Before the Court is a Petition for Review on Certiorari assailing the

Decision[1] dated October 27, 2003 of the Court of Appeals, Seventh

Division, in CA-G.R. V No. 60392.[2]
SECOND DIVISION

GENEVIEVE LIM, G.R. No. 163720 The late Eduardo Ybañez (Ybañez), the owner of a 1,000-square meter
Petitioner, lot in Cebu City (the “lot”), entered into an Agreement and Authority to
Present: Negotiate and Sell (Agency Agreement) with respondent Florencio Saban
(Saban) on February 8, 1994. Under the Agency Agreement, Ybañez
PUNO, J., authorized Saban to look for a buyer of the lot for Two Hundred Thousand
- versus - Chairman, Pesos (P200,000.00) and to mark up the selling price to include the amounts
AUSTRIA-MARTINEZ, needed for payment of taxes, transfer of title and other expenses incident to
CALLEJO, SR., the sale, as well as Saban’s commission for the sale.[3]
TINGA, and
FLORENCIO SABAN, CHICO-NAZARIO, JJ.
Through Saban’s efforts, Ybañez and his wife were able to sell the lot to
Respondent.
the petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes
Lim (the Spouses Lim) on March 10, 1994. The price of the lot as indicated
Promulgated:
in the Deed of Absolute Sale is Two Hundred Thousand Pesos
(P200,000.00).[4] It appears, however, that the vendees agreed to purchase
December 16, 2004
the lot at the price of Six Hundred Thousand Pesos (P600,000.00), inclusive
of taxes and other incidental expenses of the sale. After the sale, Lim
x-------------------------------------------------------------------x
remitted to Saban the amounts of One Hundred Thirteen Thousand Two
Hundred Fifty Seven Pesos (P113,257.00) for payment of taxes due on the
DECISION
transaction as well as Fifty Thousand Pesos (P50,000.00) as broker’s
commission.[5] Lim also issued in the name of Saban four postdated
TINGA, J.:
checks in the aggregate amount of Two Hundred Thirty Six Thousand Seven
Hundred Forty Three Pesos (P236,743.00). These checks were Bank of the
Philippine Islands (BPI) Check No. 1112645 dated June 12, 1994 for
P25,000.00; BPI Check No. 1112647 dated June 19, 1994 for P18,743.00;
BPI Check No. 1112646 dated June 26, 1994 for P25,000.00; and Equitable
PCI Bank Check No. 021491B dated June 20, 1994 for P168,000.00.
Subsequently, Ybañez sent a letter dated June 10, 1994 addressed to
Lim. In the letter Ybañez asked Lim to cancel all the checks issued by her in
Saban’s favor and to “extend another partial payment” for the lot in his
(Ybañez’s) favor.[6]
After the four checks in his favor were dishonored upon presentment,
Saban filed a Complaint for collection of sum of money and damages against
Ybañez and Lim with the Regional Trial Court (RTC) of Cebu City on August
3, 1994.[7] The case was assigned to Branch 20 of the RTC.
In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to
purchase the lot for P600,000.00, i.e., with a mark-up of Four Hundred
Thousand Pesos (P400,000.00) from the price set by Ybañez. Of the total
purchase price of P600,000.00, P200,000.00 went to Ybañez, P50,000.00
allegedly went to Lim’s agent, and P113,257.00 was given to Saban to cover
taxes and other expenses incidental to the sale. Lim also issued four (4)
postdated checks[8] in favor of Saban for the remaining P236,743.00.[9]
Saban alleged that Ybañez told Lim that he (Saban) was not entitled to
any commission for the sale since he concealed the actual selling price of the
lot from Ybañez and because he was not a licensed real estate broker.
Ybañez was able to convince Lim to cancel all four checks.
Saban further averred that Ybañez and Lim connived to deprive him of
his sales commission by withholding payment of the first three checks. He
also claimed that Lim failed to make good the fourth check which was
dishonored because the account against which it was drawn was closed.
In his Answer, Ybañez claimed that Saban was not entitled to any
commission because he concealed the actual selling price from him and
because he was not a licensed real estate broker.
Lim, for her part, argued that she was not privy to the agreement
between Ybañez and Saban, and that she issued stop payment orders for the
three checks because Ybañez requested her to pay the purchase price
directly to him, instead of coursing it through Saban. She also alleged that
she agreed with Ybañez that the purchase price of the lot was only
P200,000.00.
Ybañez died during the pendency of the case before the RTC. Upon
motion of his counsel, the trial court dismissed the case only against him
without any objection from the other parties.[10]
On May 14, 1997, the RTC rendered its Decision[11] dismissing Saban’s
complaint, declaring the four (4) checks issued by Lim as stale and non-
negotiable, and absolving Lim from any liability towards Saban.
Saban appealed the trial court’s Decision to the Court of Appeals.
 On October 27, 2003, the appellate court promulgated its Decision[12]
reversing the trial court’s ruling. It held that Saban was entitled to his
commission amounting to P236,743.00.[13]
The Court of Appeals ruled that Ybañez’s revocation of his contract of
agency with Saban was invalid because the agency was coupled with an
interest and Ybañez effected the revocation in bad faith in order to deprive
Saban of his commission and to keep the profits for himself.[14]
The appellate court found that Ybañez and Lim connived to deprive
Saban of his commission. It declared that Lim is liable to pay Saban the
amount of the purchase price of the lot corresponding to his commission
because she issued the four checks knowing that the total amount thereof
corresponded to Saban’s commission for the sale, as the agent of Ybañez.
The appellate court further ruled that, in issuing the checks in payment of
Saban’s commission, Lim acted as an accommodation party. She signed the
checks as drawer, without receiving value therefor, for the purpose of
lending her name to a third person. As such, she is liable to pay Saban as
the holder for value of the checks.[15]
Lim filed a Motion for Reconsideration of the appellate court’s Decision,
but her Motion was denied by the Court of Appeals in a Resolution dated May
6, 2004.[16]
Not satisfied with the decision of the Court of Appeals, Lim filed the
present petition.
Lim argues that the appellate court ignored the fact that after paying
her agent and remitting to Saban the amounts due for taxes and transfer of
title, she paid the balance of the purchase price directly to Ybañez.[17]
She further contends that she is not liable for Ybañez’s debt to Saban
under the Agency Agreement as she is not privy thereto, and that Saban has
no one but himself to blame for consenting to the dismissal of the case
against Ybañez and not moving for his substitution by his heirs.[18]
Lim also assails the findings of the appellate court that she issued
the checks as an accommodation party for Ybañez and that she connived
with the latter to deprive Saban of his commission.[19]
Lim prays that should she be found liable to pay Saban the amount
of his commission, she should only be held liable to the extent of one-third
(1/3) of the amount, since she had two co-vendees (the Spouses Lim) who
should share such liability.[20]
In his Comment, Saban maintains that Lim agreed to purchase the lot
for P600,000.00, which consisted of the P200,000.00 which would be paid to
Ybañez, the P50,000.00 due to her broker, the P113,257.00 earmarked for
taxes and other expenses incidental to the sale and Saban’s commission as
broker for Ybañez. According to Saban, Lim assumed the obligation to pay
him his commission. He insists that Lim and Ybañez connived to unjustly
deprive him of his commission from the negotiation of the sale.[21]
 The issues for the Court’s resolution are whether Saban is entitled to
receive his commission from the sale; and, assuming that Saban is entitled
thereto, whether it is Lim who is liable to pay Saban his sales commission.
The Court gives due course to the petition, but agrees with the result
reached by the Court of Appeals.
The Court affirms the appellate court’s finding that the agency was not
revoked since Ybañez requested that Lim make stop payment orders for the
checks payable to Saban only after the consummation of the sale on March
10, 1994. At that time, Saban had already performed his obligation as
Ybañez’s agent when, through his (Saban’s) efforts, Ybañez executed the
Deed of Absolute Sale of the lot with Lim and the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which was
consummated through his efforts would be a breach of his contract of
agency with Ybañez which expressly states that Saban would be entitled to
any excess in the purchase price after deducting the P200,000.00 due to
Ybañez and the transfer taxes and other incidental expenses of the sale.[22]
In Macondray & Co. v. Sellner,[23] the Court recognized the right of a
broker to his commission for finding a suitable buyer for the seller’s property
even though the seller himself consummated the sale with the buyer.[24]
The Court held that it would be in the height of injustice to permit the
principal to terminate the contract of agency to the prejudice of the broker
when he had already reaped the benefits of the broker’s efforts.
In Infante v. Cunanan, et al.,[25] the Court upheld the right of the
brokers to their commissions although the seller revoked their authority to
act in his behalf after they had found a buyer for his properties and
negotiated the sale directly with the buyer whom he met through the
brokers’ efforts. The Court ruled that the seller’s withdrawal in bad faith of
the brokers’ authority cannot unjustly deprive the brokers of their
commissions as the seller’s duly constituted agents.
The pronouncements of the Court in the aforecited cases are applicable
to the present case, especially considering that Saban had completely
performed his obligations under his contract of agency with Ybañez by
finding a suitable buyer to preparing the Deed of Absolute Sale between
Ybañez and Lim and her co-vendees. Moreover, the contract of agency very
clearly states that Saban is entitled to the excess of the mark-up of the price
of the lot after deducting Ybañez’s share of P200,000.00 and the taxes and
other incidental expenses of the sale.
However, the Court does not agree with the appellate court’s
pronouncement that Saban’s agency was one coupled with an interest.
Under Article 1927 of the Civil Code, an agency cannot be revoked if a
bilateral contract depends upon it, or if it is the means of fulfilling an
obligation already contracted, or if a partner is appointed manager of a
partnership in the contract of partnership and his removal from the
management is unjustifiable. Stated differently, an agency is deemed as one
coupled with an interest where it is established for the mutual benefit of the
principal and of the agent, or for the interest of the principal and of third
persons, and it cannot be revoked by the principal so long as the interest of
the agent or of a third person subsists. In an agency coupled with an
interest, the agent’s interest must be in the subject matter of the power
conferred and not merely an interest in the exercise of the power because it
entitles him to compensation. When an agent’s interest is confined to
earning his agreed compensation, the agency is not one coupled with an
interest, since an agent’s interest in obtaining his compensation as such
agent is an ordinary incident of the agency relationship.[26]
Saban’s entitlement to his commission having been settled, the Court
must now determine whether Lim is the proper party against whom Saban
should address his claim.
Saban’s right to receive compensation for negotiating as broker for
Ybañez arises from the Agency Agreement between them. Lim is not a party
to the contract. However, the record reveals that she had knowledge of the
fact that Ybañez set the price of the lot at P200,000.00 and that the
P600,000.00—the price agreed upon by her and Saban—was more than the
amount set by Ybañez because it included the amount for payment of taxes
and for Saban’s commission as broker for Ybañez.
According to the trial court, Lim made the following payments for the
lot: P113,257.00 for taxes, P50,000.00 for her broker, and P400.000.00
directly to Ybañez, or a total of Five Hundred Sixty Three Thousand Two
Hundred Fifty Seven Pesos (P563,257.00).[27] Lim, on the other hand,
claims that on March 10, 1994, the date of execution of the Deed of Absolute
Sale, she paid directly to Ybañez the amount of One Hundred Thousand
Pesos (P100,000.00) only, and gave to Saban P113,257.00 for payment of
taxes and P50,000.00 as his commission,[28] and One Hundred Thirty
Thousand Pesos (P130,000.00) on June 28, 1994,[29] or a total of Three
Hundred Ninety Three Thousand Two Hundred Fifty Seven Pesos
(P393,257.00). Ybañez, for his part, acknowledged that Lim and her co-
vendees paid him P400,000.00 which he said was the full amount for the
sale of the lot.[30] It thus appears that he received P100,000.00 on March
10, 1994, acknowledged receipt (through Saban) of the P113,257.00
earmarked for taxes and P50,000.00 for commission, and received the
balance of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00
went directly to Ybañez. Apparently, although the amount actually paid by
Lim was P393,257.00, Ybañez rounded off the amount to P400,000.00 and
waived the difference.
Lim’s act of issuing the four checks amounting to P236,743.00 in
Saban’s favor belies her claim that she and her co-vendees did not agree to
purchase the lot at P600,000.00. If she did not agree thereto, there would
be no reason for her to issue those checks which is the balance of
P600,000.00 less the amounts of P200,000.00 (due to Ybañez), P50,000.00
(commission), and the P113,257.00 (taxes). The only logical conclusion is
that Lim changed her mind about agreeing to purchase the lot at
P600,000.00 after talking to Ybañez and ultimately realizing that Saban’s
commission is even more than what Ybañez received as his share of the
purchase price as vendor. Obviously, this change of mind resulted to the
prejudice of Saban whose efforts led to the completion of the sale between
the latter, and Lim and her co-vendees. This the Court cannot countenance.
 The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is
enlightening for the facts therein are similar to the circumstances of the
present case. In that case, Consejo Infante asked Jose Cunanan and Juan
Mijares to find a buyer for her two lots and the house built thereon for
Thirty Thousand Pesos (P30,000.00) . She promised to pay them five
percent (5%) of the purchase price plus whatever overprice they may obtain
for the property. Cunanan and Mijares offered the properties to Pio Noche
who in turn expressed willingness to purchase the properties. Cunanan and
Mijares thereafter introduced Noche to Infante. However, the latter told
Cunanan and Mijares that she was no longer interested in selling the
property and asked them to sign a document stating that their written
authority to act as her agents for the sale of the properties was already
cancelled. Subsequently, Infante sold the properties directly to Noche for
Thirty One Thousand Pesos (P31,000.00). The Court upheld the right of
Cunanan and Mijares to their commission, explaining that—
…[Infante] had changed her mind even if respondent had
found a buyer who was willing to close the deal, is a matter
that would not give rise to a legal consequence if [Cunanan
and Mijares] agreed to call off the transaction in deference to
the request of [Infante]. But the situation varies if one of the
parties takes advantage of the benevolence of the other and
acts in a manner that would promote his own selfish interest.
This act is unfair as would amount to bad faith. This act
cannot be sanctioned without according the party prejudiced
the reward which is due him. This is the situation in which
[Cunanan and Mijares] were placed by [Infante]. [Infante]
took advantage of the services rendered by [Cunanan and
Mijares], but believing that she could evade payment of their
commission, she made use of a ruse by inducing them to sign
the deed of cancellation….This act of subversion cannot be
sanctioned and cannot serve as basis for [Infante] to escape
payment of the commission agreed upon.[31]
The appellate court therefore had sufficient basis for concluding that
Ybañez and Lim connived to deprive Saban of his commission by dealing
with each other directly and reducing the purchase price of the lot and
leaving nothing to compensate Saban for his efforts.
Considering the circumstances surrounding the case, and the
undisputed fact that Lim had not yet paid the balance of P200,000.00 of the
purchase price of P600,000.00, it is just and proper for her to pay Saban
the balance of P200,000.00.
Furthermore, since Ybañez received a total of P230,000.00 from Lim, or
an excess of P30,000.00 from his asking price of P200,000.00, Saban may
claim such excess from Ybañez’s estate, if that remedy is still available,[32]
in view of the trial court’s dismissal of Saban’s complaint as against Ybañez,
with Saban’s express consent, due to the latter’s demise on November 11,
1994.[33]
The appellate court however erred in ruling that Lim is liable on the
checks because she issued them as an accommodation party. Section 29 of
the Negotiable Instruments Law defines an accommodation party as a person
“who has signed the negotiable instrument as maker, drawer, acceptor or
indorser, without receiving value therefor, for the purpose of lending his
name to some other person.” The accommodation party is liable on the
instrument to a holder for value even though the holder at the time of taking
the instrument knew him or her to be merely an accommodation party. The
accommodation party may of course seek reimbursement from the party
accommodated.[34] WHEREFORE, in view of the foregoing, the petition is DISMISSED.

As gleaned from the text of Section 29 of the Negotiable Instruments SO ORDERED.

Law, the accommodation party is one who meets all these three requisites,
viz: (1) he signed the instrument as maker, drawer, acceptor, or indorser; (2)
he did not receive value for the signature; and (3) he signed for the purpose
of lending his name to some other person. In the case at bar, while Lim
signed as drawer of the checks she did not satisfy the two other remaining
requisites.

The absence of the second requisite becomes pellucid when it is

noted at the outset that Lim issued the checks in question on account of her
transaction, along with the other purchasers, with Ybañez which was a sale
and, therefore, a reciprocal contract. Specifically, she drew the checks in
payment of the balance of the purchase price of the lot subject of the
transaction. And she had to pay the agreed purchase price in consideration
for the sale of the lot to her and her co-vendees. In other words, the amounts
covered by the checks form part of the cause or consideration from Ybañez’s
end, as vendor, while the lot represented the cause or consideration on the
side of Lim, as vendee.[35] Ergo, Lim received value for her signature on the
checks.

Neither is there any indication that Lim issued the checks for the
purpose of enabling Ybañez, or any other person for that matter, to obtain
credit or to raise money, thereby totally debunking the presence of the third
requisite of an accommodation party.
 Republic of the Philippines
SUPREME COURT
Manila
G.R. No. L-24332 January 31, 1978
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.
Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.
Footnotes
1 p. 40, rollo
2 p, 42, Ibid.
3 Art. 1317, Civil Code of the Philippines
4 Ibid
5 Art. 1868, Civil Code. By the contract of the agency of a person
blinds himself to render some service or to do something in
representation or on behalf of another, with the consent of the
authority of the latter.
Art. 1881, Civil Code. The Agent must act within the scope of his
authority. He may do acts as may be conductive to the
accomplishment of the purpose of the agency.
11 Manresa 422-423; 4 Sanchez Roman 478, 2nd Ed.; 26 Scaevola,
243, 262; Tolentino, Comments, Civil Code of the Philippines, p.340,
vol. 5, 1959 Ed.
See also Columbia University Club v. Higgins, D.CN.Y., 23 f. Supp.
572, 574; Valentine Oil Co. v. Young 109 P. 2d 180, 185.
6 74 C.J.S. 4; Valentine Oil Co. v. Powers, 59 N.W. 2d 160, 163, 157
Neb. 87; Purnell v. City of Florence, 175 So. 417, 27 Ala. App. 516;
Stroman Motor Co. v. Brown, 243 P. 133, 126 Ok. 36
7 See Art. 1919 of the Civil Code
8 Hermosa v. Longara, 1953, 93 Phil. 977, 983; Del Rosario, et al. v.
Abad, et al., 1958, 104 Phil. 648, 652
9 11 Manresa 572-573; Tolentino, supra, 369-370
10 2 Kent Comm. 641, cited in Williston on Contracts, 3rd Ed., Vol. 2,
p. 288
11 See Notes on Acts of agent after principal's death, 39 Am. Dec.
81,83, citing Ewell's Evans on Agency, 116; Dunlap's Paley on
Agency, 186; Story on Agency, see. 488; Harper v. Little. 11 Am. Dec.
25; Staples v. Bradbury, 23 Id. 494; Gale v. Tappan 37 Id. 194; Hunt
v. Rousmanier, 2 Mason, 244, S.C. 8 Wheat, 174; Boones Executor
v. Clarke 3 Cranch C.C. 389; Hank of 'Washington v. Person, 2
'Rash. C.C. 6.85; Scruggs v. Driver's Executor, 31 Ala. 274; McGriff
v. Porter, 5 Fla. 373; Lincoln v. Emerson, 108 Mass 87; 'Wilson v.
Edmonds, 24 N.H 517; Easton v. Ellis, 1 Handy (Ohio), 70;
McDonald v. Black's Administrators, 20 Ohio, 185; Michigan Ins. Co.
v. Leavenworth, 30 Vt. 11; Huston v. Cantril, 11 Leigh, 136;
Campanari v. 'Woodburn, 15 Com B 400
See also ',Williston on Contracts, 3rd Ed., Vol. 2, p. 289
12 see p. 15, 30-31 64 68-69, Record on Appeal
13 pp. 71-72, Ibid.
14 p. 7 of the Decision at page 14, rollo
15 105 Phil. 79:i, 798
16 p. 6 of Decision, at page 13, rollo
17 pp. 6-7 of Decision at pp, 13-14, Ibid.
18 See Articles 1921 & 1922 of the Civil Code
19 2 C.J.S. 1 174 citing American Jurisprudence in different States
from Alabama to Washington; emphasis supplied.
20 p. 8, decision at Page 15, rollo

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 97212 June 30, 1993
BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN
PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA
BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.
FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm
name of "Jade Mountain Products Company Limited" ("Jade Mountain"). The
partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora
Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all
citizens of the Republic of China (Taiwan), as limited partners. The partnership
business consisted of exploiting a marble deposit found on land owned by the Sps.
Ricardo and Guillerma Cruz, situated in Bulacan Province, under a Memorandum
Agreement dated 26 June 1984 with the Cruz spouses. 1 The partnership had its
main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985,
as Assistant General Manager with a monthly salary of P4,000.00. According to
petitioner Yu, however, he actually received only half of his stipulated monthly salary,
since he had accepted the promise of the partners that the balance would be paid
when the firm shall have secured additional operating funds from abroad. Benjamin
Yu actually managed the operations and finances of the business; he had overall
supervision of the workers at the marble quarry in Bulacan and took charge of the
preparation of papers relating to the exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea
Bendal and Rhodora Bendal sold and transferred their interests in the partnership to
private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited
partner, also sold and transferred his interest in the partnership to Willy Co. Between
Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great
bulk of the partnership interest. The partnership now constituted solely by Willy Co
and Emmanuel Zapanta continued to use the old firm name of Jade Mountain,
though they moved the firm's main office from Makati to Mandaluyong, Metropolitan
Manila. A Supplement to the Memorandum Agreement relating to the operation of the
marble quarry was entered into with the Cruz spouses in February of 1988. 2 The
actual operations of the business enterprise continued as before. All the employees
of the partnership continued working in the business, all, save petitioner Benjamin Yu
as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from
Makati to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office
for work and there met private respondent Willy Co for the first time. Petitioner was
informed by Willy Co that the latter had bought the business from the original
partners and that it was for him to decide whether or not he was responsible for the
obligations of the old partnership, including petitioner's unpaid salaries. Petitioner
was in fact not allowed to work anymore in the Jade Mountain business enterprise.
His unpaid salaries remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and
recovery of unpaid salaries accruing from November 1984 to October 1988, moral
and exemplary damages and attorney's fees, against Jade Mountain, Mr. Willy Co
and the other private respondents. The partnership and Willy Co denied petitioner's
charges, contending in the main that Benjamin Yu was never hired as an employee
by the present or new partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that
petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement
and awarded him his claim for unpaid salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision
of the Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29
November 1990. The NLRC held that a new partnership consisting of Mr. Willy Co
and Mr. Emmanuel Zapanta had bought the Jade Mountain business, that the new
partnership had not retained petitioner Yu in his original position as Assistant General
Manager, and that there was no law requiring the new partnership to absorb the
employees of the old partnership. Benjamin Yu, therefore, had not been illegally
dismissed by the new partnership which had simply declined to retain him in his
former managerial position or any other position. Finally, the NLRC held that
Benjamin Yu's claim for unpaid wages should be asserted against the original
members of the preceding partnership, but these though impleaded had, apparently,
not been served with summons in the proceedings before the Labor Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us
to set aside and annul the Resolution of the NLRC as a product of grave abuse of
discretion amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that
a partnership has a juridical personality separate and distinct from that of each of its
members. Such independent legal personality subsists, petitioner claims,
notwithstanding changes in the identities of the partners. Consequently, the
employment contract between Benjamin Yu and the partnership Jade Mountain could
not have been affected by changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar: (1)
whether the partnership which had hired petitioner Yu as Assistant General Manager
had been extinguished and replaced by a new partnerships composed of Willy Co
and Emmanuel Zapanta; and (2) if indeed a new partnership had come into
existence, whether petitioner Yu could nonetheless assert his rights under his
employment contract as against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is,
that the legal effect of the changes in the membership of the partnership was the
dissolution of the old partnership which had hired petitioner in 1984 and the
emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.
The applicable law in this connection � of which the NLRC seemed quite unaware
� is found in the Civil Code provisions relating to partnerships. Article 1828 of the
Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the winding up of
the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any
partner, who must act in good faith,
when no definite term or particular
undertaking is specified;
xxx xxx xxx
(2) in contravention of the
agreement between the partners,
where the circumstances do not
permit a dissolution under any other
provision of this article, by the
express will of any partner at any
time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests
(amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel
Zapanta. The record does not show what happened to the remaining 18% of the
original partnership interest. The acquisition of 82% of the partnership interest by new
partners, coupled with the retirement or withdrawal of the partners who had originally
owned such 82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a
partnership do not, however, automatically result in the termination of the legal
personality of the old partnership. Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until
the winding up of partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership
persists for the limited purpose of winding up and closing of the affairs of the
partnership. In the case at bar, it is important to underscore the fact that the business
of the old partnership was simply continued by the new partners, without the old
partnership undergoing the procedures relating to dissolution and winding up of its
business affairs. In other words, the new partnership simply took over the business
enterprise owned by the preceeding partnership, and continued using the old name
of Jade Mountain Products Company Limited, without winding up the business affairs
of the old partnership, paying off its debts, liquidating and distributing its net assets,
and then re-assembling the said assets or most of them and opening a new business
enterprise. There were, no doubt, powerful tax considerations which underlay such
an informal approach to business on the part of the retiring and the incoming
partners. It is not, however, necessary to inquire into such matters.
What is important for present purposes is that, under the above described situation,
not only the retiring partners (Rhodora Bendal, et al.) but also the new partnership
itself which continued the business of the old, dissolved, one, are liable for the debts
of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al, 8 the Court
held that under facts very similar to those in the case at bar, a withdrawing partner
remains liable to a third party creditor of the old partnership. 9 The liability of the new
partnership, upon the other hand, in the set of circumstances obtaining in the case at
bar, is established in Article 1840 of the Civil Code which reads as follows:
Art. 1840. In the following cases creditors of the dissolved
partnership are also creditors of the person or partnership continuing
the business:
(1) When any new partner is admitted into an existing partnership, or
when any partner retires and assigns (or the representative of the
deceased partner assigns) his rights in partnership property to two or
more of the partners, or to one or more of the partners and one or
more third persons, if the business is continued without liquidation of
the partnership affairs;
(2) When all but one partner retire and assign (or the representative
of a deceased partner assigns) their rights in partnership property to
the remaining partner, who continues the business without
liquidation of partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the
dissolved partnership is continued as set forth in Nos. 1 and 2 of this
Article, with the consent of the retired partners or the representative
of the deceased partner, but without any assignment of his right in
partnership property;
(4) When all the partners or their representatives assign their rights
in partnership property to one or more third persons who promise to
pay the debts and who continue the business of the dissolved
partnership;
(5) When any partner wrongfully causes a dissolution and remaining
partners continue the business under the provisions of article 1837,
second paragraph, No. 2, either alone or with others, and without
liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue
the business either alone or with others without liquidation of the
partnership affairs;
The liability of a third person becoming a partner in the partnership
continuing the business, under this article, to the creditors of the
dissolved partnership shall be satisfied out of the partnership
property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued
under any conditions set forth in this article the creditors of the
retiring or deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired partner or the
representative of the deceased partner against the person or
partnership continuing the business on account of the retired or
deceased partner's interest in the dissolved partnership or on
account of any consideration promised for such interest or for his
right in partnership property.
Nothing in this article shall be held to modify any right of creditors to
set assignment on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the
new Jade Mountain which continued the business of the old one without liquidation of
the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner
Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-vis
any claim of any retired or previous partner insofar as such retired partner's interest
in the dissolved partnership is concerned. It is not necessary for the Court to
determine under which one or mare of the above six (6) paragraphs, the case at bar
would fall, if only because the facts on record are not detailed with sufficient precision
to permit such determination. It is, however, clear to the Court that under Article 1840
above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as
other claims relating to his employment with the previous partnership, against the
new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was entitled
to appoint and hire a new general or assistant general manager to run the affairs of
the business enterprise take over. An assistant general manager belongs to the most
senior ranks of management and a new partnership is entitled to appoint a top
manager of its own choice and confidence. The non-retention of Benjamin Yu as
Assistant General Manager did not therefore constitute unlawful termination, or
termination without just or authorized cause. We think that the precise authorized
cause for termination in the case at bar was redundancy. 10 The new partnership had
its own new General Manager, apparently Mr. Willy Co, the principal new owner
himself, who personally ran the business of Jade Mountain. Benjamin Yu's old
position as Assistant General Manager thus became superfluous or redundant. 11 It
follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one
month's pay for each year of service that he had rendered to the old partnership, a
fraction of at least six (6) months being considered as a whole year.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu
in its employ, we consider that Benjamin Yu was very shabbily treated by the new
partnership. The old partnership certainly benefitted from the services of Benjamin Yu
who, as noted, previously ran the whole marble quarrying, processing and exporting
enterprise. His work constituted value-added to the business itself and therefore, the
new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of
note that the new partnership did not try to suggest that there was any cause
consisting of some blameworthy act or omission on the part of Mr. Yu which
compelled the new partnership to terminate his services. Nonetheless, the new Jade
Mountain did not notify him of the change in ownership of the business, the relocation
of the main office of Jade Mountain from Makati to Mandaluyong and the assumption
by Mr. Willy Co of control of operations. The treatment (including the refusal to honor
his claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu
was so summary and cavalier as to amount to arbitrary, bad faith treatment, for which
the new Jade Mountain may legitimately be required to respond by paying moral
damages. This Court, exercising its discretion and in view of all the circumstances of
this case, believes that an indemnity for moral damages in the amount of P20,000.00
is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal
rate of six percent (6%) per annum on the amount of unpaid wages, and of his
separation pay, computed from the date of promulgation of the award of the Labor
Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort to
litigation to protect his rights in the premises, he is entitled to attorney's fees in the
amount of ten percent (10%) of the total amount due from private respondent Jade
Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE
COURSE, the Comment filed by private respondents is treated as their Answer to the
Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is
hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring
private respondent Jade Mountain Products Company Limited to pay to petitioner
Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor
Arbiter, shall be computed at the rate of P2,000.00
per month multiplied by thirty-six (36) months
(November 1984 to December 1987) in the total
amount of P72,000.00;
(b) separation pay computed at the rate of
P4,000.00 monthly pay multiplied by three (3) years
of service or a total of P12,000.00;
(c) indemnity for moral damages in the amount of
P20,000.00;
(d) six percent (6%) per annum legal interest
computed on items (a) and (b) above, commencing
on 26 December 1989 and until fully paid; and
(e) ten percent (10%) attorney's fees on the total
amount due from private respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.
# Footnotes
1 Rollo, pp. 11, 28, 31, 35 and 43.
2 Id., pp. 31, 43 and 68.
3 Id., pp. 36 and 44.
4 Id., pp. 40-41.
5 Id., pp. 36-38.
6 Id., pp. 45-46.
7 Id., pp. 9-10.
8 88 SCRA 623 (1979).
9 88 SCRA 642-643.
10 Art. 283. Closure of establishment and reduction of personnel. �
The employer may also terminate the employment of any employee
due to the installation of labor-saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of
operation of the establishment or undertaking unless the closing is
for the purpose of circumventing the provisions of this title, by
serving written notice on the workers and the Ministry of Labor and
Employment at least one (1) month before the intended date thereof.
In case of termination due to the installation of labor-saving devices
or redundancy, the worker affected thereby shall be entitled to a
separation pay equivalent to at least his one (1) month pay or to at
least one (1) month pay for every year of service, whichever is
higher. In case of retrenchment to prevent losses or in cases of
 closures or cessation of operations of establishment or undertaking
not due to serious business losses or financial reverses, the
separation pay shall be equivalent to one (1) month pay or at least
one-half (�) month pay for every year of service, whichever is
higher. A fraction of at least six (6) months shall be considered one
(1) whole year. (This provision is identical with that existing in 1987,
except that the provision was numerically designated in 1987 as
"Article 284"), Labor Code.
11 See, in this connection, Wiltshire File Co., Inc. v. National Labor
Relations Commission, et al., 193 SCRA 665 (1991).
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