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.

MUOZ 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

of the principal a material factor in determining the legal effect of an act performed after such
death?
Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the
matter tinder consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the
name of another without being authorized by the latter, or unless he has by law a right to
represent him. 3 A contract entered into in the name of another by one who has no authority or
the legal representation or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is
revoked by the other contracting party. 4 Article 1403 (1) of the same Code also provides:
ART. 1403. The following contracts are unenforceable, unless they are justified:
(1) Those entered into in the name of another person by one who hi - been given no authority or
legal representation or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship of
agency whereby one party, caged the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third persons. The essential
elements of agency are: (1) there is consent, express or implied of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the
agents acts as a representative and not for himself, and (4) the agent acts within the scope of his
authority. 5
Agency is basically personal representative, and derivative in nature. The authority of the agent
to act emanates from the powers granted to him by his principal; his act is the act of the
principal if done within the scope of the authority. Qui facit per alium facit se. "He who acts
through another acts himself". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned only with one
cause death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from
Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ...
(Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent, agency is
extinguished by the death of the principal or the agent. This is the law in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the
law is found in thejuridical basis of agency which is representation Them being an in. integration
of the personality of the principal integration that of the agent it is not possible for the
representation to continue to exist once the death of either is establish. Pothier agrees with
Manresa that by reason of the nature of agency, death is a necessary cause for its
extinction. Laurent says that the juridical tie between the principal and the agent is severed ipso

jure upon the death of either without necessity for the heirs of the fact to notify the agent of the
fact of death of the former. 9
The same rule prevails at common law the death of the principal effects instantaneous and
absolute revocation of the authority of the agent unless the Power be coupled with an
interest. 10 This is the prevalent rule in American Jurisprudence where it is well-settled that a
power without an interest confer. red upon an agent is dissolved by the principal's death, and
any attempted execution of the power afterward is not binding on the heirs or representatives of
the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent
extinguishes the agency, subject to any exception, and if so, is the instant case within that
exception? That is the determinative point in issue in this litigation. It is the contention of
respondent corporation which was sustained by respondent court that notwithstanding the death
of the principal Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling the
former's sham in the property is valid and enforceable inasmuch as the corporation acted in good
faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule aforementioned.
ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if
it has been constituted in the common interest of the latter and of the agent, or in the interest of
a third person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any
other cause which extinguishes the agency, is valid and shall be fully effective with respect to
third persons who may have contracted with him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed in favor
of Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the death
of his principal is valid and effective only under two conditions, viz: (1) that the agent acted
without knowledge of the death of the principal and (2) that the third person who contracted with
the agent himself acted in good faith. Good faith here means that the third person was not aware
of the death of the principal at the time he contracted with said agent. These two requisites must
concur the absence of one will render the act of the agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of
his principal at the time he sold the latter's share in Lot No. 5983 to respondent corporation. The
knowledge of the death is clearly to be inferred from the pleadings filed by Simon Rallos before
the trial court. 12 That Simeon Rallos knew of the death of his sister Concepcion is also a finding
of fact of the court a quo 13 and of respondent appellate court when the latter stated that Simon
Rallos 'must have known of the death of his sister, and yet he proceeded with the sale of the lot
in the name of both his sisters Concepcion and Gerundia Rallos without informing appellant (the
realty corporation) of the death of the former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his principal
Concepcion Rallos,Article 1931 of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death of his principal; it is not

enough that the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court
applying Article 1738 of the old Civil rode now Art. 1931 of the new Civil Code sustained the
validity , of a sale made after the death of the principal because it was not shown that the agent
knew of his principal's demise. 15 To the same effect is the case of Herrera, et al., v. Luy Kim
Guan, et al., 1961, where in the words of Justice Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and
there is no indication in the record, that the agent Luy Kim Guan was aware of the death of his
principal at the time he sold the property. The death 6f the principal does not render the act of an
agent unenforceable, where the latter had no knowledge of such extinguishment of the agency.
(1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals
reasoned out that there is no provision in the Code which provides that whatever is done by an
agent having knowledge of the death of his principal is void even with respect to third persons
who may have contracted with him in good faith and without knowledge of the death of the
principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the general
rule enunciated in Article 1919 that the death of the principal extinguishes the agency. That
being the general rule it follows a 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. Article 1931, being an exception to the general rule, is to be strictly
construed, it is not to be given an interpretation or application beyond the clear import of its
terms for otherwise the courts will be involved in a process of legislation outside of their judicial
function.
5. Another argument advanced by respondent court is that the vendee acting in good faith relied
on the power of attorney which was duly registered on the original certificate of title recorded in
the Register of Deeds of the province of Cebu, that no notice of the death was aver annotated on
said certificate of title by the heirs of the principal and accordingly they must suffer the
consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries which We
quote:
If the agency has been granted for the purpose of contracting with certain persons, the
revocation must be made known to them. But if the agency is general iii nature, without
reference to particular person with whom the agent is to contract, it is sufficient that the
principal exercise due diligence to make the revocation of the agency publicity known.
In case of a general power which does not specify the persons to whom represents' on should be
made, it is the general opinion that all acts, executed with third persons who contracted in good
faith, Without knowledge of the revocation, are valid. In such case, the principal may exercise his
right against the agent, who, knowing of the revocation, continued to assume a personality
which he no longer had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a mode of
terminating an agency which is to be distinguished from revocation by operation of law such as
death of the principal which obtains in this case. On page six of this Opinion We stressed that by

reason of the very nature of the relationship between principal and agent, agency is
extinguished ipso jure upon the death of either principal or agent. Although a revocation of a
power of attorney to be effective must be communicated to the parties concerned, 18 yet a
revocation by operation of law, such as by death of the principal is, as a rule, instantaneously
effective inasmuch as "by legal fiction the agent's exercise of authority is regarded as an
execution of the principal's continuing will. 19 With death, the principal's will ceases or is the of
authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death of the
principal What the Code provides in Article 1932 is that, if the agent die his heirs must notify the
principal thereof, and in the meantime adopt such measures as the circumstances may demand
in the interest of the latter. Hence, the fact that no notice of the death of the principal was
registered on the certificate of title of the property in the Office of the Register of Deeds, is not
fatal to the cause of the estate of the principal
6. Holding that the good faith of a third person in said with an agent affords the former sufficient
protection, respondent court drew a "parallel" between the instant case and that of an innocent
purchaser for value of a land, stating that if a person purchases a registered land from one who
acquired it in bad faith even to the extent of foregoing or falsifying the deed of sale in his
favor the registered owner has no recourse against such innocent purchaser for value but only
against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau,
et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a coowner of lands with Agustin Nano. The latter had a power of attorney supposedly executed by
Vallejo Nano in his favor. Vallejo delivered to Nano his land titles. The power was registered in the
Office of the Register of Deeds. When the lawyer-husband of Angela Blondeau went to that
Office, he found all in order including the power of attorney. But Vallejo denied having executed
the power The lower court sustained Vallejo and the plaintiff Blondeau appealed. Reversing the
decision of the court a quo, the Supreme Court, quoting the ruling in the case of Eliason v.
Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of the defendant- appellee must be
overruled. Agustin Nano had possession of Jose Vallejo's title papers. Without those title papers
handed over to Nano with the acquiescence of Vallejo, a fraud could not have been perpetuated.
When Fernando de la Canters, a member of the Philippine Bar and the husband of Angela
Blondeau, the principal plaintiff, searched the registration record, he found them in due form
including the power of attorney of Vallajo in favor of Nano. If this had not been so and if
thereafter the proper notation of the encumbrance could not have been made, Angela Blondeau
would not have sent P12,000.00 to the defendant Vallejo.' An executed transfer of registered
lands placed by the registered owner thereof in the hands of another operates as a
representation to a third party that the holder of the transfer is authorized to deal with the land.
As between two innocent persons, one of whom must suffer the consequence of a breach of
trust, the one who made it possible by his act of coincidence bear the loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because here We are
confronted with one who admittedly was an agent of his sister and who sold the property of the

latter after her death with full knowledge of such death. The situation is expressly covered by a
provision of law on agency the terms of which are clear and unmistakable leaving no room for an
interpretation contrary to its tenor, in the same manner that the ruling in Blondeau and the cases
cited therein found a basis in Section 55 of the Land Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any voluntary instrument is
presented for registration shall be conclusive authority from the registered owner to the register
of deeds to enter a new certificate or to make a memorandum of registration in accordance with
such instruments, and the new certificate or memorandum Shall be binding upon the registered
owner and upon all persons claiming under him in favor of every purchaser for value and in good
faith: Provided however, That in all cases of registration provided by fraud, the owner may
pursue all his legal and equitable remedies against the parties to such fraud without prejudice,
however, to the right, of any innocent holder for value of a certificate of title. ... (Act No. 496 as
amended)
7. One last point raised by respondent corporation in support of the appealed decision is an 1842
ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to
an agent after the death of the principal were held to be "good", "the parties being ignorant of
the death". Let us take note that the Opinion of Justice Rogers was premised on the statement
that the parties were ignorant of the death of the principal. We quote from that decision the
following:
... Here the precise point is, whether a payment to an agent when the Parties are ignorant of the
death is a good payment. in addition to the case in Campbell before cited, the same judge Lord
Ellenboruogh, has decided in 5 Esp. 117, the general question that a payment after the death of
principal is not good. Thus, a payment of sailor's wages to a person having a power of attorney
to receive them, has been held void when the principal was dead at the time of the payment. If,
by this case, it is meant merely to decide the general proposition that by operation of law the
death of the principal is a revocation of the powers of the attorney, no objection can be taken to
it. But if it intended to say that his principle applies where there was 110 notice of death, or
opportunity of twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the accident circumstance of the
death of the principal, which he did not know, and which by no possibility could he know? It
would be unjust to the agent and unjust to the debtor. In the civil law, the acts of the agent,
done bona fide in ignorance of the death of his principal are held valid and binding upon the
heirs of the latter. The same rule holds in the Scottish law, and I cannot believe the common law
is so unreasonable... (39 Am. Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention
may be made that the above represents the minority view in American jurisprudence. Thus
in Clayton v. Merrett, the Court said.
There are several cases which seem to hold that although, as a general principle, death revokes
an agency and renders null every act of the agent thereafter performed, yet that where a
payment has been made in ignorance of the death, such payment will be good. The leading case
so holding is that ofCassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an
elaborate opinion, this view ii broadly announced. It is referred to, and seems to have been

followed, in the case of Dick v. Page, 17 Mo. 234, 57 AmD 267; but in this latter case it appeared
that the estate of the deceased principal had received the benefit of the money paid, and
therefore the representative of the estate might well have been held to be estopped from suing
for it again. . . . These cases, in so far, at least, as they announce the doctrine under discussion,
are exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD
76), is believed to stand almost, if not quite, alone in announcing the principle in its broadest
scope. (52, Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion,
except so far as it related to the particular facts, was a mere dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial indication
of his views on the general subject, than as the adjudication of the Court upon the point in
question. But accordingly all power weight to this opinion, as the judgment of a of great
respectability, it stands alone among common law authorities and is opposed by an array too
formidable to permit us to following it. (15 Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American
jurisprudence, no such conflict exists in our own for the simple reason that our statute, the Civil
Code, expressly provides for two exceptions to the general rule that death of the principal
revokes ipso jure the agency, to wit: (1) that the agency is coupled with an interest (Art 1930),
and (2) that the act of the agent was executed without knowledge of the death of the principal
and the third person who contracted with the agent acted also in good faith (Art. 1931).
Exception No. 2 is the doctrine followed in Cassiday, and again We stress the indispensable
requirement that the agent acted without knowledge or notice of the death of the principal In the
case before Us the agent Ramon Rallos executed the sale notwithstanding notice of the death of
his principal Accordingly, the agent's act is unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We
affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the Court of First
Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs against respondent realty
corporation at all instances.
So Ordered.
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933

May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED,respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives,
Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 of the Court
of Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and
Hotel Representatives, Inc." which affirmed, with modification, the decision 2 of the Regional Trial
Court of Manila, Branch IV, which dismissed the complaint and granted therein defendant's
counterclaim for agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air
carrier offering passenger and air cargo transportation in the Philippines, and Orient Air Services
and Hotel Representatives (hereinafter referred to as Orient Air), entered into a General Sales
Agency Agreement (hereinafter referred to as the Agreement), whereby the former authorized
the latter to act as its exclusive general sales agent within the Philippines for the sale of air
passenger transportation. Pertinent provisions of the agreement are reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the
Philippines, including any United States military installation therein which are not serviced by an
Air Carrier Representation Office (ACRO), for the sale of air passenger transportation. The
services to be performed by Orient Air Services shall include:
(a) soliciting and promoting passenger traffic for the services of American and, if necessary,
employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be used exclusively for
the transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and promotional material to sales
agents and the general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may be appointed by
Orient Air Services with the prior written consent of American) in the assigned territory including
if required by American the control of remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public in the
assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within the United
States, neither Orient Air Services nor its sub-agents will perform services for any other air
carrier similar to those to be performed hereunder for American without the prior written consent
of American. Subject to periodic instructions and continued consent from American, Orient Air
Services may sell air passenger transportation to be performed within the United States by other

scheduled air carriers provided American does not provide substantially equivalent schedules
between the points involved.
xxx

xxx

xxx

4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock or exchange
orders, less commissions to which Orient Air Services is entitled hereunder, not less frequently
than semi-monthly, on the 15th and last days of each month for sales made during the preceding
half month.
All monies collected by Orient Air Services for transportation sold hereunder on American's ticket
stock or on exchange orders, less applicable commissions to which Orient Air Services is entitled
hereunder, are the property of American and shall be held in trust by Orient Air Services until
satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder by Orient Air
Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of transportation by
Orient Air Services or its sub-agents over American's services and any connecting through air
transportation, when made on American's ticket stock, equal to the following percentages of the
tariff fares and charges:
(i) For transportation solely between points within the United States and between such points
and Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of
America.
(ii) For transportation included in a through ticket covering transportation between points other
than those described above: 8% or such other rate(s) as may be prescribed by the International
Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an overriding
commission of 3% of the tariff fares and charges for all sales of transportation over American's
service by Orient Air Service or its sub-agents.
xxx

xxx

xxx

10. Default
If Orient Air Services shall at any time default in observing or performing any of the provisions of
this Agreement or shall become bankrupt or make any assignment for the benefit of or enter into
any agreement or promise with its creditors or go into liquidation, or suffer any of its goods to be
taken in execution, or if it ceases to be in business, this Agreement may, at the option of
American, be terminated forthwith and American may, without prejudice to any of its rights

under this Agreement, take possession of any ticket forms, exchange orders, traffic material or
other property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions of the
International Air Transport Association and the Air Traffic Conference of America, and such rules
or resolutions shall control in the event of any conflict with the provisions hereof.
xxx

xxx

xxx

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

xxx

x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by
failing to promptly remit the net proceeds of sales for the months of January to March 1981 in the
amount of US $254,400.40, American Air by itself undertook the collection of the proceeds of
tickets sold originally by Orient Air and terminated forthwith the Agreement in accordance with
Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May 1981, American Air
instituted suit against Orient Air with the Court of First Instance of Manila, Branch 24, for
Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining
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, . . . to the damage and prejudice
of plaintiff." 5
In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material
allegations of the complaint with respect to plaintiff's entitlement to alleged unremitted amounts,
contending that after application thereof to the commissions due it under the Agreement,
plaintiff in fact still owed Orient Air a balance in unpaid overriding commissions. Further, the
defendant contended that the actions taken by American Air in the course of terminating the
Agreement as well as the termination itself were untenable, Orient Air claiming that American
Air's precipitous conduct had occasioned prejudice to its business interests.
Finding that the record and the evidence substantiated the allegations of the defendant, the trial
court ruled in its favor, rendering a decision dated 16 July 1984, the dispositive portion of which
reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of
defendant and against plaintiff dismissing the complaint and holding the termination made by
the latter as affecting the GSA agreement illegal and improper and order the plaintiff to reinstate
defendant as its general sales agent for passenger tranportation in the Philippines in accordance
with said GSA agreement; plaintiff is ordered to pay defendant the balance of the overriding
commission on total flown revenue covering the period from March 16, 1977 to December 31,
1980 in the amount of US$84,821.31 plus the additional amount of US$8,000.00 by way of
proper 3% overriding commission per month commencing from January 1, 1981 until such

reinstatement or said amounts in its Philippine peso equivalent legally prevailing at the time of
payment plus legal interest to commence from the filing of the counterclaim up to the time of
payment. Further, plaintiff is directed to pay defendant the amount of One Million Five Hundred
Thousand (Pl,500,000.00) pesos as and for exemplary damages; and the amount of Three
Hundred Thousand (P300,000.00) pesos as and by way of attorney's fees.
Costs against plaintiff.

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on
27 January 1986, affirmed the findings of the court a quo on their material points but with some
modifications with respect to the monetary awards granted. The dispositive portion of the
appellate court's decision is as follows:
WHEREFORE, with the following modifications
1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the
latter's overriding commission covering the period March 16, 1977 to December 31, 1980, or its
Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on
July 10, 1981, the date the counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding
commission per month starting January 1, 1981 until date of termination, May 9, 1981 or its
Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on
July 10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the
answer with counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing the substance
thereof and arguing for its reversal. The appellate court's decision was also the subject of a
Motion for Partial Reconsideration by Orient Air which prayed for the restoration of the trial
court's ruling with respect to the monetary awards. The Court of Appeals, by resolution
promulgated on 17 December 1986, denied American Air's motion and with respect to that of
Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial
court's award of exemplary damages and attorney's fees, but granted insofar as the rate of
exchange is concerned. The decision of January 27, 1986 is modified in paragraphs (1) and (2) of
the dispositive part so that the payment of the sums mentioned therein shall be at their
Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on
the date of actual payment. 9
Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as
petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution 10 of
this Court dated 25 March 1987 both petitions were consolidated, hence, the case at bar.

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

contract with meaningless provisions. Such an interpretation must at all times be avoided with
every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that American
Air was the party responsible for the preparation of the Agreement. Consequently, any ambiguity
in this "contract of adhesion" is to be taken "contra proferentem", i.e., construed against the
party who caused the ambiguity and could have avoided it by the exercise of a little more care.
Thus, Article 1377 of the Civil Code provides that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity. 14 To put it
differently, when several interpretations of a provision are otherwise equally proper, that
interpretation or construction is to be adopted which is most favorable to the party in whose
favor the provision was made and who did not cause the ambiguity. 15 We therefore agree with
the respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be
read against the party who drafted it. 16
We now turn to the propriety of American Air's termination of the Agreement. The respondent
appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification from
paragraph 4 of the Agreement, Exh. F, which provides for remittances to American less
commissions to which Orient is entitled, and from paragraph 5(d) which specifically allows Orient
to retain the full amount of its commissions. Since, as stated ante, Orient is entitled to the 3%
override. American's premise, therefore, for the cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established, Orient Air
was entitled to an overriding commission based on total flown revenue. American Air's
perception that Orient Air was remiss or in default of its obligations under the Agreement was, in
fact, a situation where the latter acted in accordance with the Agreementthat of retaining from
the sales proceeds its accrued commissions before remitting the balance to American Air. Since
the latter was still obligated to Orient Air by way of such commissions. Orient Air was clearly
justified in retaining and refusing to remit the sums claimed by American Air. The latter's
termination of the Agreement was, therefore, without cause and basis, for which it should be
held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial court's
award of exemplary damages and attorney's fees. This Court sees no error in such modification
and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the decision
of the trial court.1wphi1We refer particularly to the lower court's decision ordering American Air
to "reinstate defendant as its general sales agent for passenger transportation in the Philippines
in accordance with said GSA Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect, compels American
Air to extend its personality to Orient Air. Such would be violative of the principles and essence of
agency, defined by law as a contract whereby "a person binds himself to render some service or
to do something in representation or on behalf of another, WITH THE CONSENT OR AUTHORITY
OF THE LATTER . 17 (emphasis supplied) In an agent-principal relationship, the personality of the
principal is extended through the facility of the agent. In so doing, the agent, by legal fiction,

becomes the principal, authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must not, in any way,
be compelled by law or by any court. The Agreement itself between the parties states that
"either party may terminate the Agreementwithout cause by giving the other 30 days' notice by
letter, telegram or cable." (emphasis supplied) We, therefore, set aside the portion of the ruling
of the respondent appellate court reinstating Orient Air as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of
the respondent Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively.
Costs against petitioner American Air.
SO ORDERED.
EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,
vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A.
and FAR EAST BANK & TRUST COMPANY, Respondents.
DECISION
CALLEJO, SR., J.:
On appeal via a Petition for Review on Certiorari is the Decision 1 of the Court of Appeals (CA) in
CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City,
Branch 165, in Civil Case No. 54887, as well as the Resolution 2 of the CA denying the motion for
reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws.
Since 1950, it had been engaged in the manufacture of roofing materials and pipe products. Its
manufacturing operations were conducted on eight parcels of land with a total area of 47,233
square meters. The properties, located in Mandaluyong City, Metro Manila, were covered by
Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124
and 451125 under the name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent
of the shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation
organized and registered under the laws of Belgium. 3 Jack Glanville, an Australian citizen, was
the General Manager and President of EC, while Claude Frederick Delsaux was the Regional
Director for Asia of ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in the Philippines
and wanted to stop its operations in the country. The Committee for Asia of ESAC instructed
Michael Adams, a member of ECs Board of Directors, to dispose of the eight parcels of land.
Adams engaged the services of realtor/broker Lauro G. Marquez so that the properties could be
offered for sale to prospective buyers. Glanville later showed the properties to Marquez.
Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B.
Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez
declared that he was authorized to sell the properties for P27,000,000.00 and that the terms of
the sale were subject to negotiation.4
Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua,
Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property

for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings offer and relayed
the same to Delsaux in Belgium, but the latter did not respond. On October 28, 1986, Glanville
telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of the Litonjua
siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville stating that,
based on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00 and P2,500,000.00
to cover all existing obligations prior to final liquidation." 5
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr.
accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated
February 26, 1987, confirmed that the Litonjua siblings had accepted the counter-proposal of
Delsaux. He also stated that the Litonjua siblings would confirm full payment within 90 days after
execution and preparation of all documents of sale, together with the necessary governmental
clearances.6
The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust
Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale. 7
Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would
be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with
the buyer, which had given him the impression that "he is prepared to press for a satisfactory
conclusion to the sale."8 He also emphasized to Delsaux that the buyers were concerned because
they would incur expenses in bank commitment fees as a consequence of prolonged period of
inaction.9
Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the
Philippines, the political situation in the Philippines had improved. Marquez received a telephone
call from Glanville, advising that the sale would no longer proceed. Glanville followed it up with a
Letter dated May 7, 1987, confirming that he had been instructed by his principal to inform
Marquez that "the decision has been taken at a Board Meeting not to sell the properties on which
Eternit Corporation is situated."10
Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office
had decided not to proceed with the sale of the subject land, to wit:
May 22, 1987
Mr. L.G. Marquez
L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of the
land which was proposed to you.

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

corporation concerned, that is, through resolutions of the Board of Directors and stockholders.
The trial court also pointed out that the supposed sale involves substantially all the assets of
defendant EC which would result in the eventual total cessation of its operation. 14
The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in
concluding that the real estate broker in the instant case needed a written authority from
appellee corporation and/or that said broker had no such written authority; and (2) the lower
court committed grave error of law in holding that appellee corporation is not legally bound for
specific performance and/or damages in the absence of an enabling resolution of the board of
directors."15 They averred that Marquez acted merely as a broker or go-between and not as
agent of the corporation; hence, it was not necessary for him to be empowered as such by any
written authority. They further claimed that an agency by estoppel was created when the
corporation clothed Marquez with apparent authority to negotiate for the sale of the properties.
However, since it was a bilateral contract to buy and sell, it was equivalent to a perfected
contract of sale, which the corporation was obliged to consummate.
In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it;
neither were Glanville and Delsaux authorized by its board of directors to offer the property for
sale. Since the sale involved substantially all of the corporations assets, it would necessarily
need the authority from the stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The Litonjuas
filed a motion for reconsideration, which was also denied by the appellate court.
The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview
of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a
special authority from ECs board of directors to bind such corporation to the sale of its
properties. Delsaux, who was merely the representative of ESAC (the majority stockholder of EC)
had no authority to bind the latter. The CA pointed out that Delsaux was not even a member of
the board of directors of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel
had been created between the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF
SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED
A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE
NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE
KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN
APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO
SELL THE SAID PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale
of the parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to
cover obligations prior to final liquidation." Petitioners insist that they had accepted the counteroffer of respondent EC and that before the counter-offer was withdrawn by respondents, the
acceptance was made known to them through real estate broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of Directors of EC
for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was not an
ordinary agent because his authority was of a special and limited character in most respects. His
only job as a broker was to look for a buyer and to bring together the parties to the transaction.
He was not authorized to sell the properties or to make a binding contract to respondent EC;
hence, petitioners argue, Article 1874 of the New Civil Code does not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was able to
communicate both the offer and counter-offer and their acceptance of respondent ECs counteroffer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply shows that
Glanville, who was the President and General Manager of respondent EC, and Delsaux, who was
the Managing Director for ESAC Asia, had the necessary authority to sell the subject property or,
at least, had been allowed by respondent EC to hold themselves out in the public as having the
power to sell the subject properties. Petitioners identified such evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the then President and General
Manager of Eternit, to sell the properties of said corporation to any interested party, which
authority, as hereinabove discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL
MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the
Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as evidenced
by the Petitioners ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank
and that an ESCROW agreement was drafted over the subject properties;
6. Glanvilles telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO
BUY AND SELL";
7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that
Petitioners offer was allegedly REJECTED by both Glanville and Delsaux.18
Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to
petitioners offer and thereafter reject such offer unless they were authorized to do so by
respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the properties in his
letter to Marquez, to wit:
Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the
land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and examined the
position as far as the Philippines are (sic) concerned. Considering the new political situation since
the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has
decided not to stop our operations in Manila[.] [I]n fact production started again last week, and
(sic) to reorganize the participation in the Corporation.
We regret that we could not make a deal with you this time, but in case the policy would change
at a later stage we would consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX19
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were
knowingly permitted by respondent EC to sell the properties within the scope of an apparent
authority. Petitioners insist that respondents held themselves to the public as possessing power
to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are factual,
hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents
EC (now EMC) and ESAC reiterate their submissions in the CA. They maintain that Glanville,
Delsaux and Marquez had no authority from the stockholders of respondent EC and its Board of
Directors to offer the properties for sale to the petitioners, or to any other person or entity for
that matter. They assert that the decision and resolution of the CA are in accord with law and the
evidence on record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and
Delsaux, conformed to the written authority of Marquez to sell the properties. The authority of
Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux
negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given
the significance of their positions and their duties in respondent EC at the time of the
transaction, and the fact that respondent ESAC owns 90% of the shares of stock of respondent
EC, a formal resolution of the Board of Directors would be a mere ceremonial formality. What is
important, petitioners maintain, is that Marquez was able to communicate the offer of
respondent EC and the petitioners acceptance thereof. There was no time that they acted
without the knowledge of respondents. In fact, respondent EC never repudiated the acts of
Glanville, Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues raised by
petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were
authorized by respondent EC to act as its agents relative to the sale of the properties of
respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In the
absence of express written terms creating the relationship of an agency, the existence of an

agency is a fact question.20 Whether an agency by estoppel was created or whether a person
acted within the bounds of his apparent authority, and whether the principal is estopped to deny
the apparent authority of its agent are, likewise, questions of fact to be resolved on the basis of
the evidence on record.21 The findings of the trial court on such issues, as affirmed by the CA, are
conclusive on the Court, absent evidence that the trial and appellate courts ignored,
misconstrued, or misapplied facts and circumstances of substance which, if considered, would
warrant a modification or reversal of the outcome of the case. 22
It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules
of Court because the Court is not a trier of facts. It is not to re-examine and assess the evidence
on record, whether testimonial and documentary. There are, however, recognized exceptions
where the Court may delve into and resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures;
(2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5)
when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the admissions of both appellant
and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial
court; (8) when the findings of fact are conclusions without citation of specific evidence on which
they are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different conclusion; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence
and are contradicted by the evidence on record. 23
We have reviewed the records thoroughly and find that the petitioners failed to establish that the
instant case falls under any of the foregoing exceptions. Indeed, the assailed decision of the
Court of Appeals is supported by the evidence on record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its properties
and that it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for
sale to prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove
that their counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It
must be stressed that when specific performance is sought of a contract made with an agent, the
agency must be established by clear, certain and specific proof. 24
Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the
Philippines, provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there is no stock, from among
the members of the corporation, who shall hold office for one (1) year and until their successors
are elected and qualified.
Indeed, a corporation is a juridical person separate and distinct from its members or stockholders
and is not affected by the personal rights,
obligations and transactions of the latter. 25 It may act only through its board of directors or, when
authorized either by its by-laws or by its board resolution, through its officers or agents in the

normal course of business. The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant
provisions of law.26
Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties,
subject to the limitations prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has
the power and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise
deal with such real and personal property, including securities and bonds of other corporations,
as the transaction of a lawful business of the corporation may reasonably and necessarily
require, subject to the limitations prescribed by the law and the Constitution.
The property of a corporation, however, is not the property of the stockholders or members, and
as such, may not be sold without express authority from the board of directors. 27 Physical acts,
like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer
of prospective buyers of such properties and the execution of the deed of sale covering such
property, can be performed by the corporation only by officers or agents duly authorized for the
purpose by corporate by-laws or by specific acts of the board of directors. 28 Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or connected with, the performance of
authorized duties of such director, are not binding on the corporation. 29
While a corporation may appoint agents to negotiate for the sale of its real properties, the final
say will have to be with the board of directors through its officers and agents as authorized by a
board resolution or by its by-laws. 30 An unauthorized act of an officer of the corporation is not
binding on it unless the latter ratifies the same expressly or impliedly by its board of directors.
Any sale of real property of a corporation by a person purporting to be an agent thereof but
without written authority from the corporation is null and void. The declarations of the agent
alone are generally insufficient to establish the fact or extent of his/her authority. 31
By the contract of agency, a person binds himself to render some service or to do something in
representation on behalf of another, with the consent or authority of the latter. 32 Consent of both
principal and agent is necessary to create an agency. The principal must intend that the agent
shall act for him; the agent must intend to accept the authority and act on it, and the intention of
the parties must find expression either in words or conduct between them. 33
An agency may be expressed or implied from the act of the principal, from his silence or lack of
action, or his failure to repudiate the agency knowing that another person is acting on his behalf
without authority. Acceptance by the agent may be expressed, or implied from his acts which
carry out the agency, or from his silence or inaction according to the circumstances. 34 Agency
may be oral unless the law requires a specific form. 35 However, to create or convey real rights
over immovable property, a special power of attorney is necessary. 36 Thus, when a sale of a
piece of land or any portion thereof is through an agent, the authority of the latter shall be in
writing, otherwise, the sale shall be void. 37

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the
Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to
sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned by respondent
EC including the improvements thereon. The bare fact that Delsaux may have been authorized to
sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as
basis for petitioners claim that he had likewise been authorized by respondent EC to sell the
parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of
Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for
Asia,38 the Board of Directors of respondent ESAC,39 and the Belgian/Swiss component of the
management of respondent ESAC.40 As such, Adams and Glanville engaged the services of
Marquez to offer to sell the properties to prospective buyers. Thus, on September 12, 1986,
Marquez wrote the petitioner that he was authorized to offer for sale the property
forP27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners
offered to purchase the property for P20,000,000.00, through Marquez, the latter relayed
petitioners offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of
respondent ESAC to petitioners offer. However, as admitted by petitioners in their Memorandum,
Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait
for confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on
February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of
respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior
to final liquidation.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision," and
not the entire management or Board of Directors of respondent ESAC. While it is true that
petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a party to the
transaction between them; hence, EC was not bound by such acceptance.
While Glanville was the President and General Manager of respondent EC, and Adams and
Delsaux were members of its Board of Directors, the three acted for and in behalf of respondent
ESAC, and not as duly authorized agents of respondent EC; a board resolution evincing the grant
of such authority is needed to bind EC to any agreement regarding the sale of the subject
properties. Such board resolution is not a mere formality but is a condition sine qua non to bind
respondent EC. Admittedly, respondent ESAC owned 90% of the shares of stocks of respondent
EC; however, the mere fact that a corporation owns a majority of the shares of stocks of another,
or even all of such shares of stocks, taken alone, will not justify their being treated as one
corporation.43
It bears stressing that in an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would have him do. Such a relationship
can only be effected with the consent of the principal, which must not, in any way, be compelled
by law or by any court.44
The petitioners cannot feign ignorance of the absence of any regular and valid authority of
respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale and to
sell the said properties to the petitioners. A person dealing with a known agent is not authorized,
under any circumstances, blindly to trust the agents; statements as to the extent of his powers;
such person must not act negligently but must use reasonable diligence and prudence to
ascertain whether the agent acts within the scope of his authority. 45 The settled rule is that,

persons dealing with an assumed agent are bound at their peril, and if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them to prove it. 46 In
this case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to
damages from respondent EC.
It appears that Marquez acted not only as real estate broker for the petitioners but also as their
agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed,
for and in behalf of the petitioners, that the latter had accepted such offer to sell the land and
the improvements thereon. However, we agree with the ruling of the appellate court that
Marquez had no authority to bind respondent EC to sell the subject properties. A real estate
broker is one who negotiates the sale of real properties. His business, generally speaking, is only
to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no
authority to bind the principal by signing a contract of sale. Indeed, an authority to find a
purchaser of real property does not include an authority to sell. 47
Equally barren of merit is petitioners contention that respondent EC is estopped to deny the
existence of a principal-agency relationship between it and Glanville or Delsaux. For an agency
by estoppel to exist, the following must be established: (1) the principal manifested a
representation of the agents authority or knowlingly allowed the agent to assume such
authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon
such representation, such third person has changed his position to his detriment. 48 An agency by
estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon
the representations, and that, in turn, needs proof that the representations predated the action
taken in reliance.49 Such proof is lacking in this case. In their communications to the petitioners,
Glanville and Delsaux positively and unequivocally declared that they were acting for and in
behalf of respondent ESAC.
Neither may respondent EC be deemed to have ratified the transactions between the petitioners
and respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various
communications inter se were never submitted to the Board of Directors of respondent EC for
ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the
petitioners.
SO ORDERED.
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning
the Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which
reversed the Decision dated July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of
Manila; and the CA Resolution2 dated August 6, 2001 which denied petitioners Motion for
Reconsideration.

The antecedents of the case follow:

On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific
Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 9782716. Respondent alleged that petitioner was indebted to the former in the concept of a
personal loan amounting to P405,430.00 representing the principal amount and interest; that on
October 5, 1996, by virtue of a "Deed of Absolute Sale", 3 petitioner, as seller, ceded to
respondent, as buyer, a parcel of land, as well as the improvements thereon, with an area of 42
square meters, covered by Transfer Certificate of Title No. 382532, 4 and located at a subdivision
project known as Camella Townhomes Sorrente in Bacoor, Cavite, in order to satisfy her personal
loan with respondent; that this property was mortgaged to National Home Mortgage Finance
Corporation (NHMFC) to secure petitioners loan in the sum ofP337,050.00 with that entity; that
as a condition for the foregoing sale, respondent shall assume the undue balance of the
mortgage and pay the monthly amortization of P4,748.11 for the remainder of the 25 years
which began on September 3, 1994; that the property was at that time being occupied by a
tenant paying a monthly rent ofP3,000.00; that upon verification with the NHMFC, respondent
learned that petitioner had incurred arrearages amounting to P26,744.09, inclusive of penalties
and interest; that upon informing the petitioner of her arrears, petitioner denied that she incurred
them and refused to pay the same; that despite repeated demand, 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; that petitioner collected rent
over the property for the month of January 1997 and refused to remit the proceeds to
respondent; and that respondent suffered damages as a result and was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint, denied that she
borrowed money from respondent, and averred that from June to September 1995, 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. She alleged that her friends,
namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth
Tomelden, borrowed money from respondent and issued personal checks in payment of the loan;
that the checks bounced for insufficiency of funds; that despite her efforts to assist respondent to
collect from the borrowers, she could no longer locate them; that, because of this, respondent
became furious and threatened petitioner that if the accounts were not settled, a criminal case
will be filed against her; that she was forced to issue eight checks amounting to P350,000 to
answer for the bounced checks of the borrowers she referred; 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; that respondent
then threatened to initiate a criminal case against her for violation of Batas Pambansa Blg. 22;
that she was forced by respondent to execute an "Absolute Deed of Sale" over her property in
Bacoor, Cavite, to avoid criminal prosecution; that the said deed had no valid consideration; that
she did not appear before a notary public; that the Community Tax Certificate number on the
deed was not hers and for which respondent may be prosecuted for falsification and perjury; and
that she suffered damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid; second;
if valid, whether petitioner is obliged to sign and execute the necessary documents to effect the
transfer of her rights over the property to the respondent; and third, whether petitioner is liable
for damages.

On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint for
insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
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. Moreover, the property is not solely owned by defendant as appearing in Entry No.
9055 of Transfer Certificate of Title No. 382532 (Annex A, Complaint), thus:
"Entry No. 9055. 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, executed before the notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration produce no effect
whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, 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. 6
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of the
lower court dated July 29, 1998 is REVERSED and SET ASIDE. 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 formers loan with the NHMFC, at the latters
expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount
borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale was supported by
a valid consideration, which is the sum of money petitioner owed respondent amounting
to P405,430.00, representing both principal and interest.
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;7 that the money borrowed was deposited with the bank
account of the petitioner, while payments made for the loan were deposited by the latter to
respondents bank account;8 that petitioner herself admitted in open court that she was "relending" the money loaned from respondent to other individuals for profit; 9 and that the
documentary evidence shows that the actual borrowers, the friends of petitioner, consider her as
their creditor and not the respondent.10

Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate
consent, since the same is considered just or legal if made to enforce ones claim through
competent authority under Article 133511 of the Civil Code;12 that with respect to the arrearages
of petitioner on her monthly amortization with the NHMFC in the sum of P26,744.09, the same
shall be deemed part of the balance of petitioners loan with the NHMFC which respondent
agreed to assume; and that the amount of P3,000.00 representing the rental for January 1997
supposedly collected by petitioner, as well as the claim for damages and attorneys fees, is
denied for insufficiency of evidence.13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that
respondent categorically admitted in open court that she acted only as agent or representative
of Arsenio Pua, the principal financier and, hence, she had no legal capacity to sue petitioner;
and that the CA failed to consider the fact that petitioners father, who co-owned the subject
property, was not impleaded as a defendant nor was he indebted to the respondent and, hence,
she cannot be made to sign the documents to effect the transfer of ownership over the entire
property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the
foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001,
petitioner filed the present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE RESPONDENT.
II.
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.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE. 14
Although, as a rule, it is not the business of this Court to review the findings of fact made by the
lower courts, jurisprudence has recognized several exceptions, at least three of which are
present in the instant case, namely: when the judgment is based on a misapprehension of facts;
when the findings of facts of the courts a quo are conflicting; and when the CA manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly considered, could
justify a different conclusion.15 To arrive at a proper judgment, therefore, the Court finds it
necessary to re-examine the evidence presented by the contending parties during the trial of the
case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration.
1. Petitioner argues that since she is merely the agent or representative of the alleged debtors,
then she is not a party to the loan; and that the Deed of Sale executed between her and the

respondent in their own names, which was predicated on that pre-existing debt, is void for lack of
consideration.
Indeed, 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. 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. 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 restate, the CA cited four instances in the record to support its holding that petitioner "relends" the amount borrowed from respondent to her friends: first, the friends of petitioner never
presented themselves to respondent and that all transactions were made by and between
petitioner and respondent;18 second; the money passed through the bank accounts of petitioner
and respondent;19 third, petitioner herself admitted that she was "re-lending" the money loaned
to other individuals for profit;20 and fourth, the documentary evidence shows that the actual
borrowers, the friends of petitioner, consider her as their creditor and not the respondent. 21
On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant,
during her cross-examination:22
Atty. Diza:
q. You also mentioned that you were not the one indebted to the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa
Inocencio, Zenaida Romulo, they are your friends?
witness:
a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were just
referred.
Atty. Diza:
q. And you have transact[ed] with the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. What is that transaction?
witness:
a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.

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

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

a. Yes, sir, I am aware of that.

xxxx
Atty. Villacorta:
q. And these friends of the defendant borrowed money from you with the assurance of the
defendant?
witness:
a. They go direct to Jocelyn because I dont know them.
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. Yes, there were checks issued.
Atty. Villacorta:
q. By the friends of the defendant, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of your assistance, 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. Yes, sir.
Atty. Villacorta:
q. So that occasion lasted for more than a year?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And some of the checks that were issued by the friends of the defendant bounced, am I
correct?
witness:

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

one represents and is acting for another, and if relations exist which will constitute an agency, it
will be an agency whether the parties understood the exact nature of the relation or not. 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. If it is true that petitioner
was "re-lending", then the checks should have been drawn in her name and not directly paid to
Pua.
With respect to the second point, particularly, the finding of the CA that the disbursements and
payments for the loan were made through the bank accounts of petitioner and respondent,
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, such as a bank
account, may be employed, and that a sub-agent be appointed, such as the bank itself, to carry
out the task, especially where there is no stipulation to the contrary. 32
In view of the two agency relationships, petitioner and respondent are not privy to the contract of
loan between their principals. Since the sale is predicated on that loan, then the sale is void for
lack of consideration.
2. A further scrutiny of the record shows, however, 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.33 This Court in the recent past has declared that an assumption of
a mortgage debt may constitute a valid consideration for a sale. 34
Although the record shows that petitioner admitted at the time of trial that she owned the
property described in the TCT,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, Teodorico
Doles, the alleged co-owner. Rather, it states that the property is registered in the name of
"Household Development Corporation." 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," 37 it cannot be inferred from this bare notation,
nor from any other evidence on the record, 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, with
more reason, to effect the delivery of the object of the sale at the consummation stage. 39 What is
worse, there is a notation that the TCT itself has been "cancelled." 40
In view of these anomalies, the Court cannot entertain the
possibility that respondent agreed to assume the balance of the mortgage loan which petitioner
allegedly owed to the NHMFC, especially since the record is bereft of any factual finding that
petitioner was, in the first place, endowed with any ownership rights to validly mortgage and
convey the property. As the complainant who initiated the case, respondent bears the burden of
proving the basis of her complaint. Having failed to discharge such burden, the Court has no
choice but to declare the sale void for lack of cause. And since the sale is void, 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.

Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation
that the mortgage with the NHMFC was for 25 years which began September 3, 1994.
Respondent filed her Complaint for Specific Performance in 1997. Since the 25 years had not
lapsed, the prayer of respondent to compel petitioner to execute necessary documents to effect
the transfer of title is premature.
WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals
are REVERSED andSET ASIDE. The complaint of respondent in Civil Case No. 97-82716
is DISMISSED.
SO ORDERED.
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,
vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.
DECISION
CHICO-NAZARIO, J.:
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.R. SP No. 71397 entitled,
"Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and
Resolution affirmed the Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez
ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case
No. CEB-19672.
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. 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 is the sales manager of Impact Systems and was impleaded
in the court a quo in said capacity.
From January to April 1995, petitioner sold to Impact Systems various products allegedly
amounting to ninety-one thousand three hundred thirty-eight (P91,338.00) pesos. Subsequently,
respondents sought to buy from petitioner one unit of sludge pump valued at P250,000.00 with
respondents making a down payment of fifty thousand pesos (P50,000.00).4 When the sludge
pump arrived from the United Kingdom, petitioner refused to deliver the same to respondents
without their having fully settled their indebtedness to petitioner. Thus, on 28 June 1995,
respondent EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner, the pertinent part of which states:
1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the amount
of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment for the purchase of
one unit of Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the ASSIGNEE 6 the
said receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR is the lawful recipient;

3.) That the ASSIGNEE does hereby accept this assignment. 7

Following the execution of the Deed of Assignment, petitioner delivered to respondents the
sludge pump as shown by Invoice No. 12034 dated 30 June 1995. 8
Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of
Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29 as
evidenced by Check Voucher No. 09339prepared by said power company and an official receipt
dated 15 August 1995 issued by Impact Systems. 10Alarmed by this development, petitioner
made several demands upon respondents to pay their obligations. As a result, respondents were
able to make partial payments to petitioner. On 7 October 1996, petitioners counsel sent
respondents a final demand letter wherein it was stated that as of 11 June 1996, respondents
total obligations stood at P295,000.00 excluding interests and attorneys fees. 11 Because of
respondents failure to abide by said final demand letter, petitioner instituted a complaint for
sum of money, damages, with application for preliminary attachment against herein respondents
before the Regional Trial Court of Cebu City. 12
On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of
preliminary attachment.13
On 25 June 1997, respondent EDWIN filed his Answer 14 wherein he admitted petitioners
allegations with respect to the sale transactions entered into by Impact Systems and petitioner
between January and April 1995.15 He, however, disputed the total amount of Impact Systems
indebtedness to petitioner which, according to him, amounted to only P220,000.00.16
By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party
in interest in this case. According to him, he was acting as mere agent of his principal, which was
the Impact Systems, in his transaction with petitioner and the latter was very much aware of this
fact. In support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioners
Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the
proprietor of a single proprietorship business known as Impact Systems Sales ("Impact Systems"
for brevity), with office located at 46-A del Rosario Street, Cebu City, where he may be served
summons and other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the
Sales Manager of Impact Systems and is sued in this action in such capacity. 17
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for
Summary Judgment. The trial court granted petitioners motion to declare respondent ERWIN in
default "for his failure to answer within the prescribed period despite the opportunity
granted"18 but it denied petitioners motion for summary judgment in its Order of 31 August 2001
and scheduled the pre-trial of the case on 16 October 2001. 19 However, 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. 20
After the filing of respondent EDWINs Memorandum 21 in support of his special and affirmative
defenses and petitioners opposition 22 thereto, the trial court rendered its assailed Order dated

29 January 2002 dropping respondent EDWIN as a party defendant in this case. According to the
trial court
A study of Annex "G" to the complaint shows that in the Deed of Assignment, 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. Cuizon is the
proprietor; that plaintiff corporation is represented by its general manager Alberto de Jesus in the
contract which is dated June 28, 1995. A study of Annex "H" to the complaint reveals that
[Impact] Systems Sales which is owned solely by defendant Erwin H. Cuizon, made a down
payment of P50,000.00 that Annex "H" is dated June 30, 1995 or two days after the execution of
Annex "G", thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the
records further show that plaintiff knew that [Impact] Systems Sales, the principal, ratified the
act of Edwin B. Cuizon, the agent, when it accepted the down payment of P50,000.00. Plaintiff,
therefore, cannot say that it was deceived by defendant Edwin B. Cuizon, since in the instant
case the principal has ratified the act of its agent and plaintiff knew about said ratification.
Plaintiff could not say that the subject contract was entered into by Edwin B. Cuizon in excess of
his powers since [Impact] Systems Sales made a down payment of P50,000.00 two days later.
In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party
defendant.23
Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of
Appeals which, however, affirmed the 29 January 2002 Order of the court a quo. The dispositive
portion of the now assailed Decision of the Court of Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the
public respondent in his Order dated January 29, 2002, it is hereby AFFIRMED. 24
Petitioners motion for reconsideration was denied by the appellate court in its Resolution
promulgated on 17 March 2005. Hence, the present petition raising, as sole ground for its
allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT
EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY
LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE
PARTICIPATE IN THE PERPETUATION OF A FRAUD.25
To support its argument, petitioner points to Article 1897 of the New Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority without giving
such party sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs 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. While said collection did
not revoke the agency relations of respondents, petitioner insists that ERWINs action repudiated
EDWINs power to sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the
extent of his powers as an agent, petitioner claims that he should be made personally liable for
the obligations of his principal.26

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 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. 27
In his Comment,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. 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, respondent EDWIN points
to the Deed of Assignment which clearly states that he was acting as a representative of Impact
Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another with the latters consent. 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, manufacturing, and transporting. 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.31 It is said that the basis of agency is representation, that is, 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. 32 By this legal fiction,
the actual or real absence of the principal is converted into his legal or juridical presence qui
facit per alium facit per se.33
The elements of the contract of agency are: (1) consent, express or implied, of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a third
person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the
scope of his authority.34
In this case, the parties do not dispute the existence of the agency relationship between
respondents ERWIN as principal and EDWIN as agent. 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. 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.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally
liable to the party with whom he contracts. The same provision, however, presents two instances
when an agent becomes personally liable to a third person. The first is when he expressly binds
himself to the obligation and the second is when he exceeds his authority. In the last instance,
the agent can be held liable if he does not give the third party sufficient notice of his powers. We
hold that respondent EDWIN does not fall within any of the exceptions contained in this provision.

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales
manager of Impact Systems. As discussed elsewhere, the position of manager is unique in that it
presupposes the grant of broad powers with which to conduct the business of the principal, thus:
The powers of an agent are particularly broad in the case of one acting as a general agent or
manager; 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. In the absence
of an agreement to the contrary, 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. x x x.35
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his
authority when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one
unit of sludge pump unless it received, in full, the payment for Impact Systems
indebtedness.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 (P50,000.00) as down
payment on 3 March 1995,37 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 1995.38 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. There is,
therefore, no doubt in our mind that respondent EDWINs participation in the Deed of Assignment
was "reasonably necessary" or was required in order for him to protect the business of his
principal. Had he not acted in the way he did, the business of his principal would have been
adversely affected and he would have violated his fiduciary relation with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both from
respondents ERWIN, the principal, and EDWIN, the agent. 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, both the agent and the principal are liable to the
other contracting party."39 To reiterate, the first part of Article 1897 declares that the principal is
liable in cases when the agent acted within the bounds of his authority. Under this, the agent is
completely absolved of any liability. 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.
However, it must be pointed out that in case of excess of authority by the agent, like what
petitioner claims exists here, the law does not say that a third person can recover from both the
principal and the agent.40
As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire
any right nor incur any liability arising from the Deed of Assignment, it follows that he is not a
real party in interest who should be impleaded in this case. A real party in interest is one who
"stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails
of the suit."41 In this respect, we sustain his exclusion as a defendant in the suit before the court
a quo.
WHEREFORE, premises considered, 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.R. SP No.
71397, affirming the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu
City, is AFFIRMED.

Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the
continuation of the proceedings against respondent Erwin Cuizon.
SO ORDERED.
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000 Decision 1 of the Court of Appeals in
CA-G.R. SP No. 49385, which affirmed the Decision 2 of the Court of Tax Appeals in C.T.A. Case No.
5200. Also assailed is the April 3, 2001 Resolution 3 denying the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an
agreement4 with Baguio Gold Mining Company ("Baguio Gold") for the former to manage and
operate the latters mining claim, known as the Sto. Nino mine, located in Atok and Tublay,
Benguet Province. The parties agreement was denominated as "Power of Attorney" and provided
for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available to
the MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts
as from time to time may be required by the MANAGERS within the said 3-year period, for use in
the MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS (P11,000,000.00)
shall be deemed, for internal audit purposes, as the owners account in the Sto. Nino PROJECT.
Any part of any income of the PRINCIPAL from the STO. NINO MINE, which is left with the Sto.
Nino PROJECT, shall be added to such owners account.
5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property to the Sto.
Nino PROJECT, in accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash, shall be carried by the Sto.
Nino PROJECT as a special fund to be known as the MANAGERS account.
(b) The total of the MANAGERS account shall not exceed P11,000,000.00, except with prior
approval of the PRINCIPAL; provided, however, that if the compensation of the MANAGERS as
herein provided cannot be paid in cash from the Sto. Nino PROJECT, the amount not so paid in
cash shall be added to the MANAGERS account.
(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT until
termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is the desire of the PRINCIPAL to
extend to the MANAGERS the benefit of subsequent appreciation of property, upon a projected
termination of this Agency, the ratio which the MANAGERS account has to the owners account
will be determined, and the corresponding proportion of the entire assets of the STO. NINO MINE,

excluding the claims, shall be transferred to the MANAGERS, except that such transferred assets
shall not include mine development, roads, buildings, and similar property which will be
valueless, or of slight value, to the MANAGERS. The MANAGERS can, on the other hand, require
at their option that property originally transferred by them to the Sto. Nino PROJECT be retransferred to them. Until such assets are transferred to the MANAGERS, this Agency shall remain
subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto.
Nino PROJECT before income tax. It is understood that the MANAGERS shall pay income tax on
their compensation, while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino
PROJECT after deduction therefrom of the MANAGERS compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the future,
may incur other obligations in favor of the MANAGERS. 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. Therefore, this Agency shall be irrevocable
while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the
MANAGERS account. After all obligations of the PRINCIPAL in favor of the MANAGERS have been
paid and satisfied in full, this Agency shall be revocable by the PRINCIPAL upon 36-month notice
to the MANAGERS.
17. Notwithstanding any agreement or understanding between the PRINCIPAL and the
MANAGERS to the contrary, the MANAGERS may withdraw from this Agency by giving 6-month
notice to the PRINCIPAL. The MANAGERS shall not in any manner be held liable to the PRINCIPAL
by reason alone of such withdrawal. Paragraph 5(d) hereof shall be operative in case of the
MANAGERS withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining made advances of cash and
property in accordance with paragraph 5 of the agreement. However, the mine suffered
continuing losses over the years which resulted to petitioners withdrawal as manager of the
mine on January 28, 1982 and in the eventual cessation of mine operations on February 20,
1982.6
Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in
Payment"7 wherein Baguio Gold admitted an indebtedness to petitioner in the amount of
P179,394,000.00 and agreed to pay the same in three segments by first assigning Baguio Golds
tangible assets to petitioner, transferring to the latter Baguio Golds equitable title in its Philodrill
assets and finally settling the remaining liability through properties that Baguio Gold may acquire
in the future.
On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in
Payment"8 where the parties determined that Baguio Golds indebtedness to petitioner actually
amounted to P259,137,245.00, which sum included liabilities of Baguio Gold to other creditors
that petitioner had assumed as guarantor. These liabilities pertained to long-term loans
amounting to US$11,000,000.00 contracted by Baguio Gold from the Bank of America NT & SA

and Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two segments by first
assigning its tangible assets for P127,838,051.00 and then transferring its equitable title in its
Philodrill assets for P16,302,426.00. The parties then ascertained that Baguio Gold had a
remaining outstanding indebtedness to petitioner in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding
indebtedness of Baguio Gold by charging P112,136,000.00 to allowances and reserves that were
set up in 1981 and P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner deducted from its gross income the amount of
P112,136,000.00 as "loss on settlement of receivables from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal Revenue (BIR) disallowed the amount as deduction
for bad debt and assessed petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be allowed since all
requisites for a bad debt deduction were satisfied, to wit: (a) there was a valid and existing debt;
(b) the debt was ascertained to be worthless; and (c) it was charged off within the taxable year
when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid management contract it entered into
with Baguio Gold. The bad debt deduction represented advances made by petitioner which,
pursuant to the management contract, formed part of Baguio Golds "pecuniary obligations" to
petitioner. It also included payments made by petitioner as guarantor of Baguio Golds long-term
loans which legally entitled petitioner to be subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds irreversible losses, it became evident that it
would not be able to recover the advances and payments it had made in behalf of Baguio Gold.
For a debt to be considered worthless, 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. It is enough that a taxpayer exerted diligent efforts to enforce collection
and exhausted all reasonable means to collect.
On October 28, 1994, the BIR denied petitioners protest for lack of legal and factual basis. 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; and that the deduction did not consist of a
valid and subsisting debt considering that, under the management contract, petitioner was to be
paid fifty percent (50%) of the projects net profit. 10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of
merit. The assessment in question, viz: FAS-1-82-88-003067 for deficiency income tax in the
amount of P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent
Commissioner of Internal Revenue the amount of P62,811,161.39, plus, 20% delinquency interest
due computed from February 10, 1995, 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.
SO ORDERED.11

The CTA rejected petitioners assertion that the advances it made for the Sto. Nino mine were in
the nature of a loan. It instead characterized the advances as petitioners investment in a
partnership with Baguio Gold for the development and exploitation of the Sto. Nino mine. The
CTA held that the "Power of Attorney" executed by petitioner and Baguio Gold was actually a
partnership agreement. Since the advanced amount partook of the nature of an investment, it
could not be deducted as a bad debt from petitioners gross income.
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. At the time the payments were made,
Baguio Gold was not in default since its loans were not yet due and demandable. 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. Moreover, Citibank
imposed and collected a "pre-termination penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA. 12 Hence, upon denial of its motion for
reconsideration,13petitioner took this recourse under Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made by Philex in the management
of the Sto. Nino Mine pursuant to the Power of Attorney partook of the nature of an investment
rather than a loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto. Nino
Mine indicates that Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of Philex and Baguio Gold to form a
partnership.
III.
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.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts
write-off.14
Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we
should not only rely on the "Power of Attorney", but also on the subsequent "Compromise with
Dation in Payment" and "Amended Compromise with Dation in Payment" that the parties
executed in 1982. 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 petition lacks merit.
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.
Before resort may be had to the two compromise agreements, the parties contractual intent

must first be discovered from the expressed language of the primary contract under which the
parties business relations were founded. 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". On the other hand, it is the latter
which established the juridical relation of the parties and defined the parameters of their
dealings with one another.
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. 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". The parties entered into the compromise agreements as a consequence of
the dissolution of their business relationship. It did not define that relationship or indicate its real
character.
An examination of the "Power of Attorney" reveals that a partnership or joint venture was indeed
intended by the parties. Under a contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the
profits among themselves.15 While a corporation, like petitioner, cannot generally enter into a
contract of partnership unless authorized by law or its charter, 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. It has no precise legal definition, but
it has been generally understood to mean an organization formed for some temporary purpose. x
x x It is in fact hardly distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a mutual right of control.
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, while the joint
venture is formed for the execution of a single transaction, and is thus of a temporary nature. x x
x This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership may have for its object a
specific undertaking. x x x It would seem therefore that under Philippine law, a joint venture is a
form of partnership and should be governed by the law of partnerships. The Supreme Court has
however recognized a distinction between these two business forms, and has held that although
a corporation cannot enter into a partnership contract, it may however engage in a joint venture
with others. 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. 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.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute money,
property and industry to the common fund known as the Sto. Nio mine. 17 In this regard, we note
that there is a substantive equivalence in the respective contributions of the parties to the
development and operation of the mine. Pursuant to paragraphs 4 and 5 of the agreement,
petitioner and Baguio Gold were to contribute equally to the joint venture assets under their
respective accounts. Baguio Gold would contribute P11M under its owners account plus any of
its income that is left in the project, in addition to its actual mining claim. Meanwhile, petitioners
contribution would consist of itsexpertise in the management and operation of mines, as well as

the managers account which is comprised ofP11M in funds and property and
petitioners "compensation" as manager that cannot be paid in cash.
However, 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; that
under paragraph 5 of the agreement, it was only optional for petitioner to transfer funds or
property to the Sto. Nio project "(w)henever the MANAGERS shall deem it necessary and
convenient in connection with the MANAGEMENT of the STO. NIO MINE." 18
The wording of the parties agreement as to petitioners 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, thus rendering effective the other stipulations of the contract,
particularly paragraph 5(c) which prohibits petitioner from withdrawing the advances until
termination of the parties business relations. As can be seen, petitioner became bound by its
contributions once the transfers were made. The contributions acquired an obligatory nature as
soon as petitioner had chosen to exercise its option under paragraph 5.
There is no merit to petitioners 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; 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.
In an agency coupled with interest, 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, or the mutual interest of both
principal and agent.19 In this case, 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. Thus, 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.
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, inclusive of the MANAGERS account," it does not necessarily follow that the parties
entered into an agency contract coupled with an interest that cannot be withdrawn by Baguio
Gold.
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, in which the former was to manage
and operate the latters mine through the parties mutual contribution of material resources and
industry. The essence of an agency, even one that is coupled with interest, is the agents ability
to represent his principal and bring about business relations between the latter and third
persons.20 Where representation for and in behalf of the principal is merely incidental or
necessary for the proper discharge of ones paramount undertaking under a contract, the latter
may not necessarily be a contract of agency, but some other agreement depending on the
ultimate undertaking of the parties.21
In this case, 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.

First, it does not appear that Baguio Gold was unconditionally obligated to return the advances
made by petitioner under the agreement. Paragraph 5 (d) thereof provides that upon termination
of the parties business relations, "the ratio which the MANAGERS account has to the owners
account will be determined, and the corresponding proportion of the entire assets of the STO.
NINO MINE, excluding the claims" shall be transferred to petitioner. 22 As pointed out by the Court
of Tax Appeals, petitioner was merely entitled to a proportionate return of the mines assets upon
dissolution of the parties business relations. 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.
Thus, the tax court correctly concluded that the agreement provided for a distribution of assets
of the Sto. Nio mine upon termination, a provision that is more consistent with a partnership
than a creditor-debtor relationship. It should be pointed out that in a contract of loan, 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. 23 In this case, however, there was
no stipulation for Baguio Gold to actually repay petitioner the cash and property that it had
advanced, but only the return of an amount pegged at a ratio which the managers account had
to the owners account.
In this connection, we find no contractual basis for the execution of the two compromise
agreements in which Baguio Gold recognized a debt in favor of petitioner, which supposedly
arose from the termination of their business relations over the Sto. Nino mine. 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 managers account had to the
owners account. Except to provide a basis for claiming the advances as a bad debt deduction,
there is no reason for Baguio Gold to hold itself liable to petitioner under the compromise
agreements, for any amount over and above the proportion agreed upon in the "Power of
Attorney".
Next, 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, or collateral, nor a
specific deed evidencing the terms and conditions of such loans. The parties also did not provide
a specific maturity date for the advances to become due and demandable, and the manner of
payment was unclear. All these point to the inevitable conclusion that the advances were not
loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio 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
petitioners "compensation" is actually its share in the income of the joint venture.
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." Petitioner
asserts, however, that no such inference can be drawn against it since its share in the profits of
the Sto Nio project was in the nature of compensation or "wages of an employee", under the
exception provided in Article 1769 (4) (b). 24
On this score, 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. To begin with,
petitioner was the manager of the project and had put substantial sums into the venture in order

to ensure its viability and profitability. By pegging its compensation to profits, petitioner also
stood not to be remunerated in case the mine had no income. It is hard to believe that petitioner
would take the risk of not being paid at all for its services, if it were truly just an ordinary
employee.
Consequently, we find that petitioners "compensation" under paragraph 12 of the agreement
actually constitutes its share in the net profits of the partnership. Indeed, petitioner would not be
entitled to an equal share in the income of the mine if it were just an employee of Baguio
Gold.25 It is not surprising that petitioner was to receive a 50% share in the net profits,
considering that the "Power of Attorney" also provided for an almost equal contribution of the
parties to the St. Nino mine. The "compensation" agreed upon only serves to reinforce the notion
that the parties relations were indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioners advances as investments in a
partnership known as the Sto. Nino mine. 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". As for the amounts that petitioner paid as guarantor to
Baguio Golds creditors, we find no reason to depart from the tax courts factual finding that
Baguio Golds debts were not yet due and demandable at the time that petitioner paid the same.
Verily, petitioner pre-paid Baguio Golds outstanding loans to its bank creditors and this
conclusion is supported by the evidence on record. 26
In sum, petitioner cannot claim the advances as a bad debt deduction from its gross income.
Deductions for income tax purposes partake of the nature of tax exemptions and are strictly
construed against the taxpayer, who must prove by convincing evidence that he is entitled to the
deduction claimed.27 In this case, petitioner failed to substantiate its assertion that the advances
were subsisting debts of Baguio Gold that could be deducted from its gross income.
Consequently, it could not claim the advances as a valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No.
49385 dated June 30, 2000, which affirmed the decision of the Court of Tax Appeals in C.T.A.
Case No. 5200 is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY the
deficiency tax on its 1982 income in the amount of P62,811,161.31, with 20% delinquency
interest computed from February 10, 1995, which is the due date given for the payment of the
deficiency income tax, up to the actual date of payment.
SO ORDERED.