickets are non-refundable; (b) Fernando
cannot insist on using the ticket in Lourdes’ name for the purchase of a round
trip ticket to Los Angeles since the same is non-transferable; (c) as Mager is
not a CAI employee, CAI is not liable for any of her acts; (d) CAI, its
employees and agents did not act in bad faith as to entitle Spouses Viloria to
moral and exemplary damages and attorney’s fees. CAI also invoked the
following clause printed on the subject tickets:

3. To the extent not in conflict with the foregoing carriage and other services
performed by each carrier are subject to: (i) provisions contained in this ticket,
(ii) applicable tariffs, (iii) carrier’s conditions of carriage and related regulations
which are made part hereof (and are available on application at the offices of
carrier), except in transportation between a place in the United States or
Canada and any place outside thereof to which tariffs in force in those
countries apply.8

According to CAI, one of the conditions attached to their contract of carriage is

the non-transferability and non-refundability of the subject tickets.

The RTC’s Ruling

Following a full-blown trial, the RTC rendered its April 3, 2006 Decision,
holding that Spouses Viloria are entitled to a refund in view of Mager’s
misrepresentation in obtaining their consent in the purchase of the subject
tickets.9 The relevant portion of the April 3, 2006 Decision states:

Continental Airlines agent Ms. Mager was in bad faith when she was less
candid and diligent in presenting to plaintiffs spouses their booking options.
Plaintiff Fernando clearly wanted to travel via AMTRAK, but defendant’s agent
misled him into purchasing Continental Airlines tickets instead on the
fraudulent misrepresentation that Amtrak was fully booked. In fact, defendant
Airline did not specifically denied (sic) this allegation.

Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into

buying Continental Airline tickets on Ms. Mager’s misleading
misrepresentations. Continental Airlines agent Ms. Mager further relied on and
exploited plaintiff Fernando’s need and told him that they must book a flight
immediately or risk not being able to travel at all on the couple’s preferred
date. Unfortunately, plaintiffs spouses fell prey to the airline’s and its agent’s
unethical tactics for baiting trusting customers."10

Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is
CAI’s agent, hence, bound by her bad faith and misrepresentation. As far as
the RTC is concerned, there is no issue as to whether Mager was CAI’s agent
in view of CAI’s implied recognition of her status as such in its March 24, 1998
letter.

The act of a travel agent or agency being involved here, the following are the
pertinent New Civil Code provisions on agency:

Art. 1868. By the contract of agency a person binds himself to render some
service or to do something in representation or on behalf of another, with the
consent or authority of the latter.
Art. 1869. Agency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf without authority.

Agency may be oral, unless the law requires a specific form.

As its very name implies, a travel agency binds itself to render some service
or to do something in representation or on behalf of another, with the consent
or authority of the latter. This court takes judicial notice of the common
services rendered by travel agencies that represent themselves as such,
specifically the reservation and booking of local and foreign tours as well as
the issuance of airline tickets for a commission or fee.

The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff
spouses on July 21, 1997 were no different from those offered in any other
travel agency. Defendant airline impliedly if not expressly acknowledged its
principal-agent relationship with Ms. Mager by its offer in the letter dated
March 24, 1998 – an obvious attempt to assuage plaintiffs spouses’ hurt
feelings.11

Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its
undertaking to replace the subject tickets within two (2) years from their date
of issue when it charged Fernando with the amount of US$1,867.40 for a
round trip ticket to Los Angeles and when it refused to allow Fernando to use
Lourdes’ ticket. Specifically:

Tickets may be reissued for up to two years from the original date of issue.
When defendant airline still charged plaintiffs spouses US$1,867.40 or more
than double the then going rate of US$856.00 for the unused tickets when the
same were presented within two (2) years from date of issue, defendant airline
exhibited callous treatment of passengers.12

The Appellate Court’s Ruling

On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that
CAI cannot be held liable for Mager’s act in the absence of any proof that a
principal-agent relationship existed between CAI and Holiday Travel.
According to the CA, Spouses Viloria, who have the burden of proof to
establish the fact of agency, failed to present evidence demonstrating that
Holiday Travel is CAI’s agent. Furthermore, contrary to Spouses Viloria’s
claim, the contractual relationship between Holiday Travel and CAI is not an
agency but that of a sale.

Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who

was in turn a ticketing agent of Holiday Travel who was in turn a ticketing
agent of Continental Airlines. Proceeding from this premise, they contend that
Continental Airlines should be held liable for the acts of Mager. The trial court
held the same view.
We do not agree. By the contract of agency, a person binds him/herself to
render some service or to do something in representation or on behalf of
another, with the consent or authority of the latter. The elements of agency
are: (1) consent, express or implied, of the parties to establish the relationship;
(2) the object is the execution of a juridical act in relation to a third person; (3)
the agent acts as a representative and not for him/herself; and (4) the agent
acts within the scope of his/her authority. As the basis of agency is
representation, there must be, on the part of the principal, an actual intention
to appoint, an intention naturally inferable from the principal’s words or
actions. In the same manner, there must be an intention on the part of the
agent to accept the appointment and act upon it. Absent such mutual intent,
there is generally no agency. It is likewise a settled rule that persons dealing
with an assumed agent are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them
to establish it. Agency is never presumed, neither is it created by the mere use
of the word in a trade or business name. We have perused the evidence and
documents so far presented. We find nothing except bare allegations of
plaintiffs-appellees that Mager/Holiday Travel was acting in behalf of
Continental Airlines. From all sides of legal prism, the transaction in issue was
simply a contract of sale, wherein Holiday Travel buys airline tickets from
Continental Airlines and then, through its employees, Mager included, sells it
at a premium to clients.13

The CA also ruled that refund is not available to Spouses Viloria as the word
"non-refundable" was clearly printed on the face of the subject tickets, which
constitute their contract with CAI. Therefore, the grant of their prayer for a
refund would violate the proscription against impairment of contracts.

Finally, the CA held that CAI did not act in bad faith when they charged
Spouses Viloria with the higher amount of US$1,867.40 for a round trip ticket
to Los Angeles. According to the CA, there is no compulsion for CAI to charge
the lower amount of US$856.00, which Spouses Viloria claim to be the fee
charged by other airlines. The matter of fixing the prices for its services is
CAI’s prerogative, which Spouses Viloria cannot intervene. In particular:

It is within the respective rights of persons owning and/or operating business

entities to peg the premium of the services and items which they provide at a
price which they deem fit, no matter how expensive or exhorbitant said price
may seem vis-à-vis those of the competing companies. The Spouses Viloria
may not intervene with the business judgment of Continental Airlines.14

The Petitioners’ Case

In this Petition, this Court is being asked to review the findings and
conclusions of the CA, as the latter’s reversal of the RTC’s April 3, 2006
Decision allegedly lacks factual and legal bases. Spouses Viloria claim that
CAI acted in bad faith when it required them to pay a higher amount for a
round trip ticket to Los Angeles considering CAI’s undertaking to re-issue new
tickets to them within the period stated in their March 24, 1998 letter. CAI
likewise acted in bad faith when it disallowed Fernando to use Lourdes’ ticket
to purchase a round trip to Los Angeles given that there is nothing in Lourdes’
ticket indicating that it is non-transferable. As a common carrier, it is CAI’s
duty to inform its passengers of the terms and conditions of their contract and
passengers cannot be bound by such terms and conditions which they are not
made aware of. Also, the subject contract of carriage is a contract of
adhesion; therefore, any ambiguities should be construed against CAI.
Notably, the petitioners are no longer questioning the validity of the subject
contracts and limited its claim for a refund on CAI’s alleged breach of its
undertaking in its March 24, 1998 letter.

The Respondent’s Case

In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is
negated by its willingness to issue new tickets to them and to credit the value
of the subject tickets against the value of the new ticket Fernando requested.
CAI argued that Spouses Viloria’s sole basis to claim that the price at which
CAI was willing to issue the new tickets is unconscionable is a piece of
hearsay evidence – an advertisement appearing on a newspaper stating that
airfares from Manila to Los Angeles or San Francisco cost US$818.00. 15 Also,
the advertisement pertains to airfares in September 2000 and not to airfares
prevailing in June 1999, the time when Fernando asked CAI to apply the value
of the subject tickets for the purchase of a new one. 16 CAI likewise argued that
it did not undertake to protect Spouses Viloria from any changes or
fluctuations in the prices of airline tickets and its only obligation was to apply
the value of the subject tickets to the purchase of the newly issued tickets.
With respect to Spouses Viloria’s claim that they are not aware of CAI’s
restrictions on the subject tickets and that the terms and conditions that are
printed on them are ambiguous, CAI denies any ambiguity and alleged that its
representative informed Fernando that the subject tickets are non-transferable
when he applied for the issuance of a new ticket. On the other hand, the word
"non-refundable" clearly appears on the face of the subject tickets.

CAI also denies that it is bound by the acts of Holiday Travel and Mager and
that no principal-agency relationship exists between them. As an independent
contractor, Holiday Travel was without capacity to bind CAI.

Issues

To determine the propriety of disturbing the CA’s January 30, 2009 Decision
and whether Spouses Viloria have the right to the reliefs they prayed for, this
Court deems it necessary to resolve the following issues:

a. Does a principal-agent relationship exist between CAI and Holiday Travel?

b. Assuming that an agency relationship exists between CAI and Holiday
Travel, is CAI bound by the acts of Holiday Travel’s agents and employees
such as Mager?

c. Assuming that CAI is bound by the acts of Holiday Travel’s agents and
employees, can the representation of Mager as to unavailability of seats at
Amtrak be considered fraudulent as to vitiate the consent of Spouse Viloria in
the purchase of the subject tickets?

d. Is CAI justified in insisting that the subject tickets are non-transferable and
non-refundable?

e. Is CAI justified in pegging a different price for the round trip ticket to Los
Angeles requested by Fernando?

f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses
Viloria to apply the value of the subject tickets in the purchase of new ones
when it refused to allow Fernando to use Lourdes’ ticket and in charging a
higher price for a round trip ticket to Los Angeles?

This Court’s Ruling

I. A principal-agent relationship exists between CAI and Holiday Travel.

With respect to the first issue, which is a question of fact that would
require this Court to review and re-examine the evidence presented
by the parties below, this Court takes exception to the general rule
that the CA’s findings of fact are conclusive upon Us and our
jurisdiction is limited to the review of questions of law. It is well-
settled to the point of being axiomatic that this Court is authorized to
resolve questions of fact if confronted with contrasting factual
findings of the trial court and appellate court and if the findings of
the CA are contradicted by the evidence on record.17

According to the CA, agency is never presumed and that he who

alleges that it exists has the burden of proof. Spouses Viloria, on
whose shoulders such burden rests, presented evidence that fell
short of indubitably demonstrating the existence of such agency.

We disagree. The CA failed to consider undisputed facts,

discrediting CAI’s denial that Holiday Travel is one of its agents.
Furthermore, in erroneously characterizing the contractual
relationship between CAI and Holiday Travel as a contract of sale,
the CA failed to apply the fundamental civil law principles governing
agency and differentiating it from sale.

In Rallos v. Felix Go Chan & Sons Realty Corporation, 18 this Court

explained the nature of an agency and spelled out the essential
elements thereof:
Out of the above given principles, sprung the creation and
acceptance of the relationship of agency whereby one party, called
the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third
persons. The essential elements of agency are: (1) there is
consent, express or implied of the parties to establish the
relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a representative and
not for himself, and (4) the agent acts within the scope of his
authority.1avvphi1

Agency is basically personal, representative, and derivative in

nature. The authority of the agent to act emanates from the powers
granted to him by his principal; his act is the act of the principal if
done within the scope of the authority. Qui facit per alium facit se.
"He who acts through another acts himself."19

Contrary to the findings of the CA, all the elements of an agency

exist in this case. The first and second elements are present as CAI
does not deny that it concluded an agreement with Holiday Travel,
whereby Holiday Travel would enter into contracts of carriage with
third persons on CAI’s behalf. The third element is also present as it
is undisputed that Holiday Travel merely acted in a representative
capacity and it is CAI and not Holiday Travel who is bound by the
contracts of carriage entered into by Holiday Travel on its behalf.
The fourth element is also present considering that CAI has not
made any allegation that Holiday Travel exceeded the authority that
was granted to it. In fact, CAI consistently maintains the validity of
the contracts of carriage that Holiday Travel executed with Spouses
Viloria and that Mager was not guilty of any fraudulent
misrepresentation. That CAI admits the authority of Holiday Travel
to enter into contracts of carriage on its behalf is easily discernible
from its February 24, 1998 and March 24, 1998 letters, where it
impliedly recognized the validity of the contracts entered into by
Holiday Travel with Spouses Viloria. When Fernando informed CAI
that it was Holiday Travel who issued to them the subject tickets,
CAI did not deny that Holiday Travel is its authorized agent.

Prior to Spouses Viloria’s filing of a complaint against it, CAI never

refuted that it gave Holiday Travel the power and authority to
conclude contracts of carriage on its behalf. As clearly extant from
the records, CAI recognized the validity of the contracts of carriage
that Holiday Travel entered into with Spouses Viloria and
considered itself bound with Spouses Viloria by the terms and
conditions thereof; and this constitutes an unequivocal testament to
Holiday Travel’s authority to act as its agent. This Court cannot
therefore allow CAI to take an altogether different position and deny
that Holiday Travel is its agent without condoning or giving
imprimatur to whatever damage or prejudice that may result from
such denial or retraction to Spouses Viloria, who relied on good
faith on CAI’s acts in recognition of Holiday Travel’s authority.
Estoppel is primarily based on the doctrine of good faith and the
avoidance of harm that will befall an innocent party due to its
injurious reliance, the failure to apply it in this case would result in
gross travesty of justice.20 Estoppel bars CAI from making such
denial.

As categorically provided under Article 1869 of the Civil Code,

"[a]gency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the
agency, knowing that another person is acting on his behalf without
authority."

Considering that the fundamental hallmarks of an agency are

present, this Court finds it rather peculiar that the CA had branded
the contractual relationship between CAI and Holiday Travel as one
of sale. The distinctions between a sale and an agency are not
difficult to discern and this Court, as early as 1970, had already
formulated the guidelines that would aid in differentiating the two (2)
contracts. In Commissioner of Internal Revenue v. Constantino, 21
this Court extrapolated that the primordial differentiating
consideration between the two (2) contracts is the transfer of
ownership or title over the property subject of the contract. In an
agency, the principal retains ownership and control over the
property and the agent merely acts on the principal’s behalf and
under his instructions in furtherance of the objectives for which the
agency was established. On the other hand, the contract is clearly a
sale if the parties intended that the delivery of the property will
effect a relinquishment of title, control and ownership in such a way
that the recipient may do with the property as he pleases.

Since the company retained ownership of the goods, even as it

delivered possession unto the dealer for resale to customers, the
price and terms of which were subject to the company's control, the
relationship between the company and the dealer is one of agency,
tested under the following criterion:

"The difficulty in distinguishing between contracts of sale and the

creation of an agency to sell has led to the establishment of rules by
the application of which this difficulty may be solved. The decisions
say the transfer of title or agreement to transfer it for a price paid or
promised is the essence of sale. If such transfer puts the transferee
in the attitude or position of an owner and makes him liable to the
transferor as a debtor for the agreed price, and not merely as an
 agent who must account for the proceeds of a resale, the
transaction is a sale; while the essence of an agency to sell is the
delivery to an agent, not as his property, but as the property of the
principal, who remains the owner and has the right to control sales,
fix the price, and terms, demand and receive the proceeds less the
agent's commission upon sales made. 1 Mechem on Sales, Sec.
43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1; Tiedeman
on Sales, 1." (Salisbury v. Brooks, 94 SE 117, 118-119)22

As to how the CA have arrived at the conclusion that the contract

between CAI and Holiday Travel is a sale is certainly confounding,
considering that CAI is the one bound by the contracts of carriage
embodied by the tickets being sold by Holiday Travel on its behalf.
It is undisputed that CAI and not Holiday Travel who is the party to
the contracts of carriage executed by Holiday Travel with third
persons who desire to travel via Continental Airlines, and this
conclusively indicates the existence of a principal-agent
relationship. That the principal is bound by all the obligations
contracted by the agent within the scope of the authority granted to
him is clearly provided under Article 1910 of the Civil Code and this
constitutes the very notion of agency.

II. In actions based on quasi-delict, a principal can only be held liable for
the tort committed by its agent’s employees if it has been established by
preponderance of evidence that the principal was also at fault or
negligent or that the principal exercise control and supervision over
them.

Considering that Holiday Travel is CAI’s agent, does it necessarily

follow that CAI is liable for the fault or negligence of Holiday
Travel’s employees? Citing China Air Lines, Ltd. v. Court of
Appeals, et al.,23 CAI argues that it cannot be held liable for the
actions of the employee of its ticketing agent in the absence of an
employer-employee relationship.

An examination of this Court’s pronouncements in China Air Lines

will reveal that an airline company is not completely exonerated
from any liability for the tort committed by its agent’s employees. A
prior determination of the nature of the passenger’s cause of action
is necessary. If the passenger’s cause of action against the airline
company is premised on culpa aquiliana or quasi-delict for a tort
committed by the employee of the airline company’s agent, there
must be an independent showing that the airline company was at
fault or negligent or has contributed to the negligence or tortuous
conduct committed by the employee of its agent. The mere fact that
the employee of the airline company’s agent has committed a tort is
not sufficient to hold the airline company liable. There is no
vinculum juris between the airline company and its agent’s
employees and the contractual relationship between the airline
company and its agent does not operate to create a juridical tie
between the airline company and its agent’s employees. Article
2180 of the Civil Code does not make the principal vicariously liable
for the tort committed by its agent’s employees and the principal-
agency relationship per se does not make the principal a party to
such tort; hence, the need to prove the principal’s own fault or
negligence.

On the other hand, if the passenger’s cause of action for damages

against the airline company is based on contractual breach or culpa
contractual, it is not necessary that there be evidence of the airline
company’s fault or negligence. As this Court previously stated in
China Air Lines and reiterated in Air France vs. Gillego,24 "in an
action based on a breach of contract of carriage, the aggrieved
party does not have to prove that the common carrier was at fault or
was negligent. All that he has to prove is the existence of the
contract and the fact of its non-performance by the carrier."

Spouses Viloria’s cause of action on the basis of Mager’s alleged

fraudulent misrepresentation is clearly one of tort or quasi-delict,
there being no pre-existing contractual relationship between them.
Therefore, it was incumbent upon Spouses Viloria to prove that CAI
was equally at fault.

However, the records are devoid of any evidence by which CAI’s

alleged liability can be substantiated. Apart from their claim that CAI
must be held liable for Mager’s supposed fraud because Holiday
Travel is CAI’s agent, Spouses Viloria did not present evidence that
CAI was a party or had contributed to Mager’s complained act
either by instructing or authorizing Holiday Travel and Mager to
issue the said misrepresentation.

It may seem unjust at first glance that CAI would consider Spouses
Viloria bound by the terms and conditions of the subject contracts,
which Mager entered into with them on CAI’s behalf, in order to
deny Spouses Viloria’s request for a refund or Fernando’s use of
Lourdes’ ticket for the re-issuance of a new one, and
simultaneously claim that they are not bound by Mager’s supposed
misrepresentation for purposes of avoiding Spouses Viloria’s claim
for damages and maintaining the validity of the subject contracts. It
may likewise be argued that CAI cannot deny liability as it benefited
from Mager’s acts, which were performed in compliance with
Holiday Travel’s obligations as CAI’s agent.
However, a person’s vicarious liability is anchored on his
possession of control, whether absolute or limited, on the tortfeasor.
Without such control, there is nothing which could justify extending
the liability to a person other than the one who committed the tort.
As this Court explained in Cangco v. Manila Railroad Co.:25

With respect to extra-contractual obligation arising from

negligence, whether of act or omission, it is competent for the
legislature to elect — and our Legislature has so elected — to limit
such liability to cases in which the person upon whom such an
obligation is imposed is morally culpable or, on the contrary, for
reasons of public policy, to extend that liability, without regard
to the lack of moral culpability, so as to include responsibility
for the negligence of those persons whose acts or omissions
are imputable, by a legal fiction, to others who are in a position
to exercise an absolute or limited control over them. The
legislature which adopted our Civil Code has elected to limit extra-
contractual liability — with certain well-defined exceptions — to
cases in which moral culpability can be directly imputed to the
persons to be charged. This moral responsibility may consist in
having failed to exercise due care in one's own acts, or in having
failed to exercise due care in the selection and control of one's
agent or servants, or in the control of persons who, by reasons of
their status, occupy a position of dependency with respect to the
person made liable for their conduct.26 (emphasis supplied)

It is incumbent upon Spouses Viloria to prove that CAI exercised

control or supervision over Mager by preponderant evidence. The
existence of control or supervision cannot be presumed and CAI is
under no obligation to prove its denial or nugatory assertion. Citing
Belen v. Belen,27 this Court ruled in Jayme v. Apostol,28 that:

In Belen v. Belen, this Court ruled that it was enough for defendant
to deny an alleged employment relationship. The defendant is
under no obligation to prove the negative averment. This Court
said:

"It is an old and well-settled rule of the courts that the burden of
proving the action is upon the plaintiff, and that if he fails
satisfactorily to show the facts upon which he bases his claim, the
defendant is under no obligation to prove his exceptions. This [rule]
is in harmony with the provisions of Section 297 of the Code of Civil
Procedure holding that each party must prove his own affirmative
allegations, etc."29 (citations omitted)

Therefore, without a modicum of evidence that CAI exercised

control over Holiday Travel’s employees or that CAI was equally at
 fault, no liability can be imposed on CAI for Mager’s supposed
misrepresentation.

III. Even on the assumption that CAI may be held liable for the acts of
Mager, still, Spouses Viloria are not entitled to a refund. Mager’s
statement cannot be considered a causal fraud that would justify the
annulment of the subject contracts that would oblige CAI to indemnify
Spouses Viloria and return the money they paid for the subject tickets.

Article 1390, in relation to Article 1391 of the Civil Code, provides

that if the consent of the contracting parties was obtained through
fraud, the contract is considered voidable and may be annulled
within four (4) years from the time of the discovery of the fraud.
Once a contract is annulled, the parties are obliged under Article
1398 of the same Code to restore to each other the things subject
matter of the contract, including their fruits and interest.

On the basis of the foregoing and given the allegation of Spouses

Viloria that Fernando’s consent to the subject contracts was
supposedly secured by Mager through fraudulent means, it is
plainly apparent that their demand for a refund is tantamount to
seeking for an annulment of the subject contracts on the ground of
vitiated consent.

Whether the subject contracts are annullable, this Court is required

to determine whether Mager’s alleged misrepresentation constitutes
causal fraud. Similar to the dispute on the existence of an agency,
whether fraud attended the execution of a contract is factual in
nature and this Court, as discussed above, may scrutinize the
records if the findings of the CA are contrary to those of the RTC.
Under Article 1338 of the Civil Code, there is fraud when, through
insidious words or machinations of one of the contracting parties,
the other is induced to enter into a contract which, without them, he
would not have agreed to. In order that fraud may vitiate consent, it
must be the causal (dolo causante), not merely the incidental (dolo
incidente), inducement to the making of the contract. 30 In Samson v.
Court of Appeals,31 causal fraud was defined as "a deception
employed by one party prior to or simultaneous to the contract in
order to secure the consent of the other."32

Also, fraud must be serious and its existence must be established

by clear and convincing evidence. As ruled by this Court in Sierra v.
Hon. Court of Appeals, et al.,33 mere preponderance of evidence is
not adequate:

Fraud must also be discounted, for according to the Civil Code:

 Art. 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced
to enter into a contract which without them, he would not have
agreed to.

Art. 1344. In order that fraud may make a contract voidable, it

should be serious and should not have been employed by both
contracting parties.

To quote Tolentino again, the "misrepresentation constituting the

fraud must be established by full, clear, and convincing evidence,
and not merely by a preponderance thereof. The deceit must be
serious. The fraud is serious when it is sufficient to impress, or to
lead an ordinarily prudent person into error; that which cannot
deceive a prudent person cannot be a ground for nullity. The
circumstances of each case should be considered, taking into
account the personal conditions of the victim."34

After meticulously poring over the records, this Court finds that the
fraud alleged by Spouses Viloria has not been satisfactorily
established as causal in nature to warrant the annulment of the
subject contracts. In fact, Spouses Viloria failed to prove by clear
and convincing evidence that Mager’s statement was fraudulent.
Specifically, Spouses Viloria failed to prove that (a) there were
indeed available seats at Amtrak for a trip to New Jersey on August
13, 1997 at the time they spoke with Mager on July 21, 1997; (b)
Mager knew about this; and (c) that she purposely informed them
otherwise.

This Court finds the only proof of Mager’s alleged fraud, which is
Fernando’s testimony that an Amtrak had assured him of the
perennial availability of seats at Amtrak, to be wanting. As CAI
correctly pointed out and as Fernando admitted, it was possible that
during the intervening period of three (3) weeks from the time
Fernando purchased the subject tickets to the time he talked to said
Amtrak employee, other passengers may have cancelled their
bookings and reservations with Amtrak, making it possible for
Amtrak to accommodate them. Indeed, the existence of fraud
cannot be proved by mere speculations and conjectures. Fraud is
never lightly inferred; it is good faith that is. Under the Rules of
Court, it is presumed that "a person is innocent of crime or wrong"
and that "private transactions have been fair and regular." 35
Spouses Viloria failed to overcome this presumption.

IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to

have ratified the subject contracts.
Even assuming that Mager’s representation is causal fraud, the
subject contracts have been impliedly ratified when Spouses Viloria
decided to exercise their right to use the subject tickets for the
purchase of new ones. Under Article 1392 of the Civil Code,
"ratification extinguishes the action to annul a voidable contract."

Ratification of a voidable contract is defined under Article 1393 of

the Civil Code as follows:

Art. 1393. Ratification may be effected expressly or tacitly. It is

understood that there is a tacit ratification if, with knowledge of the
reason which renders the contract voidable and such reason having
ceased, the person who has a right to invoke it should execute an
act which necessarily implies an intention to waive his right.

Implied ratification may take diverse forms, such as by silence or

acquiescence; by acts showing approval or adoption of the contract;
or by acceptance and retention of benefits flowing therefrom.36

Simultaneous with their demand for a refund on the ground of

Fernando’s vitiated consent, Spouses Viloria likewise asked for a
refund based on CAI’s supposed bad faith in reneging on its
undertaking to replace the subject tickets with a round trip ticket
from Manila to Los Angeles.

In doing so, Spouses Viloria are actually asking for a rescission of

the subject contracts based on contractual breach. Resolution, the
action referred to in Article 1191, is based on the defendant’s
breach of faith, a violation of the reciprocity between the parties 37
and in Solar Harvest, Inc. v. Davao Corrugated Carton
Corporation,38 this Court ruled that a claim for a reimbursement in
view of the other party’s failure to comply with his obligations under
the contract is one for rescission or resolution.

However, annulment under Article 1390 of the Civil Code and

rescission under Article 1191 are two (2) inconsistent remedies. In
resolution, all the elements to make the contract valid are present;
in annulment, one of the essential elements to a formation of a
contract, which is consent, is absent. In resolution, the defect is in
the consummation stage of the contract when the parties are in the
process of performing their respective obligations; in annulment, the
defect is already present at the time of the negotiation and
perfection stages of the contract. Accordingly, by pursuing the
remedy of rescission under Article 1191, the Vilorias had impliedly
admitted the validity of the subject contracts, forfeiting their right to
demand their annulment. A party cannot rely on the contract and
claim rights or obligations under it and at the same time impugn its
 existence or validity. Indeed, litigants are enjoined from taking
inconsistent positions.39

V. Contracts cannot be rescinded for a slight or casual breach.

CAI cannot insist on the non-transferability of the subject tickets.

Considering that the subject contracts are not annullable on the

ground of vitiated consent, the next question is: "Do Spouses Viloria
have the right to rescind the contract on the ground of CAI’s
supposed breach of its undertaking to issue new tickets upon
surrender of the subject tickets?"

Article 1191, as presently worded, states:

The power to rescind obligations is implied in reciprocal ones, in

case one of the obligors should not comply with what is incumbent
upon him.

The injured party may choose between the fulfilment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third

persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law.
According to Spouses Viloria, CAI acted in bad faith and breached
the subject contracts when it refused to apply the value of Lourdes’
ticket for Fernando’s purchase of a round trip ticket to Los Angeles
and in requiring him to pay an amount higher than the price fixed by
other airline companies.

In its March 24, 1998 letter, CAI stated that "non-refundable tickets
may be used as a form of payment toward the purchase of another
Continental ticket for $75.00, per ticket, reissue fee ($50.00, per
ticket, for tickets purchased prior to October 30, 1997)."

Clearly, there is nothing in the above-quoted section of CAI’s letter

from which the restriction on the non-transferability of the subject
tickets can be inferred. In fact, the words used by CAI in its letter
supports the position of Spouses Viloria, that each of them can use
the ticket under their name for the purchase of new tickets whether
for themselves or for some other person.
 Moreover, as CAI admitted, it was only when Fernando had
expressed his interest to use the subject tickets for the purchase of
a round trip ticket between Manila and Los Angeles that he was
informed that he cannot use the ticket in Lourdes’ name as
payment.

Contrary to CAI’s claim, that the subject tickets are non-transferable

cannot be implied from a plain reading of the provision printed on
the subject tickets stating that "[t]o the extent not in conflict with the
foregoing carriage and other services performed by each carrier are
subject to: (a) provisions contained in this ticket, x x x (iii) carrier’s
conditions of carriage and related regulations which are made part
hereof (and are available on application at the offices of carrier) x x
x." As a common carrier whose business is imbued with public
interest, the exercise of extraordinary diligence requires CAI to
inform Spouses Viloria, or all of its passengers for that matter, of all
the terms and conditions governing their contract of carriage. CAI is
proscribed from taking advantage of any ambiguity in the contract of
carriage to impute knowledge on its passengers of and demand
compliance with a certain condition or undertaking that is not clearly
stipulated. Since the prohibition on transferability is not written on
the face of the subject tickets and CAI failed to inform Spouses
Viloria thereof, CAI cannot refuse to apply the value of Lourdes’
ticket as payment for Fernando’s purchase of a new ticket.

CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket
for Fernando is only a casual breach.

Nonetheless, the right to rescind a contract for non-performance of its

stipulations is not absolute. The general rule is that rescission of a contract will
not be permitted for a slight or casual breach, but only for such substantial and
fundamental violations as would defeat the very object of the parties in making
the agreement.40 Whether a breach is substantial is largely determined by the
attendant circumstances.41

While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as
payment for the purchase of a new ticket is unjustified as the non-
transferability of the subject tickets was not clearly stipulated, it cannot,
however be considered substantial. The endorsability of the subject tickets is
not an essential part of the underlying contracts and CAI’s failure to comply is
not essential to its fulfillment of its undertaking to issue new tickets upon
Spouses Viloria’s surrender of the subject tickets. This Court takes note of
CAI’s willingness to perform its principal obligation and this is to apply the
price of the ticket in Fernando’s name to the price of the round trip ticket
between Manila and Los Angeles. CAI was likewise willing to accept the ticket
in Lourdes’ name as full or partial payment as the case may be for the
purchase of any ticket, albeit under her name and for her exclusive use. In
other words, CAI’s willingness to comply with its undertaking under its March
24, 1998 cannot be doubted, albeit tainted with its erroneous insistence that
Lourdes’ ticket is non-transferable.

Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI

cannot be solely faulted for the fact that their agreement failed to consummate
and no new ticket was issued to Fernando. Spouses Viloria have no right to
insist that a single round trip ticket between Manila and Los Angeles should be
priced at around $856.00 and refuse to pay the difference between the price
of the subject tickets and the amount fixed by CAI. The petitioners failed to
allege, much less prove, that CAI had obliged itself to issue to them tickets for
any flight anywhere in the world upon their surrender of the subject tickets. In
its March 24, 1998 letter, it was clearly stated that "[n]on-refundable tickets
may be used as a form of payment toward the purchase of another
Continental ticket"42 and there is nothing in it suggesting that CAI had obliged
itself to protect Spouses Viloria from any fluctuation in the prices of tickets or
that the surrender of the subject tickets will be considered as full payment for
any ticket that the petitioners intend to buy regardless of actual price and
destination. The CA was correct in holding that it is CAI’s right and exclusive
prerogative to fix the prices for its services and it may not be compelled to
observe and maintain the prices of other airline companies.43

The conflict as to the endorsability of the subject tickets is an altogether

different matter, which does not preclude CAI from fixing the price of a round
trip ticket between Manila and Los Angeles in an amount it deems proper and
which does not provide Spouses Viloria an excuse not to pay such price,
albeit subject to a reduction coming from the value of the subject tickets. It
cannot be denied that Spouses Viloria had the concomitant obligation to pay
whatever is not covered by the value of the subject tickets whether or not the
subject tickets are transferable or not.1avvphi1
There is also no showing that Spouses Viloria were discriminated against in
bad faith by being charged with a higher rate. The only evidence the
petitioners presented to prove that the price of a round trip ticket between
Manila and Los Angeles at that time was only $856.00 is a newspaper
advertisement for another airline company, which is inadmissible for being
"hearsay evidence, twice removed." Newspaper clippings are hearsay if they
were offered for the purpose of proving the truth of the matter alleged. As
ruled in Feria v. Court of Appeals,:44

[N]ewspaper articles amount to "hearsay evidence, twice removed" and are

therefore not only inadmissible but without any probative value at all whether
objected to or not, unless offered for a purpose other than proving the truth of
the matter asserted. In this case, the news article is admissible only as
evidence that such publication does exist with the tenor of the news therein
stated.45 (citations omitted)
The records of this case demonstrate that both parties were equally in default;
hence, none of them can seek judicial redress for the cancellation or
resolution of the subject contracts and they are therefore bound to their
respective obligations thereunder. As the 1st sentence of Article 1192
provides:

Art. 1192. In case both parties have committed a breach of the obligation,
the liability of the first infractor shall be equitably tempered by the
courts. If it cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each shall bear his own
damages. (emphasis supplied)

Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket
for the purchase of Fernando’s round trip ticket is offset by Spouses Viloria’s
liability for their refusal to pay the amount, which is not covered by the subject
tickets. Moreover, the contract between them remains, hence, CAI is duty
bound to issue new tickets for a destination chosen by Spouses Viloria upon
their surrender of the subject tickets and Spouses Viloria are obliged to pay
whatever amount is not covered by the value of the subject tickets.

This Court made a similar ruling in Central Bank of the Philippines v. Court of
Appeals.46 Thus:

Since both parties were in default in the performance of their respective

reciprocal obligations, that is, Island Savings Bank failed to comply with its
obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his ₱17,000.00 debt within 3 years as stipulated,
they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the first
infractor shall be equitably tempered by the courts. WE rule that the liability of
Island Savings Bank for damages in not furnishing the entire loan is offset by
the liability of Sulpicio M. Tolentino for damages, in the form of penalties and
surcharges, for not paying his overdue ₱17,000.00 debt. x x x.47

Another consideration that militates against the propriety of holding CAI liable
for moral damages is the absence of a showing that the latter acted
fraudulently and in bad faith. Article 2220 of the Civil Code requires evidence
of bad faith and fraud and moral damages are generally not recoverable in
culpa contractual except when bad faith had been proven. 48 The award of
exemplary damages is likewise not warranted. Apart from the requirement that
the defendant acted in a wanton, oppressive and malevolent manner, the
claimant must prove his entitlement to moral damages.49

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.
Spouses Fernando Viloria and Lourdes
Viloria vs Continental Airlines, Inc.
On September 23, 2012
Business Organization – Partnership, Agency, Trust – Elements of Agency –
Estoppel

In 1997, while the spouses Viloria were in the United States, they approached
Holiday Travel, a
travel agency working for Continental Airlines, to purchase tickets from
Newark to San Diego.
The travel agent, Margaret Mager, advised the couple that they cannot travel
by train because it Is fully booked; that they must purchase plane tickets for
Continental Airlines; that if they won’t
purchase plane tickets; they’ll never reach their destination in time. The couple
believed Mager’s
representations and so they purchased two plane tickets worth $800.00.

Later however, the spouses found out that the train trip isn’t fully booked and
so they purchased
train tickets and went to their destination by train instead. Then they called up
Mager to request
for a refund for the plane tickets. Mager referred the couple to Continental
Airlines. As the
couple are now in the Philippines, they filed their request with Continental
Airline’s office in
Ayala. The spouses Viloria alleged that Mager misled them into believing that
the only way to
travel was by plane and so they were fooled into buying expensive tickets.
Continental Airlines refused to refund the amount of the ticket and so the
spouses sued the airline company. In its defense, Continental Airlines claimed
that the ticket sold to them by Mager is non -refundable; that, if any, they are
not bound by the misrepresentations of Mager because there’s no agency
existing between Continental Airlines and Mager. The trial court ruled in favor
of spouses Viloria but the Court of Appeals reversed the ruling of the RTC.

ISSUE:

Whether or not a contract of agency exists between Continental Airlines and

Mager.

HELD:
Yes. All the elements of agency are present, to wit:
1. there is consent, express or implied of the parties to establish the
relationship;
2. the object is the execution of a juridical act in relation to a third person;
3.the agent acts as a representative and not for himself, and
4. the agent acts within the scope of his authority.

The first and second elements are present as Continental Airlines does not
deny that it
concluded an agreement with Holiday Travel to which Mager is part of,
whereby Holiday Travel would enter into contracts of carriage with third
persons on the airlines’ behalf. The third element is also present as it is
undisputed that Holiday Travel merely acted in a representative capacity and it
is Continental Airlines and not Holiday Travel who is bound by the contracts of
carriage
entered into by Holiday Travel on its behalf. The fourth element is also present
considering that
Continental Airlines has not made any allegation that Holiday Travel exceeded
the authority that
was granted to it.

Continental Airlines also never questioned the validity of the transaction

between Mager and the
spouses. Continental Airlines is therefore in estoppels. Continental Airlines
cannot be allowed to
take an altogether different position and deny that Holiday Travel is its agent
without condoning
or giving imprimatur to whatever damage or prejudice that may result from
such denial or
retraction to Spouses Viloria, who relied on good faith on Continental Airlines’
acts in
recognition of Holiday Travel’s authority. Estoppel is primarily based on the
doctrine of good
faith and the avoidance of harm that will befall an innocent party due to its
injurious reliance, the failure to apply it in this case would result in gross
travesty of justice.
 [G.R. NO. 150128 : August 31, 2006]

LAUREANO T. ANGELES, Petitioner, v. PHILIPPINE NATIONAL

RAILWAYS (PNR) AND RODOLFO FLORES, 1 Respondents.

DECISION

GARCIA, J.:

Under consideration is this Petition for Review under Rule 45 of the

Rules of Court assailing and seeking to set aside the following
issuances of the Court of Appeals (CA) in CA-G.R. CV No. 54062, to
wit:

1. Decision 2 dated June 4, 2001, affirming an earlier decision of the

Regional Trial Court (RTC) of Quezon City, Branch 79, which
dismissed the complaint for specific performance and damages
thereat commenced by the petitioner against the herein
respondents; andcralawlibrary

2. Resolution 3 dated September 17, 2001, denying the petitioner's

motion for reconsideration.

The facts:

On May 5, 1980, the respondent Philippine National Railways (PNR)

informed a certain Gaudencio Romualdez (Romualdez, hereinafter)
that it has accepted the latter's offer to buy, on an "AS IS, WHERE
IS" basis, the PNR's scrap/unserviceable rails located in Del Carmen
and Lubao, Pampanga at P1,300.00 and P2,100.00 per metric ton,
respectively, for the total amount of P96,600.00. After paying the
stated purchase price, Romualdez addressed a letter to Atty.
Cipriano Dizon, PNR's Acting Purchasing Agent. Bearing date May
26, 1980, the letter reads:

Dear Atty. Dizon:

This is to inform you as President of San Juanico Enterprises, that I

have authorized the bearer, LIZETTE R. WIJANCO of No. 1606
Aragon St., Sta. Cruz, Manila, to be my lawful representative in the
withdrawal of the scrap/unserviceable rails awarded to me.

For this reason, I have given her the original copy of the award,
dated May 5, 1980 and O.R. No. 8706855 dated May 20, 1980
which will indicate my waiver of rights, interests and participation in
favor of LIZETTE R. WIJANCO.
Thank you for your cooperation.

Very truly yours,

(Sgd.) Gaudencio Romualdez

The Lizette R. Wijanco mentioned in the letter was Lizette Wijanco -

Angeles, petitioner's now deceased wife. That very same day - May
26, 1980 - Lizette requested the PNR to transfer the location of
withdrawal for the reason that the scrap/unserviceable rails located
in Del Carmen and Lubao, Pampanga were not ready for hauling.
The PNR granted said request and allowed Lizette to withdraw
scrap/unserviceable rails in Murcia, Capas and San Miguel, Tarlac
instead. However, the PNR subsequently suspended the withdrawal
in view of what it considered as documentary discrepancies coupled
by reported pilferages of over P500,000.00 worth of PNR scrap
properties in Tarlac.

Consequently, the spouses Angeles demanded the refund of the

amount of P96,000.00. The PNR, however, refused to pay, alleging
that as per delivery receipt duly signed by Lizette, 54.658 metric
tons of unserviceable rails had already been withdrawn which, at
P2,100.00 per metric ton, were worth P114,781.80, an amount that
exceeds the claim for refund.

On August 10, 1988, the spouses Angeles filed suit against the PNR
and its corporate secretary, Rodolfo Flores, among others, for
specific performance and damages before the Regional Trial Court of
Quezon City. In it, they prayed that PNR be directed to deliver 46
metric tons of scrap/unserviceable rails and to pay them damages
and attorney's fees.

Issues having been joined following the filing by PNR, et al., of their
answer, trial ensued. Meanwhile, Lizette W. Angeles passed away
and was substituted by her heirs, among whom is her husband,
herein petitioner Laureno T. Angeles.

On April 16, 1996, the trial court, on the postulate that the spouses
Angeles are not the real parties-in-interest, rendered judgment
dismissing their complaint for lack of cause of action. As held by the
court, Lizette was merely a representative of Romualdez in the
withdrawal of scrap or unserviceable rails awarded to him and not
an assignee to the latter's rights with respect to the award.

Aggrieved, the petitioner interposed an appeal with the CA, which,

as stated at the threshold hereof, in its decision of June 4, 2001,
dismissed the appeal and affirmed that of the trial court. The
affirmatory decision was reiterated by the CA in its resolution of
September 17, 2001, denying the petitioner's motion for
reconsideration.

Hence, the petitioner's present recourse on the submission that the

CA erred in affirming the trial court's holding that petitioner and his
spouse, as plaintiffs a quo, had no cause of action as they were not
the real parties-in-interest in this case.

We DENY the petition.

At the crux of the issue is the matter of how the aforequoted May
26, 1980 letter of Romualdez to Atty. Dizon of the PNR should be
taken: was it meant to designate, or has it the effect of designating,
Lizette W. Angeles as a mere agent or as an assignee of his
(Romualdez's) interest in the scrap rails awarded to San Juanico
Enterprises? The CA's conclusion, affirmatory of that of the trial
court, is that Lizette was not an assignee, but merely an agent
whose authority was limited to the withdrawal of the scrap rails,
hence, without personality to sue.

Where agency exists, the third party's (in this case, PNR's) liability
on a contract is to the principal and not to the agent and the
relationship of the third party to the principal is the same as that in
a contract in which there is no agent. Normally, the agent has
neither rights nor liabilities as against the third party. He cannot
thus sue or be sued on the contract. Since a contract may be
violated only by the parties thereto as against each other, the real
party-in-interest, either as plaintiff or defendant in an action upon
that contract must, generally, be a contracting party.

The legal situation is, however, different where an agent is

constituted as an assignee. In such a case, the agent may, in his
own behalf, sue on a contract made for his principal, as an assignee
of such contract. The rule

requiring every action to be prosecuted in the name of the real

party-in-interest recognizes the assignment of rights of action and
also recognizes

that when one has a right assigned to him, he is then the real party-
in-interest and may maintain an action upon such claim or right. 4

Upon scrutiny of the subject Romualdez's letter to Atty. Cipriano

Dizon dated May 26, 1980, it is at once apparent that Lizette was to
act just as a "representative" of Romualdez in the "withdrawal of
rails," and not an assignee. For perspective, we reproduce the
contents of said letter:

This is to inform you as President of San Juanico Enterprises, that I

have authorized the bearer, LIZETTE R. WIJANCO x x x to be my
lawful representative in the withdrawal of the
scrap/unserviceable rails awarded to me.

For this reason, I have given her the original copy of the award,
dated May 5, 1980 and O.R. No. 8706855 dated May 20, 1980
which will indicate my waiver of rights, interests and participation in
favor of LIZETTE R. WIJANCO. (Emphasis added)

If Lizette was without legal standing to sue and appear in this case,
there is more reason to hold that her petitioner husband, either as
her conjugal partner or her heir, is also without such standing.

Petitioner makes much of the fact that the terms "agent" or

"attorney-in-fact" were not used in the Romualdez letter
aforestated. It bears to stress, however, that the words "principal"
and "agent," are not the only terms used to designate the parties in
an agency relation. The agent may also be called an attorney,
proxy, delegate or, as here, representative.

It cannot be over emphasized that Romualdez's use of the active

verb "authorized," instead of "assigned," indicated an intent on his
part to keep and retain his interest in the subject matter. Stated a
bit differently, he intended to limit Lizette's role in the scrap
transaction to being the representative of his interest therein.

Petitioner submits that the second paragraph of the Romualdez

letter, stating - "I have given [Lizette] the original copy of the
award x x x which will indicate my waiver of rights, interests and
participation in favor of Lizette R. Wijanco" - clarifies that Lizette
was intended to be an assignee, and not a mere agent.

We are not persuaded. As it were, the petitioner conveniently

omitted an important phrase preceding the paragraph which would
have put the whole matter in context. The phrase is "For this
reason," and the antecedent thereof is his (Romualdez) having
appointed Lizette as his representative in the matter of the
withdrawal of the scrap items. In fine, the key phrase clearly
conveys the idea that Lizette was given the original copy of the
contract award to enable her to withdraw the rails as Romualdez's
authorized representative.

Article 1374 of the Civil Code provides that the various stipulations
of a contract shall be read and interpreted together, attributing to
the doubtful ones that sense which may result from all of them
taken jointly. In fine, the real intention of the parties is primarily to
be determined from the language used and gathered from the whole
instrument. When put into the context of the letter as a whole, it is
abundantly clear that the rights which Romualdez waived or ceded
in favor of Lizette were those in furtherance of the agency relation
that he had established for the withdrawal of the rails.

At any rate, any doubt as to the intent of Romualdez generated by

the way his letter was couched could be clarified by the acts of the
main players themselves. Article 1371 of the Civil Code provides
that to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered. In other words, in case of doubt, resort may be made to
the situation, surroundings, and relations of the parties.

The fact of agency was, as the trial court aptly observed, 5

confirmed in subsequent letters from the Angeles spouses in which
they themselves refer to Lizette as "authorized representative" of
San Juanico Enterprises. Mention may also be made that the
withdrawal receipt which Lizette had signed indicated that she was
doing so in a representative capacity. One professing to act as agent
for another is estopped to deny his agency both as against his
asserted principal and third persons interested in the transaction
which he engaged in.

Whether or not an agency has been created is a question to be

determined by the fact that one represents and is acting for
another. The appellate court, and before it, the trial court, had
peremptorily determined that Lizette, with respect to the withdrawal
of the scrap in question, was acting for Romualdez. And with the
view we take of this case, there were substantial pieces of evidence
adduced to support this determination. The desired reversal urged
by the petitioner cannot, accordingly, be granted. For, factual
findings of the trial court, adopted and confirmed by the CA, are, as
a rule, final and conclusive and may not be disturbed on appeal. 6 So
it must be here.

Petitioner maintains that the Romualdez letter in question was not

in the form of a special power of attorney, implying that the latter
had not intended to merely authorize his wife, Lizette, to perform an
act for him (Romualdez). The contention is specious. In the absence
of statute, no form or method of execution is required for a valid
power of attorney; it may be in any form clearly showing on its face
the agent's authority.7

A power of attorney is only but an instrument in writing by which a

person, as principal, appoints another as his agent and confers upon
him the authority to perform certain specified acts on behalf of the
principal. The written authorization itself is the power of attorney,
and this is clearly indicated by the fact that it has also been called a
"letter of attorney." Its primary purpose is not to define the
authority of the agent as between himself and his principal but to
evidence the authority of the agent to third parties with whom the
agent deals.8 The letter under consideration is sufficient to
constitute a power of attorney. Except as may be required by
statute, a power of attorney is valid although no notary public
intervened in its execution.9

A power of attorney must be strictly construed and pursued. The

instrument will be held to grant only those powers which are
specified therein, and the agent may neither go beyond nor deviate
from the power of attorney. 10 Contextually, all that Lizette was
authorized to do was to withdraw the unserviceable/scrap railings.
Allowing her authority to sue therefor, especially in her own name,
would be to read something not intended, let alone written in the
Romualdez letter.

Finally, the petitioner's claim that Lizette paid the amount of

P96,000.00 to the PNR appears to be a mere afterthought; it ought
to be dismissed outright under the estoppel principle. In earlier
proceedings, petitioner himself admitted in his complaint that it was
Romualdez who paid this amount.

WHEREFORE, the petition is DENIED and the assailed decision of

the CA is AFFIRMED.

Costs against the petitioner.

SO ORDERED.

Laureano T. Angeles vs. Philippine National Railways (PNR) and Rodolfo

Flores, August 31, 2006 G.R. No. 150128
Facts: Respondent Philippine National Railways (PNR) informed a certain
GaudencioRomualdez (Romualdez, hereinafter) that it has accepted the
latter’s offer to buythe PNR’s scrap/unserviceable rails located in Del Carmen
and Lubao, Pampanga at P1,300.00 and P2,100.00 per metric ton,
respectively, for the total amount of P96,600.00. Romualdez paid the
purchase price and addressed a letter to Atty. CiprianoDizon, PNR’s Acting
Purchasing Agent. The letter authorized LIZETTE R. WIJANCOto be his
(Romualdez) lawful representative in the withdrawal of the
scrap/unserviceable rails awarded to him. Furthermore, the original copy of
the award which indicates the waiver of rights, interest and participation in
favor of Lizetter R. Wijanco was also given.

The Lizette R. Wijanco was petitioner's now deceased wife. That very same
day, Lizette requested the PNR to transfer the location of withdrawal for the
reason that the scrap/unserviceable rails located in Del Carmen and Lubao,
Pampanga were not ready for hauling.The PNR granted said request and
allowed Lizette to withdraw scrap/unserviceable rails in Murcia, Capas and
San Miguel, Tarlac instead.

However, PNR subsequently suspended the withdrawal in view of what it

considered as documentary discrepancies coupled by reported pilferages of
over P500,000.00 worth of PNR scrap properties in Tarlac.Consequently, the
spouses Angeles demanded the refund of the amount of P96,000.00. The
PNR, however, refused to pay, alleging that as per delivery receipt duly signed
by Lizette, 54.658 metric tons of unserviceable rails had already been
withdrawn. The spouses Angeles filed suit against the PNR for specific
performance and damages before the Regional Trial Court.

Lizette W. Angeles passed away and was substituted by her heirs, among
whom is her husband, herein petitioner Laureno T. Angeles. The trial court, on
the postulate that the spouses Angeles are not the real parties-in-interest,
rendered judgment dismissing their complaint for lack of cause of action. As
held by the court, Lizette was merely a representative of Romualdez in the
withdrawal of scrap or unserviceable rails awarded to him and not an assignee
to the latter's rights with respect to the award. Petitioner appealed with the
Court of Appeals which dismissed the appeal and affirmed that of the trial
court.

Issue:
Whether or not the CA erred in affirming the trial court's holding that petitioner
and his spouse, as plaintiffs a quo, had no cause of action as they were not
the real parties-in-interest in this case.

Held: No.The CA’s conclusion, affirmatory of that of the trial court, is that
Lizette was not an assignee, but merely an agent whose authority was limited
to the withdrawal of the scrap rails, hence, without personality to sue.Where
agency exists, the third party's (in this case, PNR's) liability on a contract is to
the principal and not to the agent and the relationship of the third party to the
principal is the same as that in a contract in which there is no agent. Normally,
the agent has neither rights nor liabilities as against the third party. He cannot
thus sue or be sued on the contract.

Since a contract may be violated only by the parties thereto as against each
other, the real party-in-interest, either as plaintiff or defendant in an action
upon that contract must, generally, be a contracting party. The legal situation
is, however, different where an agent is constituted as an assignee. In such a
case, the agent may, in his own behalf, sue on a contract made for his
principal, as an assignee of such contract. The rulerequiring every action to be
prosecuted in the name of the real partyin-interest recognizes the assignment
of rights of action and also recognizesthat when one has a right assigned to
him, he is then the real party-in-interest and may maintain an action upon
such claim or right. WHEREFORE, the petition is DENIED and the assailed
decision of the CA is AFFIRMED.Costs against the petitioner.

G.R. No. L-12579 July 27, 1918

GREGORIO JIMENEZ, plaintiff-appellee,

vs.

PEDRO RABOT, NICOLASA JIMENEZ and her husband EMILIO

RODRIGUEZ, defendants.

PEDRO RABOT, appellant.

Antonio Bengson for appellant.

Jose Rivera for appellee.

STREET, J.:

This action was instituted by the plaintiff, Gregorio Jimenez, to recover from
the defendant, Pedro Rabot, a parcel of land situated in the municipality of
Alaminos, in the Province of Pangasinan, and described in the complaint as
follows:

Approximate area of three hectares; bounded on the north and west with land
of Pedro Reynoso, on the south with land of Nicolasa Jimenez, and on the
east with land of Calixta Apostol before, at present with that of Juan
Montemayor and Simon del Barrio. It is situated in Dinmayat Tancaran, barrio
of Alos of this same municipality of Alaminos, Pangasinan.

From a judgment rendered in favor of the plaintiff, Pedro Rabot has appealed;
but his co-defendants, Nicolasa Jimenez and her husband, who were cited by
the defendant for the purpose of holding her liable upon her warranty in case
of his eviction, have not appealed.

It is admitted that the parcel of land in question, together with two other
parcels in the same locality originally belonged of the heirs in the division of
the estate of his father. It is further appears that while Gregorio was staying at
Vigan, in the Province of Ilocos Sur, during the year 1911, his property in
Alaminos was confided by him to the care of his elder sister Nicolasa Jimenez.
On February 7 of that year he wrote this sister a letter from Vigan in which he
informed her that he was pressed for money and requested her to sell one of
his parcels of land and send him the money in order that he might pay his
debts. This letter contains no description of the land to be sold other than is
indicated in the words "one of my parcels of land" ("uno de mis terrenos").

Acting upon this letter Nicolasa approached the defendant Pedro Rabot, and
the latter agreed to buy the parcel in question for the sum of P500. Two
hundred and fifty peso were paid at once, with the understanding that a deed
of conveyance would be executed when the balance should be paid. Nicolasa
admits having received this payment of P250 at the time stated; but there is
no evidence that she sent any of it to her brother.

About one year later Gregorio came down to Alaminos and demanded that his
sister should surrender this piece of land to him, it being then in her
possession. She refused upon some pretext or other to do so; and as a result
Gregorio, in conjunction with others of his brothers and sisters, whose
properties were also in the hands of Nicolasa, instituted an action in the Court
of First Instance for the purpose of recovering their land from her control. This
action was decided favorably to the plaintiffs upon August 12, 1913; and no
appeal was taken from the judgment.

Meanwhile, upon May 31, 1912, Nicolasa Jimenez executed and delivered to
Pedro Rabot a deed purporting to convey to him the parcel of land which is
the subject of this controversy. The deed recites that the sale was made in
consideration of the sum of P500, the payment of which is acknowledged.
Pedro Rabot went into possession, and the property was found in his hands at
the time when final judgment was entered in favor of the plaintiffs in the action
above mentioned. It will thus be seen that Pedro Rabot acquired possession
under the deed from Nicolasa during the pendency of the litigation appear that
he was at the time cognizant of that circumstance.

In considering the questions presented by this appeal one or two preliminary

observations may be made. The first is that, as a matter of formality, a power
of attorney to convey real property ought to appear in a public document, just
as any other instrument intended to transmit or convey an interest in such
property ought to appear in a public document. (Art. 1280, Civil Code.) But
inasmuch as it is an established doctrine that a private document is competent
to create, transmit, modify, or extinguish a right in real property (Thunga Chui
vs. Que Bentec, 2 Phil. Rep., 561; Couto Soriano vs. Cortes, 8 Phil. Rep.,
459), it follows that a power of attorney to convey such property, even though
in the form of a private document, will operate with effect. Again, supposing
that the letter contained adequate authority for Nicolasa to sell the property in
question, her action in conveying the property in her own name, without
showing the capacity in which she acted, was doubtless irregular.
Nevertheless, such deed would in any event operate to bind her brother, the
plaintiff in its character as a contract (Lyon vs. Pollock, 99 U.S., 668; 25 L. ed.,
265), and supposing that the authority was sufficient, he could be compelled
by a proper judicial proceeding to execute a document to carry such contract
into effect. (Art. 1279, Civil Code.)

The principal question for consideration therefore in the end resolves itself into
this, whether the authority conferred on Nicolasa by the letter of February 7,
1911, was sufficient to enable her to bind her brother. The only provisions of
law bearing on this point are contained in article 1713 of the Civil Code and in
section 335 of the Code of Civil Procedure. Article 1713 of the Civil Code
requires that the authority to alienate land shall be contained in an express
mandate; while subsection 5 of section 335 of the Code of Civil Procedure
says that the authority of the agent must be in writing and subscribed by the
party to be charged. We are of the opinion that the authority expressed in the
letter is a sufficient compliance with both requirements.

It has been urged here that in order for the authority to be sufficient under
section 335 of the Code of Civil Procedure the authorization must contain a
particular description of the property which the agent is to be permitted to sell.
There is no such requirement in subsection 5 of section 335; and we do not
believe that it would be legitimate to read such a requirement into it. The
purpose in giving a power of attorney is to substitute the mind and hand of the
agent for the mind and hand of the principal; and if the character and extent of
the power is so far defined as to leave no doubt as to the limits within which
the agent is authorized to act, and he acts within those limits, the principal
cannot question the validity of his act. It is not necessary that the particular act
to be accomplished should be predestinated by the language of the power.
The question to be answered always, after the power has been exercised, is
rather this: Was the act which the agent performed within the scope of his
authority? In the case before us, if the question is asked whether the act
performed by Nicolasa Jimenez was within the scope of the authority which
had been conferred upon her, the answer must be obviously in the affirmative.

It should not escape observation that the problem with which we are here
concerned relates to the sufficiency of the power of attorney under subsection
5 of section 335 of the Code of Civil Procedure and not to the sufficiency of
the note or memorandum of the contract, or agreement of sale, required by
the same subsection, in connection with the first paragraph of the same
section. It is well-settled in the jurisprudence of England and the United States
that when the owner, or his agent, comes to make a contract to sell, or a
conveyance to effect a transfer, there must be a description of the property
which is the subject of the sale or conveyance. This is necessary of course to
define the object of the contract. (Brockway vs. Frost, 40 Minn., 155; Carr vs.
Passaic Land etc. Co., 19 N. J. Eq., 424; Lippincott vs. Bridgewater, 55 N. J.
Eq., 208; Craig vs. Zelian, 137 Cal., 105; 20 Cyc., 271.)

The general rule here applicable is that the description must be sufficiently
definite to identify the land either from the recitals of the contract or deed or
from external facts referred to in the document, thereby enabling one to
determine the identity of the land and if the description is uncertain on its face
or is shown to be applicable with equal plausibility to more than one tract, it is
insufficient. The principle embodied in these decisions is not, in our opinion,
applicable to the present case, which relates to the sufficiency of the
authorization, not to the sufficiency of the contract or conveyance. It is
unquestionable that the deed which Nicolasa executed contains a proper
description of the property which she purported to convey.
There is ample authority to the effect that a person may by a general power of
attorney an agent to sell "all" the land possessed by the principal, or all that he
possesses in a particular city, county, or state. (Roper vs. McFadden, 48 Cal.,
346; Rownd vs. Davidson, 113 La., 1047; Carson vs. Ray, 52 N. C., 609; 78
Am. Dec., 267; 31 Cyc., 1229.) It is also held that where a person authorizes
an agent to sell a farm ("my farm") in a certain county, this is sufficient, if it be
shown that such party has only one farm in that country. (Marriner vs.
Dennison, 78 Cal., 202.) In Linton vs. Moorhead (209 Pa. St., 646), the power
authorized the agent to sell or convey "any or all tracts, lots, or parcels" of
land belonging to the plaintiff. It was held that this was adequate. In Lyon vs.
Pollock (99 U.S., 668), the owner in effect authorized an agent to sell
everything he had in San Antonio Texas. The authority was held sufficient. In
Linan vs. Puno (31 Phil. Rep., 259), the authority granted was to the effect
that the agent might administer "the interests" possessed by the principal in
the municipality of Tarlac and to that end he was authorized to purchase, sell,
collect, and pay, etc. It was held that this was a sufficient power.
In the present case the agent was given the power to sell either of the parcels
of land belonging to the plaintiff. We can see no reason why the performance
of an act within the scope of this authority should not bind the plaintiff to the
same extent as if he had given the agent authority to sell "any or all" and she
had conveyed only one.

From what have been said it is evident that the lower court should have
absolved the defendant Pedro Rabot from the complaint. Judgment will
accordingly be reversed, without any express adjudication of costs this
instance. So ordered.

G.R. No. 138639 February 10, 2000

CITY-LITE REALTY CORPORATION, petitioner,

vs.

COURT OF APPEALS and F.P. HOLDINGS & REALTY CORP., METRO

DRUG INC., MELDIN AL G. ROY, VIEWMASTER CONSTRUCTION CORP.,
and the REGISTER OF DEEDS OF QUEZON CITY, respondent.

BELLOSILLO, J.:

This is a petition for review on certiorari filed by CITY-LITE REALTY

CORPORATION (CITY-LITE) seeking to annul the 20 October 1998 Decision
of the Court of Appeals1 which reversed the Decision of the Regional Trial
Court of Quezon City in its Civil Case No. Q-92-11068 declaring that a
contract of sale over the subject property was perfected and that Metro Drug
Inc. and Meldin Al G. Roy had the authority to sell the property.2

Private respondent F. P. HOLDINGS AND REALTY CORPORATION (F.P.

HOLDINGS), formerly the Sparta Holdings (Inc., was the registered owner of a
parcel of land situated along E. Rodriguez Avenue, Quezon City, also known
as the "Violago Property" or the "San Lorenzo Ruiz Commercial Center," with
an area of 71,754 square meters, more or less, and covered by Transfer
Certificate of Title No. T-19599. The property was offered for sale to the
general public through the circulation of a sales brochure containing the
following information:

A parcel of land including buildings and other improvements thereon located

along E. Rodriguez Avenue, Quezon City, with a total lot area of 71,754
square meters — 9,192 square meters in front, 23,332 square meters in the
middle, and 39,230 square meters at the back. But the total area for sale
excludes 5,000 square meters covering the existing chapel and adjoining
areas which be donated to the Archdiocese of Manila thus reducing the total
saleable area to 66,754 square meters. Asking price was P6,250.00/square
meter with terms of payment negotiable. Broker's commission was 2.0% of
selling price, net of withholding taxes and other charges. As advertised,
contact person was Meldin Al G. Roy, Metro Drug Inc., with address at 5/F
Metro House, 345 Sen. Gil Puyat Avenue, Makati City.

The front portion consisting of 9,192 square meters is the subject of this
litigation.

On 22 August 1991 respondent Meldin Al G. Roy sent a sales brochure,

together with the location plan and copy of the Transfer Certificate of Title No.
T-19599 of the Register of Deeds of Quezon City, to Atty. Gelacio Mamaril, a
practicing lawyer and a licensed real estate broker. Atty. Mamaril in turn
passed on these documents to Antonio Teng, Executive Vice-President, and
Atty. Victor P. Villanueva, Legal Counsel, of CITY-LITE.

In a letter dated 19 September 1991 sent to Metro Drug (ATTN: MELDIN AL

ROY) after an initial meeting with Meldin Al Roy that day, CITY-LITE
conveyed its interest to purchase a portion or one-half (1/2) of the front lot of
the "Violago Property. Apparently, Roy subsequently informed CITY-LITE's
representative that it would take time to subdivide the lot and respondent F.P.
HOLDINGS was not receptive to the purchase of only half of the front lot. After
a few days, Atty. Mamaril wrote Metro Drug (ATTN: MELDIN AL ROY)
expressing CITY-LITE's desire to buy the entire front lot of the subject
property instead of only half thereof provided the asking price of
P6,250.00/square meter was reduced and that payment be in installment for a
certain period. Roy made a counter offer dated 25 September 1991 as follows:

Dear Atty. Mamaril,

This has reference to your letter dated September 24, 1991 in

connection with the interest of your clients, Mr. Antonio Teng/City-
Lite Realty Corporation and/or any of their subsidiaries to buy a
portion of the Violago Property fronting E. Rodriguez Sr. Avenue
with an area of 9,192 square meters.

We are pleased to inform you that we are prepared to consider the

above offer subject to the following major terms and conditions: 1.
The price shall be P6,250.00/square meter or a total of
 P57,450,000.00; 2. The above purchase price shall be paid to the
owner as follows: (a) P15.0 Million downpayment; (b) balance
payable within six (6) months from date of downpayment without
interest. Should your client find the above major terms and
conditions acceptable, please advise us in writing by tomorrow,
September 26, 1991, so that we can start formal discussions on the
matter . . . .

Very truly yours,

MELDIN AL G. ROY

On 26 September 1991 CITY-LITE's officers and Atty. Mamaril met with Roy
at the Manila Mandarin Hotel in Makati to consummate the transaction. After
some discussions, the parties finally reached an agreement and Roy agreed
to sell the property to CITY-LITE provided only that the latter submit its
acceptance in writing to the terms and conditions of the sale as contained in
his letter of 25 September 1991. Later that afternoon after meeting with Roy at
the Manila Mandarin Hotel, Atty. Mamaril and Antonio Teng of CITY-LITE
conveyed their formal acceptance of the terms and conditions set forth by Roy
in separate letters both dated 26 September 1991.

However, for some reason or another and despite demand, respondent F.P.
HOLDINGS refused to execute the corresponding deed of sale in favor of
CITY-LITE of the front lot of the property. Upon its claim of protecting its
interest as vendee of the property in suit, CITY-LITE registered an adverse
claim to the title of the property with the Register of Deeds of Quezon City
which was annotated in the Memorandum of Encumbrance of Transfer
Certificate of Title No. T-19599 under Entry No. PE-1001 dated 27 September
1991.

On 30 September 1991 CITY-LITE's counsel demanded in writing that Metro

Drug (ATTN: MELDIN AL G. ROY) comply with its commitment to CITY-LITE
by executing the proper deed of conveyance of the property under pain of
court action. On 4 October 1991 F.P. HOLDINGS filed a petition for the
cancellation of the adverse claim against CITY-LITE with the Regional Trial
Court of Quezon City, docketed as LRC Case No. 91-10257, which was
raffled to Br. 84.

On 8 October 1991 Edwin Fernandez, President of F.P. HOLDINGS, in a

move to amicably settle with CITY-LITE, met with the latter's officers during
which he offered properties located in Caloocan City and in Quezon
Boulevard, Quezon City, as substitute for the property, but CITY-LITE refused
the offer because "it did not suit its business needs." With the filing of the
petition of F.P. HOLDINGS for the cancellation of the adverse claim, CITY-
LITE caused the annotation of the first notice of lis pendens which was
recorded in the title of the property under Entry No. 4605.

On 2 December 1991 the RTC-Br. 84 of Quezon City dismissed F.P.

HOLDINGS' petition declaring that CITY-LITE's adverse claim had factual
basis and was not "sham and frivolous." Meanwhile, F.P. HOLDINGS caused
the resurvey and segregation of the property and asked the Register of Deeds
of Quezon City to issue separate titles which the latter did on 17 January 1992
by issuing Transfer Certificate of Title No. T-51671.

Following the dismissal of F.P. HOLDINGS' petition for the cancellation of the
adverse claim, CITY-LITE instituted a complaint against F.P. HOLDINGS
originally for specific performance and damages and caused the annotation of
the second notice of lis pendens on the new certificate of title. After the
annotation of the second lis pendens, the property was transfered to
defendant VIEWMASTER CONSTRUCTION CORP. (VIEWMASTER) for
which Transfer Certificate of Title No. T-52398 was issued. However the
notice of lis pendens was carried over and annotated on the new certificate of
title.

In view of the conveyance during the pendency of the suit, the original
complaint for specific performance and damages was amended with leave of
court to implead VIEWMASTER as a necessary party and the Register of
Deeds of Quezon City as nominal defendant with the additional prayer for the
cancellation of VIEWMASTER's certificate of title. The case was thereafter
raffled to Br. 85 of the Regional Trial Court of Quezon City.
On 4 October 1995 the court a quo rendered its decision in favor of CITY-LITE
ordering F.P. HOLDINGS to execute a deed of sale of the property in favor of
CITY-LITE for the total consideration of P55,056,250.00 payable as follows:
P15 Million as downpayment to be payable immediately upon execution of the
deed of sale and the balance within six (6) months from downpayment,
without interest. The court also directed the Register of Deeds of of Quezon
City to cancel Transfer Certificate of Title No. T-52398 or any subsequent title
it had issued affecting the subject property, and to issue a new one in the
name of CITY-LITE upon the presentation of the deed of sale and other
requirements for the transfer. It likewise ordered the defendants, except
VIEWMASTER and the Register of Deeds of Quezon City, to pay CITY-LITE
jointly and severally P800,000.00 by way of nominal damage, P250,000.00 for
attorney's fees, and to pay the costs.

On 30 October 1995 VIEWMASTER filed a motion for reconsideration of the

decision of the lower court questioning its ruling that a perfected contract of
sale existed between CITY-LITE and F.P. HOLDINGS as there was no
definite agreement over the manner of payment of the purchase price, citing in
support thereof Toyota Shaw Inc. v. Court of Appeals.3 However the motion
for reconsideration was denied.

In the challenged Decision of 20 October 1998 the Court of Appeals reversed

and set aside the judgment of the Regional Trial Court of Quezon City. On 10
May 1999 the Court of Appeals denied CITY-LITE's motion to reconsider its
decision.

Petitioner CITY-LITE is now before us assailing the Court of Appeals for

declaring that no contract of sale was perfected between it and respondent
F.P. HOLDINGS because of lack of a definite agreement on the manner of
paying the purchase price and that respondents Metro Drug and Meldin Al G.
Roy were not authorized to sell the property to CITY-LITE, and that the
authority of Roy was only limited to that of a mere liaison or contact person.

We cannot sustain petitioner. On the issue of whether a contract of sale was

perfected between petitioner CITY-LITE and respondent F.P. HOLDINGS
acting through its agent Meldin Al G. Roy of Metro Drug, Art. 1874 of the Civil
Code provides: "When the sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing; otherwise, the
sale shall be void." Petitioner anchors the authority of Metro Drug and Meldin
Al G. Roy on (a) the testimonies of petitioner's three (3) witnesses and the
admissions of Roy and the lawyer of Metro Drug; (b) the sales brochure
specifying Meldin Al G. Roy as a contact person; (c) the guard posted at the
property saying that Metro Drug was the authorized agent; and, (d) the
common knowledge among brokers that Metro Drug through Meldin Al G. Roy
was the authorized agent of F.P. HOLDINGS to sell the property. However,
and more importantly, the Civil Code requires that an authority to sell a piece
of land shall be in writing. The absence of authority to sell can be determined
from the written memorandum issued by respondent F.P. HOLDINGS'
President requesting Metro Drug's assistance in finding buyers for the
property. The memorandum in part stated: "We will appreciate Metro Drug's
assistance in referring to us buyers for the property. Please proceed to hold
preliminary negotiations with interested buyers and endorse formal offers to us
for our final evaluation and appraisal." This obviously meant that Meldin Al G.
Roy and/or Metro Drug was only to assist F.P. HOLDINGS in looking for
buyers and referring to them possible prospects whom they were supposed to
endorse to F.P. HOLDINGS. But the final evaluation, appraisal and
acceptance of the transaction could be made only by F.P. HOLDINGS. In
other words, Meldin Al G. Roy and/or Metro Drug was only a contact person
with no authority to conclude a sale of the property. In fact, a witness for
petitioner even admitted that Roy and/or Metro Drug was a mere broker, 4 and
Roy's only job was to bring the parties together for a possible transaction. 5
Consequently, we hold that for lack of a written authority to sell the "Violago
Property" on the part of Meldin Al G. Roy and/or Metro Drug, the sale should
be as it is declared null and void. Therefore the sale could not produce any
legal effect as to transfer the subject property from its lawful owner, F.P.
HOLDINGS, to any interested party including petitioner CITY-LITE.

WHEREFORE, the appealed Decision of the Court of Appeals being in accord

with law and the evidence is AFFIRMED. Costs against petitioner CITY-LITE
REALTY CORPORATION.1âwphi1.nêt

SO ORDERED.

COSMIC LUMBER CORPORATION, petitioner,

vs.
COURT OF APPEAL and ISIDRO PEREZ, respondents
BELLOSILLO, J.
FACTS

COSMIC LUMBER CORPORATION through its General Manager executed

on 28 January 1985 a Special Power of Attorney appointing Paz G. Villamil-
Estrada as attorney-in-fact to initiate, institute and file any court action for the
ejectment of third persons and/or squatters of the entire lot… and enter into
any stipulation of facts and/or compromise agreement so far as it shall protect
the rights and interest of the corporation in the aforementioned lots.
Paz G. Villamil-Estrada, by virtue of her power of attorney, instituted an action
for the ejectment of private respondent Isidro Perez and recover the
possession of a portion of Lot No. 443 before the Regional Trial Court of
Dagupan.
Villamil-Estrada entered into a Compromise Agreement with respondent Perez
to buy peace said efendant pays unto the plaintiff through herein attorney-in-
fact the sum of P26,640.00 computed at P80.00/square meter.

The "Compromise Agreement" was approved by the trial court and judgment
was rendered in accordance therewith.

Although the decision became final and executory it was not executed within
the 5-year period from date of its finality allegedly due to the failure of Cosmic
Lumber to produce the owner's duplicate copy of Title No. 37649 needed to
segregate from Lot No. 443 the portion sold by the attorney-in-fact, Paz G.
Villamil-Estrada, to Perez under the compromise agreement. Perez filed a
complaint to revive the judgment.

Forthwith, upon learning of the fraudulent transaction, Cosmic Lumber sought

annulment of the decision of the trial court before Court of Appeals on the
ground that the compromise agreement was void because:
(a) the attorney-in-fact did not have the authority to dispose of, sell, encumber
or divest the plaintiff of its ownership over its real property or any portion
thereof;
(b) the authority of the attorney-in-fact was confined to the institution and filing
of an ejectment case against third persons/squatters on the property of the
plaintiff, and to cause their eviction therefrom;
(c) while the special power of attorney made mention of an authority to enter
into a compromise agreement, such authority was in connection with, and
limited to, the eviction of third persons/squatters thereat, in order that "the
corporation may take material possession of the entire lot
ISSUES

1. WON the attorney-in-fact exceeded her authority in entering to the subject

Compromise Agreement.
2. WON judgment based on a void Compromise Agreement should be
nullified.
HELD

CA
1. No.

Court of Appeals dismissed the complaint on the basis of its finding that not
one of the grounds for annulment, namely, lack of jurisdiction, fraud or
illegality was shown to exist.
It also denied the motion for reconsideration filed by petitioner, discoursing
that the alleged nullity of the compromise judgment on the ground that
petitioner's attorney-in-fact Villamil-Estrada was not authorized to sell the
subject property may be raised as a defense in the execution of the
compromise judgment as it does not bind petitioner, but not as a ground for
annulment of judgment because it does not affect the jurisdiction of the trial
court over the action nor does it amount to extrinsic fraud.
SC
1. Yes.

The authority granted Villamil-Estrada under the special power of attorney was
explicit and exclusionary: for her to institute any action in court to eject all
persons found on Lots Nos. 9127 and 443 so that petitioner could take
material possession thereof, and for this purpose, to appear at the pretrial and
enter into any stipulation of facts and/or compromise agreement but only
insofar as this was protective of the rights and interests of petitioner in the
property. Nowhere in this authorization was Villamil-Estrada granted expressly
or impliedly any power to sell the subject property nor a portion thereof.
Neither can a conferment of the power to sell be validly inferred from the
specific authority "to enter into a compromise agreement" because of the
explicit limitation fixed by the grantor that the compromise entered into shall
only be "so far as it shall protect the rights and interest of the corporation in
the aforementioned lots."

2. Yes.

A judgment based on a compromise entered into by an attorney without

specific authority from the client is void. Such judgment may be impugned and
its execution restrained in any proceeding by the party against whom it is
sought to be enforced.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition
the Court of Appeals to annul and set aside judgments of Regional Trial
Courts. 16 "Thus, the Intermediate Appellant Court (now Court of Appeals)
shall exercise . . . (2) Exclusive original jurisdiction over action for annulment
of judgments of the Regional Trial Courts . . ." However, certain requisites
must first be established before a final and executory judgment can be the
subject of an action for annulment. It must either be void for want of
jurisdiction or for lack of due process of law, or it has been obtained by fraud.

It would also appear, and quite contrary to the finding of the appellate court,
that the highly reprehensible conduct of attorney-in-fact Villamil-Estrada in
Civil Case No. 7750 constituted an extrinsic or collateral fraud by reason of
which the judgment rendered thereon should have been struck down. Not all
the legal semantics in the world can becloud the unassailable fact that
petitioner was deceived and betrayed by its attorney-infact, Villamil-Estrada
deliberately concealed from petitioner, her principal, that a compromise
agreement had been forged with the end-result that a portion of petitioner's
property was sold to the deforciant, literally for a song. Thus completely kept
unaware of its agent's artifice, petitioner was not accorded even a fighting
chance to repudiate the settlement so much so that the judgment based
thereon became final and executory.
SAN JUAN STRUCTURAL FABRICATORS VS CA (296 SCRA 631)

San Juan Structural and Steel Fabricators, Inc. vs Court of Appeals

296 SCRA 631 [GR No. 129459 September 29, 1998]

Facts: Plaintiff-appellant San Juan structural and steel fabricators Inc.’s

amended complaint alleged that on February 14, 1989, plaintiff-appellant
entered into an agreement with defendant-appellee Motorich Sales
Corporation for the transfer to it of a parcel of land identified as lot 30,
Block 1 of the Acropolis Greens Subdivision located in the district of
Murphy, Quezon City, Metro Manila containing an area of 414 sqm,
covered by TCT no. 362909; that as stipulated in the agreement of
February 14, 1i989, plaintiff-appellant paid the down payment in the sum
of P100,000, the balance to be paid on or before March 2, 19889; that on
March 1, 1989,Mr. Andres T. Co, president of Plaintiff-appellant
corporation, wrote a letter to defendant-appellee Motorich Sales
Corporation requesting a computation for the balance to be paid; that said
letter was coursed through the defendant-appellee’s broker. Linda Aduca
who wrote the computation of the balance; that on March 2, 1989,
plaintiff-appellant was ready with the amount corresponding to the
balance, covered by Metrobank cashier’s check no. 004223 payable to
defendant-appellee Motorich Sales Corporation; that plaintiff-appellant
and defendant-appellee were supposed to meet in the plaintiff-appellant’s
office but defendant-appellee’s treasurer, Nenita Lee Gruenbeg did not
appear; that defendant-appelle despite repeated demands and in utter
disregard of its commitments had refused to execute the transfer of
rights/deed of assignment which is necessary to transfer the certificate of
title; that defendant ACL development corporation is impleaded as a
necessary party since TCT no. 362909 is still in the name of said
defendant; while defendant VNM Realty and Development Corporation is
likewise impleaded as a necessary party in view of the fact that it is the
transferor of the right in favor of defendant-appellee Motorich Sales
Corporation; that on April 6, 1989 defendant ACL Development
Corporation and Motorich Sales Corporation entered into a deed of
absolute sale whereby the former transferred to the latter the subject
property; that by reason of said transfer; the registry of deeds of Quezon
City issued a new title in the name of Motorich Sales Corporation,
represented by defendant-appellee Nenita Lee Gruenbeg and Reynaldo L.
Gruenbeg, under TCT no. 3751; that as a result of defendants-appellees
Nenita and Motorich’s bad faith in refusing to execute a formal transfer of
rights/deed of assignment, plaintiff-appellant suffered moral and nominal
damages which may be assessed against defendant-appellees in the sum
of P500,000; that as a result of an unjustified and unwarranted failure to
execute the required transfer or formal deed of sale in favor of plaintiff-
appellant, defendant-appellees should be assessed exemplary damages in
the sum of P100,000; that by reason of the said bad faith in refusing to
execute a transfer in favor of plaintiff-appellant the latter lost opportunity
to construct a residential building in the sum of P100,000 and that as a
consequence of such bad faith, it has been constrained to obtain the
services of counsel at an agreed fee of P100,000 plus appearance fee of for
every appearance in court hearings.

Issues: Whether or not the corporation’s treasurer act can bind the
corporation.

Whether or not the doctrine of piercing the veil of corporate entity is

applicable.

Held: No. Such contract cannot bind Motorich, because it never

authorized or ratified such sale.

A corporation is a juridical person separate and distinct from its

stockholders or members. Accordingly, the property of the corporation is
not the property of the corporation is not the property of its stockholders
or members and may not be sold by the stockholders or members without
express authorization from the corporation’s board of directors.

Section 23 of BP 68 provides the Board of Directors or Trustees – Unless

otherwise provided in this code, the corporate powers of all corporations
formed under this code shall be exercised, all business conducted, and all
property of such corporations controlled and held by the board of
directors or trustees to be elected from among the stockholders of stocks,
or where there is no stock, from among the members of the corporations,
who shall hold office for 1 year and until their successors are elected and
qualified.
As a general rule, the acts of corporate officers within the scope of their
authority are binding on the corporation. But when these officers exceed
their authority, their actions, cannot bind the corporation, unless it has
ratified such acts as is estopped from disclaiming them.

Because Motorich had never given a written authorization to respondent

Gruenbeg to sell its parcel of land, we hold that the February 14, 1989
agreement entered into by the latter with petitioner is void under Article
1874 of the Civil Code. Being inexistent and void from the beginning, said
contract cannot be ratified.

The statutorily granted privilege of a corporate veil may be used only for
legitimate purposes. On equitable consideration,the veil can be
disregarded when it is utilized as a shield to commit fraud, illegality or
inequity, defeat public convenience; confuse legitimate issues; or serve as
a mere alter ego or business conduit of a person or an instrumentality,
agency or adjunct of another corporation.

We stress that the corporate fiction should be set aside when it becomes a
shield against liability for fraud, or an illegal act on inequity committed on
third person. The question of piercing the veil of corporate fiction is
essentially, then a matter of proof. In the present case, however, the court
finds no reason to pierce the corporate veil of respondent Motorich.
Petitioner utterly failed to establish the said corporation was formed, or
that it is operated for the purpose of shielding any alleged fraudulent or
illegal activities of its officers or stockholders; or that the said veil was
used to conceal fraud, illegality or inequity at the expense of third persons
like petitioner.

G.R. No. 129103 September 3, 1999

CLAUDIO DELOS REYES and LYDIA DELOS REYES, petitioners,

vs.
THE HON. COURT OF APPEALS and DALUYONG GABRIEL, substituted
by his heirs, namely: MARIA LUISA G. ESTEBAN, MARIA RITA G.
BARTOLOME & RENATO GABRIEL, respondents.
GONZAGA-REYES, J.:
In this petition for review on certiorari, petitioners seek to set aside the
Decision 1 of the Court of Appeals 2 in CA-G.R. CV No. 36955 reversing the
consolidated Decision 3 of the Regional Trial Court, Branch I, Tagum, Davao
del Norte in Civil Case Nos. 2326 and 2327.
This petition was originally filed with the Court on June 16, 1997. In a
Resolution (of the Third Division) dated October 13, 1997, 4 the petition was
denied for failure to show that the respondent Court of Appeals committed any
reversible error. However, the motion for reconsideration filed by petitioners
on November 14, 1997 was granted by the Court in its Resolution dated
December 03, 1997 5 and the petition was reinstated.
The antecedents are:
Not satisfied with the decision of the Court of Appeals, petitioners came to this
Court by way of petition for review, alleging that:
a. The Court of Appeals gravely abused its discretion in overlooking facts
extant in the record;
b. The Court of Appeals erred in not finding the document of sale and receipts
(exhibits for the herein Petitioners), as valid and enforceable;
c. The Court of Appeals erred in its apprehension and appreciation of the
undisputed facts for the Petitioners;
d. The Court of Appeals erred in making speculative conclusions on the facts
of the case;
e. The Court of Appeals erred in reversing the Decision of the Regional Trial
Court based on credible, relevant and material evidence adduced by the
Petitioners in the lower court. 11
Petitioners aver that respondent Court of Appeals gravely abused its
discretion when it totally disregarded the oral and documentary evidence
adduced by appellees, and in giving credence to the oral testimonies of
appellants, which are replete with inconsistencies and contradictions.
Petitioners cite specifically Exhibits "1" to "19" consisting of a contract of lease
involving the subject property and certain official receipts with the letterhead
"Gabriel Building" showing payments received (by Renato Gabriel) for the
lease and/or sale of portions of subject real property of Daluyong Gabriel e.g.
sale by installment of portion (700 square meters) of land to spouses Ruben
Carriedo and Abdula Sanducan (Exhs. 13, 14, 15 & 16) and lease (Exhs. 3-3-
BBBB, 5, 6 & 7) and sale (Exhs. 8, 9, 10, 11 & 12) of land made by Renato
Gabriel to petitioners-spouses. In other words, respondent Court of Appeals
"gravely abused its discretion" in the misapprehension and misappreciation of
the facts of the case and in going beyond the issues involved contrary to the
admissions of both the appellants and appellees. And since the appellate
court's findings of facts contradict that of the trial court a thorough review
thereof by the Supreme Court is necessary.
In their Comment, private respondents restated their arguments to support the
appellate court's conclusion that the alleged sale made by Renato Gabriel to
the petitioners in 1987 without authority from Daluyong Gabriel is not valid and
therefore unenforceable.
Petitioners submitted their Reply to the Comment contending that the assailed
decision of the Court of Appeals is "patently fallacious" in that while
petitioners' payment to Renato Gabriel of the amount of P90,000.00 as
purchase price of the three hundred (300) square meter portion of subject land
was neither denied nor controverted, the appellate court's decision failed to
order private respondent Renato Gabriel to refund or reimburse petitioners the
said amount together with the value of the improvements and the two-storey
commercial building which petitioners constructed thereon in violation of
Articles 2142, 2143 and 2154 of the Civil Code and the time-honored principle
of substantial justice and equity.
Petitioners allege further that even if Renato Gabriel was not (yet) the owner
of the subject portion of land when he sold the same to petitioners, after the
death of his parents Daluyong and Fe Gabriel, he, as heir, inherited and
succeeded to the ownership of said portion of land by operation of law thereby
rendering valid and effective the sale he executed in favor of petitioners.
Petitioners also maintain that on the basis of the facts proven and admitted
during the trial, Daluyong Gabriel appears to have not only authorized his son
Renato Gabriel to sell the subject portion of land but also ratified the
transaction by his contemporaneous conduct and actuations shown during his
lifetime.
In their respective memorandum submitted by petitioners and private
respondents, substantially the same arguments/contentions were raised.
Petitioners maintain that the sale is valid or validated pursuant to Articles 1433
and 1434 of the Civil Code and identified the legal issues involved as follows:
1. Whether or not the sale by respondent Renato Gabriel of the land
registered in the name of his deceased father Daluyong Gabriel, during the
lifetime of the latter, in favor of the herein petitioners, by operation of law,
automatically vests title on the latter under the principle of estoppel as
provided for in Arts. 1433 and 1434 of the New Civil Code;
2. Whether or not the sale by Renato Gabriel of the land registered in the
name of his deceased father during the lifetime of the latter, to the herein
petitioners is null and void. 12
On the other hand, private respondents contend that the petition has no legal
or factual basis. It is argued that petitioners changed their theory of the case in
that while in the regional trial court, petitioners claim that the subject property
was sold to them by the late Daluyong Gabriel through his son Renato
Gabriel, in the instant petition, they claim that it was Renato Gabriel who sold
the property to them and that although at that time, Renato was not yet the
owner of the property, he is nonetheless obligated to honor the sale and to
convey the property to the petitioners because after the death of Daluyong
Gabriel, Renato became the owner of the subject property by way of
hereditary succession. According to private respondents, litigants are barred
from changing their theory, more especially so in the appeal, and that the only
issue to be resolved in the instant petition is whether or not Renato Gabriel
can be compelled to convey the subject property to petitioners. Private
respondents maintain that Renato Gabriel cannot be compelled to convey
subject property (to petitioners) because the land never passed on to Renato
either before or after the death of Daluyong Gabriel and that the whole
property is now owned by Ma. Rita G. Bartolome per Transfer Certificate of
Title No. T-68674 entered in the Registry of Deeds of Davao del Norte on
January 10, 1991. 13 In short, Renato Gabriel cannot convey that which does
not belong to him. 14
Essentially, the issue here is whether or not the verbal agreement which
petitioners entered into with private respondent Renato Gabriel in 1987
involving the sale of the three hundred (300) square meter portion of land
registered in the name of Renato's late father Daluyong Gabriel is a valid and
enforceable contract of sale of real property.
The trial court held that the oral contract of sale was valid and enforceable
stating that while it is true that at the time of the sale, Renato Gabriel was not
the owner and that it was Daluyong Gabriel who was the registered owner of
the subject property, Daluyong Gabriel knew about the transaction and tacitly
authorized his son Renato Gabriel (whom he earlier designated as
administrator of his 5,010 square meter registered property) to enter into it.
The receipt by Renato Gabriel of the P90,000.00 paid by petitioner spouses
as purchase price of subject portion of land 25 and also of the amount of
P14,000.00 paid by petitioners as advance rental fee for the lease of one
hundred seventy six (176) square meters thereof, in accordance with the then
still existing Contract of Lease (Exh. 10) entered into by Renato Gabriel as
Lessor and Lydia delos Reyes as lessee on September 26, 1985 which was to
expire only on June 15, 1991 was also known not only to Daluyong Gabriel
but also to his late wife Fe Salazar Gabriel and his two other children, Maria
Luisa Gabriel Esteban and Maria Rita Gabriel Bartolome. And even assuming
that Daluyong Gabriel did not expressly authorize Renato Gabriel to enter into
such contract of sale with petitioners in 1988, he (Daluyong Gabriel)
confirmed/ratified the same by his contemporaneous conduct and actuations
shown during his lifetime. More importantly, the trial court noted that Daluyong
never presented Renato during the entire proceedings, despite evidence 26
which tends to show that Renato Gabriel was not missing nor were his
whereabouts unknown as Daluyong wanted to impress the trial court, but had
all the while been staying at the Daluyong Gabriel residence at 185 I. Lopez
St., Mandaluyong City but was deliberately prevented (by Daluyong) from
testifying or shedding light on the transactions involved in the two cases then
at bar. Hence, the decision of the trial court ordered Daluyong Gabriel, Renato
Gabriel, Maria Luisa G. Esteban and Maria Rita G. Bartolome to execute a
Deed of Conveyance and other necessary documents in favor of petitioners
covering subject area of 300 square meters to be taken from the 5,010 square
meters covered by TCT No. T-17932 under the name of Daluyong Gabriel
which portion is actually occupied by petitioners Delos Reyes couple.
The Court of Appeals, on the other hand, ruled that the contract of sale cannot
be upheld, mainly because Renato Gabriel, as vendor, did not have the legal
capacity to enter and to give consent to the agreement, he, being neither the
authorized agent (of Daluyong Gabriel) nor the owner of the property subject
of the sale. It was pointed out that three theories were advanced by appellees
to prove that the transaction they had with Renato concerning the sale of the
portion in question was regular, valid and enforceable. First theory is that
Renato acted as the duly authorized representative or agent of Daluyong.
Second, that the portion in dispute was already given to Renato as his share,
hence, he validly sold the same to appellees. And third, that the portion being
litigated was part of Renato's inheritance from the estate of her deceased
mother which he validly disposed of to appellees. These reasons, according to
the appellate court, cannot go together, or even complement each other, to
establish the regularity, validity or enforceability of the sale made by Renato. It
could not be possible for Renato to have acted in three different capacities —
as agent, owner, and heir — when he dealt with appellees, as the legal
consequences for each situation would be different. Thus, it was incumbent
upon appellees to explain what actually convinced them to buy the land from
Renato, and because they failed to do so, no proper basis can be found to
uphold the alleged sale made by Renato as it cannot be determined with
certainty in what capacity Renato acted. And even assuming that he (Renato)
already succeeded to whatever hereditary right or participation he may have
over the estate of his father, he is still considered a co-owner with his two
sisters of the subject property and that prior to its partition, Renato cannot
validly sell or alienate a specific or determinate part of the property owned in
common. Besides, the entire lot covered by TCT No. T-17932 was
subsequently donated by Daluyong Gabriel to his daughter Marie Rita G.
Bartolome on October 1, 1990 and is now covered by TCT No. T-68674 in her
name. 27 Hence, the appellate court's decision ordered appellees (petitioners)
spouses Claudio and Lydia delos Reyes to immediately vacate the 300 square
meter portion of that land covered by TCT No. T-17932 which they are
occupying and to turn-over possession thereof to the appellants, private
respondents herein.
We agree with the conclusion of the Court of Appeals that Renato Gabriel was
neither the owner of the subject property nor a duly designated agent of the
registered owner (Daluyong Gabriel) authorized to sell subject property in his
behalf, and there was also no sufficient evidence adduced to show that
Daluyong Gabriel subsequently ratified Renato's act. In this connection it must
be pointed out that pursuant to Article 1874 of the Civil Code, when the sale of
a piece of land or any interest therein is through an agent, the authority of the
latter shall be in writing; otherwise the sale shall be void. In other words, for
want of capacity (to give consent) on the part of Renato Gabriel, the oral
contract of sale lacks one of the essential requisites for its validity prescribed
under Article 1318, supra and is therefore null and void ab initio.
Petitioners' contention that although at the time of the alleged sale, Renato
Gabriel was not yet the owner of the subject portion of land, after the death of
Daluyong Gabriel, he (Renato) became the owner and acquired title thereto by
way of hereditary succession which title passed by operation of law to
petitioners pursuant to Article 1434 of the Civil Code 32 is not tenable. Records
show that on October 1, 1990 Daluyong Gabriel donated the entire lot covered
by TCT No. T-17932 to his daughter Maria Rita G. Bartolome and the property
is now covered by TCT No. T-68674 in her name. This means that when
Daluyong Gabriel died on September 14, 1995, he was no longer the owner of
the subject property. Accordingly, Renato Gabriel never acquired ownership or
title over any portion of said property as one of the heirs of Daluyong Gabriel.
However, petitioners' claim for the refund to them of P1,000,000.00
representing the alleged value and cost of the two-storey commercial building
they constructed on subject portion of land cannot be favorably considered as
no sufficient evidence was adduced to prove and establish the same.
WHEREFORE, the decision of the Court of Appeals dated April 30, 1997 in
CA-G.R. CV No. 36955 is hereby AFFIRMED in so far as it declared the oral
contract of sale entered into by Renato Gabriel of portion of the 5,010 square
meter parcel of land registered in the name of Daluyong Gabriel in favor of
petitioners, null and void. Renato Gabriel is hereby ordered to refund to
petitioners the amount of P90,000.00 which was given in payment for subject
land. No pronouncement as to costs.
SO ORDERED.
As a general rule, the findings of fact of the Court of Appeals are binding upon
this Court. 28 When such findings of fact are the same and confirmatory of
those of the trial court, they are final and conclusive and may not be reviewed
on appeal. 29 In such cases, the authority of the Supreme Court is confined to
correcting errors of law, if any, that might have been committed below. 30 In
the instant case, it is noted that the trial court and the Court of Appeals are not
at variance in their factual findings that sometime in 1988, an oral contract of
sale was entered into by Renato Gabriel, (as vendor) with petitioners De los
Reyes couple (as vendees) involving a 300 square meter portion of a 5,010
square meter parcel of land located in Barrio Magugpo, Tagum, Davao del
Norte owned and registered under Transfer Certificate of Title No. T-17932 in
the name of Daluyong Gabriel, father of Renato. Thus, this Court is tasked to
review and determine whether or not respondent Court of Appeals committed
an error of law 31 in its legal conclusion that at the time the parties entered into
said oral agreement of sale, Renato Gabriel as the purported vendor, did not
have the legal capacity to enter and/or to give consent to the sale.

However, respondent Court of Appeals failed to consider the undisputed fact

pointed out by the trial court that petitioners had already performed their
obligation under subject oral contract of sale, i.e. completing their payment of
P90,000.00 representing the purchase price of the 300 square meter portion
of land. As was held in "Nool vs. Court of Appeals" 33 if a void contract has
been performed, the restoration of what has been given is in order. The
relationship between parties in any contract even if subsequently voided must
always be characterized and punctuated by good faith and fair dealing. 34
Hence, for the sake of justice and equity, and in consonance with the salutary
principle of non-enrichment at another's expense, 35 private respondent
Renato Gabriel, should be ordered to refund to petitioners the amount of
P90,000.00 which they have paid to and receipt of which was duly
acknowledged by him. It is the policy of the Court to strive to settle the entire
controversy in a single proceeding leaving no root or branch to bear the seeds
of future litigation especially where the Court is in a position to resolve the
dispute based on the records before it and where the ends of justice would not
likely be subserved by the remand thereof, to the lower Court. The Supreme
Court is clothed with ample authority to review matters, even those not raised
on appeal if it finds that their consideration is necessary in arriving at a just
disposition of the case. 36

1. Private respondent Daluyong Gabriel, (who died on September 14, 1995

and was substituted herein by his children RENATO GABRIEL, MARIA LUISA
B. ESTEBAN and MARIA RITA G. BARTOLOME) was the registered owner
under Transfer Certificate of Title No. T-17932 of the Registry of Deeds of
Tagum, Davao del Norte of a 5,010 square meter parcel of land situated in
Barrio Magugpo, Tagum, Davao del Norte, 6 having acquired the same by
hereditary succession sometime in 1974 as one of the children and heirs of
the late Maximo Gabriel.
2. Because Daluyong Gabriel together with his family was then residing in
Mandaluyong, Metro Manila, his sister Maria Rita Gabriel de Rey acted as
administratrix of the said parcel of land and took charge of collecting the
rentals for those portions which have been leased to certain tenants/lessees.
One of these lessees is LYDIA DE LOS REYES who by virtue of a Contract of
Lease executed on June 21, 1985 by and between Maria Rita G. de Rey as
lessor and Lydia de los Reyes as lessee, leased a portion of One Hundred
Seventy Six (176) square meters for a term of one year beginning June 15,
1985 renewable upon agreement of the parties at the rental rate of Two
Hundred (P200.00) pesos, per month. 7
3. Sometime in 1985 Daluyong Gabriel sent his son Renato Gabriel to Tagum
reportedly with instructions to take over from Maria Rita G. de Rey as
administrator of the said parcel of land. Upon agreement of the parties, the
June 21, 1985 Contract of Lease covering the one hundred seventy-six
square meter portion of land was novated and replaced by a Contract of
Lease executed on September 26, 1985 by and between RENATO GABRIEL
as Lessor and Lydia de los Reyes as Lessee. 8 The term of the lease was
changed to six (6) years from and after June 15, 1985 or up to June 15, 1991;
receipt of the payment in advance of the total rental amount of Fourteen
Thousand Four Hundred (P14,400.00) Pesos was acknowledged by Lessor
Renato Gabriel.
4. Sometime in November 1987, during the effectivity of the lease contract,
Lydia de los Reyes verbally agreed to buy two hundred fifty (250) square
meters (including the 176 square meters leased by her), and thereafter an
additional fifty (50) square meters or a total of three hundred (300) square
meters of Daluyong Gabriel's registered property, at three hundred pesos
(P300.00) per square meter or for a total amount of P90,000.00. Receipt of
the payment of the purchase price made in several installments by Lydia de
los Reyes was acknowledged by Renato Gabriel as evidenced by official
receipts issued and signed by him dated November 25, 1987, November 26,
1987, January 8, 1988, February 10, 1988, February 15, 1988 and February
29, 1988 all bearing the letter head "Gabriel Building." No deed of sale was
executed covering the transaction. Purchaser Lydia de los Reyes however
proceeded with the construction of a two-storey commercial building on the
said 300 square meter lot after obtaining a building permit from the Engineer's
Office in Tagum.
5. Acting on the information given by his daughter Maria Luisa Gabriel
Esteban upon the latter's return from a trip to Tagum that spouses Claudio
and Lydia de los Reyes were constructing a two-storey building on a portion of
his land, Daluyong Gabriel, through his lawyer, sent a letter on August 30,
1989 to the De los Reyes couple demanding that they cease and desist from
continuing with their construction and to immediately vacate the premises,
asserting that the construction was unauthorized and that their occupancy of
the subject portion was not covered by any lease agreement.
6. On September 20, 1989, spouses Claudio and Lydia de los Reyes through
counsel sent their letter reply explaining that the De los Reyeses are the
innocent party who entered into the lease agreement and subsequent sale of
subject portion of land in good faith and upon the assurance made by the
former administratrix, Maria Rita G. Rey, her nephew Tony Rey, Mrs. Fe S.
Gabriel and Mr. Daluyong Gabriel himself that Renato Gabriel is the new
administrator authorized to enter into such agreements involving the subject
property.
7. Dissatisfied with the explanation, Daluyong Gabriel commenced an action
on November 14, 1989 against spouses Claudio and Lydia de los Reyes for
the recovery of the subject portion of land before the Regional Trial Court,
Branch 1, Tagum, Davao del Norte docketed as Civil Case No. 2326. In his
complaint Daluyong maintained that his son Renato was never given the
authority to lease nor to sell any portion of his land as his instruction to him
(Renato) was merely to collect rentals.
8. Spouses Claudio and Lydia delos Reyes countered that the sale to them of
the subject portion of land by Renato Gabriel was with the consent and
knowledge of Daluyong, his wife Fe and their other children, and filed before
the same trial court a complaint for specific performance, docketed as Civil
Case No. 2329 against Daluyong and his children, namely Renato Gabriel,
Maria Luisa Gabriel Esteban and Maria Rita Gabriel Bartolome praying that
the defendants therein be ordered to execute the necessary deed of
conveyance and other pertinent documents for the transfer of the 300 square
meter portion they previously bought from Renato.
9. Civil Case Nos. 2326 and 2327 were heard jointly and on September 10,
1991 the trial court rendered a consolidated decision, the dispositive portion 9
of which reads:
WHEREFORE premises considered, Daluyong Gabriel, Renato Gabriel, Maria
Luisa Esteban and Maria Rita G. Bartolome are hereby ordered to execute a
Deed of Conveyance and other necessary documents in favor of Claudio
delos Reyes and Lydia delos Reyes over an area of 300 square meters from
TCT No T-17932 comprising of 5,010 square meters located at Tagum, Davao
which portion is presently occupied by Delos Reyes couple.
SO ORDERED.
10. On appeal by the Gabriels, the Court of Appeals reversed and set aside
the decision of the Regional Trial Court and rendered a new one "ORDERING
appellee spouses Claudio and Lydia delos Reyes to immediately vacate the
300 square meter portion of that land covered by TCT No. T-17932 which they
presently occupy and to turn over possession thereof to the appellants. . . . ."
10

By law 15 a contract of sale is perfected at the moment there is a meeting of

minds upon the thing which is the object of the contract and upon the price. It
is a consensual contract which is perfected by mere consent. 16 Once
perfected, the contract is generally binding in whatever form (i.e. written or
oral) it may have been entered into 17 provided the three (3) essential
requisites for its validity prescribed under Article 1318 supra, are present.
Foremost of these requisites is the consent and the capacity to give consent
of the parties to the contract. The legal capacity of the parties is an essential
element for the existence of the contract because it is an indispensable
condition for the existence of consent. 18 There is no effective consent in law
without the capacity to give such consent. In other words, legal consent
presupposes capacity. 19 Thus, there is said to be no consent, and
consequently, no contract when the agreement is entered into by one in behalf
of another who has never given him authorization therefor 20 unless he has by
law a right to represent the latter. 21 It has also been held that if the vendor is
not the owner of the property at the time of the sale, the sale is null and void,
22
because a person can sell only what he owns or is authorized to sell. 23 One
exception is when a contract entered into in behalf of another who has not
authorized it, subsequently confirmed or ratified the same in which case, the
transaction becomes valid and binding against him and he is estopped to
question its legality. 24

AF Realty & Development v. Dieselman Freight Services

G.R. No.111448,
16 January 2002
Facts
Manuel Cruz, Jr., a board member of Dieselman Freight Services, Co. (DFS)
authorized Cristeta
Polintan to sell a parcel of land owned by DFS. Polintan in turn authorized
Felicisima Noble to sell the
same lot. Noble then offered AF Realty & Development, Co., represented
by Zenaida Ranullo, the land at
the rate of P2, 500.00 per sq. m.
However, it appeared that DFS did not authorize Cruz, Jr. to sell the said
land. Nevertheless,
Manuel Cruz, Sr. president of DFS, accepted the check but modified the
offer. He increased the selling
price. AF Realty, in its response, did not agree with the counter-offer but
only said it is willing to pay the
balance. Mr. Cruz, Sr. terminated the offer and demanded from AF Realty
the return of the title of the
lot. Claiming that there was a perfected contract of sale between them, AF
Realty filed with the Regional
Trial Court, Branch 160, Pasig City a complaint for specific performance
against Dieselman and Cruz, Jr.
Meanwhile, during the pendency of the case, Dieselman and Midas
Development Corporation
(Midas) executed a Deed of Absolute Sale of the same property
ISSUE:
Whether or not there was a perfected contract of sale
RULING:
No. The Supreme Court ruled that The BOD never authorizes Cruz. The
agreement between
Cruz, Jr. and Polintan, as well as the subsequent agreement between
Polintan and Noble, never bound
the corporation. It presumed that the sale transacted by Noble
purportedly on behalf of Polintan and
ultimately purportedly on behalf of DFS is void.
Article 1874 provides that when a sale of piece of land or any interest
therein is through an
agent, the authority of the latter shall be in writing; otherwise, the sale
shall be void. Considering that
respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not
authorized by respondent
Dieselman to sell its lot, the supposed contract is void