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G.R. No.

L-15568

November 8, 1919

W. G. PHILPOTTS, petitioner,
vs.
PHILIPPINE MANUFACTURING COMPANY and F. N. BERRY, respondents.
Lawrence and Ross for petitioner.
Crossfield and O'Brien for defendants.

STREET, J.:
The petitioner, W. G. Philpotts, a stockholder in the Philippine Manufacturing Company, one of
the respondents herein, seeks by this proceeding to obtain a writ of mandamus to compel the
respondents to permit the plaintiff, in person or by some authorized agent or attorney, to inspect
and examine the records of the business transacted by said company since January 1, 1918. The
petition is filed originally in this court under the authority of section 515 of the Code of Civil
Procedure, which gives to this tribunal concurrent jurisdiction with the Court of First Instance in
cases, among others, where any corporation or person unlawfully excludes the plaintiff from the
use and enjoyment of some right to which he is entitled. The respondents interposed a demurrer,
and the controversy is now before us for the determination of the questions thus presented.
The first point made has reference to a supposed defect of parties, and it is said that the action
can not be maintained jointly against the corporation and its secretary without the addition of
the allegation that the latter is the custodian of the business records of the respondent company.
By the plain language of sections 515 and 222 of our Code of Civil Procedure, the right of action
in such a proceeding as this is given against the corporation; and the respondent corporation in
this case was the only absolutely necessary party. In the Ohio case of Cincinnati Volksblatt
Co. vs. Hoffmister (61 Ohio St., 432; 48 L. R. A., 735), only the corporation was named as
defendant, while the complaint, in language almost identical with that in the case at bar, alleged
a demand upon and refusal by the corporation.
Nevertheless the propriety of naming the secretary of the corporation as a codefendant cannot
be questioned, since such official is customarily charged with the custody of all documents,
correspondence, and records of a corporation, and he is presumably the person against whom
the personal orders of the court would be made effective in case the relief sought should be
granted. Certainly there is nothing in the complaint to indicate that the secretary is an improper
person to be joined. The petitioner might have named the president of the corporation as a
respondent also; and this official might be brought in later, even after judgment rendered, if
necessary to the effectuation of the order of the court.
Section 222 of our Code of Civil Procedure is taken from the California Code, and a decision of the
California Supreme Court — Barber vs. Mulford (117 Cal., 356) — is quite clear upon the point
that both the corporation and its officers may be joined as defendants.
The real controversy which has brought these litigants into court is upon the question argued in
connection with the second ground of demurrer, namely, whether the right which the law
concedes to a stockholder to inspect the records can be exercised by a proper agent or attorney
of the stockholder as well as by the stockholder in person. There is no pretense that the

respondent corporation or any of its officials has refused to allow the petitioner himself to
examine anything relating to the affairs of the company, and the petition prays for a peremptory
order commanding the respondents to place the records of all business transactions of the
company, during a specified period, at the disposal of the plaintiff or his duly authorized agent or
attorney, it being evident that the petitioner desires to exercise said right through an agent or
attorney. In the argument in support of the demurrer it is conceded by counsel for the
respondents that there is a right of examination in the stockholder granted under section 51 of
the Corporation Law, but it is insisted that this right must be exercised in person.
The pertinent provision of our law is found in the second paragraph of section 51 of Act No. 1459,
which reads as follows: "The record of all business transactions of the corporation and the
minutes of any meeting shall be open to the inspection of any director, member or stockholder of
the corporation at reasonable hours."
This provision is to be read of course in connecting with the related provisions of sections 51 and
52, defining the duty of the corporation in respect to the keeping of its records.
Now it is our opinion, and we accordingly hold, that the right of inspection given to a stockholder
in the provision above quoted can be exercised either by himself or by any proper representative
or attorney in fact, and either with or without the attendance of the stockholder. This is in
conformity with the general rule that what a man may do in person he may do through another;
and we find nothing in the statute that would justify us in qualifying the right in the manner
suggested by the respondents.
This conclusion is supported by the undoubted weight of authority in the United States, where it
is generally held that the provisions of law conceding the right of inspection to stockholders of
corporations are to be liberally construed and that said right may be exercised through any other
properly authorized person. As was said in Fostervs. White (86 Ala., 467), "The right may be
regarded as personal, in the sense that only a stockholder may enjoy it; but the inspection and
examination may be made by another. Otherwise it would be unavailing in many instances." An
observation to the same effect is contained in Martin vs. Bienville Oil Works Co. (28 La., 204),
where it is said: "The possession of the right in question would be futile if the possessor of it,
through lack of knowledge necessary to exercise it, were debarred the right of procuring in his
behalf the services of one who could exercise it." In Deadreck vs. Wilson (8 Baxt. [Tenn.], 108),
the court said: "That stockholders have the right to inspect the books of the corporation, taking
minutes from the same, at all reasonable times, and may be aided in this by experts and
counsel, so as to make the inspection valuable to them, is a principle too well settled to need
discussion." Authorities on this point could be accumulated in great abundance, but as they may
be found cited in any legal encyclopedia or treaties devoted to the subject of corporations, it is
unnecessary here to refer to other cases announcing the same rule.
In order that the rule above stated may not be taken in too sweeping a sense, we deem it
advisable to say that there are some things which a corporation may undoubtedly keep secret,
notwithstanding the right of inspection given by law to the stockholder; as for instance, where a
corporation, engaged in the business of manufacture, has acquired a formula or process, not
generally known, which has proved of utility to it in the manufacture of its products. It is not our
intention to declare that the authorities of the corporation, and more particularly the Board of
Directors, might not adopt measures for the protection of such process form publicity. There is,
however, nothing in the petition which would indicate that the petitioner in this case is seeking to
discover anything which the corporation is entitled to keep secret; and if anything of the sort is

involved in the case it may be brought out at a more advanced stage of the
proceedings.lawphil.net
The demurrer is overruled; and it is ordered that the writ of mandamus shall issue as prayed,
unless within 5 days from notification hereof the respondents answer to the merits. So ordered.
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. 98100, 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

his act is the act of the principal if done within the scope of the authority. "He who acts through another acts himself". 1709 of the Spanish Civil Code explains that the rationale for the law is found in thejuridical basis of agency which is representation Them being an in. and (4) the agent acts within the scope of his authority. Out of the above given principles. . By the death. Agency is extinguished. (2) the object is the execution of a juridical act in relation to a third person.. The following contracts are unenforceable. unless they are justified: (1) Those entered into in the name of another person by one who hi . expressly or impliedly. civil interdiction. 1919 of the Civil Code which was taken from Art.. Laurent says that the juridical tie between the principal and the agent is severed ipso . called the agent (mandatario). to act for and in his behalf in transactions with third persons.been given no authority or legal representation or who has acted beyond his powers. . There are various ways of extinguishing agency. We shall briefly restate certain principles of law relevant to the matter tinder consideration. Qui facit per alium facit se.of the principal a material factor in determining the legal effect of an act performed after such death? Before proceedings to the issues. The essential elements of agency are: (1) there is consent. (3) the agents acts as a representative and not for himself. 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. death is a necessary cause for its extinction. insanity or insolvency of the principal or of the agent. xxx xxx xxx 3. 1709 of the Spanish Civil Code provides: ART. The authority of the agent to act emanates from the powers granted to him by his principal. 4 Article 1403 (1) of the same Code also provides: ART. unless it is ratified. 6 2. sprung the creation and acceptance of the relationship of agency whereby one party. 7 but her We are concerned only with one cause — death of the principal Paragraph 3 of Art. or unless he has by law a right to represent him. and derivative in nature. before it is revoked by the other contracting party. 1919.. caged the principal (mandante). This is the law in this jurisdiction. (Emphasis supplied) By reason of the very nature of the relationship between Principal and agent. shall be unenforceable. 1. 5 Agency is basically personal representative. by the person on whose behalf it has been executed.. 8 Manresa commenting on Art. 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. agency is extinguished by the death of the principal or the agent. 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. express or implied of the parties to establish the relationship. 1403. Pothier agrees with Manresa that by reason of the nature of agency. authorizes another.

and any attempted execution of the power afterward is not binding on the heirs or representatives of the deceased. faith. is valid and shall be fully effective with respect to third persons who may have contracted with him in good. knew of the death of his principal at the time he sold the latter's share in Lot No. Anything done by the agent. and if so. 14 On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion Rallos. Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon Rallos was not coupled with an interest. These two requisites must concur the absence of one will render the act of the agent invalid and unenforceable. an act done by the agent after the death of his principal is valid and effective only under two conditions. Under this provision. 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. without knowledge of the death of the principal or of any other cause which extinguishes the agency.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. Is the general rule provided for in Article 1919 that the death of the principal or of the agent extinguishes the agency. 5983 to respondent corporation. 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. it cannot be questioned that the agent. or in the interest of a third person who has accepted the stipulation in his favor. 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. The knowledge of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the trial court. if it has been constituted in the common interest of the latter and of the agent. red upon an agent is dissolved by the principal's death. 11 3. 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. Article 1931 is the applicable law. 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. 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. The law expressly requires for its application lack of knowledge on the part of the agent of the death of his principal. The agency shall remain in full force and effect even after the death of the principal. 10 This is the prevalent rule in American Jurisprudence where it is well-settled that a power without an interest confer. 1931. 1930. In the instant case.Article 1931 of the Civil Code is inapplicable. Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule aforementioned. subject to any exception. it is not . ART. Simeon Rallos. 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. is the instant case within that exception? That is the determinative point in issue in this litigation. ART.

executed with third persons who contracted in good faith. In such case. 15-16. 561 and 575. 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. pp. knowing of the revocation. 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. that the agent Luy Kim Guan was aware of the death of his principal at the time he sold the property. 15 To the same effect is the case of Herrera. it is the general opinion that all acts. the revocation must be made known to them. That being the general rule it follows a fortiorithat 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. where in the words of Justice Jesus Barrera the Court stated: . being an exception to the general rule.. But if the agency is general iii nature. Article 1931. the Court applying Article 1738 of the old Civil rode now Art. plaintiffs presented no proof and there is no indication in the record. et al. where the latter had no knowledge of such extinguishment of the agency. 5. the principal may exercise his right against the agent. who. 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. 1961.enough that the third person acted in good faith. et al. 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. 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. 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.. of a sale made after the death of the principal because it was not shown that the agent knew of his principal's demise. pp. v. Luy Kim Guan. 412) 4.. The death 6f the principal does not render the act of an agent unenforceable. Thus in Buason & Reyes v. without reference to particular person with whom the agent is to contract. Panuyas. rollo) The above discourse however. In case of a general power which does not specify the persons to whom represents' on should be made.. 1931 of the new Civil Code sustained the validity . continued to assume a personality which he no longer had. Without knowledge of the revocation. (1 SCRA 406. 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. it is sufficient that the principal exercise due diligence to make the revocation of the agency publicity known. 11. On page six of this Opinion We stressed that by . (Manresa Vol. even granting arguemendo that Luis Herrera did die in 1936. is to be strictly construed. are valid.

00 to the defendant Vallejo. (pp. When the lawyer-husband of Angela Blondeau went to that Office. 20 To support the correctness of this respondent corporation.reason of the very nature of the relationship between principal and agent. Reversing the decision of the court a quo. quoting the ruling in the case of Eliason v. 261 U.appellee must be overruled. respondent court drew a "parallel" between the instant case and that of an innocent purchaser for value of a land. held: But there is a narrower ground on which the defenses of the defendant. 457. et al. as a rule. 61 Phil. If this had not been so and if thereafter the proper notation of the encumbrance could not have been made. Holding that the good faith of a third person in said with an agent affords the former sufficient protection. We quote from the brief: In the case of Angel Blondeau et al. such as by death of the principal is. Hence. instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded as an execution of the principal's continuing will.S. But Vallejo denied having executed the power The lower court sustained Vallejo and the plaintiff Blondeau appealed. and in the meantime adopt such measures as the circumstances may demand in the interest of the latter. however. Without those title papers handed over to Nano with the acquiescence of Vallejo. the one who made it possible by his act of coincidence bear the loss. v. When Fernando de la Canters. The latter had a power of attorney supposedly executed by Vallejo Nano in his favor.' 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.. Nano and Vallejo. 19 With death. 61 Phil. 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 . one Vallejo was a coowner of lands with Agustin Nano. Agustin Nano had possession of Jose Vallejo's title papers.. cites the case of Blondeau. Angela Blondeau would not have sent P12. As between two innocent persons. the Supreme Court.000. the principal plaintiff. searched the registration record. one of whom must suffer the consequence of a breach of trust. 625. 19-21) The Blondeau decision. 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. 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. v. Agustin Nano et al. if the agent die his heirs must notify the principal thereof. 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. Vallejo delivered to Nano his land titles. agency is extinguished ipso jure upon the death of either principal or agent. 630. is not fatal to the cause of the estate of the principal 6. he found all in order including the power of attorney. he found them in due form including the power of attorney of Vallajo in favor of Nano. in its brief. 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. the principal's will ceases or is the of authority is extinguished. a fraud could not have been perpetuated. The power was registered in the Office of the Register of Deeds. Wilborn. a member of the Philippine Bar and the husband of Angela Blondeau.

in addition to the case in Campbell before cited. But if it intended to say that his principle applies where there was 110 notice of death.. the general question that a payment after the death of principal is not good. 117. "the parties being ignorant of the death". a payment of sailor's wages to a person having a power of attorney to receive them. 76. by this case. this view ii broadly announced. . which he did not know. In the civil law. 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. where. in an elaborate opinion. however. Here the precise point is. 80. from the accident circumstance of the death of the principal. That in all cases of registration provided by fraud. death revokes an agency and renders null every act of the agent thereafter performed. The leading case so holding is that ofCassiday v. That a payment may be good today. 496 as amended) 7. 39 Am.. 76. 4 Watts & S. 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. whether a payment to an agent when the Parties are ignorant of the death is a good payment. 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. 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. We quote from that decision the following: . and which by no possibility could he know? It would be unjust to the agent and unjust to the debtor. done bona fide in ignorance of the death of his principal are held valid and binding upon the heirs of the latter. as a general principle. and seems to have been . (39 Am.. It is referred to.. McKenzie. has decided in 5 Esp.. yet that where a payment has been made in ignorance of the death.latter after her death with full knowledge of such death. Merrett. 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. The same rule holds in the Scottish law. 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. to the right.. has been held void when the principal was dead at the time of the payment. Dec.. Thus in Clayton v.— There are several cases which seem to hold that although. McKenzie may evoke.. the Court said. 81. the acts of the agent. If. McKenzie wherein payments made to an agent after the death of the principal were held to be "good". of any innocent holder for value of a certificate of title. emphasis supplied) To avoid any wrong impression which the Opinion in Cassiday v. or bad tomorrow. the owner may pursue all his legal and equitable remedies against the parties to such fraud without prejudice. (Act No. no objection can be taken to it. or opportunity of twice I must be permitted to dissent from it. the same judge Lord Ellenboruogh. mention may be made that the above represents the minority view in American jurisprudence. (Pa) 282. such payment will be good. Thus. . and I cannot believe the common law is so unreasonable.

the agent's act is unenforceable against the estate of his principal. respondents. is believed to stand almost. and pointing out that the opinion. therefore. and We affirm en toto the judgment rendered by then Hon. McKenzie in American jurisprudence. . Gomez of the Court of First Instance of Cebu. Crane. Hernandez & Gatmaitan for American Airlines.R. with costs against respondent realty corporation at all instances. 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. . vs. 1931). said: The opinion. These cases. 282. Sycip. G. (52. 12. cited in 2 C. Salazar. the Civil Code. 549) Whatever conflict of legal opinion was generated by Cassiday v. are exceptional. vs.17. ORIENT AIR SERVICES & HOTEL REPRESENTATIVES.followed. and therefore the representative of the estate might well have been held to be estopped from suing for it again. and Andresito X. was a mere dictum. . Jr. it stands alone among common law authorities and is opposed by an array too formidable to permit us to following it. speaking of Cassiday v. COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED. quoted in pages 2 and 3 of this Opinion. as they announce the doctrine under discussion. no such conflict exists in our own for the simple reason that our statute. Lava. petitioner. But accordingly all power weight to this opinion. petitioner. INCORPORATED. Amador E. 17 Mo. 1991 AMERICAN AIRLINES. INCORPORATED. Inc. Page. Francisco A. No. 57 AmD 267. .J. to wit: (1) that the agency is coupled with an interest (Art 1930). 357. 2 is the doctrine followed in Cassiday. in the case of Dick v. Baldwin J.respondents. alone in announcing the principle in its broadest scope.J. cited in 2 C. supra (Cassiday v. Fornier for Orient Air Service and Hotel Representatives. 353. IN VIEW OF ALL THE FOREGOING. Exception No. Inc. if not quite. McKenzie. COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES. than as the adjudication of the Court upon the point in question. 234. 549) So also in Travers v. So Ordered. at least. McKenzie 4 Watts & S. 76933 May 29. 39 AmD 76). Misc. but in this latter case it appeared that the estate of the deceased principal had received the benefit of the money paid. The Pennsylvania Case. expressly provides for two exceptions to the general rule that death of the principal revokes ipso jure the agency. of the learned Judge may be regarded more as an extrajudicial indication of his views on the general subject. (15 Cal. in so far. as the judgment of a of great respectability. 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. We set aside the ecision of respondent appellate court. except so far as it related to the particular facts.

(c) arranging for distribution of American's timetables. No. 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 ." which affirmed. with modification. (b) providing and maintaining a suitable area in its place of business to be used exclusively for the transaction of the business of American.PADILLA. an air carrier offering passenger and air cargo transportation in the Philippines. entered into a General Sales Agency Agreement (hereinafter referred to as the Agreement). Orient Air Services and Hotel Representatives. employing staff competent and sufficient to do so. whereby the former authorized the latter to act as its exclusive general sales agent within the Philippines for the sale of air passenger transportation. (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. if necessary. and Orient Air Services and Hotel Representatives (hereinafter referred to as Orient Air). including any United States military installation therein which are not serviced by an Air Carrier Representation Office (ACRO). Inc. CV-04294. Inc. The antecedent facts are as follows: On 15 January 1977. which dismissed the complaint and granted therein defendant's counterclaim for agent's overriding commission and damages. American Airlines.R. vs. for the sale of air passenger transportation. entitled "American Airlines. 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. Pertinent provisions of the agreement are reproduced. Inc. and (e) holding out a passenger reservation facility to sales agents and the general public in the assigned territory. J. tariffs and promotional material to sales agents and the general public in the assigned territory. The services to be performed by Orient Air Services shall include: (a) soliciting and promoting passenger traffic for the services of American and. to wit: WITNESSETH In consideration of the mutual convenants herein contained.: This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 of the Court of Appeals in CA-G. the parties hereto agree as follows: 1. the decision 2 of the Regional Trial Court of Manila. 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. Branch IV. (hereinafter referred to as American Air).

or suffer any of its goods to be taken in execution. not less frequently than semi-monthly. this Agreement may. be terminated forthwith and American may. All monies collected by Orient Air Services for transportation sold hereunder on American's ticket stock or on exchange orders. at the option of American. 5. xxx xxx xxx 10. less commissions to which Orient Air Services is entitled hereunder. 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. xxx xxx xxx 4. Remittances Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders.scheduled air carriers provided American does not provide substantially equivalent schedules between the points involved. 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. less applicable commissions to which Orient Air Services is entitled hereunder. without prejudice to any of its rights . on the 15th and last days of each month for sales made during the preceding half month. (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. (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. 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. are the property of American and shall be held in trust by Orient Air Services until satisfactorily accounted for to American. or if it ceases to be in business. when made on American's ticket stock.

to the damage and prejudice of plaintiff. telegram or cable. 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. 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). 11. 1981 until such . for Accounting with Preliminary Attachment or Garnishment. 1977 to December 31. the trial court ruled in its favor. Mandatory Injunction and Restraining Order 4 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. 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.400. . exchange orders. Orient Air claiming that American Air's precipitous conduct had occasioned prejudice to its business interests. Further. xxx xxx x x x3 On 11 May 1981. Finding that the record and the evidence substantiated the allegations of the defendant. 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. contending that after application thereof to the commissions due it under the Agreement. xxx xxx xxx 13. rendering a decision dated 16 July 1984. Branch 24. American Air instituted suit against Orient Air with the Court of First Instance of Manila. all the foregoing premises considered. 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.821.40. 1980 in the amount of US$84. and such rules or resolutions shall control in the event of any conflict with the provisions hereof.under this Agreement." 5 In its Answer 6 with counterclaim dated 9 July 1981. Four (4) days later.31 plus the additional amount of US$8.000. traffic material or other property or funds belonging to American. the dispositive portion of which reads: WHEREFORE. take possession of any ticket forms. . or on 15 May 1981.00 by way of proper 3% overriding commission per month commencing from January 1. defendant Orient Air denied the material allegations of the complaint with respect to plaintiff's entitlement to alleged unremitted amounts. plaintiff is ordered to pay defendant the balance of the overriding commission on total flown revenue covering the period from March 16. . 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. plaintiff in fact still owed Orient Air a balance in unpaid overriding commissions. Either party may terminate the Agreement without cause by giving the other 30 days' notice by letter.

Orient Air as petitioner in G.000.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. or its Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on July 10.00. but granted insofar as the rate of exchange is concerned.500. hence.440. the case at bar.000. the rest of the appealed decision is affirmed. The dispositive portion of the appellate court's decision is as follows: WHEREFORE. 4) American is ordered to pay Orient exemplary damages of P200. assailing the substance thereof and arguing for its reversal. 7 On appeal. 76931 and American Air as petitioner in G. denied American Air's motion and with respect to that of Orient Air. Costs against plaintiff. the date the counterclaim was filed. 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. until full payment. No. and the amount of Three Hundred Thousand (P300.00) pesos as and by way of attorney's fees. The Court of Appeals. Further.11 representing the balance of the latter's overriding commission covering the period March 16. 2) American is ordered to pay Orient the sum of US$7. 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.000. May 9.00) pesos as and for exemplary damages.000. 1981 the date the answer with counterclaim was filed.8 American Air moved for reconsideration of the aforementioned decision. plaintiff is directed to pay defendant the amount of One Million Five Hundred Thousand (Pl. 1977 to December 31. 9 Both parties appealed the aforesaid resolution and decision of the respondent court.R. The decision of January 27.00 as attorney's fees. 76933. affirmed the findings of the court a quo on their material points but with some modifications with respect to the monetary awards granted. the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27 January 1986. by resolution promulgated on 17 December 1986. with the following modifications — 1) American is ordered to pay Orient the sum of US$53. the date the counterclaim was filed 3) American is ordered to pay interest of 12% on said amounts from July 10. 5) American is ordered to pay Orient the sum of P25. 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.491. . No. By resolution 10 of this Court dated 25 March 1987 both petitions were consolidated.00 as the latter's overriding commission per month starting January 1. 1981 or its Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on July 10. 1981 until date of termination. 1980. Costs against American. 1981.R. 1981.

b) Overriding Commission In addition to the above commission. ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on American Air ticket stock. the Court finds merit in the contention of Orient Air that the Agreement. 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.e. otherwise referred to as "ticketed sales. the promotion and solicitation for the services of its principal. entitles it to the 3% overriding commission based on total revenue.The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding commission. On the other hand. invokes its designation as the exclusive General Sales Agent of American Air. . (Emphasis supplied) Since Orient Air was allowed to carry only the ticket stocks of American Air. a sales agency commission. and the solicitation of sales therefor. In return for such efforts and services. 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. Orient Air was responsible for the promotion and marketing of American Air's services for air passenger transportation.. "all sales of transportation over American Air's services are necessarily by Orient Air. when interpreted in accordance with the foregoing principles. in reiteration. and second. The latter. i. This is supposed to be the clear meaning of the underscored portion of the above provision. 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 ." 11 It is a well settled legal principle that in the interpretation of a contract. Orient Air was to be paid commissions of two (2) kinds: first. 13 After a careful examination of the records. it is American Air's contention that Orient Air can claim entitlement to the disputed overriding commission based only on ticketed sales. the entirety thereof must be taken into consideration to ascertain the meaning of its provisions. In effect. an overriding commission of 3% of tariff fares and charges for all sales of passenger transportation over American Air services. such as. Commissions a) . To rule otherwise. Thus. with the corresponding obligations arising from such agency. primary reliance is placed upon paragraph 5(b) of the Agreement which." As the designated exclusive General Sales Agent of American Air. and the former not having opted to appoint any sub-agents. by virtue of such exclusivity. or as referred to by the parties. the sale must be made by Orient Air and the sale must be done with the use of American Air's ticket stocks. to be entitled to the 3% overriding commission. 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. It is immediately observed that the precondition attached to the first type of commission does not obtain for the second type of commissions." As basis thereof. is quoted as follows: 5. 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 itssub-agents. . in justification of its submission. "total flown revenue. 12 The various stipulations in the contract must be read together to give effect to all.

respondent appellate court. by legal fiction. the personality of the principal is extended through the facility of the agent.1âwphi1We 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. in fact. It is believed. As earlier established. Such an interpretation must at all times be avoided with every effort exerted to harmonize the entire Agreement. the respondent appellate court modified by reduction the trial court's award of exemplary damages and attorney's fees. Orient Air was entitled to an overriding commission based on total flown revenue.contract with meaningless provisions. must be read against the party who drafted it. The respondent appellate court. This Court sees no error in such modification and. for the cancellation of the Agreement did not exist." By affirming this ruling of the trial court. Since the latter was still obligated to Orient Air by way of such commissions. as stated ante. i. thus. compels American Air to extend its personality to Orient Air. that respondent appellate court erred in affirming the rest of the decision of the trial court. 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. The latter's termination of the Agreement was. Exh. 16 We now turn to the propriety of American Air's termination of the Agreement. It is clear from the records that American Air was the party responsible for the preparation of the Agreement. ruled thus: It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of the Agreement. Consequently. therefore. On the matter of damages. In so doing. however. F. 17 (emphasis supplied) In an agent-principal relationship. the agent. . without cause and basis. in effect. . affirms the same. American Air's perception that Orient Air was remiss or in default of its obligations under the Agreement was. construed against the party who caused the ambiguity and could have avoided it by the exercise of a little more care. Such would be violative of the principles and essence of agency. An additional point before finally disposing of this issue. and from paragraph 5(d) which specifically allows Orient to retain the full amount of its commissions. 15 We therefore agree with the respondent appellate court's declaration that: Any ambiguity in a contract. 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. on this issue. Orient Air was clearly justified in retaining and refusing to remit the sums claimed by American Air. 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. .. which provides for remittances to American less commissions to which Orient is entitled. whose terms are susceptible of different interpretations. 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. 14 To put it differently. Thus. therefore. American's premise. WITH THE CONSENT OR AUTHORITY OF THE LATTER . any ambiguity in this "contract of adhesion" is to be taken "contra proferentem". ." We agree with the findings of the respondent appellate court.e. Orient is entitled to the 3% override. Since. for which it should be held liable to Orient Air.

3 Jack Glanville. ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION). it had been engaged in the manufacture of roofing materials and pipe products.00 and that the terms of the sale were subject to negotiation. Inc. Litonjua. The Litonjua siblings offered to buy the property ." (emphasis supplied) We. Marquez declared that he was authorized to sell the properties for P27. Respondents. LITONJUA. WHEREFORE. JR. Petitioners. Metro Manila. Both had their offices in Belgium. LINTONJUA. Corporation (ESAC). was the General Manager and President of EC. respectively. set aside the portion of the ruling of the respondent appellate court reinstating Orient Air as general sales agent of American Air. 451120. DECISION CALLEJO. Pasig City. dated 27 January 1986 and 17 December 1986. and his brother Antonio K. Since 1950. the Court AFFIRMS the decision and resolution of the respondent Court of Appeals. of the Litonjua & Company.. be compelled by law or by any court. Adams engaged the services of realtor/broker Lauro G. The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. which affirmed the Decision of the Regional Trial Court (RTC). Glanville later showed the properties to Marquez. vs. 451122. CV No. and ANTONIO K. In 1986. telegram or cable.233 square meters. and FAR EAST BANK & TRUST COMPANY. Costs against petitioner American Air. Jr. 451118.A. 54887. ETEROUTREMER. a corporation organized and registered under the laws of Belgium. The Agreement itself between the parties states that "either party may terminate the Agreementwithout cause by giving the other 30 days' notice by letter. Jr. an Australian citizen.000. SR. In a Letter dated September 12. with the foregoing modification. 451119. authorized to perform all acts which the latter would have him do. 451117. S.R. responded to the offer. 451124 and 451125 under the name of Far East Bank & Trust Company.A.becomes the principal. to dispose of the eight parcels of land. Marquez so that the properties could be offered for sale to prospective buyers. therefore. The properties.. 51022. in any way. SO ORDERED. Such a relationship can only be effected with the consent of the principal. 1986. Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S. which must not. Marquez showed the property to Eduardo Litonjua. the management of ESAC grew concerned about the political situation in the Philippines and wanted to stop its operations in the country. EDUARDO V. as well as the Resolution 2 of the CA denying the motion for reconsideration thereof.4 Eduardo Litonjua. J.000. Jr.: On appeal via a Petition for Review on Certiorari is the Decision 1 of the Court of Appeals (CA) in CA-G. 451121. Branch 165. Litonjua. a member of EC’s Board of Directors. The Committee for Asia of ESAC instructed Michael Adams. Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Its manufacturing operations were conducted on eight parcels of land with a total area of 47. located in Mandaluyong City. in Civil Case No. were covered by Transfer Certificates of Title Nos. while Claude Frederick Delsaux was the Regional Director for Asia of ESAC. as trustee.

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.000.000. confirming that the ESAC Regional Office had decided not to proceed with the sale of the subject land. based on the "Belgian/Swiss decision. Aquino as President of the Republic of the Philippines. and drafted an Escrow Agreement to expedite the sale.500. with a copy of the telex sent by Delsaux. 1987. and in a Letter dated February 26.00 with the Security Bank & Trust Company." 5 Marquez furnished Eduardo Litonjua. Inc. . to wit: May 22. inquiring on his position/ counterproposal to the offer of the Litonjua siblings.000. It was only on February 12.6 The Litonjua brothers deposited the amount of US$1. Ermita Branch. 6767 Ayala Avenue Makati. Marquez L. the political situation in the Philippines had improved. confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. 1987 that Delsaux sent a telex to Glanville stating that.000. In a telex dated April 22. Marquez apprised Glanville of the Litonjua siblings’ offer and relayed the same to Delsaux in Belgium. On October 28. 1987 Mr. 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. Marquez conferred with Glanville."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.000.000. Marquez received a telephone call from Glanville. together with the necessary governmental clearances."10 Delsaux himself later sent a letter dated May 22." the final offer was "US$1. Marquez. 1987.000.00 to cover all existing obligations prior to final liquidation. 7 Sometime later.00 and P2. Jr. Jr.9 Meanwhile. which had given him the impression that "he is prepared to press for a satisfactory conclusion to the sale. L. Glanville telexed Delsaux in Belgium.for P20. Marquez and the Litonjua brothers inquired from Glanville when the sale would be implemented. 1987. He also stated that the Litonjua siblings would confirm full payment within 90 days after execution and preparation of all documents of sale. but the latter did not respond. advising that the sale would no longer proceed. 1986. Litonjua. 334 Makati Stock Exchange Bldg.G. accepted the counterproposal of Delsaux. 1987. Glanville followed it up with a Letter dated May 7.G.00 cash. with the assumption of Corazon C. Glanville informed Delsaux that he had met with the buyer.

it cannot be subject to the jurisdiction of Philippine courts. could not have been ratified by the principal. the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer. wrote EC. is also dismissed for lack of merit. the Litonjuas. Benito C. We regret that we could not make a deal with you this time. MARCOS and a certain stabilization in the Philippines. we would consult you again. 1995. S. through counsel. DELSAUX cc. (Sgd.A. An amended complaint was filed. but in case the policy would change at a later state. Stock Ha T. and the telex dated October 28. and (sic) to recognize the participation in the Corporation. demanding payment for damages they had suffered on account of the aborted sale.A. and as such. 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. Tan. Considering [the] new political situation since the departure of MR. such ratification cannot be given any retroactive effect. Tan. S.)11 When apprised of this development. On July 3. Eufemio were impleaded as additional defendants on account of their purchase of ESAC shares of stocks and were the controlling stockholders of EC.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. To: J. production has started again last week. Ruperto V. EC.12The fallo of the decision reads: WHEREFORE. EC and ESAC alleged that since Eteroutremer was not doing business in the Philippines. The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer. In any event. rejected their demand. Tan and Deogracias G. Plaintiffs could not assume that defendants had agreed to sell the property without a clear authorization from the .F. In their answer to the complaint. GLANVILLE (Eternit Corp. The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action. the Board and stockholders of EC never approved any resolution to sell subject properties nor authorized Marquez to sell the same.) C. the sale is void and not merely unenforceable. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said defendants. and ESAC in the RTC of Pasig City. xxx Yours sincerely. however. 13 The trial court declared that since the authority of the agents/realtors was not in writing. the trial court rendered judgment in favor of defendants and dismissed the amended complaint. in which defendant EC was substituted by Eterton Multi-Resources Corporation. 1986 of Jack Glanville was his own personal making which did not bind EC. In fact. the Committee has decided not to stop our operations in Manila.

Moreover. petitioners aver that I THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE. The CA pointed out that Delsaux was not even a member of the board of directors of EC. which the corporation was obliged to consummate. it was not necessary for him to be empowered as such by any written authority. since it was a bilateral contract to buy and sell. In the instant petition for review. the Litonjuas failed to prove that an agency by estoppel had been created between the parties. 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. 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. 16 The Litonjuas filed a motion for reconsideration. 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. hence. neither were Glanville and Delsaux authorized by its board of directors to offer the property for sale. AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES. which was also denied by the appellate court. In reply. III THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES. he needed a special authority from EC’s board of directors to bind such corporation to the sale of its properties. However. Since the sale involved substantially all of the corporation’s assets. 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. OR AT THE VERY LEAST.17 . 14 The Litonjuas appealed the decision to the CA. it would necessarily need the authority from the stockholders. On June 16. who was a real estate broker. that is.corporation concerned. The CA ruled that Marquez. 2000. who was merely the representative of ESAC (the majority stockholder of EC) had no authority to bind the latter. Under Section 23 of the Corporation Code. EC alleged that Marquez had no written authority from the Board of Directors to bind it. 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. was a special agent within the purview of Article 1874 of the New Civil Code. WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT AUTHORITY. through resolutions of the Board of Directors and stockholders. the CA rendered judgment affirming the decision of the RTC. Delsaux. it was equivalent to a perfected contract of sale.

need not be in writing.00 to cover obligations prior to final liquidation. In any event. 6.00 with the Security Bank and that an ESCROW agreement was drafted over the subject properties. petitioners argue.Petitioners maintain that. . resulting in a perfected contract of sale. had been allowed by respondent EC to hold themselves out in the public as having the power to sell the subject properties. His only job as a broker was to look for a buyer and to bring together the parties to the transaction.000. 3. which authority. hence. Petitioners identified such evidence." Petitioners insist that they had accepted the counteroffer of respondent EC and that before the counter-offer was withdrawn by respondents.000. which evidenced the fact that Petitioners’ offer was allegedly REJECTED by both Glanville and Delsaux. at least. the acceptance was made known to them through real estate broker Marquez. As broker. 7. to wit: Dear Sir. as hereinabove discussed. The fact that Petitioners DEPOSITED the price of [US]$1. and Delsaux. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager of Eternit. He was not authorized to sell the properties or to make a binding contract to respondent EC. Exhibits "G" and "H" of the Respondents. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners. 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.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. 4. Article 1874 of the New Civil Code does not apply. petitioners aver.000. to sell the properties of said corporation to any interested party. who was the Managing Director for ESAC Asia. thus: 1. More importantly. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties as evidenced by the Petitioners’ ACCEPTANCE of the counter-offer. Petitioners insist that Delsaux confirmed his authority to sell the properties in his letter to Marquez.00 plus P2. there was a perfected contract of sale of the parcels of land and the improvements thereon for "US$1. had the necessary authority to sell the subject property or. from 1986 to 1987.500. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY AND SELL". 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 counteroffer. who was the President and General Manager of respondent EC. Marquez was not an ordinary agent because his authority was of a special and limited character in most respects. 5. based on the facts of the case.000. Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville. 2.000. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS.

and Delsaux were authorized by respondent EC to act as its agents relative to the sale of the properties of respondent EC. and should be affirmed in toto. a formal resolution of the Board of Directors would be a mere ceremonial formality.] [I]n fact production started again last week. In the meantime. respondent EC never repudiated the acts of Glanville. is that Marquez was able to communicate the offer of respondent EC and the petitioners’ acceptance thereof. Considering the new political situation since the departure of MR. Given the significance of their positions and their duties in respondent EC at the time of the transaction. conformed to the written authority of Marquez to sell the properties. Glanville. the Committee has decided not to stop our operations in Manila[. respondents aver that the issues raised by the petitioners are factual. and if so. MARCOS and a certain stabilization in the Philippines. hence. Petitioners insist that respondents held themselves to the public as possessing power to sell the subject properties. They assert that the decision and resolution of the CA are in accord with law and the evidence on record. and (sic) to reorganize the participation in the Corporation. Marquez and Delsaux. 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.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 petition has no merit. In the absence of express written terms creating the relationship of an agency. and the fact that respondent ESAC owns 90% of the shares of stock of respondent EC. Petitioners aver in their subsequent pleadings that respondent EC. There was no time that they acted without the knowledge of respondents. respondents EC (now EMC) and ESAC reiterate their submissions in the CA. In fact. we agree with the contention of respondents that the issues raised by petitioner in this case are factual. I remain Yours sincerely. Anent the first issue. or to any other person or entity for that matter. They maintain that Glanville. We regret that we could not make a deal with you this time. 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. By way of comment. the boundaries of their authority as agents. Whether or not Marquez. 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. through Glanville and Delsaux. the existence of an . On the merits of the petition. What is important. 1997.F. are proscribed by Rule 45 of the Rules of Court. C. petitioners maintain. 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. is a question of fact. but in case the policy would change at a later stage we would consult you again.

24 Section 23 of Batas Pambansa Bilang 68. whether testimonial and documentary. It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had empowered Adams.agency is a fact question. Indeed. (8) when the findings of fact are conclusions without citation of specific evidence on which they are based. in making its findings. (4) when the judgment is based on a misapprehension of facts. certain and specific proof. from among the members of the corporation. through Glanville and Delsaux. obligations and transactions of the latter. (6) when the Court of Appeals. the corporate powers of all corporations formed under this Code shall be exercised. absent evidence that the trial and appellate courts ignored. It must be stressed that when specific performance is sought of a contract made with an agent. however. or impossible. recognized exceptions where the Court may delve into and resolve factual issues. if considered. or where there is no stock. as affirmed by the CA. through its officers or agents in the . misconstrued. a corporation is a juridical person separate and distinct from its members or stockholders and is not affected by the personal rights. provides: SEC. 23. went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee. are conclusive on the Court. 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. otherwise known as the Corporation Code of the Philippines. namely: (1) When the conclusion is a finding grounded entirely on speculations. Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers and to accept any counter-offer. (7) when the findings of the Court of Appeals are contrary to those of the trial court. which. the assailed decision of the Court of Appeals is supported by the evidence on record and the law. (5) when the findings of fact are conflicting. 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. questions of fact to be resolved on the basis of the evidence on record.21 The findings of the trial court on such issues. if properly considered. when authorized either by its by-laws or by its board resolution.20 Whether an agency by estoppel was created or whether a person acted within the bounds of his apparent authority. or conjectures. There are. (2) when the inference made is manifestly mistaken. would warrant a modification or reversal of the outcome of the case. the agency must be established by clear. or misapplied facts and circumstances of substance which. 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. (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties. (3) when there is grave abuse of discretion. 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. 25 It may act only through its board of directors or. would justify a different conclusion. surmises. It is not to re-examine and assess the evidence on record. and whether the principal is estopped to deny the apparent authority of its agent are. likewise. – Unless otherwise provided in this Code. Indeed. absurd. who shall hold office for one (1) year and until their successors are elected and qualified. Petitioners likewise failed to prove that their counter-offer had been accepted by respondent EC. The Board of Directors or Trustees.

otherwise. including securities and bonds of other corporations. The property of a corporation. a corporation may sell or convey its real properties. Corporate powers and capacity. or implied from his acts which carry out the agency. or the acceptance of a counter-offer of prospective buyers of such properties and the execution of the deed of sale covering such property. are not binding on the corporation. mortgage and otherwise deal with such real and personal property. as the transaction of a lawful business of the corporation may reasonably and necessarily require. lease. 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. 32 Consent of both principal and agent is necessary to create an agency. a person binds himself to render some service or to do something in representation on behalf of another. 27 Physical acts. and as such. 35 However. a special power of attorney is necessary.26 Under Section 36 of the Corporation Code. with the consent or authority of the latter. 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. convey. hold. as follows: SEC. however. the rule is that the declarations of an individual director relating to the affairs of the corporation. sell. 37 . the authority of the latter shall be in writing. may not be sold without express authority from the board of directors. or relevant provisions of law. to create or convey real rights over immovable property. receive. but not in the course of. or connected with. 33 An agency may be expressed or implied from the act of the principal. subject to the limitations prescribed by law and the Constitution. by-laws. or from his silence or inaction according to the circumstances. 34 Agency may be oral unless the law requires a specific form. The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority. is not the property of the stockholders or members. when a sale of a piece of land or any portion thereof is through an agent. the performance of authorized duties of such director. 29 While a corporation may appoint agents to negotiate for the sale of its real properties. 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. 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. like the offering of the properties of the corporation for sale. 36 Thus. from his silence or lack of action. 28 Absent such valid delegation/authorization. 31 By the contract of agency. The principal must intend that the agent shall act for him. The general principles of agency govern the relation between the corporation and its officers or agents. To purchase. and the intention of the parties must find expression either in words or conduct between them. or his failure to repudiate the agency knowing that another person is acting on his behalf without authority. 36.normal course of business. take or grant. pledge. the sale shall be void. subject to the articles of incorporation. the agent must intend to accept the authority and act on it. Acceptance by the agent may be expressed. – Every corporation incorporated under this Code has the power and capacity: xxxx 7. subject to the limitations prescribed by the law and the Constitution.

respondent ESAC owned 90% of the shares of stocks of respondent EC. be compelled by law or by any court.000. blindly to trust the agents. the agent. who. 1997. authorized to perform all acts which the latter would have him do. taken alone. cannot be used as basis for petitioners’ claim that he had likewise been authorized by respondent EC to sell the parcels of land. Such a relationship can only be effected with the consent of the principal. Glanville or Delsaux to offer the properties for sale and to sell the said properties to the petitioners.000. Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to petitioners’ offer. 1987.00 to cover all existing obligations prior to final liquidation. through Marquez. through its Committee for Asia. a board resolution evincing the grant of such authority is needed to bind EC to any agreement regarding the sale of the subject properties. in any way. 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.500.41 When Delsaux finally responded to Glanville on February 12. Adams and Glanville engaged the services of Marquez to offer to sell the properties to prospective buyers. failed to adduce in evidence any resolution of the Board of Directors of respondent EC empowering Marquez. on September 12. Marquez wrote the petitioner that he was authorized to offer for sale the property forP27. statements as to the extent of his powers. respondent EC was not a party to the transaction between them.000. under any circumstances. . Glanville or Delsaux as its agents. 1986. let alone offer for sale.44 The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC empowering Adams. becomes the principal. by legal fiction. hence." and not the entire management or Board of Directors of respondent ESAC. Thus. or even all of such shares of stocks.000. the eight parcels of land owned by respondent EC including the improvements thereon. however.39 and the Belgian/Swiss component of the management of respondent ESAC. in turn. acted on the authority of respondent ESAC. on June 1. In so doing. the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux. to sell. However. will not justify their being treated as one corporation. When petitioners offered to purchase the property for P20.40 As such. EC was not bound by such acceptance. the personality of the principal is extended through the facility of the agent. he made it clear that.38 the Board of Directors of respondent ESAC. based on the "Belgian/Swiss decision" the final offer of respondent ESAC was US$1. the three acted for and in behalf of respondent ESAC. the mere fact that a corporation owns a majority of the shares of stocks of another. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC. the petitioners as plaintiffs below.00.43 It bears stressing that in an agent-principal relationship.00 plus P2. Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait for confirmation from respondent ESAC.000. and Adams and Delsaux were members of its Board of Directors. 45 The settled rule is that. While Glanville was the President and General Manager of respondent EC.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision. and not as duly authorized agents of respondent EC. as admitted by petitioners in their Memorandum. which must not.000. While it is true that petitioners accepted the counter-offer of respondent ESAC. Moreover. the latter relayed petitioners’ offer to Glanville. Such board resolution is not a mere formality but is a condition sine qua non to bind respondent EC. for and in its behalf. Admittedly. A person dealing with a known agent is not authorized.In this case.000.00 and the other terms of the sale subject to negotiations.

JOCELYN B. (2) the third person. vs. the petitioners failed to discharge their burden. The transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC for ratification. Indeed. and if they would hold the principal liable. 48 An agency by estoppel. 46 In this case. 1998 of the Regional Trial Court (RTC). IN LIGHT OF ALL THE FOREGOING. . In their communications to the petitioners. requires proof of reliance upon the representations. the petition is DENIED for lack of merit. DECISION AUSTRIA-MARTINEZ.-G. DOLES. needs proof that the representations predated the action taken in reliance. Neither may respondent EC be deemed to have ratified the transactions between the petitioners and respondent ESAC. Costs against the petitioners.: This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning the Decision1dated April 30. It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. hence. However. He has no authority to bind the principal by signing a contract of sale. he confirmed. Respondent. MA. the burden of proof is upon them to prove it. to ascertain not only the fact of agency but also the nature and extent of authority. CV No. For an agency by estoppel to exist. As gleaned from the letter of Marquez to Glanville. for and in behalf of the petitioners. Petitioner. and that. Delsaux and Marquez. City of Manila. 66985.R.49 Such proof is lacking in this case. relied upon such representation. A real estate broker is one who negotiates the sale of real properties. 2001 which denied petitioner’s Motion for Reconsideration. AURA TINA ANGELES. such third person has changed his position to his detriment. His business.persons dealing with an assumed agent are bound at their peril. 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. J. in good faith. Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC. generally speaking. and in case either is controverted. we agree with the ruling of the appellate court that Marquez had no authority to bind respondent EC to sell the subject properties. 1987. is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. Branch 21. (3) relying upon such representation. through Glanville. which is similar to the doctrine of apparent authority. and the CA Resolution2 dated August 6. in turn. which reversed the Decision dated July 29. an authority to find a purchaser of real property does not include an authority to sell. that the latter had accepted such offer to sell the land and the improvements thereon. 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. on February 26. petitioners are not entitled to damages from respondent EC.A. 2001 of the Court of Appeals (CA) in C. SO ORDERED.

respondent became furious and threatened petitioner that if the accounts were not settled. Cavite. by virtue of a "Deed of Absolute Sale". that despite repeated demand. The RTC identified the issues as follows: first. Respondent alleged that petitioner was indebted to the former in the concept of a personal loan amounting to P405. that the property was at that time being occupied by a tenant paying a monthly rent ofP3. petitioner refused to cooperate with respondent to execute the necessary documents and other formalities required by the NHMFC to effect the transfer of the title over the property. 1996. as well as the improvements thereon.748. petitioner denied that she incurred them and refused to pay the same. respondent learned that petitioner had incurred arrearages amounting to P26. that upon informing the petitioner of her arrears. Theresa Moratin. respondent shall assume the undue balance of the mortgage and pay the monthly amortization of P4. . namely. that the checks bounced for insufficiency of funds. Virginia Jacob. second. denied that she borrowed money from respondent.000 to answer for the bounced checks of the borrowers she referred.11 for the remainder of the 25 years which began on September 3. 9782716. that she was forced by respondent to execute an "Absolute Deed of Sale" over her property in Bacoor. covered by Transfer Certificate of Title No. a parcel of land. that. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific Performance with Damages against Jocelyn B.050. that prior to the issuance of the checks she informed respondent that they were not sufficiently funded but the latter nonetheless deposited the checks and for which reason they were subsequently dishonored. while admitting some allegations in the Complaint.00 representing the principal amount and interest. 3 petitioner. that she did not appear before a notary public. 4 and located at a subdivision project known as Camella Townhomes Sorrente in Bacoor.430. ceded to respondent. she referred her friends to respondent whom she knew to be engaged in the business of lending money in exchange for personal checks through her capitalist Arsenio Pua.09. if valid. and third. with an area of 42 square meters. and that respondent suffered damages as a result and was forced to litigate. that this property was mortgaged to National Home Mortgage Finance Corporation (NHMFC) to secure petitioner’s loan in the sum ofP337. borrowed money from respondent and issued personal checks in payment of the loan. in order to satisfy her personal loan with respondent. that she was forced to issue eight checks amounting to P350. as buyer. then defendant. that the said deed had no valid consideration.00. because of this. that respondent then threatened to initiate a criminal case against her for violation of Batas Pambansa Blg. and averred that from June to September 1995. and that she suffered damages and lost rental as a result. 22. inclusive of penalties and interest. Ma. Zenaida Romulo. that on October 5. Petitioner. that the Community Tax Certificate number on the deed was not hers and for which respondent may be prosecuted for falsification and perjury. that as a condition for the foregoing sale. and Elizabeth Tomelden. 1997. 1994. whether the Deed of Absolute Sale is valid. whether petitioner is liable for damages. docketed as Civil Case No. She alleged that her friends. to avoid criminal prosecution. Julia Inocencio. a criminal case will be filed against her. Cavite. whether petitioner is obliged to sign and execute the necessary documents to effect the transfer of her rights over the property to the respondent. Doles (petitioner). that upon verification with the NHMFC. that petitioner collected rent over the property for the month of January 1997 and refused to remit the proceeds to respondent. she could no longer locate them.744. as seller. that despite her efforts to assist respondent to collect from the borrowers.00 with that entity. 382532.000.The antecedents of the case follow: On April 1.

while payments made for the loan were deposited by the latter to respondent’s bank account. No costs. The Decision of the lower court dated July 29. which is the sum of money petitioner owed respondent amounting to P405. IN VIEW OF THE FOREGOING. SO ORDERED. 382532 (Annex A. Respondent appealed to the CA. etc.430. 9 and that the documentary evidence shows that the actual borrowers.7 that the money borrowed was deposited with the bank account of the petitioner. at the latter’s expense. 9055. 9055 of Transfer Certificate of Title No. (Art. thus: "Entry No.10 . Moreover. 2001. the Deed of Absolute Sale was supported by a valid consideration. SO ORDERED. the property is not solely owned by defendant as appearing in Entry No.On July 29. 6 On April 30. the friends of petitioner. With costs against plaintiff. Special Power of Attorney in favor of Jocelyn Doles covering the share of Teodorico Doles on the parcel of land described in this certificate of title by virtue of the special power of attorney to mortgage. 1998. A new one is entered ordering defendant-appellee to execute all necessary documents to effect transfer of subject property to plaintiff-appellant with the arrearages of the former’s loan with the NHMFC. representing both principal and interest. Complaint). executed before the notary public. respondent interposed her sole assignment of error: THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF EVIDENCE. consider her as their creditor and not the respondent.00.8 that petitioner herself admitted in open court that she was "relending" the money loaned from respondent to other individuals for profit. the CA promulgated its Decision. the dispositive portion of which reads: WHEREFORE. the Court hereby orders the dismissal of the complaint for insufficiency of evidence. would "re-lend" the amount borrowed from the respondent to her friends. In her appeal brief. in turn. The CA concluded that petitioner was the borrower and. The CA took into account the following circumstances in their entirety: the supposed friends of petitioner never presented themselves to respondent and that all transactions were made by and between petitioner and respondent. premises considered. Civil Code). The RTC held that the sale was void for lack of cause or consideration: 5 Plaintiff Angeles’ admission that the borrowers are the friends of defendant Doles and further admission that the checks issued by these borrowers in payment of the loan obligation negates [sic] the cause or consideration of the contract of sale executed by and between plaintiff and defendant. this appeal is hereby GRANTED. the RTC rendered a decision the dispositive portion of which states: WHEREFORE. 1998 is REVERSED and SET ASIDE." The rule under the Civil Code is that contracts without a cause or consideration produce no effect whatsoever. 1352. Hence.

hence.Furthermore. she had no legal capacity to sue petitioner. and that the CA failed to consider the fact that petitioner’s father. who co-owned the subject property. and when the CA manifestly overlooked certain relevant facts not disputed by the parties. III. 2001. petitioner filed her Motion for Reconsideration with the CA.12 that with respect to the arrearages of petitioner on her monthly amortization with the NHMFC in the sum of P26. the same shall be deemed part of the balance of petitioner’s loan with the NHMFC which respondent agreed to assume. WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE RESPONDENT.13 On May 29.000. 2001. at least three of which are present in the instant case. 14 Although. The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration. she cannot be made to sign the documents to effect the transfer of ownership over the entire property. On August 28. as well as the claim for damages and attorney’s fees.15 To arrive at a proper judgment. then she is not a party to the loan.744. which. 1. therefore. Petitioner argues that since she is merely the agent or representative of the alleged debtors. namely: when the judgment is based on a misapprehension of facts. if properly considered. was not impleaded as a defendant nor was he indebted to the respondent and. WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE. is denied for insufficiency of evidence. and that the amount of P3. the Court finds it necessary to re-examine the evidence presented by the contending parties during the trial of the case. could justify a different conclusion. the CA held that the alleged threat or intimidation by respondent did not vitiate consent. On August 13. arguing that respondent categorically admitted in open court that she acted only as agent or representative of Arsenio Pua. since the same is considered just or legal if made to enforce one’s claim through competent authority under Article 133511 of the Civil Code. petitioner filed the present Petition and raised the following issues: I. 2001. WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE DEBTOR. and that the Deed of Sale executed between her and the . 2001. the CA issued its Resolution denying the motion on the ground that the foregoing matters had already been passed upon. On August 6. The Petition is meritorious. the principal financier and. jurisprudence has recognized several exceptions. hence. it is not the business of this Court to review the findings of fact made by the lower courts. II. petitioner received a copy of the CA Resolution.09.00 representing the rental for January 1997 supposedly collected by petitioner. as a rule. when the findings of facts of the courts a quo are conflicting.

Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[. Diza: q. You also mentioned that you were not the one indebted to the plaintiff? witness: a. consider her as their creditor and not the respondent.] namely. Yes. Diza: q. sir. they are your friends? witness: a. 21 On the first.20 and fourth.respondent in their own names.] they were just referred. Elizabeth Tomelden. sir. third. And you have transact[ed] with the plaintiff? witness: a. Indeed. And you mentioned the persons[. 17 The question that has to be resolved for the moment is whether this debt can be considered as a valid cause or consideration for the sale. To refer those persons to Aura and to refer again to Arsenio Pua. Atty. the documentary evidence shows that the actual borrowers. the CA cited four instances in the record to support its holding that petitioner "relends" the amount borrowed from respondent to her friends: first. petitioner herself admitted that she was "re-lending" the money loaned to other individuals for profit. . the CA cites the testimony of the petitioner. the money passed through the bank accounts of petitioner and respondent. which was predicated on that pre-existing debt. Diza: q. the friends of petitioner never presented themselves to respondent and that all transactions were made by and between petitioner and respondent. sir. Yes. Atty.18 second. What is that transaction? witness: a. the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain in money16 and that this sum indisputably pertains to the debt in issue. during her cross-examination:22 Atty. the friends of petitioner. Maria Luisa Inocencio. Atty. Zenaida Romulo. and fourth points.19 third. is void for lack of consideration. then defendant. To restate. Teresa Moraquin. This Court has consistently held that a contract of sale is null and void and produces no effect whatsoever where the same is without cause or consideration. Diza: q.

she knows the money will go to those persons. Your friends and the plaintiff did not meet personally? witness: a. xxxx Atty. do you have commission? witness: a. Diza: q. sir. Did the plaintiff personally see the transactions with your friends? witness: a. Yes. sir. Atty. Diza: q.Atty. As evidenced by the checks of the debtors they were deposited to the name of Arsenio Pua because the money came from Arsenio Pua. sir. Diza: q. No. Yes. Atty. What profit do you have. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the one you mentioned [a] while ago? witness: a. How much? witness: . Diza: q. Yes. Diza: q. You are re-lending the money? witness: a. Yes. Atty. Diza: q. We are both intermediaries. sir. Diza: q. Atty. Atty. You are intermediaries? witness: a.

Other portions of the testimony of respondent must likewise be considered: 24 Atty. Villacorta: q. sir. It is not your money? witness: a. Villacorta: q. because I am only representing him. I am aware of that.a. Yes. Principal financier. Two percent to Tomelden. Atty. made the following admission during her cross examination:23 Atty. while the respondent. But as correctly noted by the RTC. sir. Yes. Based on the foregoing. the CA concluded that petitioner is the real borrower. Is it not a fact Ms. Court: q. sir. then plaintiff. So it is not actually your money but the money of Arsenio Pua? witness: a. one percent to Jacob and then Inocencio and my friends none. Villacorta: q. Your Honor. Villacorta: q. Villacorta: q. the real lender. More or less she [accommodated] several friends of the defendant? witness: . Yes. So the money came from Arsenio Pua? witness: a. Witness that the defendant borrowed from you to accommodate somebody. respondent. Atty. Who is this Arsenio Pua? witness: a. are you aware of that? witness: a. Atty. sir.

Villacorta: q. there were checks issued. Villacorta: q. Villacorta: q. the friends of the defendant who are in need of money were able to obtain loan to [sic] Arsenio Pua through your assistance? witness: a. By the friends of the defendant. And these friends of the defendant borrowed money from you with the assurance of the defendant? witness: a. Atty. xxxx Atty. Villacorta: q. And is it not also a fact Madam witness that everytime that the defendant borrowed money from you her friends who [are] in need of money issued check[s] to you? There were checks issued to you? witness: a. Atty. And because of your assistance. I am aware of that. So that occasion lasted for more than a year? witness: a.a. Yes. am I correct? witness: a. Yes. Yes. xxxx Atty. sir. Yes. sir. Villacorta: q. Yes. sir. Atty. sir. am I correct? witness: . They go direct to Jocelyn because I don’t know them. Villacorta: q. And some of the checks that were issued by the friends of the defendant bounced. Atty.

27Though the fact or extent of authority of the agents may not. With respect to the admission of petitioner that she is "re-lending" the money loaned from respondent to other individuals for profit.25 The question of whether an agency has been created is ordinarily a question which may be established in the same way as any other fact. impersonal dealings where the principal need not personally know or meet the third person with whom her agent transacts: precisely. Yes. either by direct or circumstantial evidence. be established from the declarations of the agents alone. her friends whom she referred to respondent. For an agency to arise. And because of that Arsenio Pua got mad with you? witness: a. This Court has affirmed that. The question is ultimately one of intention. Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua. sir. If their respective principals do not actually and personally know each other. under Article 1868 of the Civil Code. The law in fact contemplates. she may be estopped to deny her agency both as against the asserted principal and the third persons interested in the transaction in which he or she is engaged. especially since the very purpose of agency is to extend the personality of the principal through the facility of the agent. 30 The question is to be determined by the fact that . the former is the agent of the latter notwithstanding he or she is not so called. her disclosed principal. The CA is incorrect when it considered the fact that the "supposed friends of [petitioner]. sir. it must be stressed that the manner in which the parties designate the relationship is not controlling.29 In the case at bar.a. both petitioner and respondent have undeniably disclosed to each other that they are representing someone else. and respondent knew that the borrowers are friends of petitioner. 26 Agency may even be implied from the words and conduct of the parties and the circumstances of the particular case. as a general rule. if one professes to act as agent for another. It is evident from the record that petitioner merely refers actual borrowers and then collects and disburses the amounts of the loan upon which she received a commission. did not present themselves to [respondent]" as evidence that negates the agency relationship—it is sufficient that petitioner disclosed to respondent that the former was acting in behalf of her principals. She is also estopped to deny that petitioner acted as agent for the alleged debtors. the basis of agency is representation. such ignorance does not affect their juridical standing as agents. Villacorta: q. 28 In this case. If an act done by one person in behalf of another is in its essential nature one of agency. the actual borrowers. Yes. the purpose of agency is to extend the personality of the principal through the facility of the agent. it is not necessary that the principal personally encounter the third person with whom the agent interacts. a certain Arsenio Pua. and that respondent transacts on behalf of her "principal financier". and so both of them are estopped to deny the same. and to a great degree. the friends whom she (petitioner) referred. petitioner knew that the financier of respondent is Pua. Atty.

it will be an agency whether the parties understood the exact nature of the relation or not. and if relations exist which will constitute an agency. If it is true that petitioner was "re-lending". to carry out the task. 39 What is worse." 37 it cannot be inferred from this bare notation. Teodorico Doles. . the Court cannot entertain the possibility that respondent agreed to assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC. the alleged co-owner. in the first place. endowed with any ownership rights to validly mortgage and convey the property. With respect to the second point. and that a sub-agent be appointed. 34 Although the record shows that petitioner admitted at the time of trial that she owned the property described in the TCT. it states that the property is registered in the name of "Household Development Corporation.one represents and is acting for another. Rather. such as the bank itself. such as a bank account. As the complainant who initiated the case. especially since the record is bereft of any factual finding that petitioner was. suffice it to say that in the normal course of commercial dealings and for reasons of convenience and practical utility it can be reasonably expected that the facilities of the agent. then the sale is void for lack of consideration. there is a notation that the TCT itself has been "cancelled. the Court finds it unnecessary to dwell on the issue of whether duress or intimidation had been foisted upon petitioner upon the execution of the sale. petitioner and respondent are not privy to the contract of loan between their principals.35 the Court must stress that the Transfer Certificate of Title No. 38253236 on its face shows that the owner of the property which admittedly forms the subject matter of the Deed of Absolute Sale refers neither to the petitioner nor to her father. And since the sale is void. 31 That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner issued checks in payment of the loan in the name of Pua. may be employed. then the checks should have been drawn in her name and not directly paid to Pua. that the petitioner or her father held any direct interest on the property in question so as to validly constitute a mortgage thereon 38 and. that the sale might have been backed up by another consideration that is separate and distinct from the debt: respondent averred in her complaint and testified that the parties had agreed that as a condition for the conveyance of the property the respondent shall assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC. respondent bears the burden of proving the basis of her complaint. particularly. the Court has no choice but to declare the sale void for lack of cause. however. Having failed to discharge such burden. 2. 32 In view of the two agency relationships. to effect the delivery of the object of the sale at the consummation stage. A further scrutiny of the record shows. especially where there is no stipulation to the contrary. with more reason." Although there is an entry to the effect that the petitioner had been granted a special power of attorney "covering the shares of Teodorico Doles on the parcel of land described in this certificate.33 This Court in the recent past has declared that an assumption of a mortgage debt may constitute a valid consideration for a sale." 40 In view of these anomalies. nor from any other evidence on the record. Since the sale is predicated on that loan. the finding of the CA that the disbursements and payments for the loan were made through the bank accounts of petitioner and respondent.

v.R. CEB-19672. EUROTECH INDUSTRIAL TECHNOLOGIES.00 with respondents making a down payment of fifty thousand pesos (P50. Antonio T.00) pesos.000.) That said ASSIGNOR does hereby ASSIGN.338. on 28 June 1995. INC. respondents sought to buy from petitioner one unit of sludge pump valued at P250. executed a Deed of Assignment of receivables in favor of petitioner.00) PESOS which receivables the ASSIGNOR is the lawful recipient. Echavez.00). The complaint of respondent in Civil Case No. Since the 25 years had not lapsed. general manager of petitioner. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. Inc. and CONVEY unto the ASSIGNEE 6 the said receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365. Petitioner. "Eurotech Industrial Technologies. petitioner sold to Impact Systems various products allegedly amounting to ninety-one thousand three hundred thirty-eight (P91. Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the court a quo in said capacity. Thus. J. Hon. petitioner refused to deliver the same to respondents without their having fully settled their indebtedness to petitioner..000. SP No." The assailed Decision and Resolution affirmed the Order3 dated 29 January 2002 rendered by Judge Antonio T. . the petition is granted. From January to April 1995. 71397 entitled. The generative facts of the case are as follows: Petitioner is engaged in the business of importation and distribution of various European industrial equipment for customers here in the Philippines. Respondents.00) PESOS as payment for the purchase of one unit of Selwood Spate 100D Sludge Pump. It has as one of its customers Impact Systems Sales ("Impact Systems") which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN). respondent EDWIN and Alberto de Jesus.000. DECISION CHICO-NAZARIO. the pertinent part of which states: 1. Respondent filed her Complaint for Specific Performance in 1997. even assuming the mortgage validly exists.: Before Us is a petition for review by certiorari assailing the Decision 1 of the Court of Appeals dated 10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365.000. vs.4 When the sludge pump arrived from the United Kingdom. the prayer of respondent to compel petitioner to execute necessary documents to effect the transfer of title is premature. 1994. 97-82716 is DISMISSED. TRANSFER. Subsequently. 2. WHEREFORE.Moreover. SO ORDERED. EDWIN CUIZON and ERWIN CUIZON. the Court notes respondent’s allegation that the mortgage with the NHMFC was for 25 years which began September 3. The Decision and Resolution of the Court of Appeals are REVERSED andSET ASIDE.

petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for Summary Judgment.15 He. respondent EDWIN alleged that he is not a real party in interest in this case.3. proceeded to collect from Toledo Power Company the amount of P365.00. a resident of Cebu City.13 On 25 June 1997. 19 However.000. Cuizon. where he may be served summons and other processes of the Honorable Court. petitioner points to paragraphs 1. petitioner delivered to respondents the sludge pump as shown by Invoice No. On 7 October 1996. 10Alarmed by this development. with office located at 46-A del Rosario Street.) That the ASSIGNEE does hereby accept this assignment. Cuizon is of legal age. respondents were able to make partial payments to petitioner. married. 20 After the filing of respondent EDWIN’s Memorandum 21 in support of his special and affirmative defenses and petitioner’s opposition 22 thereto. amounted to only P220. is of legal age. according to him. 8 Allegedly unbeknownst to petitioner. damages.000. 11 Because of respondents’ failure to abide by said final demand letter.16 By way of special and affirmative defenses.3. 12 On 8 January 1997. respondent EDWIN filed his Answer 14 wherein he admitted petitioner’s allegations with respect to the sale transactions entered into by Impact Systems and petitioner between January and April 1995. 7 Following the execution of the Deed of Assignment. Defendant Edwin B.00 excluding interests and attorney’s fees. a resident of Cebu City. with application for preliminary attachment against herein respondents before the Regional Trial Court of Cebu City. 1. In support of this argument. married.135. Defendant Erwin H. which was the Impact Systems. the conduct of the pretrial conference was deferred pending the resolution by the trial court of the special and affirmative defenses raised by respondent EDWIN. the trial court rendered its assailed Order dated . 12034 dated 30 June 1995. petitioner made several demands upon respondents to pay their obligations.2 and 1. the trial court granted petitioner’s prayer for the issuance of writ of preliminary attachment. in his transaction with petitioner and the latter was very much aware of this fact. Filipino. however. As a result. disputed the total amount of Impact Systems’ indebtedness to petitioner which. petitioner’s counsel sent respondents a final demand letter wherein it was stated that as of 11 June 1996. respondents’ total obligations stood at P295. petitioner instituted a complaint for sum of money. He is the proprietor of a single proprietorship business known as Impact Systems Sales ("Impact Systems" for brevity). he was acting as mere agent of his principal. The trial court granted petitioner’s motion to declare respondent ERWIN in default "for his failure to answer within the prescribed period despite the opportunity granted"18 but it denied petitioner’s motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October 2001. Cebu City. 09339prepared by said power company and an official receipt dated 15 August 1995 issued by Impact Systems.29 as evidenced by Check Voucher No. 17 On 26 June 1998. respondents.3 of petitioner’s Complaint stating – 1. He is the Sales Manager of Impact Systems and is sued in this action in such capacity.2. despite the existence of the Deed of Assignment. According to him.

1995 or two days after the execution of Annex "G". affirmed the 29 January 2002 Order of the court a quo. unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers. it is hereby AFFIRMED. the Court directs that defendant Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales. that [Impact] Systems Sale is a single proprietorship entity and the complaint shows that defendant Erwin H. While said collection did not revoke the agency relations of respondents.25 To support its argument. petitioner points to Article 1897 of the New Civil Code which states: Art. Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWIN’s act of collecting the receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of Assignment signed by EDWIN on behalf of Impact Systems. AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON. Cuizon is the proprietor. According to the trial court – A study of Annex "G" to the complaint shows that in the Deed of Assignment. Cuizon. the present petition raising. made a down payment of P50.29 January 2002 dropping respondent EDWIN as a party defendant in this case. The dispositive portion of the now assailed Decision of the Court of Appeals states: WHEREFORE. Cuizon in excess of his powers since [Impact] Systems Sales made a down payment of P50.00 that Annex "H" is dated June 30. the records further show that plaintiff knew that [Impact] Systems Sales. The agent who acts as such is not personally liable to the party with whom he contracts. petitioner brought the matter to the Court of Appeals which. Hence. cannot say that it was deceived by defendant Edwin B. finding no viable legal ground to reverse or modify the conclusions reached by the public respondent in his Order dated January 29. A study of Annex "H" to the complaint reveals that [Impact] Systems Sales which is owned solely by defendant Erwin H. BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD. Cuizon. ratified the act of Edwin B.26 . Plaintiff. 1897. 24 Petitioner’s motion for reconsideration was denied by the appellate court in its Resolution promulgated on 17 March 2005. As EDWIN did not sufficiently notify it of the extent of his powers as an agent.000.23 Aggrieved by the adverse ruling of the trial court.000.000. therefore. IS NOT PERSONALLY LIABLE. when it accepted the down payment of P50. petitioner claims that he should be made personally liable for the obligations of his principal. Cuizon. Cuizon. as sole ground for its allowance.00 two days later. thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Plaintiff could not say that the subject contract was entered into by Edwin B. 1995. In view of the Foregoing. the agent. defendant Edwin B. however. that plaintiff corporation is represented by its general manager Alberto de Jesus in the contract which is dated June 28. since in the instant case the principal has ratified the act of its agent and plaintiff knew about said ratification. the following: THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT EDWIN CUIZON. petitioner insists that ERWIN’s action repudiated EDWIN’s power to sign the Deed of Assignment. the principal. 2002. Cuizon be dropped as party defendant.00.

. the parties do not dispute the existence of the agency relationship between respondents ERWIN as principal and EDWIN as agent. who acts as such. the actual or real absence of the principal is converted into his legal or juridical presence – qui facit per alium facit per se. however.28 respondent EDWIN again posits the argument that he is not a real party in interest in this case and it was proper for the trial court to have him dropped as a defendant. a person binds himself to render some service or to do something in representation or on behalf of another with the latter’s consent. 32 By this legal fiction. We hold that respondent EDWIN does not fall within any of the exceptions contained in this provision. the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal. The only cause of the present dispute is whether respondent EDWIN exceeded his authority when he signed the Deed of Assignment thereby binding himself personally to pay the obligations to petitioner. We do not find merit in the petition. The first is when he expressly binds himself to the obligation and the second is when he exceeds his authority. Article 1897 reinforces the familiar doctrine that an agent.34 In this case.31 It is said that the basis of agency is representation. In a contract of agency.Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into selling the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner firmly believes that respondent EDWIN acted beyond the authority granted by his principal and he should therefore bear the effect of his deed pursuant to Article 1897 of the New Civil Code. respondent EDWIN points to the Deed of Assignment which clearly states that he was acting as a representative of Impact Systems in said transaction. and transporting. Petitioner directs the attention of this Court to the fact that respondents are bound not only by their principal and agent relationship but are in fact full-blooded brothers whose successive contravening acts bore the obvious signs of conspiracy to defraud petitioner. (2) the object is the execution of a juridical act in relation to a third person. manufacturing. 29 The underlying principle of the contract of agency is to accomplish results by using the services of others – to do a great variety of things like selling. buying. 27 In his Comment. express or implied. 30 Its purpose is to extend the personality of the principal or the party for whom another acts and from whom he or she derives the authority to act. presents two instances when an agent becomes personally liable to a third person. of the parties to establish the relationship. We disagree. (4) the agent acts within the scope of his authority. He insists that he was a mere agent of Impact Systems which is owned by ERWIN and that his status as such is known even to petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the said business venture. Likewise. the agent can be held liable if he does not give the third party sufficient notice of his powers. (3) the agent acts as a representative and not for himself.33 The elements of the contract of agency are: (1) consent. is not personally liable to the party with whom he contracts. that is. In the last instance. The same provision.

a managing agent may enter into any contracts that he deems reasonably necessary or requisite for the protection of the interests of his principal entrusted to his management. no doubt in our mind that respondent EDWIN’s participation in the Deed of Assignment was "reasonably necessary" or was required in order for him to protect the business of his principal. we hold that Edwin Cuizon acted well-within his authority when he signed the Deed of Assignment. WHEREFORE. premises considered.000. both the agent and the principal are liable to the other contracting party. the first part of Article 1897 declares that the principal is liable in cases when the agent acted within the bounds of his authority. it must be pointed out that in case of excess of authority by the agent. In the absence of an agreement to the contrary. the agent.35 Applying the foregoing to the present case. we sustain his exclusion as a defendant in the suit before the court a quo. or the party entitled to the avails of the suit. thus: The powers of an agent are particularly broad in the case of one acting as a general agent or manager. the position of manager is unique in that it presupposes the grant of broad powers with which to conduct the business of the principal. petitioner is seeking to recover both from respondents ERWIN. Under this. petitioner refused to deliver the one unit of sludge pump unless it received. it follows that he is not a real party in interest who should be impleaded in this case. the business of his principal would have been adversely affected and he would have violated his fiduciary relation with his principal. However.R. the law does not say that a third person can recover from both the principal and the agent. Branch 8. SP No. the present petition is DENIED and the Decision dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G. therefore. such a position presupposes a degree of confidence reposed and investiture with liberal powers for the exercise of judgment and discretion in transactions and concerns which are incidental or appurtenant to the business entrusted to his care and management."39 To reiterate. who did not acquire any right nor incur any liability arising from the Deed of Assignment. the payment for Impact Systems’ indebtedness. is AFFIRMED.36 We may very well assume that Impact Systems desperately needed the sludge pump for its business since after it paid the amount of fifty thousand pesos (P50.00) as down payment on 3 March 1995. the agent is completely absolved of any liability.37 it still persisted in negotiating with petitioner which culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28 June 1995. A real party in interest is one who "stands to be benefited or injured by the judgment in the suit."41 In this respect. As discussed elsewhere. and EDWIN. It is well to state here that Article 1897 of the New Civil Code upon which petitioner anchors its claim against respondent EDWIN "does not hold that in case of excess of authority. We likewise take note of the fact that in this case.The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact Systems. The second part of the said provision presents the situations when the agent himself becomes liable to a third party when he expressly binds himself or he exceeds the limits of his authority without giving notice of his powers to the third person.38 The significant amount of time spent on the negotiation for the sale of the sludge pump underscores Impact Systems’ perseverance to get hold of the said equipment. Had he not acted in the way he did. To recall.40 As we declare that respondent EDWIN acted within his authority as an agent. There is. x x x. affirming the Order dated 29 January 2002 of the Regional Trial Court. in full. the principal. like what petitioner claims exists here. . 71397. Cebu City.

NINO MINE. 49385. 2001 Resolution 3 denying the motion for reconsideration. the PRINCIPAL (Baguio Gold) shall make available to the MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11.00). Cebu City. The said ELEVEN MILLION PESOS (P11. Since it is the desire of the PRINCIPAL to extend to the MANAGERS the benefit of subsequent appreciation of property. Branch 8. shall be carried by the Sto. 5. (b) The total of the MANAGERS’ account shall not exceed P11. SP No. . respondent. SO ORDERED. together with the cash.00) shall be deemed. 5200. and the corresponding proportion of the entire assets of the STO. provided.000. Nino PROJECT. Within three (3) years from date thereof.T. in accordance with the following arrangements: (a) The properties shall be appraised and. in such amounts as from time to time may be required by the MANAGERS within the said 3-year period.: This is a petition for review on certiorari of the June 30. located in Atok and Tublay. known as the Sto. which is left with the Sto. J. shall be added to such owner’s account. COMMISSIONER OF INTERNAL REVENUE. Nino PROJECT until termination of this Agency. PHILEX MINING CORPORATION.000. they may transfer their own funds or property to the Sto. entered into an agreement4 with Baguio Gold Mining Company ("Baguio Gold") for the former to manage and operate the latter’s mining claim. Also assailed is the April 3. NINO MINE. for internal audit purposes. vs. (d) The MANAGERS’ account shall not accrue interest. 2000 Decision 1 of the Court of Appeals in CA-G. The facts of the case are as follows: On April 16. Nino mine. Benguet Province. DECISION YNARES-SANTIAGO.000.000. 1971. except with prior approval of the PRINCIPAL. Nino PROJECT as a special fund to be known as the MANAGERS’ account. (c) The cash and property shall not thereafter be withdrawn from the Sto. NINO MINE. which affirmed the Decision 2 of the Court of Tax Appeals in C. however. Nino PROJECT.00.000. the amount not so paid in cash shall be added to the MANAGERS’ account. Nino PROJECT. petitioner. Any part of any income of the PRINCIPAL from the STO. for use in the MANAGEMENT of the STO. the ratio which the MANAGERS’ account has to the owner’s account will be determined.A. for the continuation of the proceedings against respondent Erwin Cuizon. Nino PROJECT. Case No. that if the compensation of the MANAGERS as herein provided cannot be paid in cash from the Sto.R.000. petitioner Philex Mining Corporation (Philex Mining).Let the records of this case be remanded to the Regional Trial Court. as the owner’s account in the Sto. upon a projected termination of this Agency. Whenever the MANAGERS shall deem it necessary and convenient in connection with the MANAGEMENT of the STO. NINO MINE. The parties’ agreement was denominated as "Power of Attorney" and provided for the following terms: 4.

the parties executed a "Compromise with Dation in Payment"7 wherein Baguio Gold admitted an indebtedness to petitioner in the amount of P179.137.6 Thereafter. x x x x5 In the course of managing and operating the project. On December 31. inclusive of the MANAGERS’ account.394. roads. These liabilities pertained to long-term loans amounting to US$11.excluding the claims.00. on the other hand. this Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding. The MANAGERS can. on September 27. this Agency shall be revocable by the PRINCIPAL upon 36-month notice to the MANAGERS.000.00 contracted by Baguio Gold from the Bank of America NT & SA . Therefore. Philex Mining made advances of cash and property in accordance with paragraph 5 of the agreement. and similar property which will be valueless.000. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and. xxxx 16. in the future. 1982. this Agency shall remain subsisting. Paragraph 5(d) hereof shall be operative in case of the MANAGERS’ withdrawal. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto. However. Nino PROJECT after deduction therefrom of the MANAGERS’ compensation. except that such transferred assets shall not include mine development. Notwithstanding any agreement or understanding between the PRINCIPAL and the MANAGERS to the contrary. The MANAGERS shall not in any manner be held liable to the PRINCIPAL by reason alone of such withdrawal. 1982 and in the eventual cessation of mine operations on February 20. while the PRINCIPAL shall pay income tax on the net profit of the Sto. 1982. 17. shall be transferred to the MANAGERS. xxxx 12.00 and agreed to pay the same in three segments by first assigning Baguio Gold’s tangible assets to petitioner. require at their option that property originally transferred by them to the Sto. may incur other obligations in favor of the MANAGERS. Until such assets are transferred to the MANAGERS. It is understood that the MANAGERS shall pay income tax on their compensation. transferring to the latter Baguio Gold’s equitable title in its Philodrill assets and finally settling the remaining liability through properties that Baguio Gold may acquire in the future.245. buildings. the MANAGERS may withdraw from this Agency by giving 6-month notice to the PRINCIPAL. which sum included liabilities of Baguio Gold to other creditors that petitioner had assumed as guarantor. the parties executed an "Amendment to Compromise with Dation in Payment"8 where the parties determined that Baguio Gold’s indebtedness to petitioner actually amounted to P259.000. 1982. After all obligations of the PRINCIPAL in favor of the MANAGERS have been paid and satisfied in full. the mine suffered continuing losses over the years which resulted to petitioner’s withdrawal as manager of the mine on January 28. or of slight value. Nino PROJECT be retransferred to them. This Power of Attorney has been executed as security for the payment and satisfaction of all such obligations of the PRINCIPAL in favor of the MANAGERS and as a means to fulfill the same. Nino PROJECT before income tax. to the MANAGERS.

The bad debt deduction represented advances made by petitioner which. Baguio Gold undertook to pay petitioner in two segments by first assigning its tangible assets for P127.39. 1995. Subsequently.768. It is enough that a taxpayer exerted diligent efforts to enforce collection and exhausted all reasonable means to collect. (b) the debt was ascertained to be worthless.000. petitioner was to be paid fifty percent (50%) of the project’s net profit.136. SO ORDERED.161.00 and then transferring its equitable title in its Philodrill assets for P16. For a debt to be considered worthless.00 to the 1982 operations."9 However.811. and (c) it was charged off within the taxable year when it was determined to be worthless. The parties then ascertained that Baguio Gold had a remaining outstanding indebtedness to petitioner in the amount of P114.11 . 20% delinquency interest due computed from February 10. This time. ACCORDINGLY.838. 1994.996.00 to allowances and reserves that were set up in 1981 and P2.000.136. petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent Commissioner of Internal Revenue the amount of P62. Petitioner protested before the BIR arguing that the deduction must be allowed since all requisites for a bad debt deduction were satisfied.860. plus. Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio Gold. the instant Petition for Review is hereby DENIED for lack of merit. 10 Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment.811. as follows: WHEREFORE. and that the deduction did not consist of a valid and subsisting debt considering that.768.39 is hereby AFFIRMED. Petitioner also asserted that due to Baguio Gold’s irreversible losses. formed part of Baguio Gold’s "pecuniary obligations" to petitioner. On October 28. pursuant to the management contract. petitioner deducted from its gross income the amount of P112. which is the date after the 20-day grace period given by the respondent within which petitioner has to pay the deficiency amount x x x up to actual date of payment. viz: FAS-1-82-88-003067 for deficiency income tax in the amount of P62. The assessment in question.051. the BIR denied petitioner’s protest for lack of legal and factual basis. to wit: (a) there was a valid and existing debt. petitioner wrote off in its 1982 books of account the remaining outstanding indebtedness of Baguio Gold by charging P112.302.00 as "loss on settlement of receivables from Baguio Gold against reserves and allowances. In its 1982 annual income tax return.161. in view of the foregoing. It held that the alleged debt was not ascertained to be worthless since Baguio Gold remained existing and had not filed a petition for bankruptcy. petitioner claimed that it was neither required to institute a judicial action for collection against the debtor nor to sell or dispose of collateral assets in satisfaction of the debt.and Citibank N. the Bureau of Internal Revenue (BIR) disallowed the amount as deduction for bad debt and assessed petitioner a deficiency income tax of P62.161.426.00. it became evident that it would not be able to recover the advances and payments it had made in behalf of Baguio Gold. It also included payments made by petitioner as guarantor of Baguio Gold’s long-term loans which legally entitled petitioner to be subrogated to the rights of the original creditor.39.A.00. under the management contract.811.

Nino mine were in the nature of a loan. III. Before resort may be had to the two compromise agreements. The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of Baguio Gold could not be allowed as a bad debt deduction. Nino Mine pursuant to the Power of Attorney partook of the nature of an investment rather than a loan. The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts write-off. Baguio Gold was not in default since its loans were not yet due and demandable.The CTA rejected petitioner’s assertion that the advances it made for the Sto. IV. we should not only rely on the "Power of Attorney". Nino mine. The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto.13petitioner took this recourse under Rule 45 of the Rules of Court. Since the advanced amount partook of the nature of an investment. Citibank imposed and collected a "pre-termination penalty" for the pre-payment. Nino Mine notwithstanding the clear absence of any intent on the part of Philex and Baguio Gold to form a partnership. The Court of Appeals affirmed the decision of the CTA. The petition lacks merit. The Court of Appeals erred in construing that the advances made by Philex in the management of the Sto. 12 Hence. upon denial of its motion for reconsideration. The CTA held that the "Power of Attorney" executed by petitioner and Baguio Gold was actually a partnership agreement. alleging that: I. Moreover. but also on the subsequent "Compromise with Dation in Payment" and "Amended Compromise with Dation in Payment" that the parties executed in 1982. II. it could not be deducted as a bad debt from petitioner’s gross income. At the time the payments were made. the parties’ contractual intent . Nino Mine indicates that Philex is a partner of Baguio Gold in the development of the Sto. What petitioner did was to pre-pay the loans as evidenced by the notice sent by Bank of America showing that it was merely demanding payment of the installment and interests due. It instead characterized the advances as petitioner’s investment in a partnership with Baguio Gold for the development and exploitation of the Sto. The Court of Appeals erred in relying only on the Power of Attorney and in completely disregarding the Compromise Agreement and the Amended Compromise Agreement when it construed the nature of the advances made by Philex.14 Petitioner insists that in determining the nature of its business relationship with Baguio Gold. These documents. allegedly evinced the parties’ intent to treat the advances and payments as a loan and establish a creditor-debtor relationship between them. The lower courts correctly held that the "Power of Attorney" is the instrument that is material in determining the true nature of the business relationship between petitioner and Baguio Gold.

and has held that although a corporation cannot enter into a partnership contract. petitioner and Baguio Gold undertook to contribute money. It has no precise legal definition. Under a contract of partnership. it may however engage in a joint venture with others. Under the "Power of Attorney". petitioner and Baguio Gold were to contribute equally to the joint venture assets under their respective accounts. 17 In this regard. An examination of the "Power of Attorney" reveals that a partnership or joint venture was indeed intended by the parties. or industry to a common fund. Pursuant to paragraphs 4 and 5 of the agreement. a partnership may be particular or universal. we note that there is a substantive equivalence in the respective contributions of the parties to the development and operation of the mine.must first be discovered from the expressed language of the primary contract under which the parties’ business relations were founded. it has been held that it may enter into a joint venture which is akin to a particular partnership: The legal concept of a joint venture is of common law origin. The compromise agreements were executed eleven years after the "Power of Attorney" and merely laid out a plan or procedure by which petitioner could recover the advances and payments it made under the "Power of Attorney". x x x It is in fact hardly distinguishable from the partnership. and a particular partnership may have for its object a specific undertaking. On the other hand. x x x It would seem therefore that under Philippine law. Niño mine. since under the Civil Code. a joint venture is a form of partnership and should be governed by the law of partnerships. in addition to its actual mining claim. like petitioner. while the joint venture is formed for the execution of a single transaction. property. as well as . x x x (Citations omitted) 16 Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties had intended to create a partnership and establish a common fund for the purpose. The parties entered into the compromise agreements as a consequence of the dissolution of their business relationship. x x x This observation is not entirely accurate in this jurisdiction. It should be noted that the compromise agreements were mere collateral documents executed by the parties pursuant to the termination of their business relationship created under the "Power of Attorney". two or more persons bind themselves to contribute money. Baguio Gold would contribute P11M under its owner’s account plus any of its income that is left in the project. cannot generally enter into a contract of partnership unless authorized by law or its charter. but it has been generally understood to mean an organization formed for some temporary purpose. since their elements are similar – community of interest in the business. sharing of profits and losses. and is thus of a temporary nature. x x x The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a general business with some degree of continuity.15 While a corporation. They also had a joint interest in the profits of the business as shown by a 50-50 sharing in the income of the mine. with the intention of dividing the profits among themselves. petitioner’s contribution would consist of itsexpertise in the management and operation of mines. and a mutual right of control. property and industry to the common fund known as the Sto. Meanwhile. The Supreme Court has however recognized a distinction between these two business forms. The execution of the two compromise agreements can hardly be considered as a subsequent or contemporaneous act that is reflective of the parties’ true intent. It did not define that relationship or indicate its real character. it is the latter which established the juridical relation of the parties and defined the parameters of their dealings with one another.

petitioner asserts that it could not have entered into a partnership agreement with Baguio Gold because it did not "bind" itself to contribute money or property to the project. it was only optional for petitioner to transfer funds or property to the Sto. or the mutual interest of both principal and agent. It should be stressed that the main object of the "Power of Attorney" was not to confer a power in favor of petitioner to contract with third persons on behalf of Baguio Gold but to create a business relationship between petitioner and Baguio Gold.the manager’s account which is comprised ofP11M in funds and property and petitioner’s "compensation" as manager that cannot be paid in cash. Niño project "(w)henever the MANAGERS shall deem it necessary and convenient in connection with the MANAGEMENT of the STO. in which the former was to manage and operate the latter’s mine through the parties’ mutual contribution of material resources and industry. inclusive of the MANAGERS’ account. Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties was one of agency and not a partnership. Although the said provision states that "this Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding. the non-revocation or non-withdrawal under paragraph 5(c) applies to the advances made by petitioner who is supposedly the agent and not the principal under the contract. that under paragraph 5 of the agreement. is the agent’s ability to represent his principal and bring about business relations between the latter and third persons. However.20 Where representation for and in behalf of the principal is merely incidental or necessary for the proper discharge of one’s paramount undertaking under a contract. thus rendering effective the other stipulations of the contract. the totality of the circumstances and the stipulations in the parties’ agreement indubitably lead to the conclusion that a partnership was formed between petitioner and Baguio Gold. but some other agreement depending on the ultimate undertaking of the parties. it is the agency that cannot be revoked or withdrawn by the principal due to an interest of a third party that depends upon it. . it cannot be inferred from the stipulation that the parties’ relation under the agreement is one of agency coupled with an interest and not a partnership. There is no merit to petitioner’s claim that the prohibition in paragraph 5(c) against withdrawal of advances should not be taken as an indication that it had entered into a partnership with Baguio Gold." 18 The wording of the parties’ agreement as to petitioner’s contribution to the common fund does not detract from the fact that petitioner transferred its funds and property to the project as specified in paragraph 5. that the stipulation only showed that what the parties entered into was actually a contract of agency coupled with an interest which is not revocable at will and not a partnership. NIÑO MINE. particularly paragraph 5(c) which prohibits petitioner from withdrawing the advances until termination of the parties’ business relations. Thus. even one that is coupled with interest. The contributions acquired an obligatory nature as soon as petitioner had chosen to exercise its option under paragraph 5.21 In this case. petitioner became bound by its contributions once the transfers were made. the latter may not necessarily be a contract of agency." it does not necessarily follow that the parties entered into an agency contract coupled with an interest that cannot be withdrawn by Baguio Gold.19 In this case. The essence of an agency. In an agency coupled with interest. As can be seen.

The strongest indication that petitioner was a partner in the Sto Niño mine is the fact that it would receive 50% of the net profits as "compensation" under paragraph 12 of the agreement. The entirety of the parties’ contractual stipulations simply leads to no other conclusion than that petitioner’s "compensation" is actually its share in the income of the joint venture. a person who receives a loan or money or any fungible thing acquires ownership thereof and is bound to pay the creditor an equal amount of the same kind and quality. In this connection. however. 23 In this case. "the ratio which the MANAGER’S account has to the owner’s account will be determined. Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a share in the profits of a business is prima facie evidence that he is a partner in the business. The "Power of Attorney" clearly provides that petitioner would only be entitled to the return of a proportionate share of the mine assets to be computed at a ratio that the manager’s account had to the owner’s account. we find no contractual basis for the execution of the two compromise agreements in which Baguio Gold recognized a debt in favor of petitioner. a provision that is more consistent with a partnership than a creditor-debtor relationship. The parties also did not provide a specific maturity date for the advances to become due and demandable. excluding the claims" shall be transferred to petitioner. 24 On this score. the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of millions of pesos to another corporation with neither security. Nino mine. NINO MINE. or collateral. but only the return of an amount pegged at a ratio which the manager’s account had to the owner’s account. it does not appear that Baguio Gold was unconditionally obligated to return the advances made by petitioner under the agreement. To begin with. under the exception provided in Article 1769 (4) (b). It should be pointed out that in a contract of loan. and the manner of payment was unclear.First. nor a specific deed evidencing the terms and conditions of such loans. Paragraph 5 (d) thereof provides that upon termination of the parties’ business relations. Thus. Except to provide a basis for claiming the advances as a bad debt deduction. which supposedly arose from the termination of their business relations over the Sto. Next. All these point to the inevitable conclusion that the advances were not loans but capital contributions to a partnership. 22 As pointed out by the Court of Tax Appeals. the tax court correctly noted that petitioner was not an employee of Baguio Gold who will be paid "wages" pursuant to an employer-employee relationship. there is no reason for Baguio Gold to hold itself liable to petitioner under the compromise agreements. and the corresponding proportion of the entire assets of the STO. There was nothing in the agreement that would require Baguio Gold to make payments of the advances to petitioner as would be recognized as an item of obligation or "accounts payable" for Baguio Gold. there was no stipulation for Baguio Gold to actually repay petitioner the cash and property that it had advanced." Petitioner asserts. that no such inference can be drawn against it since its share in the profits of the Sto Niño project was in the nature of compensation or "wages of an employee". petitioner was the manager of the project and had put substantial sums into the venture in order . however. the tax court correctly concluded that the agreement provided for a distribution of assets of the Sto. for any amount over and above the proportion agreed upon in the "Power of Attorney". petitioner was merely entitled to a proportionate return of the mine’s assets upon dissolution of the parties’ business relations. Niño mine upon termination.

Verily. Nino mine. Indeed. The "compensation" agreed upon only serves to reinforce the notion that the parties’ relations were indeed of partners and not employer-employee. By pegging its compensation to profits. up to the actual date of payment. Petitioner Philex Mining Corporation is ORDERED to PAY the deficiency tax on its 1982 income in the amount of P62. 26 In sum. the lower courts did not err in treating petitioner’s advances as investments in a partnership known as the Sto. Consequently. 49385 dated June 30. the petition is DENIED.R. petitioner cannot claim the advances as a bad debt deduction from its gross income. considering that the "Power of Attorney" also provided for an almost equal contribution of the parties to the St. SO ORDERED.31. it could not claim the advances as a valid bad debt deduction. which is the due date given for the payment of the deficiency income tax. WHEREFORE. Case No. petitioner failed to substantiate its assertion that the advances were subsisting debts of Baguio Gold that could be deducted from its gross income. The decision of the Court of Appeals in CA-G.to ensure its viability and profitability. petitioner also stood not to be remunerated in case the mine had no income. Nino mine. we find no reason to depart from the tax court’s factual finding that Baguio Gold’s debts were not yet due and demandable at the time that petitioner paid the same. All told. which affirmed the decision of the Court of Tax Appeals in C. Consequently.161.A. petitioner would not be entitled to an equal share in the income of the mine if it were just an employee of Baguio Gold. who must prove by convincing evidence that he is entitled to the deduction claimed. SP No. if it were truly just an ordinary employee.27 In this case. The advances were not "debts" of Baguio Gold to petitioner inasmuch as the latter was under no unconditional obligation to return the same to the former under the "Power of Attorney".T. Deductions for income tax purposes partake of the nature of tax exemptions and are strictly construed against the taxpayer. petitioner pre-paid Baguio Gold’s outstanding loans to its bank creditors and this conclusion is supported by the evidence on record. . we find that petitioner’s "compensation" under paragraph 12 of the agreement actually constitutes its share in the net profits of the partnership. 5200 is AFFIRMED.25 It is not surprising that petitioner was to receive a 50% share in the net profits.811. 2000. It is hard to believe that petitioner would take the risk of not being paid at all for its services. As for the amounts that petitioner paid as guarantor to Baguio Gold’s creditors. with 20% delinquency interest computed from February 10. 1995.