A.C. No.
5182 August 12, 2004 encashment on the strength of a Special Power of Attorney,
SUSANA DE GUZMAN BUADO and NENA LISING,
complainants,
vs.
ATTY. EUFRACIO T. LAYAG, respondent.
RESOLUTION
PER CURIAM:
The instant case arose from a verified Letter-Complaint1 for
malpractice filed with this Court on December 9, 1999, against
respondent Atty. Eufracio T. Layag by Susana de Guzman Buado and
Nena Lising. The complaint stated that de Guzman Buado and Lising
had instituted a criminal action for estafa2 against Atty. Layag with
the Office of the City Prosecutor of Caloocan City and that the City
Prosecutor had resolved that there was prima facie evidence to justify
the filing in court of informations for two (2) counts of estafa against
Atty. Layag.3 Accordingly, two cases for estafa, docketed as
Criminal Cases Nos. C-58087 and C-58088 were filed with the
Regional Trial Court (RTC) of Caloocan City, Branch 124.4
In our Resolution of January 31, 2000, we directed that Atty. Layag
be furnished a copy of the complaint for his comment.
In his Comment dated April 11, 2000, Atty. Layag denied
committing any malpractice, saying that he merely complied with the
wishes of his client, the late Rosita de Guzman, to deliver any money
judgment in Civil Case No. C-14265 before the RTC of Caloocan
City, Branch 121, to her attorney-in-fact, one Marie Paz P. Gonzales.
Respondent prayed that the complaint be dismissed for want of merit.
Thereafter, this Court resolved on July 10, 2000 to refer the matter to
the Integrated Bar of the Philippines (IBP) for investigation, report,
and recommendation.5
As culled from the report and recommendation6 dated September 25,
2003 of the IBP Investigating Commissioner, Atty. Milagros V. San
Juan, the facts in this case are as follows:
Herein complainant Lising and her sister, Rosita de Guzman (mother
of herein complainant Susana de Guzman Buado), were the plaintiffs
in Civil Case No. C-14265, entitled Rosita de Guzman, et al., v.
Inland Trailways, Inc., which was decided by the RTC of Caloocan
City, Branch 121, in favor of the plaintiffs on May 16, 1991. Both
Lising and de Guzman were represented in said case by herein
respondent, Atty. Layag. The losing party, Inland Trailways, Inc.,
appealed the trial court's judgment to the Court of Appeals, said
appeal being docketed as CA-G.R. CV No. 34012.
In its decision dated January 5, 1995, the appellate court affirmed the
judgment of the trial court. However, on July 3, 1993, or while CA-
G.R. CV No. 34012 was pending before the appellate court, de
Guzman died.
Pursuant to the judgment against it, Inland Trailways, Inc., issued the
following checks: (1) Traders Royal Bank Check No. 0000790549
dated February 15, 1996 for P15,000 payable to Atty. Layag; (2)
Traders Royal Bank Check No. 0000790548 dated March 8, 1996 in
the amount of P30,180 payable to Lising; and (3) Traders Royal Bank
Check No. 0000790547 dated March 8, 1996 for the sum of P49,000
payable to de Guzman who had by then already passed away. The
aforementioned checks were received by respondent lawyer from
Pablo Gernale, Jr., the deputy sheriff of the RTC in February 1996.
Atty. Layag did not inform Lising and the heirs of de Guzman about
the checks. Instead he gave the checks to one Marie Paz Gonzales for
purportedly executed by de Guzman constituting Gonzales as her
attorney-in-fact. The Special Power of Attorney supposedly
authorized Gonzales, among others, to encash, indorse, and/or deposit
any check or bill of exchange received in settlement of Civil Case
No. C-14265.
It was only in February 1998 that Lising and de Guzman Buado,
while checking the status of Civil Case No. C-14265, found that
judgment had been rendered in the said case and that the losing party
had paid the damages awarded by issuing checks which were
received by their counsel, Atty. Layag, two years earlier. De Guzman
Buado and Lising then made demands upon Atty. Layag to give them
the proceeds of the checks, but to no avail. Marie Paz Gonzales
eventually gave Lising P10,000. No further amounts were remitted to
either Lising or de Guzman Buado despite demands by them.
After the parties presented their oral and documentary evidence
before the IBP Commissioner, the matter was deemed submitted for
resolution. On September 25, 2003, the IBP Investigating
Commissioner made the following recommendations:
It is submitted that respondent has betrayed the trust of her (sic)
clients. It is recommended that respondent be suspended from the
practice of law for the maximum period allowed under the law and
that he be ordered to turn over to the Complainants the amounts he
received in behalf of the complainants Susana de Guzman Buado and
Nena Lising.
Respectfully submitted.7
The IBP Investigating Commissioner, in her recommendation, found
that in giving the checks to a party not entitled to them, Atty. Layag
disregarded the rights and interests of his clients in violation of
Canons 15,8 16,9 and 1710 of the Code of Professional
Responsibility.
On the Special Power of Attorney11 purportedly executed by Rosita
de Guzman in favor of Marie Paz Gonzales, the Investigating
Commissioner held that even assuming arguendo that there was
indeed a Special Power of Attorney, it nonetheless had no force and
effect after the death of Rosita de Guzman. Hence, any authority she
had conferred upon Gonzales was already extinguished. According to
the IBP Investigating Commissioner, since respondent represented de
Guzman in Civil Case No. C-14265, upon her death, respondent had
the obligation to preserve whatever benefits accrued to the decedent
on behalf of and for the benefit of her lawful heirs.
On October 25, 2003, the IBP Board of Governors passed its
resolution on the case, affirming with modification the
recommendation by the Investigating Commissioner, thus:
RESOLVED to ADOPT and APPROVE, as it is hereby ADOPTED
and APPROVED, the Report and Recommendation of the
Investigating Commissioner of the above-entitled case, herein made
part of this Resolution/Decision as Annex "A"; and, finding the
recommendation fully supported by the evidence on record and the
applicable laws and rules, with modification, and considering that
Respondent has betrayed the trust of her (sic) clients in violation of
Canon 15, 16 and 17 of the Code of Professional Responsibility,
Atty. Eufracio T. Layag is hereby DISBARRED and Ordered to turn
over immediately to the Complainants the amounts received in their
behalf.12
Respondent then moved for reconsideration of the foregoing
resolution before this Court. In view of the recommended penalty of
disbarment, the Court En Banc accepted the respondent's motion for
our consideration.
1
Placed in issue are: (1) the sufficiency of the evidence to prove the
respondent's liability for violation of the Code of Professional
Responsibility; and (2) the propriety of the recommended penalty.
After careful scrutiny of the proceedings conducted by the IBP
Investigating Commissioner, we find that the factual findings made in
her report and recommendation are well supported by the evidence on
record. Respondent Atty. Layag does not deny receiving the checks
in question, but he claimed he turned over said checks to Marie Paz
Gonzales, pursuant to the alleged Special Power of Attorney executed
by Rosita de Guzman in favor of Gonzales, authorizing the latter to
encash, indorse, or deposit any check received as a result of the
judgment in Civil Case No. C-14265. Respondent contended that in
so doing, he was being true to the wishes and desires of his client, the
late Rosita de Guzman.
The respondent's arguments fail to persuade us. As a lawyer, with
more than thirty (30) years in practice, respondent is charged with
knowledge of the law. He should know that it was error for him to
rely on a Special Power of Attorney after the death of the principal,
Rosita de Guzman. As pointed out by the IBP Investigating
Commissioner, even assuming there was a Special Power of
Attorney, although respondent could not produce a copy nor prove its
existence, when de Guzman died that document ceased to be
operative. This is clear from Article 191913 of the Civil Code. While
there are instances, as provided in Article 1930, 14 where the agency
is not extinguished by the death of the principal, the instant case does
not fall under the exceptions. Clearly, at the time Atty. Layag
received and turned over the checks corresponding to the award of
damages in Civil Case No. C-14265 in February 1996, there was no
longer any valid Special Power of Attorney. Again, as pointed out by
the IBP Investigating Commissioner, respondent's duty when the
award of damages was made, was to preserve and deliver the amount
received to the heirs of his client, de Guzman, and not to any other
person.
With respect to the check from Inland Trailways, Inc., and made
payable to Lising, respondent should have delivered it directly to
Lising. The Special Power of Attorney, which he keeps on harping
on, did not cover Lising's case. Its coverage -- assuming again that
the document existed -- pertained only to de Guzman. Respondent
certainly could not take refuge in any provision of said Special Power
of Attorney insofar as Lising's check is concerned.
Respondent now denies any attorney-client relationship with Lising
because, as he insists, he was only engaged by de Guzman. But in his
Comment to the Complaint, respondent admits that he included
Lising when they filed suit against Inland Trailways, Inc., before the
RTC of Caloocan City, upon the request of de Guzman. Absent any
showing on record that Lising was represented by another counsel in
Civil Case No. C-14265 and the subsequent appeal, CA-G.R. CV No.
34012, the only conclusion we could reach is that she was also
represented by Atty. Layag. But even if granted the opposite
conclusion that he was not Lising's lawyer, it cannot exonerate the
respondent with respect to Lising's check. It would only make things
worse for him, for it would show that he misappropriated the
monetary award of a party whom he did not represent. In our view,
respondent's insistence that Lising was not his client is more
damaging to his cause.
In the course of his professional relationship with his client, a lawyer
may receive money or property for or from the client. He shall hold
such property in trust, and he is under obligation to make an
accounting thereof as required by Rule 16.0115 of the Code of
Professional Responsibility. This obligation to hold property in trust
includes money received by a lawyer as a result of a judgment
favorable to his client.16 In the present case, Atty. Layag did not
make an accounting of the judgment awards he received and the
checks he allegedly turned over to Marie Paz Gonzales. Further,
when complainants demanded that he deliver to them the checks
pertaining to de Guzman Buado and Lising for the judgment in Civil
Case No. C-14265, Atty. Layag did not do so, in violation of Rule
16.03.17
The inescapable conclusion we can make, given the circumstances in
this case, is that by his actions, respondent failed to observe the
utmost good faith, loyalty, candor and fidelity required of an attorney
in his dealings with his clients. His acts of misappropriating the
money of his clients are grossly immoral and unprofessional. There is
no doubt in our mind that he deserves severe punishment.
But is disbarment the proper penalty for Atty. Layag?
Disbarment is the most severe form of disciplinary sanction. The
power to disbar must always be exercised with great caution, for only
the most imperative reasons,18 and in clear cases of misconduct
affecting the standing and moral character of the lawyer as an officer
of the court and a member of the bar.19 Accordingly, disbarment
should not be decreed where any punishment less severe such as a
reprimand, suspension, or fine - would accomplish the end desired.20
In the instant case, what we seek to exact from the respondent is strict
compliance and fidelity with his duties to his clients. Accordingly, we
agree with the recommendation of the IBP Investigating
Commissioner that suspension, rather than disbarment, of respondent
would suffice. In our view, however, such suspension should be
indefinite, subject to further orders by this Court.
WHEREFORE, the IBP Board of Governors Resolution No. XVI-
2003-230 in Administrative Case No. 5182 finding respondent
LIABLE for violation of the Canons 15, 16, and 17 of the Code of
Professional Responsibility is hereby AFFIRMED with the
MODIFICATION that instead of the recommended penalty of
disbarment, respondent Atty. Eufracio T. Layag is hereby
INDEFINITELY SUSPENDED from the practice of law. Respondent
is further DIRECTED to immediately turn over to complainants
Susana de Guzman Buado and Nena Lising the amounts of
P49,000.00 and P30,180.00, respectively, as well as all other amounts
if any, he might have received for and on their behalf. Respondent is
also ORDERED to REPORT to the Office of the Bar Confidant his
compliance within fifteen (15) days from receipt hereof. Let a copy
of this Resolution be attached to the personal record of Atty. Eufracio
T. Layag and copies be furnished the Integrated Bar of the
Philippines and the Office of the Court Administrator for
dissemination to all lower courts. This Resolution is immediately
executory.
SO ORDERED.
2
G.R. No. 155541 January 27, 2004
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the decision of the Court
of Appeals in CA-G.R. CV No. 09107, dated September 30, 2002,1
which reversed the November 19, 1995 Order of Regional Trial Court
of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, entitled
"Testate Estate of Juliana Diez Vda. De Gabriel". The petition was
filed by the Estate of the Late Juliana Diez Vda. De Gabriel,
represented by Prudential Bank as its duly appointed and qualified
Administrator.
As correctly summarized by the Court of Appeals, the relevant facts
are as follows:
During the lifetime of the decedent, Juliana Vda. De Gabriel, her
business affairs were managed by the Philippine Trust Company
(Philtrust). The decedent died on April 3, 1979. Two days after her
death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles,
filed her Income Tax Return for 1978. The return did not indicate
that the decedent had died.
On May 22, 1979, Philtrust also filed a verified petition for
appointment as Special Administrator with the Regional Trial Court
of Manila, Branch XXXVIII, docketed as Sp. Proc. No. R-82-6994. The
court a quo appointed one of the heirs as Special Administrator.
Philtrusts motion for reconsideration was denied by the probate
court.
On January 26, 1981, the court a quo issued an Order relieving Mr.
Diez of his appointment, and appointed Antonio Lantin to take over
as Special Administrator. Subsequently, on July 30, 1981, Mr. Lantin
was also relieved of his appointment, and Atty. Vicente Onosa was
appointed in his stead.
In the meantime, the Bureau of Internal Revenue conducted an
administrative investigation on the decedents tax liability and found
a deficiency income tax for the year 1977 in the amount of
P318,233.93. Thus, on November 18, 1982, the BIR sent by
registered mail a demand letter and Assessment Notice No. NARD-
78-82-00501 addressed to the decedent "c/o Philippine Trust
Company, Sta. Cruz, Manila" which was the address stated in her
1978 Income Tax Return. No response was made by Philtrust. The
BIR was not informed that the decedent had actually passed away.
In an Order dated September 5, 1983, the court a quo appointed
Antonio Ambrosio as the Commissioner and Auditor Tax Consultant
of the Estate of the decedent.
On June 18, 1984, respondent Commissioner of Internal Revenue
issued warrants of distraint and levy to enforce collection of the
decedents deficiency income tax liability, which were served upon
her heir, Francisco Gabriel. On November 22, 1984, respondent filed
a "Motion for Allowance of Claim and for an Order of Payment of
Taxes" with the court a quo. On January 7, 1985, Mr. Ambrosio filed
a letter of protest with the Litigation Division of the BIR, which was
not acted upon because the assessment notice had allegedly
become final, executory and incontestable.
On May 16, 1985, petitioner, the Estate of the decedent, through
Mr. Ambrosio, filed a formal opposition to the BIRs Motion for
Allowance of Claim based on the ground that there was no proper
service of the assessment and that the filing of the aforesaid claim
had already prescribed. The BIR filed its Reply, contending that
service to Philippine Trust Company was sufficient service, and that
the filing of the claim against the Estate on November 22, 1984 was
within the five-year prescriptive period for assessment and
collection of taxes under Section 318 of the 1977 National Internal
Revenue Code (NIRC).
On November 19, 1985, the court a quo issued an Order denying
respondents claim against the Estate,2 after finding that there was
no notice of its tax assessment on the proper party.3
On July 2, 1986, respondent filed an appeal with the Court of
Appeals, docketed as CA-G.R. CV No. 09107,4 assailing the Order of
the probate court dated November 19, 1985. It was claimed that
Philtrust, in filing the decedents 1978 income tax return on April 5,
1979, two days after the taxpayers death, had "constituted itself as
the administrator of the estate of the deceased at least insofar as
said return is concerned."5 Citing Basilan Estate Inc. v. Commissioner
of Internal Revenue,6 respondent argued that the legal requirement
of notice with respect to tax assessments7 requires merely that the
Commissioner of Internal Revenue release, mail and send the notice
of the assessment to the taxpayer at the address stated in the return
filed, but not that the taxpayer actually receive said assessment
within the five-year prescriptive period.8 Claiming that Philtrust had
been remiss in not notifying respondent of the decedents death,
respondent therefore argued that the deficiency tax assessment had
already become final, executory and incontestable, and that
petitioner Estate was liable therefor.
On September 30, 2002, the Court of Appeals rendered a decision in
favor of the respondent. Although acknowledging that the bond of
agency between Philtrust and the decedent was severed upon the
latters death, it was ruled that the administrator of the Estate had
failed in its legal duty to inform respondent of the decedents death,
pursuant to Section 104 of the National Internal Revenue Code of
1977. Consequently, the BIRs service to Philtrust of the demand
letter and Notice of Assessment was binding upon the Estate, and,
upon the lapse of the statutory thirty-day period to question this
claim, the assessment became final, executory and incontestable.
The dispositive portion of said decision reads:
WHEREFORE, finding merit in the appeal, the appealed decision is
REVERSED AND SET ASIDE. Another one is entered ordering the
Administrator of the Estate to pay the Commissioner of Internal
Revenue the following:
a. The amount of P318,223.93, representing the deficiency income
tax liability for the year 1978, plus 20% interest per annum from
November 2, 1982 up to November 2, 1985 and in addition thereto
10% surcharge on the basic tax of P169,155.34 pursuant to Section
51(e)(2) and (3) of the Tax Code as amended by PD 69 and 1705; and
b. The costs of the suit.
SO ORDERED.9
Hence, the instant petition, raising the following issues:
1. Whether or not the Court of Appeals erred in holding that the
service of deficiency tax assessment against Juliana Diez Vda. de
3
Gabriel through the Philippine Trust Company was a valid service in
order to bind the Estate;
2. Whether or not the Court of Appeals erred in holding that the
deficiency tax assessment and final demand was already final,
executory and incontestable.
Petitioner Estate denies that Philtrust had any legal personality to
represent the decedent after her death. As such, petitioner argues
that there was no proper notice of the assessment which, therefore,
never became final, executory and incontestable.10 Petitioner
further contends that respondents failure to file its claim against
the Estate within the proper period prescribed by the Rules of Court
is a fatal error, which forever bars its claim against the Estate.11
Respondent, on the other hand, claims that because Philtrust filed
the decedents income tax return subsequent to her death, Philtrust
was the de facto administrator of her Estate.12 Consequently, when
the Assessment Notice and demand letter dated November 18, 1982
were sent to Philtrust, there was proper service on the Estate.13
Respondent further asserts that Philtrust had the legal obligation to
inform petitioner of the decedents death, which requirement is
found in Section 104 of the NIRC of 1977.14 Since Philtrust did not,
respondent contends that petitioner Estate should not be allowed to
profit from this omission.15 Respondent further argues that
Philtrusts failure to protest the aforementioned assessment within
the 30-day period provided in Section 319-A of the NIRC of 1977
meant that the assessment had already become final, executory and
incontestable.16
The resolution of this case hinges on the legal relationship between
Philtrust and the decedent, and, by extension, between Philtrust and
petitioner Estate. Subsumed under this primary issue is the sub-issue
of whether or not service on Philtrust of the demand letter and
Assessment Notice No. NARD-78-82-00501 was valid service on
petitioner, and the issue of whether Philtrusts inaction thereon
could bind petitioner. If both sub-issues are answered in the
affirmative, respondents contention as to the finality of Assessment
Notice No. NARD-78-82-00501 must be answered in the affirmative.
This is because Section 319-A of the NIRC of 1977 provides a clear
30-day period within which to protest an assessment. Failure to file
such a protest within said period means that the assessment ipso
jure becomes final and unappealable, as a consequence of which
legal proceedings may then be initiated for collection thereof.
We find in favor of the petitioner.
The first point to be considered is that the relationship between the
decedent and Philtrust was one of agency, which is a personal
relationship between agent and principal. Under Article 1919 (3) of
the Civil Code, death of the agent or principal automatically
terminates the agency. In this instance, the death of the decedent
on April 3, 1979 automatically severed the legal relationship
between her and Philtrust, and such could not be revived by the
mere fact that Philtrust continued to act as her agent when, on April
5, 1979, it filed her Income Tax Return for the year 1978.
Since the relationship between Philtrust and the decedent was
automatically severed at the moment of the Taxpayers death, none
of Philtrusts acts or omissions could bind the estate of the Taxpayer.
Service on Philtrust of the demand letter and Assessment Notice No.
NARD-78-82-00501 was improperly done.
It must be noted that Philtrust was never appointed as the
administrator of the Estate of the decedent, and, indeed, that the
court a quo twice rejected Philtrusts motion to be thus appointed.
As of November 18, 1982, the date of the demand letter and
Assessment Notice, the legal relationship between the decedent and
Philtrust had already been non-existent for three years.
Respondent claims that Section 104 of the National Internal
Revenue Code of 1977 imposed the legal obligation on Philtrust to
inform respondent of the decedents death. The said Section reads:
SEC. 104. Notice of death to be filed. In all cases of transfers
subject to tax or where, though exempt from tax, the gross value of
the estate exceeds three thousand pesos, the executor,
administrator, or any of the legal heirs, as the case may be, within
two months after the decedents death, or within a like period after
qualifying as such executor or administrator, shall give written
notice thereof to the Commissioner of Internal Revenue.
The foregoing provision falls in Title III, Chapter I of the National
Internal Revenue Code of 1977, or the chapter on Estate Tax, and
pertains to "all cases of transfers subject to tax" or where the "gross
value of the estate exceeds three thousand pesos". It has absolutely
no applicability to a case for deficiency income tax, such as the case
at bar. It further lacks applicability since Philtrust was never the
executor, administrator of the decedents estate, and, as such, never
had the legal obligation, based on the above provision, to inform
respondent of her death.
Although the administrator of the estate may have been remiss in
his legal obligation to inform respondent of the decedents death,
the consequences thereof, as provided in Section 119 of the
National Internal Revenue Code of 1977, merely refer to the
imposition of certain penal sanctions on the administrator. These do
not include the indefinite tolling of the prescriptive period for
making deficiency tax assessments, or the waiver of the notice
requirement for such assessments.
Thus, as of November 18, 1982, the date of the demand letter and
Assessment Notice No. NARD-78-82-00501, there was absolutely no
legal obligation on the part of Philtrust to either (1) respond to the
demand letter and assessment notice, (2) inform respondent of the
decedents death, or (3) inform petitioner that it had received said
demand letter and assessment notice. This lack of legal obligation
was implicitly recognized by the Court of Appeals, which, in fact,
rendered its assailed decision on grounds of "equity".17
Since there was never any valid notice of this assessment, it could
not have become final, executory and incontestable, and, for failure
to make the assessment within the five-year period provided in
Section 318 of the National Internal Revenue Code of 1977,
respondents claim against the petitioner Estate is barred. Said
Section 18 reads:
SEC. 318. Period of limitation upon assessment and collection.
Except as provided in the succeeding section, internal revenue taxes
shall be assessed within five years after the return was filed, and no
proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period. For the
purpose of this section, a return filed before the last day prescribed
by law for the filing thereof shall be considered as filed on such last
day: Provided, That this limitation shall not apply to cases already
investigated prior to the approval of this Code.
Respondent argues that an assessment is deemed made for the
purpose of giving effect to such assessment when the notice is
released, mailed or sent to the taxpayer to effectuate the
4
assessment, and there is no legal requirement that the taxpayer
actually receive said notice within the five-year period.18 It must be SO ORDERED.
noted, however, that the foregoing rule requires that the notice be
sent to the taxpayer, and not merely to a disinterested party.
Although there is no specific requirement that the taxpayer should
receive the notice within the said period, due process requires at the
very least that such notice actually be received. In Commissioner of
Internal Revenue v. Pascor Realty and Development Corporation,19
we had occasion to say:

An assessment contains not only a computation of tax liabilities, but

also a demand for payment within a prescribed period. It also signals
the time when penalties and interests begin to accrue against the
taxpayer. To enable the taxpayer to determine his remedies
thereon, due process requires that it must be served on and
received by the taxpayer.

In Republic v. De le Rama,20 we clarified that, when an estate is

under administration, notice must be sent to the administrator of
the estate, since it is the said administrator, as representative of the
estate, who has the legal obligation to pay and discharge all debts of
the estate and to perform all orders of the court. In that case, legal
notice of the assessment was sent to two heirs, neither one of
whom had any authority to represent the estate. We said:

The notice was not sent to the taxpayer for the purpose of giving
effect to the assessment, and said notice could not produce any
effect. In the case of Bautista and Corrales Tan v. Collector of
Internal Revenue this Court had occasion to state that "the
assessment is deemed made when the notice to this effect is
released, mailed or sent to the taxpayer for the purpose of giving
effect to said assessment." It appearing that the person liable for the
payment of the tax did not receive the assessment, the assessment
could not become final and executory. (Citations omitted, emphasis
supplied.)

In this case, the assessment was served not even on an heir of the
Estate, but on a completely disinterested third party. This improper
service was clearly not binding on the petitioner.

By arguing that (1) the demand letter and assessment notice were
served on Philtrust, (2) Philtrust was remiss in its obligation to
respond to the demand letter and assessment notice, (3) Philtrust
was remiss in its obligation to inform respondent of the decedents
death, and (4) the assessment notice is therefore binding on the
Estate, respondent is arguing in circles. The most crucial point to be
remembered is that Philtrust had absolutely no legal relationship to
the deceased, or to her Estate. There was therefore no assessment
served on the Estate as to the alleged underpayment of tax. Absent
this assessment, no proceedings could be initiated in court for the
collection of said tax,21 and respondents claim for collection, filed
with the probate court only on November 22, 1984, was barred for
having been made beyond the five-year prescriptive period set by
law.

WHEREFORE, the petition is GRANTED. The Decision of the Court of

Appeals in CA-G.R. CV No. 09107, dated September 30, 2002, is
REVERSED and SET ASIDE. The Order of the Regional Trial Court of
Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, dated November
19, 1985, which denied the claim of the Bureau of Internal Revenue
against the Estate of Juliana Diez Vda. De Gabriel for the deficiency
income tax of the decedent for the year 1977 in the amount of
P318,223.93, is AFFIRMED.

No pronouncement as to costs.

5
6
G.R. No. 77279 April 15, 1988
MANUELA S. CATAN/M.S. CATAN PLACEMENT AGENCY, petitioners,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, PHILIPPINE
OVERSEAS EMPLOYMENT ADMINISTRATION and FRANCISCO D.
REYES, respondents.
Demetria Reyes, Merris & Associates for petitioners.
The Solicitor General for public respondents.
Bayani G. Diwa for private respondent.
CORTES, J.:
Petitioner, in this special civil action for certiorari, alleges grave
abuse of discretion on the part of the National Labor Relations
Commission in an effort to nullify the latters resolution and thus free
petitioner from liability for the disability suffered by a Filipino
worker it recruited to work in Saudi Arabia. This Court, however, is
not persuaded that such an abuse of discretion was committed. This
petition must fail.
The facts of the case are quite simple.
Petitioner, a duly licensed recruitment agency, as agent of Ali and
Fahd Shabokshi Group, a Saudi Arabian firm, recruited private
respondent to work in Saudi Arabia as a steelman.
The term of the contract was for one year, from May 15,1981 to
May 14, 1982. However, the contract provided for its automatic
renewal:
FIFTH: The validity of this Contract is for ONE YEAR commencing
from the date the SECOND PARTY assumes hill port. This Contract is
renewable automatically if neither of the PARTIES notifies the other
PARTY of his wishes to terminate the Contract by at least ONE
MONTH prior to the expiration of the contractual period. [Petition,
pp. 6-7; Rollo, pp. 7-8].
The contract was automatically renewed when private respondent
was not repatriated by his Saudi employer but instead was assigned
to work as a crusher plant operator. On March 30, 1983, while he
was working as a crusher plant operator, private respondent's right
ankle was crushed under the machine he was operating.
On May 15, 1983, after the expiration of the renewed term, private
respondent returned to the Philippines. His ankle was operated on
at the Sta. Mesa Heights Medical Center for which he incurred
expenses.
On September 9, 1983, he returned to Saudi Arabia to resume his
work. On May 15,1984, he was repatriated.
Upon his return, he had his ankle treated for which he incurred
further expenses.
On the basis of the provision in the employment contract that the
employer shall compensate the employee if he is injured or
permanently disabled in the course of employment, private
respondent filed a claim, docketed as POEA Case No. 84-09847,
against petitioner with respondent Philippine Overseas Employment
Administration. On April 10, 1986, the POEA rendered judgment in
favor of private respondent, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the
complainant and against the respondent, ordering the latter to pay
to the complainant:
1. SEVEN THOUSAND NINE HUNDRED EIGHTY-FIVE PESOS
and 60/100 (P7,985.60), Philippine currency, representing disability
benefits;
2. TWENTY-FIVE THOUSAND NINETY-SIX Philippine pesos and
20/100 (29,096.20) representing reimbursement for medical
expenses;
3. Ten percent (10%) of the abovementioned amounts as and
for attorney's fees. [NLRC Resolution, p. 1; Rollo, p. 16].
On appeal, respondent NLRC affirmed the decision of the POEA in a
resolution dated December 12, 1986.
Not satisfied with the resolution of the POEA, petitioner instituted
the instant special civil action for certiorari, alleging grave abuse of
discretion on the part of the NLRC.
1. Petitioner claims that the NLRC gravely abused its
discretion when it ruled that petitioner was liable to private
respondent for disability benefits since at the time he was injured
his original employment contract, which petitioner facilitated, had
already expired. Further, petitioner disclaims liability on the ground
that its agency agreement with the Saudi principal had already
expired when the injury was sustained.
There is no merit in petitioner's contention.
Private respondents contract of employment can not be said to have
expired on May 14, 1982 as it was automatically renewed since no
notice of its termination was given by either or both of the parties at
least a month before its expiration, as so provided in the contract
itself. Therefore, private respondent's injury was sustained during
the lifetime of the contract.
A private employment agency may be sued jointly and solidarily with
its foreign principal for violations of the recruitment agreement and
the contracts of employment:
Sec. 10. Requirement before recruitment. Before recruiting any
worker, the private employment agency shall submit to the Bureau
the following documents:
(a) A formal appointment or agency contract executed by a
foreign-based employer in favor of the license holder to recruit and
hire personnel for the former ...
xxx xxx xxx
2. Power of the agency to sue and be sued jointly and
solidarily with the principal or foreign-based employer for any of the
violations of the recruitment agreement and the contracts of
employment. [Section 10(a) (2) Rule V, Book I, Rules to Implement
the Labor Code].
Thus, in the recent case of Ambraque International Placement &
Services v. NLRC [G.R. No. 77970, January 28,1988], the Court ruled
7
that a recruitment agency was solidarily liable for the unpaid salaries
of a worker it recruited for employment in Saudi Arabia. WHEREFORE, in view of the foregoing, the petition is DISMISSED for
lack of merit, with costs against petitioner.
Even if indeed petitioner and the Saudi principal had already severed
their agency agreement at the time private respondent was injured, SO ORDERED.
petitioner may still be sued for a violation of the employment
contract because no notice of the agency agreement's termination
was given to the private respondent:

Art 1921. If the agency has been entrusted for the purpose of contra
with specified persons, its revocation shall not prejudice the latter if
they were not given notice thereof. [Civil Code].

In this connection the NLRC elaborated:

Suffice it to state that albeit local respondent M. S. Catan Agency

was at the time of complainant's accident resulting in his permanent
partial disability was (sic) no longer the accredited agent of its
foreign principal, foreign respondent herein, yet its responsibility
over the proper implementation of complainant's
employment/service contract and the welfare of complainant
himself in the foreign job site, still existed, the contract of
employment in question not having expired yet. This must be so,
because the obligations covenanted in the recruitment agreement
entered into by and between the local agent and its foreign principal
are not coterminus with the term of such agreement so that if either
or both of the parties decide to end the agreement, the
responsibilities of such parties towards the contracted employees
under the agreement do not at all end, but the same extends up to
and until the expiration of the employment contracts of the
employees recruited and employed pursuant to the said recruitment
agreement. Otherwise, this will render nugatory the very purpose
for which the law governing the employment of workers for foreign
jobs abroad was enacted. [NLRC Resolution, p. 4; Rollo, p. 18].
(Emphasis supplied).

2. Petitioner contends that even if it is liable for disability

benefits, the NLRC gravely abused its discretion when it affirmed the
award of medical expenses when the said expenses were the
consequence of private respondent's negligence in returning to
work in Saudi Arabia when he knew that he was not yet medically fit
to do so.

Again, there is no merit in this contention.

No evidence was introduced to prove that private respondent was

not medically fit to work when he returned to Saudi Arabia. Exhibit
"B", a certificate issued by Dr. Shafquat Niazi, the camp doctor, on
November 1, 1983, merely stated that private respondent was
"unable to walk properly, moreover he is still complaining [of] pain
during walking and different lower limbs movement" [Annex "B",
Reply; Rollo, p. 51]. Nowhere does it say that he was not medically
fit to work.

Further, since petitioner even assisted private respondent in

returning to work in Saudi Arabia by purchasing his ticket for him
[Exhibit "E"; Annex "A", Reply to Respondents' Comments], it is as if
petitioner had certified his fitness to work. Thus, the NLRC found:

Furthermore, it has remained unrefuted by respondent that

complainant's subsequent departure or return to Saudi Arabia on
September 9, 1983 was with the full knowledge, consent and
assistance of the former. As shown in Exhibit "E" of the record, it
was respondent who facilitated the travel papers of complainant.
[NLRC Resolution, p. 5; Rollo, p. 19].

8
G.R. No. 111924 January 27, 1997
ADORACION LUSTAN, petitioner,
vs.
COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN,
PHILIPPINE NATIONAL BANK, respondents.
FRANCISCO, J.:
Petitioner Adoracion Lustan is the registered owner of a parcel of
land otherwise known as Lot 8069 of the Cadastral Survey of
Calinog, Iloilo containing an area of 10.0057 hectares and covered by
TCT No. T-561. On February 25, 1969, petitioner leased the above
described property to private respondent Nicolas Parangan for a
term of ten (10) years and an annual rent of One Thousand
(P1,000.00) Pesos. During the period of lease, Parangan was
regularly extending loans in small amounts to petitioner to defray
her daily expenses and to finance her daughter's education. On July
29, 1970, petitioner executed a Special Power of Attorney in favor of
Parangan to secure an agricultural loan from private respondent
Philippine National Bank (PNB) with the aforesaid lot as collateral.
On February 18, 1972, a second Special Power of Attorney was
executed by petitioner, by virtue of which, Parangan was able to
secure four (4) additional loans, to wit: the sums of P24,000.00,
P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975,
September 6, 1976, July 2, 1979 and June 2, 1980, respectively. The
last three loans were without the knowledge of herein petitioner
and all the proceeds therefrom were used by Parangan for his own
benefit. 1 These encumbrances were duly annotated on the
certificate of title. On April 16, 1973, petitioner signed a Deed of
Pacto de Retro Sale2 in favor of Parangan which was superseded by
the Deed of Definite Sale3 dated May 4, 1979 which petitioner
signed upon Parangan's representation that the same merely
evidences the loans extended by him unto the former.
For fear that her property might be prejudiced by the continued
borrowing of Parangan, petitioner demanded the return of her
certificate of title. Instead of complying with the request, Parangan
asserted his rights over the property which allegedly had become his
by virtue of the aforementioned Deed of Definite Sale. Under said
document, petitioner conveyed the subject property and all the
improvements thereon unto Parangan absolutely for and in
consideration of the sum of Seventy Five Thousand (P75,000.00)
Pesos.
Aggrieved, petitioner filed an action for cancellation of liens,
quieting of title, recovery of possession and damages against
Parangan and PNB in the Regional Trial Court of Iloilo City. After trial,
the lower court rendered judgment, disposing as follows:
WHEREFORE and in view of the foregoing, a decision is rendered as
follows:
1. Ordering cancellation by the Register of Deeds of the
Province of Iloilo, of the unauthorized loans, the liens and
encumbrances appearing in the Transfer Certificate of Title No. T-
561, especially entries nos. 286231; 338638; and 352794;
2. Declaring the Deed of Pacto de Retro Sale dated April 25,
1978 and the Deed of Definite Sale dated May 6, 1979, both
documents executed by Adoracion Lustan in favor of Nicolas
Parangan over Lot 8069 in TCT No. T-561 of the Register of Deeds of
Iloilo, as null and void, declaring the same to be Deeds of Equitable
Mortgage;
3. Ordering defendant Nicolas Parangan to pay all the loans
he secured from defendant PNB using thereto as security TCT No. T-
561 of plaintiff and defendant PNB to return TCT No. T-561 to
plaintiff;
4. Ordering defendant Nicolas Parangan to return possession
of the land in question, Lot 8069 of the Calinog Cadastre, described
in TCT No. T-561 of the Register of Deeds of Iloilo, to plaintiff upon
payment of the sum of P75,000.00 by plaintiff to defendant
Parangan which payment by plaintiff must be made within ninety
(90) days from receipt of this decision; otherwise, sale of the land
will be ordered by the court to satisfy payment of the amount;
5. Ordering defendant Nicolas Parangan to pay plaintiff
attorney's fees in the sum of P15,000.00 and to pay the costs of the
suit.
SO ORDERED.4
Upon appeal to the Court of Appeals (CA), respondent court
reversed the trial court's decision. Hence this petition contending
that the CA committed the following errors:
IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS
STATED IN ART. 1602 OF THE NEW CIVIL CODE HAS BEEN PROVEN
TO EXIST BY PREPONDERANCE OF EVIDENCE;
IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH
KNOWLEDGE AS TO THE CONTENTS THEREOF;
IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF
WITNESS DELIA CABIAL DESERVES FULL FAITH AND CREDIT;
IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING
MORTGAGE FOR "UNLIMITED" LOANS AS RELEVANT.
Two main issues confront us in this case, to wit: whether or not the
Deed of Definite Sale is in reality an equitable mortgage and
whether or not petitioner's property is liable to PNB for the loans
contracted by Parangan by virtue of the special power of attorney.
The lower court and the CA arrived at different factual findings thus
necessitating a review of the evidence on record.5 After a thorough
examination, we note some errors, both in fact and in law,
committed by public respondent CA.
The court a quo ruled that the Deed of Definite Sale is in reality an
equitable mortgage as it was shown beyond doubt that the intention
of the parties was one of a loan secured by petitioner's land.6 We
agree.
A contract is perfected by mere consent.7 More particularly, a
contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon
the price.8 This meeting of the minds speaks of the intent of the
parties in entering into the contract respecting the subject matter
and the consideration thereof. If the words of the contract appear to
be contrary to the evident intention of the parties, the latter shall
prevail over the former.9 In the case at bench, the evidence is
sufficient to warrant a finding that petitioner and Parangan merely
intended to consolidate the former's indebtedness to the latter in a
single instrument and to secure the same with the subject property.
Even when a document appears on its face to be a sale, the owner
of the property may prove that the contract is really a loan with
mortgage by raising as an issue the fact that the document does not
9
express the true intent of the parties. In this case, parol evidence
then becomes competent and admissible to prove that the
instrument was in truth and in fact given merely as a security for the
repayment of a loan. And upon proof of the truth of such
allegations, the court will enforce the agreement or understanding
in consonance with the true intent of the parties at the time of the
execution of the contract. 10
Articles 1602 and 1604 of the Civil Code respectively provide:
The contract shall be presumed to be an equitable mortgage in any
of the following cases:
1) When the price of a sale with right to repurchase is
unusually inadequate;
2) When the vendor remains in possession as lessor or
otherwise;
3) When upon or after the expiration of the right to
repurchase, another instrument extending the period of redemption
or granting a new period is executed;
4) When the vendor binds himself to pay the taxes on the
thing sold;
5) When the purchaser retains for himself a part of the
purchase price;
6) In any other case where it may be fairly inferred that the
real intention of the parties is that the transaction shall secure the
payment of a debt or the performance of any other obligation.
Art. 1604. The provisions of Article 1602 shall also apply to
a contract purporting to be an absolute sale.
From a reading of the above-quoted provisions, for a presumption of
an equitable mortgage to arise, we must first satisfy two requisites
namely: that the parties entered into a contract denominated as a
contract of sale and that their intention was to secure an existing
debt by way of mortgage. Under Art. 1604 of the Civil Code, a
contract purporting to be an absolute sale shall be presumed to be
an equitable mortgage should any of the conditions in Art. 1602 be
present. The existence of any of the circumstances therein, not a
concurrence nor an overwhelming number of such circumstances,
suffices to give rise to the presumption that the contract is an
equitable mortgage. 11
Art. 1602, (6), in relation to Art 1604 provides that a contract of sale
is presumed to be an equitable mortgage in any other case where it
may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance
of any other obligation. That the case clearly falls under this
category can be inferred from the circumstances surrounding the
transaction as herein set forth:
Petitioner had no knowledge that the contract 12 she signed is a
deed of sale. The contents of the same were not read nor explained
to her so that she may intelligibly formulate in her mind the
consequences of her conduct and the nature of the rights she was
ceding in favor of Parangan. Petitioner is illiterate and her condition
constrained her to merely rely on Parangan's assurance that the
contract only evidences her indebtedness to the latter. When one of
the contracting parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the
person enforcing the contract must show that the terms thereof
have been fully explained to the former. 13 Settled is the rule that
where a party to a contract is illiterate or cannot read or cannot
understand the language in which the contract is written, the
burden is on the party interested in enforcing the contract to prove
that the terms thereof are fully explained to the former in a
language understood by him.14 To our mind, this burden has not
been satisfactorily discharged.
We do not find the testimony of Parangan and Delia Cabial that the
contract was duly read and explained to petitioner worthy of credit.
The assessment by the trial court of the credibility of witnesses is
entitled to great respect and weight for having had the opportunity
of observing the conduct and demeanor of the witnesses while
testifying. 15 The lower court may not have categorically declared
Cabial's testimony as doubtful but this fact is readily apparent when
it ruled on the basis of petitioner's evidence in total disregard of the
positive testimony on Parangan's side. We have subjected the
records to a thorough examination, and a reading of the transcript
of stenographic notes would bear out that the court a quo is correct
in its assessment. The CA committed a reversible error when it relied
on the testimony of Cabial in upholding the validity of the Deed of
Definite Sale. For one, there are noted major contradictions
between the testimonies of Cabial and Judge Lebaquin, who
notarized the purported Deed of Definite Sale. While the former
testified that receipts were presented before Judge Lebaquin, who
in turn made an accounting to determine the price of the land 16,
the latter categorically denied the allegation. 17 This contradiction
casts doubt on the credibility of Cabial as it is ostensible that her
version of the story is concocted.
On the other hand, petitioner's witness Celso Pamplona, testified
that the contract was not read nor explained to petitioner. We
believe that this witness gave a more accurate account of the
circumstances surrounding the transaction. He has no motive to
prevaricate or concoct a story as he witnessed the execution of the
document at the behest of Parangan himself who, at the outset,
informed him that he will witness a document consolidating
petitioner's debts. He thus testified:
Q: In (sic) May 4, 1979, you remember having went (sic) to
the Municipality of Calinog?
A: Yes, sir.
Q: Who invited you to go there?
A: Parangan.
Q: You mean Nicolas Parangan?
A: Yes, sir.
Q: What did Nicolas tell you why he invited you to go there?
A: He told me that I will witness on the indebtedness of
Adoracion to Parangan.
Q: Before Adoracion Lustan signed her name in this Exh. "4",
was this document read to her?
A: No, sir.
Q: Did Nicolas Parangan right in that very room tell Adoracion
what she was signing?
10

A: No, sir.
xxx xxx xxx
Q: What did you have in mind when you were signing this
document, Exh. "4"?
A: To show that Adoracion Lustan has debts with Nicolas
Parangan. 18
Furthermore, we note the absence of any question propounded to
Judge Lebaquin to establish that the deed of sale was read and
explained by him to petitioner. When asked if witness has any
knowledge whether petitioner knows how to read or write, he
answered in the negative. 19 This latter admission impresses upon
us that the contract was not at all read or explained to petitioner for
had he known that petitioner is illiterate, his assistance would not
have been necessary.
The foregoing squares with the sixth instance when a presumption
of equitable mortgage prevails. The contract of definite sale, where
petitioner purportedly ceded all her rights to the subject lot in favor
of Parangan, did not embody the true intention of the parties. The
evidence speaks clearly of the nature of the agreement it was one
executed to secure some loans.
Anent the issue of whether the outstanding mortgages on the
subject property can be enforced against petitioner, we rule in the
affirmative.
Third persons who are not parties to a loan may secure the latter by
pledging or mortgaging their own property. 20 So long as valid
consent was given, the fact that the loans were solely for the benefit
of Parangan would not invalidate the mortgage with respect to
petitioner's property. In consenting thereto, even granting that
petitioner may not be assuming personal liability for the debt, her
property shall nevertheless secure and respond for the performance
of the principal obligation. 21 It is admitted that petitioner is the
owner of the parcel of land mortgaged to PNB on five (5) occasions
by virtue of the Special Powers of Attorney executed by petitioner in
favor of Parangan. Petitioner argues that the last three mortgages
were void for lack of authority. She totally failed to consider that
said Special Powers of Attorney are a continuing one and absent a
valid revocation duly furnished to the mortgagee, the same
continues to have force and effect as against third persons who had
no knowledge of such lack of authority. Article 1921 of the Civil Code
provides:
good not only for the principal loan but also for subsequent
commercial, industrial, agricultural loan or credit accommodation
that the attorney-in-fact may obtain and until the power of attorney
is revoked in a public instrument and a copy of which is furnished to
PNB. 23 Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the
latter to act as though he had full powers (Article 1911, Civil Code).
24 The mortgage directly and immediately subjects the property
upon which it is imposed. 25 The property of third persons which
has been expressly mortgaged to guarantee an obligation to which
the said persons are foreign, is directly and jointly liable for the
fulfillment thereof; it is therefore subject to execution and sale for
the purpose of paying the amount of the debt for which it is liable.
26 However, petitioner has an unquestionable right to demand
proportional indemnification from Parangan with respect to the sum
paid to PNB from the proceeds of the sale of her property 27 in case
the same is sold to satisfy the unpaid debts.
WHEREFORE, premises considered, the judgment of the lower court
is hereby REINSTATED with the following MODIFICATIONS:
1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE
MORTGAGE;
2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO
RETURN THE POSSESSION OF THE SUBJECT LAND UNTO PETITIONER
UPON THE LATTER'S PAYMENT OF THE SUM OF P75,000.00 WITHIN
NINETY (90) DAYS FROM RECEIPT OF THIS DECISION;
3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID
AND SUBSISTING AND MAY THEREFORE BE SUBJECTED TO
EXECUTION SALE.
4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY
PETITIONER THE AMOUNT OF P15,000.00 BY WAY OF ATTORNEY'S
FEES AND TO PAY THE COSTS OF THE SUIT.
SO ORDERED.

Art. 1921. If the agency has been entrusted for the purpose
of contracting with specified persons, its revocation shall not
prejudice the latter if they were not given notice thereof.

The Special Power of Attorney executed by petitioner in favor of

Parangan duly authorized the latter to represent and act on behalf
of the former. Having done so, petitioner clothed Parangan with
authority to deal with PNB on her behalf and in the absence of any
proof that the bank had knowledge that the last three loans were
without the express authority of petitioner, it cannot be prejudiced
thereby. As far as third persons are concerned, an act is deemed to
have been performed within the scope of the agent's authority if
such is within the terms of the power of attorney as written even if
the agent has in fact exceeded the limits of his authority according
to the understanding between the principal and the agent. 22 The
Special Power of Attorney particularly provides that the same is

11
12
G.R. No. 85494 May 7, 1991
CHOITHRAM JETHMAL RAMNANI AND/OR NIRMLA V. RAMNANI and
MOTI G. RAMNANI, petitioners,
vs.
COURT OF APPEALS, SPOUSES ISHWAR JETHMAL RAMNANI, SONYA
JETHMAL RAMNANI and OVERSEAS HOLDING CO., LTD.,
respondents.
G.R. No. 85496 May 7, 1991
SPOUSES ISHWAR JETHMAL RAMNANI AND SONYA JET RAMNANI,
petitioners,
vs.
THE HONORABLE COURT OF APPEALS, ORTIGAS & CO., LTD.
PARTNERSHIP, and OVERSEAS HOLDING CO., LTD., respondents.
Quasha, Asperilla Ancheta, Pea and Nolasco for petitioners Ishwar
Jethmal Ramnani & Sonya Ramnani.
Salonga, Andres, Hernandez & Allado for Choithram Jethmal
Ramnani, Nirmla Ramnani & Moti Ramnani.
Rama Law Office for private respondents in collaboration with
Salonga, Andres, Hernandez & Allado.
Eulogio R. Rodriguez for Ortigas & Co., Ltd.
GANCAYCO, J.:
This case involves the bitter quarrel of two brothers over two (2)
parcels of land and its improvements now worth a fortune. The bone
of contention is the apparently conflicting factual findings of the trial
court and the appellate court, the resolution of which will materially
affect the result of the contest.
The following facts are not disputed.
Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are
brothers of the full blood. Ishwar and his spouse Sonya had their
main business based in New York. Realizing the difficulty of
managing their investments in the Philippines they executed a
general power of attorney on January 24, 1966 appointing Navalrai
and Choithram as attorneys-in-fact, empowering them to manage
and conduct their business concern in the Philippines.1
On February 1, 1966 and on May 16, 1966, Choithram, in his
capacity as aforesaid attorney-in-fact of Ishwar, entered into two
agreements for the purchase of two parcels of land located in Barrio
Ugong, Pasig, Rizal, from Ortigas & Company, Ltd. Partnership
(Ortigas for short) with a total area of approximately 10,048 square
meters.2 Per agreement, Choithram paid the down payment and
installments on the lot with his personal checks. A building was
constructed thereon by Choithram in 1966 and this was occupied
and rented by Jethmal Industries and a wardrobe shop called Eppie's
Creation. Three other buildings were built thereon by Choithram
through a loan of P100,000.00 obtained from the Merchants Bank as
well as the income derived from the first building. The buildings
were leased out by Choithram as attorney-in-fact of Ishwar. Two of
these buildings were later burned.
Sometime in 1970 Ishwar asked Choithram to account for the
income and expenses relative to these properties during the period
1967 to 1970. Choithram failed and refused to render such
accounting. As a consequence, on February 4, 1971, Ishwar revoked
the general power of attorney. Choithram and Ortigas were duly
notified of such revocation on April 1, 1971 and May 24, 1971,
respectively.3 Said notice was also registered with the Securities and
Exchange Commission on March 29, 19714 and was published in the
April 2, 1971 issue of The Manila Times for the information of the
general public.5
Nevertheless, Choithram as such attorney-in-fact of Ishwar,
transferred all rights and interests of Ishwar and Sonya in favor of his
daughter-in-law, Nirmla Ramnani, on February 19, 1973. Her
husband is Moti, son of Choithram. Upon complete payment of the
lots, Ortigas executed the corresponding deeds of sale in favor of
Nirmla.6 Transfer Certificates of Title Nos. 403150 and 403152 of the
Register of Deeds of Rizal were issued in her favor.
Thus, on October 6, 1982, Ishwar and Sonya (spouses Ishwar for
short) filed a complaint in the Court of First Instance of Rizal against
Choithram and/or spouses Nirmla and Moti (Choithram et al. for
brevity) and Ortigas for reconveyance of said properties or payment
of its value and damages. An amended complaint for damages was
thereafter filed by said spouses.
After the issues were joined and the trial on the merits, a decision
was rendered by the trial court on December 3, 1985 dismissing the
complaint and counterclaim. A motion for reconsideration thereof
filed by spouses Ishwar was denied on March 3, 1986.
An appeal therefrom was interposed by spouses Ishwar to the Court
of Appeals wherein in due course a decision was promulgated on
March 14, 1988, the dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered reversing and setting
aside the appealed decision of the lower court dated December 3,
1985 and the Order dated March 3, 1986 which denied plaintiffs-
appellants' Motion for Reconsideration from aforesaid decision. A
new decision is hereby rendered sentencing defendants- appellees
Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C. Ramnani,
and Ortigas and Company Limited Partnership to pay, jointly and
severally, plaintiffs-appellants the following:
1. Actual or compensatory damages to the extent of the fair
market value of the properties in question and all improvements
thereon covered by Transfer Certificate of Title No. 403150 and
Transfer Certificate of Title No. 403152 of the Registry of Deeds of
Rizal, prevailing at the time of the satisfaction of the judgment but in
no case shall such damages be less than the value of said properties
as appraised by Asian Appraisal, Inc. in its Appraisal Report dated
August 1985 (Exhibits T to T-14, inclusive).
2. All rental incomes paid or ought to be paid for the use and
occupancy of the properties in question and all improvements
thereon consisting of buildings, and to be computed as follows:
a) On Building C occupied by Eppie's Creation and Jethmal
Industries from 1967 to 1973, inclusive, based on the 1967 to 1973
monthly rentals paid by Eppie's Creation;
b) Also on Building C above, occupied by Jethmal Industries
and Lavine from 1974 to 1978, the rental incomes based on then
rates prevailing as shown under Exhibit "P"; and from 1979 to 1981,
based on then prevailing rates as indicated under Exhibit "Q";
c) On Building A occupied by Transworld Knitting Mills from
1972 to 1978, the rental incomes based upon then prevailing rates
shown under Exhibit "P", and from 1979 to 1981, based on
prevailing rates per Exhibit "Q";
13

d) On the two Bays Buildings occupied by Sigma-Mariwasa
from 1972 to 1978, the rentals based on the Lease Contract, Exhibit
"P", and from 1979 to 1980, the rentals based on the Lease Contract,
Exhibit "Q",
and thereafter commencing 1982, to account for and turn over the
rental incomes paid or ought to be paid for the use and occupancy
of the properties and all improvements totalling 10,048 sq. m based
on the rate per square meter prevailing in 1981 as indicated
annually cumulative up to 1984. Then, commencing 1985 and up to
the satisfaction of the judgment, rentals shall be computed at ten
percent (10%) annually of the fair market values of the properties as
appraised by the Asian Appraisal, Inc. in August 1985 (Exhibits T to T-
14, inclusive.)
3. Moral damages in the sum of P200,000.00;
4. Exemplary damages in the sum of P100,000.00;
5. Attorney's fees equivalent to 10% of the award herein
made;
6. Legal interest on the total amount awarded computed
from first demand in 1967 and until the full amount is paid and
satisfied; and
7. The cost of suit.7
Acting on a motion for reconsideration filed by Choithram, et al. and
Ortigas, the appellate court promulgated an amended decision on
October 17, 1988 granting the motion for reconsideration of Ortigas
by affirming the dismissal of the case by the lower court as against
Ortigas but denying the motion for reconsideration of Choithram, et
al.8
Choithram, et al. thereafter filed a petition for review of said
judgment of the appellate court alleging the following grounds:
1. The Court of Appeals gravely abused its discretion in
making a factual finding not supported by and contrary, to the
evidence presented at the Trial Court.
2. The Court of Appeals acted in excess of jurisdiction in
awarding damages based on the value of the real properties in
question where the cause of action of private respondents is
recovery of a sum of money.
ARGUMENTS
I ORTIGAS ON MAY 22, 1971 BY ATTY. MARIANO P. MARCOS AND
THE COURT OF APPEALS ACTED IN GRAVE ABUSE OF ITS DISCRETION
IN MAKING A FACTUAL FINDING THAT PRIVATE RESPONDENT
ISHWAR REMITTED THE AMOUNT OF US $150,000.00 TO
PETITIONER CHOITHRAM IN THE ABSENCE OF PROOF OF SUCH
REMITTANCE.
II
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION
AND MANIFEST PARTIALITY IN DISREGARDING THE TRIAL COURTS
FINDINGS BASED ON THE DIRECT DOCUMENTARY AND
TESTIMONIAL EVIDENCE PRESENTED BY CHOITHRAM IN THE TRIAL
COURT ESTABLISHING THAT THE PROPERTIES WERE PURCHASED
WITH PERSONAL FUNDS OF PETITIONER CHOITHRAM AND NOT
WITH MONEY ALLEGEDLY REMITTED BY RESPONDENT ISHWAR.
III
THE COURT OF APPEALS ACTED IN EXCESS OF JURISDICTION IN
AWARDING DAMAGES BASED ON THE VALUE OF THE PROPERTIES
AND THE FRUITS OF THE IMPROVEMENTS THEREON.9
Similarly, spouses Ishwar filed a petition for review of said amended
decision of the appellate court exculpating Ortigas of liability based
on the following assigned errors
I
THE RESPONDENT HONORABLE COURT OF APPEALS COMMITTED
GRAVE ERROR AND HAS DECIDED A QUESTION OF SUBSTANCE NOT
IN ACCORD WITH LAW AND/OR WITH APPLICABLE DECISIONS OF
THIS HONORABLE COURT
A) IN PROMULGATING THE QUESTIONED AMENDED
DECISION (ANNEX "A") RELIEVING RESPONDENT ORTIGAS FROM
LIABILITY AND DISMISSING PETITIONERS' AMENDED COMPLAINT IN
CIVIL CASE NO. 534-P, AS AGAINST SAID RESPONDENT ORTIGAS;
B) IN HOLDING IN SAID AMENDED DECISION THAT AT ANY
RATE NO ONE EVER TESTIFIED THAT ORTIGAS WAS A SUBSCRIBER TO
THE MANILA TIMES PUBLICATION OR THAT ANY OF ITS OFFICERS
READ THE NOTICE AS PUBLISHED IN THE MANILA TIMES, THEREBY
ERRONEOUSLY CONCLUDING THAT FOR RESPONDENT ORTIGAS TO
BE CONSTRUCTIVELY BOUND BY THE PUBLISHED NOTICE OF
REVOCATION, ORTIGAS AND/OR ANY OF ITS OFFICERS MUST BE A
SUBSCRIBER AND/OR THAT ANY OF ITS OFFICERS SHOULD READ THE
NOTICE AS ACTUALLY PUBLISHED;
C) IN HOLDING IN SAID AMENDED DECISION THAT ORTIGAS
COULD NOT BE HELD LIABLE JOINTLY AND SEVERALLY WITH THE
DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND NIRMLA
RAMNANI, AS ORTIGAS RELIED ON THE WORD OF CHOITHRAM THAT
ALL ALONG HE WAS ACTING FOR AND IN BEHALF OF HIS BROTHER
ISHWAR WHEN IT TRANSFERRED THE RIGHTS OF THE LATTER TO
NIRMLA V. RAMNANI;
D) IN IGNORING THE EVIDENCE DULY PRESENTED AND
ADMITTED DURING THE TRIAL THAT ORTIGAS WAS PROPERLY
NOTIFIED OF THE NOTICE OF REVOCATION OF THE GENERAL POWER
OF ATTORNEY GIVEN TO CHOITHRAM, EVIDENCED BY THE
PUBLICATION IN THE MANILA TIMES ISSUE OF APRIL 2, 1971 (EXH. F)
WHICH CONSTITUTES NOTICE TO THE WHOLE WORLD; THE RECEIPT
OF THE NOTICE OF SUCH REVOCATION WHICH WAS SENT TO
RECEIVED BY ORTIGAS ON MAY 24, 1971 (EXH. G) AND THE FILING
OF THE NOTICE WITH THE SECURITIES AND EXCHANGE
COMMISSION ON MARCH 29,1971 (EXH. H);
E) IN DISCARDING ITS FINDINGS CONTAINED IN ITS DECISION
OF 14 MARCH 1988 (ANNEX B) THAT ORTIGAS WAS DULY NOTIFIED
OF THE REVOCATION OF THE POWER OF ATTORNEY OF
CHOITHRAM, HENCE ORTIGAS ACTED IN BAD FAITH IN EXECUTING
THE DEED OF SALE TO THE PROPERTIES IN QUESTION IN FAVOR OF
NIRMLA V. RAMNANI;
F) IN SUSTAINING RESPONDENT ORTIGAS VACUOUS
REHASHED ARGUMENTS IN ITS MOTION FOR RECONSIDERATION
THAT IT WOULD NOT GAIN ONE CENTAVO MORE FROM
14
CHOITHRAM FOR THE SALE OF SAID LOTS AND THE SUBSEQUENT
TRANSFER OF THE SAME TO THE MATTER'S DAUGHTER-IN-LAW,
AND THAT IT WAS IN GOOD FAITH WHEN IT TRANSFERRED
ISHWAR'S RIGHTS TO THE LOTS IN QUESTION.
II
THE RESPONDENT HONORABLE COURT OF APPEALS HAS SO FAR
DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDING WHEN IT HELD IN THE QUESTIONED AMENDED
DECISION OF 17 NOVEMBER 1988 (ANNEX A) THAT RESPONDENT
ORTIGAS & CO., LTD., IS NOT JOINTLY AND SEVERALLY LIABLE WITH
DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND NIRMLA
RAMNANI IN SPITE OF ITS ORIGINAL DECISION OF 14 MARCH 1988
THAT ORTIGAS WAS DULY NOTIFIED OF THE REVOCATION OF THE
POWER OF ATTORNEY OF CHOITHRAM RAMNANI.10
The center of controversy is the testimony of Ishwar that during the
latter part of 1965, he sent the amount of US $150,000.00 to
Choithram in two bank drafts of US$65,000.00 and US$85,000.00 for
the purpose of investing the same in real estate in the Philippines.
The trial court considered this lone testimony unworthy of faith and
credit. On the other hand, the appellate court found that the trial
court misapprehended the facts in complete disregard of the
evidence, documentary and testimonial.
Another crucial issue is the claim of Choithram that because he was
then a British citizen, as a temporary arrangement, he arranged the
purchase of the properties in the name of Ishwar who was an
American citizen and who was then qualified to purchase property in
the Philippines under the then Parity Amendment. The trial court
believed this account but it was debunked by the appellate court.
As to the issue of whether of not spouses Ishwar actually sent
US$150,000.00 to Choithram precisely to be used in the real estate
business, the trial court made the following disquisition
After a careful, considered and conscientious examination of the
evidence adduced in the case at bar, plaintiff Ishwar Jethmal
Ramanani's main evidence, which centers on the alleged payment
by sending through registered mail from New York two (2) US$
drafts of $85,000.00 and $65,000.00 in the latter part of 1965 (TSN
28 Feb. 1984, p. 10-11). The sending of these moneys were before
the execution of that General Power of Attorney, which was dated in
New York, on January 24, 1966. Because of these alleged
remittances of US $150,000.00 and the subsequent acquisition of
the properties in question, plaintiffs averred that they constituted a
trust in favor of defendant Choithram Jethmal Ramnani. This Court
can be in full agreement if the plaintiffs were only able to prove
preponderantly these remittances. The entire record of this case is
bereft of even a shred of proof to that effect. It is completely barren.
His uncorroborated testimony that he remitted these amounts in
the "later part of 1965" does not engender enough faith and
credence. Inadequacy of details of such remittance on the two (2)
US dollar drafts in such big amounts is completely not positive,
credible, probable and entirely not in accord with human
experience. This is a classic situation, plaintiffs not exhibiting any
commercial document or any document and/or paper as regard to
these alleged remittances. Plaintiff Ishwar Ramnani is not an
ordinary businessman in the strict sense of the word. Remember his
main business is based in New York, and he should know better how
to send these alleged remittances. Worst, plaintiffs did not present
even a scum of proof, that defendant Choithram Ramnani received
the alleged two US dollar drafts. Significantly, he does not know
even the bank where these two (2) US dollar drafts were purchased.
Indeed, plaintiff Ishwar Ramnani's lone testimony is unworthy of
faith and credit and, therefore, deserves scant consideration, and
since the plaintiffs' theory is built or based on such testimony, their
cause of action collapses or falls with it.
Further, the rate of exchange that time in 1966 was P4.00 to $1.00.
The alleged two US dollar drafts amounted to $150,000.00 or about
P600,000.00. Assuming the cash price of the two (2) lots was only
P530,000.00 (ALTHOUGH he said: "Based on my knowledge I have
no evidence," when asked if he even knows the cash price of the
two lots). If he were really the true and bonafide investor and
purchaser for profit as he asserted, he could have paid the price in
full in cash directly and obtained the title in his name and not thru
"Contracts To Sell" in installments paying interest and thru an
attorney-in fact (TSN of May 2, 1984, pp. 10-11) and, again, plaintiff
Ishwar Ramnani told this Court that he does not know whether or
not his late father-in-law borrowed the two US dollar drafts from the
Swiss Bank or whether or not his late father-in-law had any debit
memo from the Swiss Bank (TSN of May 2, 1984, pp. 9-10).11
On the other hand, the appellate court, in giving credence to the
version of Ishwar, had this to say
While it is true, that generally the findings of fact of the trial court
are binding upon the appellate courts, said rule admits of exceptions
such as when (1) the conclusion is a finding grounded entirely on
speculations, surmises and conjectures; (2) when the inferences
made is manifestly mistaken, absurd and impossible; (3) when there
is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts and when the court, in making its findings,
went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee (Ramos vs. Court of
Appeals, 63 SCRA 33; Philippine American Life Assurance Co. vs.
Santamaria, 31 SCRA 798; Aldaba vs. Court of Appeals, 24 SCRA 189).
The evidence on record shows that the t court acted under a
misapprehension of facts and the inferences made on the evidence
palpably a mistake.
The trial court's observation that "the entire records of the case is
bereft of even a shred of proof" that plaintiff-appellants have
remitted to defendant-appellee Choithram Ramnani the amount of
US $ 150,000.00 for investment in real estate in the Philippines, is
not borne by the evidence on record and shows the trial court's
misapprehension of the facts if not a complete disregard of the
evidence, both documentary and testimonial.
Plaintiff-appellant Ishwar Jethmal Ramnani testifying in his own
behalf, declared that during the latter part of 1965, he sent the
amount of US $150,000.00 to his brother Choithram in two bank
drafts of US $65,000.00 and US $85,000.00 for the purpose of
investing the same in real estate in the Philippines. His testimony is
as follows:
ATTY. MARAPAO:
Mr. Witness, you said that your attorney-in-fact paid in your behalf.
Can you tell this Honorable Court where your attorney-in-fact got
the money to pay this property?
ATTY. CRUZ:
Wait. It is now clear it becomes incompetent or hearsay.
COURT:
15
Witness can answer. On cross-examination, the witness reiterated the remittance of the
money to his brother Choithram, which was sent to him by his
A I paid through my attorney-in-fact. I am the one who gave father-in-law, Rochiram L. Mulchandoni from Switzerland, a man of
him the money. immense wealth, which even defendants-appellees' witness Navalrai
Ramnani admits to be so (tsn., p. 16, S. Oct. 13, 1985). Thus, on
ATTY. MARAPAO: cross-examination, Ishwar testified as follows:

Q You gave him the money? Q How did you receive these two bank drafts from the bank
the name of which you cannot remember?
A That's right.
A I got it from my father-in-law.
Q How much money did you give him?
Q From where did your father- in-law sent these two bank
A US $ 150,000.00. drafts?

Q How was it given then? A From Switzerland.

A Through Bank drafts. US $65,000.00 and US $85,000.00 Q He was in Switzerland.

bank drafts. The total amount which is $ 150,000.00 (TSN, 28
February 1984, p. 10; Emphasis supplied.) A Probably, they sent out these two drafts from Switzerland.

xxx xxx xxx (TSN, 7 March 1984, pp. 16-17; Emphasis supplied.)

ATTY. CRUZ: This positive and affirmative testimony of plaintiff-appellant that he

Q The two bank drafts which you sent I assume you bought
that from some banks in New York?
A No, sir.
Q But there is no question those two bank drafts were for
the purpose of paying down payment and installment of the two
parcels of land?
A Down payment, installment and to put up the building.
Q I thought you said that the buildings were constructed . . .
subject to our continuing objection from rentals of first building?
sent the two (2) bank drafts totalling US $ 150,000.00 to his brother,
is proof of said remittance. Such positive testimony has greater
probative force than defendant-appellee's denial of receipt of said
bank drafts, for a witness who testifies affirmatively that something
did happen should be believed for it is unlikely that a witness will
remember what never happened (Underhill's Cr. Guidance, 5th Ed.,
Vol. 1, pp. 10-11).
That is not all. Shortly thereafter, plaintiff-appellant Ishwar Ramnani
executed a General Power of Attorney (Exhibit "A") dated January
24, 1966 appointing his brothers, defendants-appellees Navalrai and
Choithram as attorney-in-fact empowering the latter to conduct and
manage plaintiffs-appellants' business affairs in the Philippines and
specifically

ATTY. MARAPAO: No. 14. To acquire, purchase for us, real estates and
improvements for the purpose of real estate business anywhere in
Your Honor, that is misleading. the Philippines and to develop, subdivide, improve and to resell to
buying public (individual, firm or corporation); to enter in any
COURT; contract of sale in oar behalf and to enter mortgages between the
vendees and the herein grantors that may be needed to finance the
Witness (may) answer. real estate business being undertaken.

A Yes, the first building was immediately put up after the
purchase of the two parcels of land that was in 1966 and the finds
were used for the construction of the building from the US
$150,000.00 (TSN, 7 March 1984, page 14; Emphasis supplied.)
xxx xxx xxx
Pursuant thereto, on February 1, 1966 and May 16, 1966, Choithram
Jethmal Ramnani entered into Agreements (Exhibits "B' and "C")
with the other defendant. Ortigas and Company, Ltd., for the
purchase of two (2) parcels of land situated at Barrio Ugong, Pasig,
Rizal, with said defendant-appellee signing the Agreements in his
capacity as Attorney-in-fact of Ishwar Jethmal Ramnani.

Q These two bank drafts which you mentioned and the use
for it you sent them by registered mail, did you send them from New
Your?
A That is right.
Q And the two bank drafts which were put in the registered
mail, the registered mail was addressed to whom?
A Choithram Ramnani. (TSN, 7 March 1984, pp. 14-15).
Again, on January 5, 1972, almost seven (7) years after Ishwar sent
the US $ 150,000.00 in 1965, Choithram Ramnani, as attorney-in fact
of Ishwar entered into a Contract of Lease with Sigma-Mariwasa
(Exhibit "P") thereby re-affirming the ownership of Ishwar over the
disputed property and the trust relationship between the latter as
principal and Choithram as attorney-in-fact of Ishwar.
All of these facts indicate that if plaintiff-appellant Ishwar had not
earlier sent the US $ 150,000.00 to his brother, Choithram, there
would be no purpose for him to execute a power of attorney

16
appointing his brothers as s attorney-in-fact in buying real estate in
the Philippines.
As against Choithram's denial that he did not receive the US
$150,000.00 remitted by Ishwar and that the Power of Attorney, as
well as the Agreements entered into with Ortigas & Co., were only
temporary arrangements, Ishwar's testimony that he did send the
bank drafts to Choithram and was received by the latter, is the more
credible version since it is natural, reasonable and probable. It is in
accord with the common experience, knowledge and observation of
ordinary men (Gardner vs. Wentors 18 Iowa 533). And in
determining where the superior weight of the evidence on the
issues involved lies, the court may consider the probability or
improbability of the testimony of the witness (Sec. 1, Rule 133, Rules
of Court).
Contrary, therefore, to the trial court's sweeping observation that
'the entire records of the case is bereft of even a shred of proof that
Choithram received the alleged bank drafts amounting to US $
150,000.00, we have not only testimonial evidence but also
documentary and circumstantial evidence proving said remittance of
the money and the fiduciary relationship between the former and
Ishwar.12
The Court agrees. The environmental circumstances of this case
buttress the claim of Ishwar that he did entrust the amount of US $
150,000.00 to his brother, Choithram, which the latter invested in
the real property business subject of this litigation in his capacity as
attorney-in-fact of Ishwar.
True it is that there is no receipt whatever in the possession of
Ishwar to evidence the same, but it is not unusual among brothers
and close family members to entrust money and valuables to each
other without any formalities or receipt due to the special
relationship of trust between them.
And another proof thereof is the fact that Ishwar, out of frustration
when Choithram failed to account for the realty business despite his
demands, revoked the general power of attorney he extended to
Choithram and Navalrai. Thereafter, Choithram wrote a letter to
Ishwar pleading that the power of attorney be renewed or another
authority to the same effect be extended, which reads as follows:
June 25,1971
MR. ISHWAR JETHMAL
NEW YORK
(1) Send power of Atty. immediately, because the case has
been postponed for two weeks. The same way as it has been send
before in favor of both names. Send it immediately otherwise
everything will be lost unnecessarily, and then it will take us in
litigation. Now that we have gone ahead with a case and would like
to end it immediately otherwise squatters will take the entire land.
Therefore, send it immediately.
(2) Ortigas also has sued us because we are holding the
installments, because they have refused to give a rebate of P5.00
per meter which they have to give us as per contract. They have filed
the law suit that since we have not paid the installment they should
get back the land. The hearing of this case is in the month of July.
Therefore, please send the power immediately. In one case DADA
(Elder Brother) will represent and in another one, I shall.
(3) In case if you do not want to give power then make one
letter in favor of Dada and the other one in my favor showing that in
any litigation we can represent you and your wife, and whatever the
court decide it will be acceptable by me. You can ask any lawyer, he
will be able to prepare these letters. After that you can have these
letters ratify before P.I. Consulate. It should be dated April 15, 1971.
(4) Try to send the power because it will be more useful.
Make it in any manner whatever way you have confident in it. But
please send it immediately.
You have cancelled the power. Therefore, you have lost your
reputation everywhere. What can I further write you about it. I have
told everybody that due to certain reasons I have written you to do
this that is why you have done this. This way your reputation have
been kept intact. Otherwise if I want to do something about it, I can
show you that inspite of the power you have cancelled you can not
do anything. You can keep this letter because my conscience is clear.
I do not have anything in my mind.
I should not be writing you this, but because my conscience is clear
do you know that if I had predated papers what could you have
done? Or do you know that I have many paper signed by you and if
had done anything or do then what can you do about it? It is not
necessary to write further about this. It does not matter if you have
cancelled the power. At that time if I had predated and done
something about it what could you have done? You do not know
me. I am not after money. I can earn money anytime. It has been ten
months since I have not received a single penny for expenses from
Dada (elder brother). Why there are no expenses? We can not draw
a single penny from knitting (factory). Well I am not going to write
you further, nor there is any need for it. This much I am writing you
because of the way you have conducted yourself. But remember,
whenever I hale the money I will not keep it myself Right now I have
not got anything at all.
I am not going to write any further.
Keep your business clean with Naru. Otherwise he will discontinue
because he likes to keep his business very clean.13
The said letter was in Sindhi language. It was translated to English by
the First Secretary of the Embassy of Pakistan, which translation was
verified correct by the Chairman, Department of Sindhi, University of
Karachi.14
From the foregoing letter what could be gleaned is that
1. Choithram asked for the issuance of another power of
attorney in their favor so they can continue to represent Ishwar as
Ortigas has sued them for unpaid installments. It also appears
therefrom that Ortigas learned of the revocation of the power of
attorney so the request to issue another.
2. Choithram reassured Ishwar to have confidence in him as
he was not after money, and that he was not interested in Ishwar's
money.
3. To demonstrate that he can be relied upon, he said that he
could have ante-dated the sales agreement of the Ortigas lots
before the issuance of the powers of attorney and acquired the
same in his name, if he wanted to, but he did not do so.
4. He said he had not received a single penny for expenses
from Dada (their elder brother Navalrai). Thus, confirming that if he
17
was not given money by Ishwar to buy the Ortigas lots, he could not
have consummated the sale.
5. It is important to note that in said letter Choithram never
claimed ownership of the property in question. He affirmed the fact
that he bought the same as mere agent and in behalf of Ishwar.
Neither did he mention the alleged temporary arrangement
whereby Ishwar, being an American citizen, shall appear to be the
buyer of the said property, but that after Choithram acquires
Philippine citizenship, its ownership shall be transferred to
Choithram.
This brings us to this temporary arrangement theory of Choithram.
The appellate court disposed of this matter in this wise
Choithram's claim that he purchased the two parcels of land for
himself in 1966 but placed it in the name of his younger brother,
Ishwar, who is an American citizen, as a temporary arrangement,'
because as a British subject he is disqualified under the 1935
Constitution to acquire real property in the Philippines, which is not
so with respect to American citizens in view of the Ordinance
Appended to the Constitution granting them parity rights, there is
nothing in the records showing that Ishwar ever agreed to such a
temporary arrangement.
During the entire period from 1965, when the US $ 150,000. 00 was
transmitted to Choithram, and until Ishwar filed a complaint against
him in 1982, or over 16 years, Choithram never mentioned of a
temporary arrangement nor can he present any memorandum or
writing evidencing such temporary arrangement, prompting
plaintiff-appellant to observe:
The properties in question which are located in a prime industrial
site in Ugong, Pasig, Metro Manila have a present fair market value
of no less than P22,364,000.00 (Exhibits T to T-14, inclusive), and yet
for such valuable pieces of property, Choithram who now belatedly
that he purchased the same for himself did not document in writing
or in a memorandum the alleged temporary arrangement with
Ishwar' (pp. 4-41, Appellant's Brief).
Such verbal allegation of a temporary arrangement is simply
improbable and inconsistent. It has repeatedly been held that
important contracts made without evidence are highly improbable.
The improbability of such temporary arrangement is brought to fore
when we consider that Choithram has a son (Haresh Jethmal
Ramnani) who is an American citizen under whose name the
properties in question could be registered, both during the time the
contracts to sell were executed and at the time absolute title over
the same was to be delivered. At the time the Agreements were
entered into with defendant Ortigas & Co. in 1966, Haresh, was
already 18 years old and consequently, Choithram could have
executed the deeds in trust for his minor son. But, he did not do this.
Three (3) years, thereafter, or in 1968 after Haresh had attained the
age of 21, Choithram should have terminated the temporary
arrangement with Ishwar, which according to him would be effective
only pending the acquisition of citizenship papers. Again, he did not
do anything.
Evidence to be believed, said Vice Chancellor Van Fleet of New
Jersey, must not only proceed from the mouth of a credible witness,
but it must be credible in itselfsuch as the common experience
and observation of mankind can approve as probable under the
circumstances. We have no test of the truth of human testimony,
except its conformity to our knowledge, observation and experience.
Whatever is repugnant to these belongs to the miraculous and is
outside of judicial cognizance. (Daggers vs. Van Dyek 37 M.J. Eq. 130,
132).
Another factor that can be counted against the temporary
arrangement excuse is that upon the revocation on February 4, 1971
of the Power of attorney dated January 24, 1966 in favor of Navalrai
and Choithram by Ishwar, Choithram wrote (tsn, p. 21, S. July 19,
1985) a letter dated June 25, 1971 (Exhibits R, R-1, R-2 and R-3)
imploring Ishwar to execute a new power of attorney in their favor.
That if he did not want to give power, then Ishwar could make a
letter in favor of Dada and another in his favor so that in any
litigation involving the properties in question, both of them could
represent Ishwar and his wife. Choithram tried to convince Ishwar to
issue the power of attorney in whatever manner he may want. In
said letter no mention was made at all of any temporary
arrangement.
On the contrary, said letter recognize(s) the existence of principal
and attorney-in-fact relationship between Ishwar and himself.
Choithram wrote: . . . do you know that if I had predated papers
what could you have done? Or do you know that I have many papers
signed by you and if I had done anything or do then what can you do
about it?' Choithram was saying that he could have repudiated the
trust and ran away with the properties of Ishwar by predating
documents and Ishwar would be entirely helpless. He was bitter as a
result of Ishwar's revocation of the power of attorney but no
mention was made of any temporary arrangement or a claim of
ownership over the properties in question nor was he able to
present any memorandum or document to prove the existence of
such temporary arrangement.
Choithram is also estopped in pais or by deed from claiming an
interest over the properties in question adverse to that of Ishwar.
Section 3(a) of Rule 131 of the Rules of Court states that whenever a
party has, by his own declaration, act, or omission intentionally and
deliberately led another to believe a particular thing true and act
upon such belief, he cannot in any litigation arising out of such
declaration, act or omission be permitted to falsify it.' While
estoppel by deed is a bar which precludes a party to a deed and his
privies from asserting as against the other and his privies any right of
title in derogation of the deed, or from denying the truth of any
material fact asserted in it (31 C.J.S. 195; 19 Am. Jur. 603).
Thus, defendants-appellees are not permitted to repudiate their
admissions and representations or to assert any right or title in
derogation of the deeds or from denying the truth of any material
fact asserted in the (1) power of attorney dated January 24, 1966
(Exhibit A); (2) the Agreements of February 1, 1966 and May 16,
1966 (Exhibits B and C); and (3) the Contract of Lease dated January
5, 1972 (Exhibit P).
. . . The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith and justice, and its purpose is to
forbid one to speak against his own act, representations, or
commitments to the injury of one to whom they were directed and
who reasonably relied thereon. The doctrine of estoppel springs
from equitable principles and the equities in the case. It is designed
to aid the law in the administration of justice where without its aid
injustice might result. It has been applied by court wherever and
whenever special circumstances of a case so demands' (Philippine
National Bank vs. Court of Appeals, 94 SCRA 357, 368 [1979]).
18
It was only after the services of counsel has been obtained that
Choithram alleged for the first time in his Answer that the General
Power of attorney (Annex A) with the Contracts to Sell (Annexes B
and C) were made only for the sole purpose of assuring defendants'
acquisition and ownership of the lots described thereon in due time
under the law; that said instruments do not reflect the true
intention of the parties (par. 2, Answer dated May 30, 1983),
seventeen (17) long years from the time he received the money
transmitted to him by his brother, Ishwar.
Moreover, Choithram's 'temporary arrangement,' by which he
claimed purchasing the two (2) parcels in question in 1966 and
placing them in the name of Ishwar who is an American citizen, to
circumvent the disqualification provision of aliens acquiring real
properties in the Philippines under the 1935 Philippine Constitution,
as Choithram was then a British subject, show a palpable disregard
of the law of the land and to sustain the supposed "temporary
arrangement" with Ishwar would be sanctioning the perpetration of
an illegal act and culpable violation of the Constitution.
Defendants-appellees likewise violated the Anti-Dummy Law
(Commonwealth Act 108, as amended), which provides in Section 1
thereof that:
In all cases in which any constitutional or legal provision requires
Philippine or any other specific citizenship as a requisite for the
exercise or enjoyment of a right, franchise or privilege, . . . any alien
or foreigner profiting thereby, shall be punished . . . by
imprisonment . . . and of a fine of not less than the value of the right,
franchise or privileges, which is enjoyed or acquired in violation of
the provisions hereof . . .
Having come to court with unclean hands, Choithram must not be
permitted foist his 'temporary arrangement' scheme as a defense
before this court. Being in delicto, he does not have any right
whatsoever being shielded from his own wrong-doing, which is not
so with respect to Ishwar, who was not a party to such an
arrangement.
The falsity of Choithram's defense is further aggravated by the
material inconsistencies and contradictions in his testimony. While
on January 23, 1985 he testified that he purchased the land in
question on his own behalf (tsn, p. 4, S. Jan. 23, 1985), in the July 18,
1985 hearing, forgetting probably what he stated before, Choithram
testified that he was only an attorney-in-fact of Ishwar (tsn, p. 5, S.
July 18, 1985). Also in the hearing of January 23, 1985, Choithram
declared that nobody rented the building that was constructed on
the parcels of land in question (tsn, pp. 5 and 6), only to admit in the
hearing of October 30, 1985, that he was in fact renting the building
for P12,000. 00 per annum (tsn, p. 3). Again, in the hearing of July
19, 1985, Choithram testified that he had no knowledge of the
revocation of the Power of Attorney (tsn, pp. 20- 21), only to
backtrack when confronted with the letter of June 25, 1971 (Exhibits
R to R-3), which he admitted to be in "his own writing," indicating
knowledge of the revocation of the Power of Attorney.
These inconsistencies are not minor but go into the entire credibility
of the testimony of Choithram and the rule is that contradictions on
a very crucial point by a witness, renders s testimony incredible
People vs. Rafallo, 80 Phil. 22). Not only this the doctrine of falsus in
uno, falsus in omnibus is fully applicable as far as the testimony of
Choithram is concerned. The cardinal rule, which has served in all
ages, and has been applied to all conditions of men, is that a witness
willfully falsifying the truth in one particular, when upon oath, ought
never to be believed upon the strength of his own testimony,
whatever he may assert (U.S. vs. Osgood 27 Feb. Case No. 15971-a,
p. 364); Gonzales vs. Mauricio, 52 Phil, 728), for what ground of
judicial relief can there be left when the party has shown such gross
insensibility to the difference between right and wrong, between
truth and falsehood? (The Santisima Trinidad, 7 Wheat, 283, 5 U.S.
[L. ed.] 454).
True, that Choithram's testimony finds corroboration from the
testimony of his brother, Navalrai, but the same would not be of
much help to Choithram. Not only is Navalrai an interested and
biased witness, having admitted his close relationship with
Choithram and that whenever he or Choithram had problems, they
ran to each other (tsn, pp. 17-18, S. Sept. 20, 1985), Navalrai has a
pecuniary interest in the success of Choithram in the case in
question. Both he and Choithram are business partners in Jethmal
and Sons and/or Jethmal Industries, wherein he owns 60% of the
company and Choithram, 40% (p. 62, Appellant's Brief). Since the
acquisition of the properties in question in 1966, Navalrai was
occupying 1,200 square meters thereof as a factory site plus the fact
that his son (Navalrais) was occupying the apartment on top of the
factory with his family rent free except the amount of P l,000.00 a
month to pay for taxes on said properties (tsn, p. 17, S. Oct. 3, 1985).
Inherent contradictions also marked Navalrai testimony. "While the
latter was very meticulous in keeping a receipt for the P 10,000.00
that he paid Ishwar as settlement in Jethmal Industries, yet in the
alleged payment of P 100,000.00 to Ishwar, no receipt or voucher
was ever issued by him (tsn, p. 17, S. Oct. 3, 1983).15
We concur.
The foregoing findings of facts of the Court of Appeals which are
supported by the evidence is conclusive on this Court. The Court
finds that Ishwar entrusted US$150,000.00 to Choithram in 1965 for
investment in the realty business. Soon thereafter, a general power
of attorney was executed by Ishwar in favor of both Navalrai and
Choithram. If it is true that the purpose only is to enable Choithram
to purchase realty temporarily in the name of Ishwar, why the
inclusion of their elder brother Navalrai as an attorney-in-fact?
Then, acting as attorney-in-fact of Ishwar, Choithram purchased two
parcels of land located in Barrio Ugong Pasig, Rizal, from Ortigas in
1966. With the balance of the money of Ishwar, Choithram erected a
building on said lot. Subsequently, with a loan obtained from a bank
and the income of the said property, Choithram constructed three
other buildings thereon. He managed the business and collected the
rentals. Due to their relationship of confidence it was only in 1970
when Ishwar demanded for an accounting from Choithram. And
even as Ishwar revoked the general power of attorney on February
4, 1971, of which Choithram was duly notified, Choithram wrote to
Ishwar on June 25, 1971 requesting that he execute a new power of
attorney in their favor.16 When Ishwar did not respond thereto,
Choithram nevertheless proceeded as such attorney-in-fact to assign
all the rights and interest of Ishwar to his daughter-in-law Nirmla in
1973 without the knowledge and consent of Ishwar. Ortigas in turn
executed the corresponding deeds of sale in favor of Nirmla after full
payment of the purchase accomplice of the lots.
In the prefatory statement of their petition, Choithram pictured
Ishwar to be so motivated by greed and ungratefulness, who
squandered the family business in New York, who had to turn to his
wife for support, accustomed to living in ostentation and who
resorted to blackmail in filing several criminal and civil suits against
them. These statements find no support and should be stricken from
the records. Indeed, they are irrelevant to the proceeding.
19
Moreover, assuming Ishwar is of such a low character as Choithram
proposes to make this Court to believe, why is it that of all persons,
under his temporary arrangement theory, Choithram opted to
entrust the purchase of valuable real estate and built four buildings
thereon all in the name of Ishwar? Is it not an unconscious
emergence of the truth that this otherwise wayward brother of
theirs was on the contrary able to raise enough capital through the
generosity of his father-in-law for the purchase of the very
properties in question? As the appellate court aptly observed if truly
this temporary arrangement story is the only motivation, why Ishwar
of all people? Why not the own son of Choithram, Haresh who is
also an American citizen and who was already 18 years old at the
time of purchase in 1966? The Court agrees with the observation
that this theory is an afterthought which surfaced only when
Choithram, Nirmla and Moti filed their answer.
When Ishwar asked for an accounting in 1970 and revoked the
general power of attorney in 1971, Choithram had a total change of
heart. He decided to claim the property as his. He caused the
transfer of the rights and interest of Ishwar to Nirmla. On his
representation, Ortigas executed the deeds of sale of the properties
in favor of Nirmla. Choithram obviously surmised Ishwar cannot
stake a valid claim over the property by so doing.
Clearly, this transfer to Nirmla is fictitious and, as admitted by
Choithram, was intended only to place the property in her name
until Choithram acquires Philippine citizenship.17 What appears
certain is that it appears to be a scheme of Choithram to place the
property beyond the reach of Ishwar should he successfully claim
the same. Thus, it must be struck down.
Worse still, on September 27, 1990 spouses Ishwar filed an urgent
motion for the issuance of a writ of preliminary attachment and to
require Choithram, et al. to submit certain documents, inviting the
attention of this Court to the following:
a) Donation by Choithram of his 2,500 shares of stock in
General Garments Corporation in favor of his children on December
29, 1989;18
b) Sale on August 2, 1990 by Choithram of his 100 shares in
Biflex (Phils.), Inc., in favor of his children;19 and
c) Mortgage on June 20, 1989 by Nirmla through her
attorney-in-fact, Choithram, of the properties subject of this
litigation, for the amount of $3 Million in favor of Overseas Holding,
Co. Ltd., (Overseas for brevity), a corporation which appears to be
organized and existing under and by virtue of the laws of Cayman
Islands, with a capital of only $100.00 divided into 100 shares of
$1.00 each, and with address at P.O. Box 1790, Grand Cayman,
Cayman Islands.20
An opposition thereto was filed by Choithram, et al. but no
documents were produced. A manifestation and reply to the
opposition was filed by spouses Ishwar.
All these acts of Choithram, et al. appear to be fraudulent attempts
to remove these properties to the detriment of spouses Ishwar
should the latter prevail in this litigation.
On December 10, 1990 the court issued a resolution that
substantially reads as follows:
Considering the allegations of petitioners Ishwar Jethmal Ramnani
and Sonya Ramnani that respondents Choithram Jethmal Ramnani,
Nirmla Ramnani and Moti G. Ramnani have fraudulently executed a
simulated mortgage of the properties subject of this litigation dated
June 20, 1989, in favor of Overseas Holding Co., Ltd. which appears
to be a corporation organized in Cayman Islands, for the amount of
$ 3,000,000.00, which is much more than the value of the properties
in litigation; that said alleged mortgagee appears to be a "shell"
corporation with a capital of only $100.00; and that this alleged
transaction appears to be intended to defraud petitioners Ishwar
and Sonya Jethmal Ramnani of any favorable judgment that this
Court may render in this case;
Wherefore the Court Resolved to issue a writ of preliminary
injunction enjoining and prohibiting said respondents Choithram
Jethmal Ramnani, Nirmla V. Ramnani, Moti G. Ramnani and the
Overseas Holding Co., Ltd. from encumbering, selling or otherwise
disposing of the properties and improvements subject of this
litigation until further orders of the Court. Petitioners Ishwar and
Sonya Jethmal Ramnani are hereby required to post a bond of P
100,000.00 to answer for any damages d respondents may suffer by
way of this injunction if the Court finally decides the said petitioners
are not entitled thereto.
The Overseas Holding Co., Ltd. with address at P.O. Box 1790 Grand
Cayman, Cayman Islands, is hereby IMPLEADED as a respondent in
these cases, and is hereby required to SUBMIT its comment on the
Urgent Motion for the Issuance of a Writ of Preliminary Attachment
and Motion for Production of Documents, the Manifestation and the
Reply to the Opposition filed by said petitioners, within Sixty (60)
days after service by publication on it in accordance with the
provisions of Section 17, Rule 14 of the Rules of Court, at the
expense of petitioners Ishwar and Sonya Jethmal Ramnani.
Let copies of this resolution be served on the Register of Deeds of
Pasig, Rizal, and the Provincial Assessor of Pasig, Rizal, both in Metro
Manila, for its annotation on the transfer Certificates of Titles Nos.
403150 and 403152 registered in the name of respondent Nirmla V.
Ramnani, and on the tax declarations of the said properties and its
improvements subject of this litigation.21
The required injunction bond in the amount of P 100,000.00 was
filed by the spouses Ishwar which was approved by the Court. The
above resolution of the Court was published in the Manila Bulletin
issue of December 17, 1990 at the expense of said spouses.22 On
December 19, 1990 the said resolution and petition for review with
annexes in G.R. Nos. 85494 and 85496 were transmitted to
respondent Overseas, Grand Cayman Islands at its address c/o
Cayman Overseas Trust Co. Ltd., through the United Parcel Services
Bill of Lading23 and it was actually delivered to said company on
January 23, 1991.24
On January 22, 1991, Choithram, et al., filed a motion to dissolve the
writ of preliminary injunction alleging that there is no basis therefor
as in the amended complaint what is sought is actual damages and
not a reconveyance of the property, that there is no reason for its
issuance, and that acts already executed cannot be enjoined. They
also offered to file a counterbond to dissolve the writ.
A comment/opposition thereto was filed by spouses Ishwar that
there is basis for the injunction as the alleged mortgage of the
property is simulated and the other donations of the shares of
Choithram to his children are fraudulent schemes to negate any
judgment the Court may render for petitioners.
No comment or answer was filed by Overseas despite due notice,
thus it is and must be considered to be in default and to have lost
20
the right to contest the representations of spouses Ishwar to declare
the aforesaid alleged mortgage nun and void.
This purported mortgage of the subject properties in litigation
appears to be fraudulent and simulated. The stated amount of $3
Million for which it was mortgaged is much more than the value of
the mortgaged properties and its improvements. The alleged
mortgagee-company (Overseas) was organized only on June 26,1989
but the mortgage was executed much earlier, on June 20, 1989, that
is six (6) days before Overseas was organized. Overseas is a "shelf"
company worth only $100.00.25 In the manifestation of spouses
Ishwar dated April 1, 1991, the Court was informed that this matter
was brought to the attention of the Central Bank (CB) for
investigation, and that in a letter of March 20, 1991, the CB
informed counsel for spouses Ishwar that said alleged foreign loan
of Choithram, et al. from Overseas has not been previously
approved/registered with the CB.26
Obviously, this is another ploy of Choithram, et al. to place these
properties beyond the reach of spouses Ishwar should they obtain a
favorable judgment in this case. The Court finds and so declares that
this alleged mortgage should be as it is hereby declared null and
void.
All these contemporaneous and subsequent acts of Choithram, et
al., betray the weakness of their cause so they had to take an steps,
even as the case was already pending in Court, to render ineffective
any judgment that may be rendered against them.
The problem is compounded in that respondent Ortigas is caught in
the web of this bitter fight. It had all the time been dealing with
Choithram as attorney-in-fact of Ishwar. However, evidence had
been adduced that notice in writing had been served not only on
Choithram, but also on Ortigas, of the revocation of Choithram's
power of attorney by Ishwar's lawyer, on May 24, 1971.27 A
publication of said notice was made in the April 2, 1971 issue of The
Manila Times for the information of the general public.28 Such
notice of revocation in a newspaper of general circulation is
sufficient warning to third persons including Ortigas.29 A notice of
revocation was also registered with the Securities and Exchange
Commission on March 29, 1 971.30
Indeed in the letter of Choithram to Ishwar of June 25, 1971,
Choithram was pleading that Ishwar execute another power of
attorney to be shown to Ortigas who apparently learned of the
revocation of Choithram's power of attorney.31 Despite said
notices, Ortigas nevertheless acceded to the representation of
Choithram, as alleged attorney-in-fact of Ishwar, to assign the rights
of petitioner Ishwar to Nirmla. While the primary blame should be
laid at the doorstep of Choithram, Ortigas is not entirely without
fault. It should have required Choithram to secure another power of
attorney from Ishwar. For recklessly believing the pretension of
Choithram that his power of attorney was still good, it must,
therefore, share in the latter's liability to Ishwar.
In the original complaint, the spouses Ishwar asked for a
reconveyance of the properties and/or payment of its present value
and damages.32 In the amended complaint they asked, among
others, for actual damages of not less than the present value of the
real properties in litigation, moral and exemplary damages,
attorneys fees, costs of the suit and further prayed for "such other
reliefs as may be deemed just and equitable in the premises .33 The
amended complaint contain the following positive allegations:
7. Defendant Choithram Ramnani, in evident bad faith and
despite due notice of the revocation of the General Power of
Attorney, Annex 'D" hereof, caused the transfer of the rights over
the said parcels of land to his daughter-in-law, defendant Nirmla
Ramnani in connivance with defendant Ortigas & Co., the latter
having agreed to the said transfer despite receiving a letter from
plaintiffs' lawyer informing them of the said revocation; copy of the
letter is hereto attached and made an integral part hereof as Annex
"H";
8. Defendant Nirmla Ramnani having acquired the aforesaid
property by fraud is, by force of law, considered a trustee of an
implied trust for the benefit of plaintiff and is obliged to return the
same to the latter:
9. Several efforts were made to settle the matter within the
family but defendants (Choithram Ramnani, Nirmla Ramnani and
Moti Ramnani) refused and up to now fail and still refuse to
cooperate and respond to the same; thus, the present case;
10. In addition to having been deprived of their rights over the
properties (described in par. 3 hereof), plaintiffs, by reason of
defendants' fraudulent act, suffered actual damages by way of lost
rental on the property which defendants (Choithram Ramnani,
Nirmla Ramnani and Moti Ramnani have collected for themselves;34
In said amended complaint, spouses Ishwar, among others, pray for
payment of actual damages in an amount no less than the value of
the properties in litigation instead of a reconveyance as sought in
the original complaint. Apparently they opted not to insist on a
reconveyance as they are American citizens as alleged in the
amended complaint.
The allegations of the amended complaint above reproduced clearly
spelled out that the transfer of the property to Nirmla was
fraudulent and that it should be considered to be held in trust by
Nirmla for spouses Ishwar. As above-discussed, this allegation is
well-taken and the transfer of the property to Nirmla should be
considered to have created an implied trust by Nirmla as trustee of
the property for the benefit of spouses Ishwar.35
The motion to dissolve the writ of preliminary injunction filed by
Choithram, et al. should be denied. Its issuance by this Court is
proper and warranted under the circumstances of the case. Under
Section 3(c) Rule 58 of the Rules of Court, a writ of preliminary
injunction may be granted at any time after commencement of the
action and before judgment when it is established:
(c) that the defendant is doing, threatens, or is about to do, or
is procuring or suffering to be done, some act probably in violation
of plaintiffs's rights respecting the subject of the action, and tending
to render the judgment ineffectual.
As above extensively discussed, Choithram, et al. have committed
and threaten to commit further acts of disposition of the properties
in litigation as well as the other assets of Choithram, apparently
designed to render ineffective any judgment the Court may render
favorable to spouses Ishwar.
The purpose of the provisional remedy of preliminary injunction is to
preserve the status quo of the things subject of the litigation and to
protect the rights of the spouses Ishwar respecting the subject of
the action during the pendency of the Suit36 and not to obstruct the
administration of justice or prejudice the adverse party.37 In this
case for damages, should Choithram, et al. continue to commit acts
21
of disposition of the properties subject of the litigation, an award of
damages to spouses Ishwar would thereby be rendered ineffectual
and meaningless.38
Consequently, if only to protect the interest of spouses Ishwar, the
Court hereby finds and holds that the motion for the issuance of a
writ of preliminary attachment filed by spouses Ishwar should be
granted covering the properties subject of this litigation.
Section 1, Rule 57 of the Rules of Court provides that at the
commencement of an action or at any time thereafter, the plaintiff
or any proper party may have the property of the adverse party
attached as security for the satisfaction of any judgment that may be
recovered, in, among others, the following cases:
(d) In an action against a party who has been guilty of a fraud
in contracting the debt or incurring the obligation upon which the
action is brought, or in concealing or disposing of the property for
the taking, detention or conversion of which the action is brought;
(e) In an action against a party who has removed or disposed
of his property, or is about to do so, with intent to defraud his
creditors; . . .
Verily, the acts of Choithram, et al. of disposing the properties
subject of the litigation disclose a scheme to defraud spouses Ishwar
so they may not be able to recover at all given a judgment in their
favor, the requiring the issuance of the writ of attachment in this
instance.
Nevertheless, under the peculiar circumstances of this case and
despite the fact that Choithram, et al., have committed acts which
demonstrate their bad faith and scheme to defraud spouses Ishwar
and Sonya of their rightful share in the properties in litigation, the
Court cannot ignore the fact that Choithram must have been
motivated by a strong conviction that as the industrial partner in the
acquisition of said assets he has as much claim to said properties as
Ishwar, the capitalist partner in the joint venture.
The scenario is clear. Spouses Ishwar supplied the capital of
$150,000.00 for the business.1wphi1 They entrusted the money to
Choithram to invest in a profitable business venture in the
Philippines. For this purpose they appointed Choithram as their
attorney-in-fact.
Choithram in turn decided to invest in the real estate business. He
bought the two (2) parcels of land in question from Ortigas as
attorney-in-fact of Ishwar- Instead of paying for the lots in cash, he
paid in installments and used the balance of the capital entrusted to
him, plus a loan, to build two buildings. Although the buildings were
burned later, Choithram was able to build two other buildings on the
property. He rented them out and collected the rentals. Through the
industry and genius of Choithram, Ishwar's property was developed
and improved into what it is nowa valuable asset worth millions of
pesos. As of the last estimate in 1985, while the case was pending
before the trial court, the market value of the properties is no less
than P22,304,000.00.39 It should be worth much more today.
We have a situation where two brothers engaged in a business
venture. One furnished the capital, the other contributed his
industry and talent. Justice and equity dictate that the two share
equally the fruit of their joint investment and efforts. Perhaps this
Solomonic solution may pave the way towards their reconciliation.
Both would stand to gain. No one would end up the loser. After all,
blood is thicker than water.
However, the Court cannot just close its eyes to the devious
machinations and schemes that Choithram employed in attempting
to dispose of, if not dissipate, the properties to deprive spouses
Ishwar of any possible means to recover any award the Court may
grant in their favor. Since Choithram, et al. acted with evident bad
faith and malice, they should pay moral and exemplary damages as
well as attorney's fees to spouses Ishwar.
WHEREFORE, the petition in G.R. No. 85494 is DENIED, while the
petition in G.R. No. 85496 is hereby given due course and GRANTED.
The judgment of the Court of Appeals dated October 18, 1988 is
hereby modified as follows:
1. Dividing equally between respondents spouses Ishwar, on
the one hand, and petitioner Choithram Ramnani, on the other, (in
G.R. No. 85494) the two parcels of land subject of this litigation,
including all the improvements thereon, presently covered by
transfer Certificates of Title Nos. 403150 and 403152 of the Registry
of Deeds, as well as the rental income of the property from 1967 to
the present.
2. Petitioner Choithram Jethmal Ramnani, Nirmla V.
Ramnani, Moti C. Ramnani and respondent Ortigas and Company,
Limited Partnership (in G.R. No. 85496) are ordered solidarily to pay
in cash the value of said one-half (1/2) share in the said land and
improvements pertaining to respondents spouses Ishwar and Sonya
at their fair market value at the time of the satisfaction of this
judgment but in no case less than their value as appraised by the
Asian Appraisal, Inc. in its Appraisal Report dated August 1985
(Exhibits T to T-14, inclusive).
3. Petitioners Choithram, Nirmla and Moti Ramnani and
respondent Ortigas & Co., Ltd. Partnership shall also be jointly and
severally liable to pay to said respondents spouses Ishwar and Sonya
Ramnani one-half (1/2) of the total rental income of said properties
and improvements from 1967 up to the date of satisfaction of the
judgment to be computed as follows:
a. On Building C occupied by Eppie's Creation and Jethmal
Industries from 1967 to 1973, inclusive, based on the 1967 to 1973
monthly rentals paid by Eppie's Creation;
b. Also on Building C above, occupied by Jethmal Industries
and Lavine from 1974 to 1978, the rental incomes based on then
rates prevailing as shown under Exhibit "P"; and from 1979 to 1981,
based on then prevailing rates as indicated under Exhibit "Q";
c. On Building A occupied by Transworld Knitting Mills from
1972 to 1978, the rental incomes based upon then prevailing rates
shown under Exhibit "P", and from 1979 to 1981, based on
prevailing rates per Exhibit "Q";
d. On the two Bays Buildings occupied by Sigma-Mariwasa
from 1972 to 1978, the rentals based on the Lease Contract, Exhibit
"P", and from 1979 to 1980, the rentals based on the Lease Contract,
Exhibit "Q".
and thereafter commencing 1982, to account for and turn over the
rental incomes paid or ought to be paid for the use and occupancy
of the properties and all improvements totalling 10,048 sq. m.,
based on the rate per square meter prevailing in 1981 as indicated
annually cumulative up to 1984. Then, commencing 1985 and up to
the satisfaction of the judgment, rentals shall be computed at ten
percent (10%) annually of the fair market values of the properties as
22
appraised by the Asian Appraisals, Inc. in August 1985. (Exhibits T to
T-14, inclusive.)

4. To determine the market value of the properties at the

time of the satisfaction of this judgment and the total rental
incomes thereof, the trial court is hereby directed to hold a hearing
with deliberate dispatch for this purpose only and to have the
judgment immediately executed after such determination.

5. Petitioners Choithram, Nirmla and Moti, all surnamed

Ramnani, are also jointly and severally liable to pay respondents
Ishwar and Sonya Ramnani the amount of P500,000.00 as moral
damages, P200,000.00 as exemplary damages and attorney's fees
equal to 10% of the total award. to said respondents spouses.

6. The motion to dissolve the writ of preliminary injunction

dated December 10, 1990 filed by petitioners Choithram, Nirmla and
Moti, all surnamed Ramnani, is hereby DENIED and the said
injunction is hereby made permanent. Let a writ of attachment be
issued and levied against the properties and improvements subject
of this litigation to secure the payment of the above awards to
spouses Ishwar and Sonya.

7. The mortgage constituted on the subject property dated

June 20, 1989 by petitioners Choithram and Nirmla, both surnamed
Ramnani in favor of respondent Overseas Holding, Co. Ltd. (in G.R.
No. 85496) for the amount of $3-M is hereby declared null and void.
The Register of Deeds of Pasig, Rizal, is directed to cancel the
annotation of d mortgage on the titles of the properties in question.

8. Should respondent Ortigas Co., Ltd. Partnership pay the

awards to Ishwar and Sonya Ramnani under this judgment, it shall
be entitled to reimbursement from petitioners Choithram, Nirmla
and Moti, all surnamed Ramnani.

9. The above awards shag bear legal rate of interest of six

percent (6%) per annum from the time this judgment becomes final
until they are fully paid by petitioners Choithram Ramnani, Nirmla V.
Ramnani, Moti C. Ramnani and Ortigas, Co., Ltd. Partnership. Said
petitioners Choithram, et al. and respondent Ortigas shall also pay
the costs.

SO ORDERED.

23
24
G.R. No. L-28633 March 30, 1971
CENTRAL SURETY and INSURANCE COMPANY, petitioner,
vs.
C. N. HODGES and THE COURT OF APPEALS, respondents.
Pelaez, Jalandoni and Jamir for petitioner.
Leon P. Gellada for respondent C. N. Hodges.
CONCEPCION, C.J.:
Appeal by certiorari from a decision of the Court of Appeals, the
dispositive part of which reads as follows:
WHEREFORE, in view of the foregoing considerations, the decision
appealed from is modified and judgment is hereby rendered against
Central Surety & Insurance Company:
(a) To pay plaintiff C. N. Hodges the sum of P17,826.08 with
interest thereon at the rate of 12% per annum from October 24,
1955 until fully paid;
(b) To pay plaintiff C. N. Hodges the sum of P1,551.60 as
attorney's fees; and
(c) To pay the costs.
The main facts are not disputed. Prior to January 15, 1954, lots Nos.
1226 and 1182 of the Cadastral Survey of Talisay, Negros Occidental,
had been sold by C. N. Hodges to Vicente M. Layson, for the sum of
P43,000.90, payable on installments. As of January 15, 1954, the
outstanding balance of Layson's debt, after deducting the
installments paid by him prior thereto, amounted to P15,516.00. In
order that he could use said lots as security for a loan he intended to
apply from a bank, Layson persuaded Hodges to execute in his
(Layson's) favor a deed of absolute sale over the properties, with the
understanding that he would put up a surety bond to guarantee the
payment of said balance. Accordingly, on the date above-
mentioned, Layson executed, in favor of Hodges, a promissory note
for P15,516.00, with interest thereon at the rate of 1% per month,
and the sum of P1,551.60, for attorney's fees and costs, in case of
default in the payment of the principal or interest of said note. To
guarantee the same, on January 23, 1954, the Central Surety and
Insurance Company hereinafter referred to as petitioner
through the manager of its branch office in Iloilo, Mrs. Rosita Mesa,
executed in favor of Hodges the surety bond Annex B, which was
good for twelve (12) months from the date thereof.
When Layson defaulted in the discharge of his aforesaid obligation,
Hodges demanded payment from the petitioner, which, despite
repeated extensions of time granted thereto, at its request, failed to
honor its commitments under the surety bond. On October 24,
1955, Hodges commenced, therefore. the present action, in the
Court of First Instance of Iloilo, against Layson and petitioner herein,
to recover from them, jointly and severally, the sums of P17,826.08,
representing the principal and interest due up to said date, and
P1,551.60, as attorney's fees. In his answer to the complaint, Layson
admitted the formal allegations and denied the other allegations
thereof.
Having failed to file its answer within the reglementary period, the
petitioner was, on January 18, 1956, declared in default. When the
case was called for trial, insofar as Layson was concerned, the latter
did not appear, and Hodges was allowed to introduce his evidence.
Then the trial court rendered a partial decision against Layson,
petitioner having, in the meantime, filed a motion to set aside the
order of default, which motion was still pending
resolution.lwph1.t Thereafter, said motion was denied, and
upon presentation of the evidence of Hodges against herein
petitioner, judgment was rendered against the latter as prayed for in
the complaint. Thereupon, petitioner filled a motion for
reconsideration and a motion for relief under Rule 38. Acting
thereon, His Honor, the trial Judge, later set aside its decision
against the petitioner and admitted its answer, attached to the
motion to set aside the order of default.
In its answer, petitioner disclaimed liability under the surety bond in
question, upon the ground (a) that the same is null and void, it
having been issued by Mrs. Rosita Mesa after her authority therefor
had been withdrawn on March 15, 1952; (b) that even under her
original authority Mrs. Mesa could not issue surety bonds in excess
of P8,000.00 without the approval of petitioner's main office which
was not given to the surety bond in favor of Hodges; and (c) that the
present action is barred by the provision in the surety bond to the
effect that all claims and actions thereon should be filed within
three (3) months from the date of its expiration on January 23, 1955.
Petitioner, moreover, set up a counterclaim for damages.
In due course, thereafter, the trial court rendered a decision:
a) Condenando a la demandada Central Surety & Insurance Co. que
pague al demandante la desde la P8,000.00 con intereses legales a
contar desde la fecha de la demanda 24 de Octubre de 1955;
b) Condenando a la misma demandada que pague al de mindante la
suma de P600.00 en concepto de honorarios de abogado; y
c) Condenindo ademas a la misma demandada que pague las costas
del juicio.
Hodges appealed to the Court of Appeals (CA-G.R. No. L-24684-R)
from this decision, insofar as it limited petitioners liability to
P8,000.00. Petitioner, also, appealed to said Court upon the ground
that the trial court had erred: (a) in holding petitioner liable under a
contract entered into by its agent in excess of her authority; (b) in
sentencing petitioner to pay Hodges the sum of P8,000.00 with
interest thereon, in addition to attorney's fees and the costs; and (c)
in "not awarding" petitioner's counterclaim.
After appropriate proceedings, the Court of Appeals rendered the
decision above referred to, from which petitioner has appealed to
this Court, alleging that the Court of Appeals has erred: (1) in finding
that petitioner "was liable on a bond issued by an agent whose
authority ... had already been withdrawn and revoked"; (2) "in
applying the rule on implied admission by reason of failure to deny
under oath the authenticity of a pleaded document"; and (3) "in not
considering the legal effect of the waiver contained in the disputed
bond and in not disposing of this case under the light of such
waiver."
The first assignment of error is predicated upon the fact that prior to
January 23, 1954, when the surety bond involved in this case was
executed, or on March 15, 1952, petitioner herein had withdrawn
the authority of its branch manager in the City of Iloilo, Mrs. Rosita
Mesa, to issue, inter alia, surety bonds and that, accordingly, the
surety bond, copy of which was attached to the complaint as Annex
B, is null and void. On this point, the Court of Appeals had the
following to say:
25

... we are of the opinion that said surety bond is valid. In the first
place, there appears to be no showing that the revocation of
authority was made known to the public in general by publication,
nor was Hodges notified of such revocation despite the fact that he
was a regular client of the firm. And even if Hodges would have
inquired from Mrs. Mesa as to her authority to issue said bond, we
doubt if she would disclose the contents of the letter of March 15,
1952 in view of Central Surety's claim that she was committing
irregularities in her remittances to the main office. Secondly, some
surety bonds issued by Mrs. Mesa in favor of Hodges after her
authority had allegedly been curtailed, were honored by the Central
Surety despite the fact that these were not reported to the main
office at the time of their issuance. These accounts were paid on
January 31, 1957, to wit: Felicito and Libertad Parra issued on August
16, 1952; Estrella Auayan issued on November 16, 1953; Dominador
Jordan issued on August 26, 1953; and Ladislao Lachica issued on
February 28, 1953. (Exhs. F, G, H, I and J). By these acts Central
Surety ratified Mrs. Mesa's unauthorized acts and as such it is now
estopped from setting forth Mrs. Mesa's lack of authority to issue
surety bonds after March 15, 1952. It has been held that although
the agent may have acted beyond the scope of his authority, or may
have acted without authority at all, the principal may yet
subsequently see fit to recognize and adopt the act as his own.
Ratification being a matter of assent to and approval of the act as
done on account of the person ratifying any words or acts which
show such assent and approval are ordinarily sufficient. (Sta.
Catalina vs. Espitero, CA-G.R. No. 27075-R, April 28, 1964, citing IV
Padilla, CIVIL CODE. 1959 ed., pp. 478-479; Roxas vs. Villanueva, CA-
G.R. No. 18928-R, June 20, 1958). Moreover, the relocation of
agency does not prejudice third persons who acted in good faith
without knowledge of the revocation. (Joson vs. Garcia, CA-G.R. No.
29336-R. Nov. 19, 1962).
Indeed, Article 1922 of our Civil Code provides:
If the agent had general powers, revocation of the agency does not
prejudice third persons who acted in good faith and without
knowledge of the revocation. Notice of the revocation in a
newspaper of general circulation is a sufficient warning to third
persons.
It is not disputed that petitioner has not caused to be published any
notice of the revocation of Mrs. Mesa's authority to issue surety
bonds on its behalf, notwithstanding the fact that the powers of
Mrs. Mesa, as its branch manager in Iloilo, were of a general nature,
for she had exclusive authority, in the City of Iloilo, to represent
petitioner herein, not with a particular person, but with the public in
general, "in all the negotiations, transactions, and business in
wherein the Company may lawfully transact or engage on subject
only to the restrictions specified in their agreement, copy of which
was attached to petitioner's answer as Annex 3.1 Contrary to
petitioner's claim, Article 1922 applies whenever an agent has
general powers, not merely when the principal has published the
same, apart from the fact that the opening of petitioner's branch
office amounted to a publication of the grant of powers to the
manager of said office. Then, again, by honoring several surety
bonds issued in its behalf by Mrs. Mesa subsequently to March 15,
1952, petitioner induced the public to believe that she had authority
to issue such bonds. As a consequence, petitioner is now estopped
from pleading, particularly against a regular customer thereof, like
Hodges, the absence of said authority.
Let us now take up the third assignment of error and defer, until
after the same has been disposed of, the consideration of the
second assignment of error. Under the third assignment of error,
petitioner maintains that, having been instituted on October 24,
1955 or nine (9) months after the expiration of petitioner's surety
bond on January 23, 1955 the present action is barred by the
provision in said bond to the effect that it:
...will not be liable for any claim not discovered and presented to the
Company within three (3) months from the expiration of this bond
and that the obligee hereby waives his right to file any court action
against the surety after the termination of the period of three
months above-mentioned.
Interpreting an identical provision,2 court has, however, held "that
the three-month period" prescribed therein "established only a
condition precedent, not a limitation of action," and that, when a
claim has been presented within said period, the action to enforce
the claim may be "filed within the statutory time of prescription."
This view was clarified in a subsequent case,3 in the sense that the
above-quoted provision was "... merely interpreted to mean that
presentation of the claim within three months was a condition
precedent to the filing of a court action. Since the obligee in said
case presented his claim seasonably although it did not file the
action within the same period, this Court ruled that the stipulation in
the bond concerning the limitation being ambiguous, the ambiguity
should be resolved against the surety, which drafted the agreement,
and that the action could be filed within the statutory period of
prescription."4
In the case at bar, it is not contended that Hodges had not
presented his claim within three (3) months from January 23, 1955.
In fact, he had repeatedly demanded from petitioner herein
compliance with its obligations under the surety bond in question,
and, in reply to such demands, petitioner asked extensions of time,
on January 29, February 16, March 15, May 3, June 16, July 1 and 15,
and October 15, 1955.5 After thus securing extensions of time, even
beyond three (3) months from January 23, 1955, petitioner cannot
plead the lapse of said period to bar the present action.
The second assignment of error assails the finding of the Court of
Appeals to the effect that the petitioner is liable for the full amount
of surety bond despite the fact that it exceeded the sum of
P8,000.00 and hence, required, for its validity and binding effect as
against petitioner herein, the express approval and confirmation of
its Manila office, which were not secured in view of petitioner's
failure to deny under oath the genuineness and due execution of
said bond, copy of which was attached to the complaint. It is true
that, pursuant to section 8 of Rule 8 of the Rules of Court:
When an action or defense is founded upon a written instrument,
copied in or attached to the corresponding pleading as provided in
the preceding section, the genuineness and due execution of the
instrument shall be deemed admitted unless the adverse party,
under oath, specifically denies them, and sets forth what he claims
to be the facts; but this provision does not apply when the adverse
party does not appear to be a party to the instrument or when
compliance with an order for an inspection of the original
instrument is refused.
We have however, held that:
... where a case has been tried in complete disregard of the rule and
the plaintiff having pleaded a document by copy, presents oral
evidence to prove the due execution of the document as well as the
agent's authority and no objections are made to the defendant's
evidence in refutation, the rule will be considered waived.6
26
The reason for such view was explained by this Court as follows:

Before entering upon a discussion of the questions raised by the

assignments of error, we may draw attention to a matter which has
not been mentioned either by counsel or by the court below, but
which, to prevent misunderstanding, should be briefly explained: It
is averred in the complaint that it is accompanied by a copy of the
contract between the parties (Exhibit A) which copy, by the terms of
the complaint, is made a part thereof. The copy is not set forth in
the bill of exceptions and aside from said averment, there is no
indication that the copy actually accompanied the complaint, but an
examination of the record of the case in the Court of First Instance
shows that a translation of the contract was attached to the
complaint and served upon the defendant. As this translation may
be considered a copy and as the defendant failed to deny its
authenticity under oath, it will perhaps be said that under section
103 of the Code of Civil Procedure the omission to so deny it
constitutes an admission of the genuineness and due execution of
the document as well as of the agent's authority to bind the
defendant. (Merchant vs. International Banking Corporation, 6 Phil.
314.)

In ordinary circumstances that would be true. But this case appears

to have been tried upon the theory that the rule did not apply; at
least, it was wholly overlooked or disregarded by both
parties.lwph1.t The plaintiffs at the beginning of the trial
presented a number of witnesses to prove the due execution of the
document as well as the agent's authority; no objection were made
to the defendant's evidence in refutation; all no exceptions taken;
and the matter is not mentioned in the decision of the trial court.

The object of the rule is 'to relieve a party of the trouble and
expense of proving in the first instance an alleged fact, the existence
or nonexistence of which is necessarily within the knowledge of the
adverse party, and of the necessity (to his opponent's case) of
establishing which such adverse party is notified by his opponent's
pleading.' (Nery Lim-Chingco vs. Terariray, 5 Phil., at p. 124.)

The plaintiff may, of course, waive the rule and that is what he must
be considered to have done in the present case by introducing
evidence as to the execution of the document and failing to object
to the defendant's evidence in refutation; all this evidence is now
competent and the case must be decided thereupon. .... Nothing of
what has here been said is in conflict with former decisions of this
court; it will be found upon examination that in all cases where the
applicability of the rule has been sustained the party invoking it has
relied on it in the court below and conducted his case accordingly."7

In the case at bar, the parties acted in complete disregard of or

wholly overlooked the rule above-quoted. Hodges had neither
objected to the evidence introduced by petitioner herein in order to
prove that Mrs. Mesa had no authority to issue a surety bond, much
less one in excess of P8,000.00, and took no exception to the
admission of said evidence. Hence, Hodges must be deemed to have
waived the benefits of said rule and petitioner herein cannot be held
liable in excess of the sum of P8,000.00.

WHEREFORE, with the modification that petitioner's liability to

Hodges is limited to said sum of P8,000.00 the period, the petitioner
was, on January 18, 1956, declared it is hereby affirmed in all other
respects, without costs. It is so ordered.

27
28
CARLOS SANCHEZ, Again, through petitioners initiative, the agency contract between
Petitioner, Medicard and Unilab was renewed for another year, or from
October 1, 1989 to September 30, 1990, incorporating therein the
increase of premium from P4,148,005.00 to P7,456,896.00.
Medicard paid petitioner P1,342,241.00 as his commission.
- versus -
Prior to the expiration of the renewed contract, Medicard proposed
to Unilab, through petitioner, an increase of the premium for the
next year. Unilab rejected the proposal for the reason that it was too
high, prompting Dr. Nicanor Montoya (Medicards president and
general manager), also a respondent, to request petitioner to
reduce his commission, but the latter refused.

In a letter dated October 3, 1990, Unilab, through Carlos Ejercito,

MEDICARD PHILIPPINES, INC., DR. NICANOR MONTOYA and CARLOS another respondent, confirmed its decision not to renew the health
EJERCITO, program contract with Medicard.
Respondents.
Meanwhile, in order not to prejudice its personnel by the
G.R. No. 141525 termination of their health insurance, Unilab, through respondent
Ejercito, negotiated with Dr. Montoya and other officers of
Present: Medicard, to discuss ways in order to continue the insurance
coverage of those personnel.

PANGANIBAN, J., Chairman, Under the new scheme, Unilab shall pay Medicard only the amount
SANDOVAL-GUTIERREZ, corresponding to the actual hospitalization expenses incurred by
CORONA, each personnel plus 15% service fee for using Medicard facilities,
CARPIO MORALES, and which amount shall not be less than P780,000.00.
GARCIA, JJ.
Medicard did not give petitioner any commission under the new
scheme.
Promulgated:

September 2, 2005 In a letter dated March 15, 1991, petitioner demanded from
x------------------------------------------------------------------------------------------ Medicard payment of P338,000.00 as his commission plus damages,
---x but the latter refused to heed his demand.

Thus, petitioner filed with the Regional Trial Court (RTC), Branch 66,
DECISION Makati City, a complaint for sum of money against Medicard, Dr.
Nicanor Montoya and Carlos Ejercito, herein respondents.

After hearing, the RTC rendered its Decision dismissing petitioners

SANDOVAL-GUTIERREZ, J.: complaint and respondents counterclaim.

On appeal, the Court of Appeals affirmed the trial courts assailed

This petition for review on certiorari seeks to reverse the Decision[1]
of the Court of Appeals dated February 24, 1999 and its Resolution
dated January 12, 2000 in CA-G.R. CV No. 47681.
The facts, as established by the trial court and affirmed by the Court
of Appeals, follow:
Sometime in 1987, Medicard Philippines, Inc. (Medicard),
respondent, appointed petitioner as its special corporate agent. As
such agent, Medicard gave him a commission based on the cash
brought in.
In September, 1988, through petitioners efforts, Medicard and
United Laboratories Group of Companies (Unilab) executed a Health
Care Program Contract. Under this contract, Unilab shall pay
Medicard a fixed monthly premium for the health insurance of its
personnel. Unilab paid Medicard P4,148,005.00 representing the
premium for one (1) year. Medicard then handed petitioner 18% of
said amount or P746,640.90 representing his commission.
Decision. The Appellate Court held that there is no proof that the
execution of the new contract between the parties under the cost
plus system is a strategy to deprive petitioner of his commission;
that Medicard did not commit any fraudulent act in revoking its
agency contract with Sanchez; that when Unilab rejected Medicards
proposal for an increase of premium, their Health Care Program
Contract on its third year was effectively revoked; and that where
the contract is ineffectual, then the agent is not entitled to a
commission.
Petitioner filed a motion for reconsideration, but this was denied by
the Court of Appeals on January 12, 2000.
Hence, the instant petition for review on certiorari.
The basic issue for our resolution is whether the Court of Appeals
erred in holding that the contract of agency has been revoked by
Medicard, hence, petitioner is not entitled to a commission.
It is dictum that in order for an agent to be entitled to a commission,
he must be the procuring cause of the sale, which simply means that

29
the measures employed by him and the efforts he exerted must
result in a sale.[2] In other words, an agent receives his commission SO ORDERED.
only upon the successful conclusion of a sale.[3] Conversely, it
follows that where his efforts are unsuccessful, or there was no
effort on his part, he is not entitled to a commission.

In Prats vs. Court of Appeals,[4] this Court held that for the purpose
of equity, an agent who is not the efficient procuring cause is
nonetheless entitled to his commission, where said agent,
notwithstanding the expiration of his authority, nonetheless, took
diligent steps to bring back together the parties, such that a sale was
finalized and consummated between them. In Manotok Borthers vs.
Court of Appeals,[5] where the Deed of Sale was only executed after
the agents extended authority had expired, this Court, applying its
ruling in Prats, held that the agent (in Manotok) is entitled to a
commission since he was the efficient procuring cause of the sale,
notwithstanding that the sale took place after his authority had
lapsed. The proximate, close, and causal connection between the
agents efforts and the principals sale of his property can not be
ignored.

It may be recalled that through petitioners efforts, Medicard was

able to enter into a one-year Health Care Program Contract with
Unilab. As a result, Medicard paid petitioner his commission. Again,
through his efforts, the contract was renewed and once more, he
received his commission. Before the expiration of the renewed
contract, Medicard, through petitioner, proposed an increase in
premium, but Unilab rejected this proposal. Medicard then
requested petitioner to reduce his commission should the contract
be renewed on its third year, but he was obstinate. Meantime, on
October 3, 1990, Unilab informed Medicard it was no longer
renewing the Health Care Program contract.

In order not to prejudice its personnel, Unilab, through respondent

Ejercito, negotiated with respondent Dr. Montoya of Medicard, in
order to find mutually beneficial ways of continuing the Health Care
Program. The negotiations resulted in a new contract wherein
Unilab shall pay Medicard the hospitalization expenses actually
incurred by each employees, plus a service fee. Under the cost plus
system which replaced the premium scheme, petitioner was not
given a commission.

It is clear that since petitioner refused to reduce his commission,

Medicard directly negotiated with Unilab, thus revoking its agency
contract with petitioner. We hold that such revocation is authorized
by Article 1924 of the Civil Code which provides:

Art. 1924. The agency is revoked if the principal directly manages

the business entrusted to the agent, dealing directly with third
persons.

Moreover, as found by the lower courts, petitioner did not render

services to Medicard, his principal, to entitle him to a commission.
There is no indication from the records that he exerted any effort in
order that Unilab and Medicard, after the expiration of the Health
Care Program Contract, can renew it for the third time. In fact, his
refusal to reduce his commission constrained Medicard to negotiate
directly with Unilab. We find no reason in law or in equity to rule
that he is entitled to a commission. Obviously, he was not the agent
or the procuring cause of the third Health Care Program Contract
between Medicard and Unilab.

WHEREFORE, the petition is DENIED. The challenged Decision and

Resolution of the Court of Appeals in CA-G.R. CV No. 47681 are
AFFIRMED IN TOTO. Costs against petitioner.

30
G.R. No. L-41420 July 10, 1992
CMS LOGGING, INC., petitioner,
vs.
THE COURT OF APPEALS and D.R. AGUINALDO CORPORATION,
respondents.
NOCON, J.:
This is a petition for review on certiorari from the decision dated July
31, 1975 of the Court of Appeals in CA-G.R. No. 47763-R which
affirmed in toto the decision of the Court of First Instance of Manila,
Branch VII, in Civil Case No. 56355 dismissing the complaint filed by
petitioner CMS Logging, Inc. (CMS, for brevity) against private
respondent D.R. Aguinaldo Corporation (DRACOR, for brevity) and
ordering the former to pay the latter attorney's fees in the amount
of P1,000.00 and the costs.
The facts of the case are as follows: Petitioner CMS is a forest
concessionaire engaged in the logging business, while private
respondent DRACOR is engaged in the business of exporting and
selling logs and lumber. On August 28, 1957, CMS and DRACOR
entered into a contract of agency 1 whereby the former appointed
the latter as its exclusive export and sales agent for all logs that the
former may produce, for a period of five (5) years. The pertinent
portions of the agreement, which was drawn up by DRACOR, 2 are
as follows:
1. SISON [CMS] hereby appoints DRACOR as his sole and
exclusive export sales agent with full authority, subject to the
conditions and limitations hereinafter set forth, to sell and export
under a firm sales contract acceptable to SISON, all logs produced by
SISON for a period of five (5) years commencing upon the execution
of the agreement and upon the terms and conditions hereinafter
provided and DRACOR hereby accepts such appointment;
xxx xxx xxx
3. It is expressly agreed that DRACOR shall handle exclusively
all negotiations of all export sales of SISON with the buyers and
arrange the procurement and schedules of the vessel or vessels for
the shipment of SISON's logs in accordance with SISON's written
requests, but DRACOR shall not in anyway [sic] be liable or
responsible for any delay, default or failure of the vessel or vessels
to comply with the schedules agreed upon;
xxx xxx xxx
9. It is expressly agreed by the parties hereto that DRACOR
shall receive five (5%) per cent commission of the gross sales of logs
of SISON based on F.O.B. invoice value which commission shall be
deducted from the proceeds of any and/or all moneys received by
DRACOR for and in behalf and for the account of SISON;
By virtue of the aforesaid agreement, CMS was able to sell through
DRACOR a total of 77,264,672 board feet of logs in Japan, from
September 20, 1957 to April 4, 1962.
About six months prior to the expiration of the agreement, while on
a trip to Tokyo, Japan, CMS's president, Atty. Carlos Moran Sison,
and general manager and legal counsel, Atty. Teodoro R.
Dominguez, discovered that DRACOR had used Shinko Trading Co.,
Ltd. (Shinko for brevity) as agent, representative or liaison officer in
selling CMS's logs in Japan for which Shinko earned a commission of
U.S. $1.00 per 1,000 board feet from the buyer of the logs. Under
this arrangement, Shinko was able to collect a total of U.S.
$77,264.67. 3
CMS claimed that this commission paid to Shinko was in violation of
the agreement and that it (CMS) is entitled to this amount as part of
the proceeds of the sale of the logs. CMS contended that since
DRACOR had been paid the 5% commission under the agreement, it
is no longer entitled to the additional commission paid to Shinko as
this tantamount to DRACOR receiving double compensation for the
services it rendered.
After this discovery, CMS sold and shipped logs valued at U.S.
$739,321.13 or P2,883,351.90, 4 directly to several firms in Japan
without the aid or intervention of DRACOR.
CMS sued DRACOR for the commission received by Shinko and for
moral and exemplary damages, while DRACOR counterclaimed for
its commission, amounting to P144,167.59, from the sales made by
CMS of logs to Japanese firms. In its reply, CMS averred as a defense
to the counterclaim that DRACOR had retained the sum of
P101,167.59 as part of its commission for the sales made by CMS. 5
Thus, as its counterclaim to DRACOR's counterclaim, CMS demanded
DRACOR return the amount it unlawfully retained. DRACOR later
filed an amended counterclaim, alleging that the balance of its
commission on the sales made by CMS was P42,630.82, 6 thus
impliedly admitting that it retained the amount alleged by CMS.
In dismissing the complaint, the trial court ruled that no evidence
was presented to show that Shinko received the commission of U.S.
$77,264.67 arising from the sale of CMS's logs in Japan, though the
trial court stated that "Shinko was able to collect the total amount of
$77,264.67 US Dollars (Exhs. M and M-1)." 7 The counterclaim was
likewise dismissed, as it was shown that DRACOR had waived its
rights to the balance of its commission in a letter dated February 2,
1963 to Atty. Carlos Moran Sison, president of CMS. 8 From said
decision, only CMS appealed to the Court of Appeals.
The Court of Appeals, in a 3 to 2 decision, 9 affirmed the dismissal of
the complaint since "[t]he trial court could not have made a
categorical finding that Shinko collected commissions from the
buyers of Sison's logs in Japan, and could not have held that Sison is
entitled to recover from Dracor the amount collected by Shinko as
commissions, plaintiff-appellant having failed to prove by competent
evidence its claims." 10
Moreover, the appellate court held:
There is reason to believe that Shinko Trading Co. Ltd., was paid by
defendant-appellee out of its own commission of 5%, as indicated in
the letter of its president to the president of Sison, dated February
2, 1963 (Exhibit "N"), and in the Agreement between Aguinaldo
Development Corporation (ADECOR) and Shinko Trading Co., Ltd.
(Exhibit "9"). Daniel R. Aguinaldo stated in his said letter:
. . . , I informed you that if you wanted to pay me for the service,
then it would be no more than at the standard rate of 5%
commission because in our own case, we pay our Japanese agents 2-
1/2%. Accordingly, we would only add a similar amount of 2-1/2%
for the service which we would render you in the Philippines. 11
Aggrieved, CMS appealed to this Court by way of a petition for
review on certiorari, alleging (1) that the Court of Appeals erred in
not making a complete findings of fact; (2) that the testimony of
31
Atty. Teodoro R. Dominguez, regarding the admission by Shinko's
president and director that it collected a commission of U.S. $1.00
per 1,000 board feet of logs from the Japanese buyers, is admissible
against DRACOR; (3) that the statement of DRACOR's chief legal
counsel in his memorandum dated May 31, 1965, Exhibit "K", is an
admission that Shinko was able to collect the commission in
question; (4) that the fact that Shinko received the questioned
commissions is deemed admitted by DRACOR by its silence under
Section 23, Rule 130 of the Rules of Court when it failed to reply to
Atty. Carlos Moran Sison's letter dated February 6, 1962; (5) that
DRACOR is not entitled to its 5% commission arising from the direct
sales made by CMS to buyers in Japan; and (6) that DRACOR is guilty
of fraud and bad faith in its dealings with CMS.
With regard to CMS's arguments concerning whether or not Shinko
received the commission in question, We find the same
unmeritorious.
To begin with, these arguments question the findings of fact made
by the Court of Appeals, which are final and conclusive and can not
be reviewed on appeal to the Supreme Court. 12
Moreover, while it is true that the evidence adduced establishes the
fact that Shinko is DRACOR's agent or liaison in Japan, 13 there is no
evidence which established the fact that Shinko did receive the
amount of U.S. $77,264.67 as commission arising from the sale of
CMS's logs to various Japanese firms.
The fact that Shinko received the commissions in question was not
established by the testimony of Atty. Teodoro R. Dominguez to the
effect that Shinko's president and director told him that Shinko
received a commission of U.S. $1.00 for every 1,000 board feet of
logs sold, since the same is hearsay. Similarly, the letter of Mr. K.
Shibata of Toyo Menka Kaisha, Ltd. 14 is also hearsay since Mr.
Shibata was not presented to testify on his letter.
CMS's other evidence have little or no probative value at all. The
statements made in the memorandum of Atty. Simplicio R. Ciocon to
DRACOR dated May 31, 1965, 15 the letter dated February 2, 1963
of Daniel
R. Aguinaldo, 16 president of DRACOR, and the reply-letter dated
January 9, 1964 17 by DRACOR's counsel Atty. V. E. Del Rosario to
CMS's demand letter dated September 25, 1963 can not be
categorized as admissions that Shinko did receive the commissions
in question.
The alleged admission made by Atty. Ciocon, to wit
Furthermore, as per our records, our shipment of logs to Toyo
Menka Kaisha, Ltd., is only for a net volume of 67,747,732 board
feet which should enable Shinko to collect a commission of US
$67,747.73 only
can not be considered as such since the statement was made in the
context of questioning CMS's tally of logs delivered to various
Japanese firms.
Similarly, the statement of Daniel R. Aguinaldo, to wit
. . . Knowing as we do that Toyo Menka is a large and reputable
company, it is obvious that they paid Shinko for certain services
which Shinko must have satisfactorily performed for them in Japan
otherwise they would not have paid Shinko
and that of Atty. V. E. Del Rosario,
. . . It does not seem proper, therefore, for CMS Logging, Inc., as
principal, to concern itself with, much less question, the right of
Shinko Trading Co., Ltd. with which our client debt directly, to
whatever benefits it might have derived form the ultimate
consumer/buyer of these logs, Toyo Menka Kaisha, Ltd. There
appears to be no justification for your client's contention that these
benefits, whether they can be considered as commissions paid by
Toyo Menka Kaisha to Shinko Trading, are to be regarded part of the
gross sales.
can not be considered admissions that Shinko received the
questioned commissions since neither statements declared
categorically that Shinko did in fact receive the commissions and
that these arose from the sale of CMS's logs.
As correctly stated by the appellate court:
It is a rule that "a statement is not competent as an admission
where it does not, under a reasonable construction, appear to admit
or acknowledge the fact which is sought to be proved by it". An
admission or declaration to be competent must have been
expressed in definite, certain and unequivocal language (Bank of the
Philippine Islands vs. Fidelity & Surety Co., 51 Phil. 57, 64). 18
CMS's contention that DRACOR had admitted by its silence the
allegation that Shinko received the commissions in question when it
failed to respond to Atty. Carlos Moran Sison's letter dated February
6, 1963, is not supported by the evidence. DRACOR did in fact reply
to the letter of Atty. Sison, through the letter dated March 5, 1963
of F.A. Novenario, 19 which stated:
This is to acknowledge receipt of your letter dated February 6, 1963,
and addressed to Mr. D. R. Aguinaldo, who is at present out of the
country.
xxx xxx xxx
We have no record or knowledge of any such payment of
commission made by Toyo Menka to Shinko. If the payment was
made by Toyo Menka to Shinko, as stated in your letter, we knew
nothing about it and had nothing to do with it.
The finding of fact made by the trial court, i.e., that "Shinko was able
to collect the total amount of $77,264.67 US Dollars," can not be
given weight since this was based on the summary prepared by CMS
itself, Exhibits "M" and "M-1".
Moreover, even if it was shown that Shinko did in fact receive the
commissions in question, CMS is not entitled thereto since these
were apparently paid by the buyers to Shinko for arranging the sale.
This is therefore not part of the gross sales of CMS's logs.
However, We find merit in CMS's contention that the appellate
court erred in holding that DRACOR was entitled to its commission
from the sales made by CMS to Japanese firms.
The principal may revoke a contract of agency at will, and such
revocation may be express, or implied, 20 and may be availed of
even if the period fixed in the contract of agency as not yet expired.
21 As the principal has this absolute right to revoke the agency, the
agent can not object thereto; neither may he claim damages arising
from such revocation, 22 unless it is shown that such was done in
order to evade the payment of agent's commission. 23
32
In the case at bar, CMS appointed DRACOR as its agent for the sale
of its logs to Japanese firms. Yet, during the existence of the contract
of agency, DRACOR admitted that CMS sold its logs directly to
several Japanese firms. This act constituted an implied revocation of
the contract of agency under Article 1924 of the Civil Code, which
provides:

Art. 1924 The agency is revoked if the principal directly manages the
business entrusted to the agent, dealing directly with third persons.

In New Manila Lumber Company, Inc. vs. Republic of the Philippines,

24 this Court ruled that the act of a contractor, who, after executing
powers of attorney in favor of another empowering the latter to
collect whatever amounts may be due to him from the Government,
and thereafter demanded and collected from the government the
money the collection of which he entrusted to his attorney-in-fact,
constituted revocation of the agency in favor of the attorney-in-fact.

Since the contract of agency was revoked by CMS when it sold its
logs to Japanese firms without the intervention of DRACOR, the
latter is no longer entitled to its commission from the proceeds of
such sale and is not entitled to retain whatever moneys it may have
received as its commission for said transactions. Neither would
DRACOR be entitled to collect damages from CMS, since damages
are generally not awarded to the agent for the revocation of the
agency, and the case at bar is not one falling under the exception
mentioned, which is to evade the payment of the agent's
commission.

Regarding CMS's contention that the Court of Appeals erred in not

finding that DRACOR had committed acts of fraud and bad faith, We
find the same unmeritorious. Like the contention involving Shinko
and the questioned commissions, the findings of the Court of
Appeals on the matter were based on its appreciation of the
evidence, and these findings are binding on this Court.

In fine, We affirm the ruling of the Court of Appeals that there is no

evidence to support CMS's contention that Shinko earned a separate
commission of U.S. $1.00 for every 1,000 board feet of logs from the
buyer of CMS's logs. However, We reverse the ruling of the Court of
Appeals with regard to DRACOR's right to retain the amount of
P101,536.77 as part of its commission from the sale of logs by CMS,
and hold that DRACOR has no right to its commission. Consequently,
DRACOR is hereby ordered to remit to CMS the amount of
P101,536.77.

WHEREFORE, the decision appealed from is hereby MODIFIED as

stated in the preceding paragraph. Costs de officio.

SO ORDERED.

33
34
GENEVIEVE LIM, G.R. No. 163720
Petitioner,
Present:
PUNO, J.,
- versus - Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
FLORENCIO SABAN, CHICO-NAZARIO, JJ.
Respondent.
Promulgated:
December 16, 2004
x-------------------------------------------------------------------x
DECISION
TINGA, J.:
Before the Court is a Petition for Review on Certiorari assailing the
Decision[1] dated October 27, 2003 of the Court of Appeals, Seventh
Division, in CA-G.R. V No. 60392.[2]
The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter
lot in Cebu City (the lot), entered into an Agreement and Authority
to Negotiate and Sell (Agency Agreement) with respondent
Florencio Saban (Saban) on February 8, 1994. Under the Agency
Agreement, Ybaez authorized Saban to look for a buyer of the lot for
Two Hundred Thousand Pesos (P200,000.00) and to mark up the
selling price to include the amounts needed for payment of taxes,
transfer of title and other expenses incident to the sale, as well as
Sabans commission for the sale.[3]
Through Sabans efforts, Ybaez and his wife were able to sell the lot
to the petitioner Genevieve Lim (Lim) and the spouses Benjamin and
Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the
lot as indicated in the Deed of Absolute Sale is Two Hundred
Thousand Pesos (P200,000.00).[4] It appears, however, that the
vendees agreed to purchase the lot at the price of Six Hundred
Thousand Pesos (P600,000.00), inclusive of taxes and other
incidental expenses of the sale. After the sale, Lim remitted to Saban
the amounts of One Hundred Thirteen Thousand Two Hundred Fifty
Seven Pesos (P113,257.00) for payment of taxes due on the
transaction as well as Fifty Thousand Pesos (P50,000.00) as brokers
commission.[5] Lim also issued in the name of Saban four postdated
checks in the aggregate amount of Two Hundred Thirty Six Thousand
Seven Hundred Forty Three Pesos (P236,743.00). These checks were
Bank of the Philippine Islands (BPI) Check No. 1112645 dated June
12, 1994 for P25,000.00; BPI Check No. 1112647 dated June 19,
1994 for P18,743.00; BPI Check No. 1112646 dated June 26, 1994 for
P25,000.00; and Equitable PCI Bank Check No. 021491B dated June
20, 1994 for P168,000.00.
Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to
Lim. In the letter Ybaez asked Lim to cancel all the checks issued by
her in Sabans favor and to extend another partial payment for the
lot in his (Ybaezs) favor.[6]
After the four checks in his favor were dishonored upon
presentment, Saban filed a Complaint for collection of sum of
money and damages against Ybaez and Lim with the Regional Trial
Court (RTC) of Cebu City on August 3, 1994.[7] The case was
assigned to Branch 20 of the RTC.
In his Complaint, Saban alleged that Lim and the Spouses Lim agreed
to purchase the lot for P600,000.00, i.e., with a mark-up of Four
Hundred Thousand Pesos (P400,000.00) from the price set by Ybaez.
Of the total purchase price of P600,000.00, P200,000.00 went to
Ybaez, P50,000.00 allegedly went to Lims agent, and P113,257.00
was given to Saban to cover taxes and other expenses incidental to
the sale. Lim also issued four (4) postdated checks[8] in favor of
Saban for the remaining P236,743.00.[9]
Saban alleged that Ybaez told Lim that he (Saban) was not entitled
to any commission for the sale since he concealed the actual selling
price of the lot from Ybaez and because he was not a licensed real
estate broker. Ybaez was able to convince Lim to cancel all four
checks.
Saban further averred that Ybaez and Lim connived to deprive him
of his sales commission by withholding payment of the first three
checks. He also claimed that Lim failed to make good the fourth
check which was dishonored because the account against which it
was drawn was closed.
In his Answer, Ybaez claimed that Saban was not entitled to any
commission because he concealed the actual selling price from him
and because he was not a licensed real estate broker.
Lim, for her part, argued that she was not privy to the agreement
between Ybaez and Saban, and that she issued stop payment orders
for the three checks because Ybaez requested her to pay the
purchase price directly to him, instead of coursing it through Saban.
She also alleged that she agreed with Ybaez that the purchase price
of the lot was only P200,000.00.
Ybaez died during the pendency of the case before the RTC. Upon
motion of his counsel, the trial court dismissed the case only against
him without any objection from the other parties.[10]
On May 14, 1997, the RTC rendered its Decision[11] dismissing
Sabans complaint, declaring the four (4) checks issued by Lim as
stale and non-negotiable, and absolving Lim from any liability
towards Saban.
Saban appealed the trial courts Decision to the Court of Appeals.
On October 27, 2003, the appellate court promulgated its
Decision[12] reversing the trial courts ruling. It held that Saban was
entitled to his commission amounting to P236,743.00.[13]
The Court of Appeals ruled that Ybaezs revocation of his contract of
agency with Saban was invalid because the agency was coupled with
an interest and Ybaez effected the revocation in bad faith in order to
deprive Saban of his commission and to keep the profits for
himself.[14]
The appellate court found that Ybaez and Lim connived to deprive
Saban of his commission. It declared that Lim is liable to pay Saban
the amount of the purchase price of the lot corresponding to his
commission because she issued the four checks knowing that the
total amount thereof corresponded to Sabans commission for the
sale, as the agent of Ybaez. The appellate court further ruled that, in
issuing the checks in payment of Sabans commission, Lim acted as
an accommodation party. She signed the checks as drawer, without
receiving value therefor, for the purpose of lending her name to a
third person. As such, she is liable to pay Saban as the holder for
value of the checks.[15]
35
Lim filed a Motion for Reconsideration of the appellate courts
Decision, but her Motion was denied by the Court of Appeals in a
Resolution dated May 6, 2004.[16]
Not satisfied with the decision of the Court of Appeals, Lim filed the
present petition.
Lim argues that the appellate court ignored the fact that after paying
her agent and remitting to Saban the amounts due for taxes and
transfer of title, she paid the balance of the purchase price directly
to Ybaez.[17]
She further contends that she is not liable for Ybaezs debt to Saban
under the Agency Agreement as she is not privy thereto, and that
Saban has no one but himself to blame for consenting to the
dismissal of the case against Ybaez and not moving for his
substitution by his heirs.[18]
Lim also assails the findings of the appellate court that she issued
the checks as an accommodation party for Ybaez and that she
connived with the latter to deprive Saban of his commission.[19]
Lim prays that should she be found liable to pay Saban the amount
of his commission, she should only be held liable to the extent of
one-third (1/3) of the amount, since she had two co-vendees (the
Spouses Lim) who should share such liability.[20]
In his Comment, Saban maintains that Lim agreed to purchase the
lot for P600,000.00, which consisted of the P200,000.00 which
would be paid to Ybaez, the P50,000.00 due to her broker, the
P113,257.00 earmarked for taxes and other expenses incidental to
the sale and Sabans commission as broker for Ybaez. According to
Saban, Lim assumed the obligation to pay him his commission. He
insists that Lim and Ybaez connived to unjustly deprive him of his
commission from the negotiation of the sale.[21]
The issues for the Courts resolution are whether Saban is entitled to
receive his commission from the sale; and, assuming that Saban is
entitled thereto, whether it is Lim who is liable to pay Saban his
sales commission.
The Court gives due course to the petition, but agrees with the
result reached by the Court of Appeals.
The Court affirms the appellate courts finding that the agency was
not revoked since Ybaez requested that Lim make stop payment
orders for the checks payable to Saban only after the consummation
of the sale on March 10, 1994. At that time, Saban had already
performed his obligation as Ybaezs agent when, through his (Sabans)
efforts, Ybaez executed the Deed of Absolute Sale of the lot with Lim
and the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which
was consummated through his efforts would be a breach of his
contract of agency with Ybaez which expressly states that Saban
would be entitled to any excess in the purchase price after
deducting the P200,000.00 due to Ybaez and the transfer taxes and
other incidental expenses of the sale.[22]
In Macondray & Co. v. Sellner,[23] the Court recognized the right of
a broker to his commission for finding a suitable buyer for the sellers
property even though the seller himself consummated the sale with
the buyer.[24] The Court held that it would be in the height of
injustice to permit the principal to terminate the contract of agency
to the prejudice of the broker when he had already reaped the
benefits of the brokers efforts.
In Infante v. Cunanan, et al.,[25] the Court upheld the right of the
brokers to their commissions although the seller revoked their
authority to act in his behalf after they had found a buyer for his
properties and negotiated the sale directly with the buyer whom he
met through the brokers efforts. The Court ruled that the sellers
withdrawal in bad faith of the brokers authority cannot unjustly
deprive the brokers of their commissions as the sellers duly
constituted agents.
The pronouncements of the Court in the aforecited cases are
applicable to the present case, especially considering that Saban had
completely performed his obligations under his contract of agency
with Ybaez by finding a suitable buyer to preparing the Deed of
Absolute Sale between Ybaez and Lim and her co-vendees.
Moreover, the contract of agency very clearly states that Saban is
entitled to the excess of the mark-up of the price of the lot after
deducting Ybaezs share of P200,000.00 and the taxes and other
incidental expenses of the sale.
However, the Court does not agree with the appellate courts
pronouncement that Sabans agency was one coupled with an
interest. Under Article 1927 of the Civil Code, an agency cannot be
revoked if a bilateral contract depends upon it, or if it is the means
of fulfilling an obligation already contracted, or if a partner is
appointed manager of a partnership in the contract of partnership
and his removal from the management is unjustifiable. Stated
differently, an agency is deemed as one coupled with an interest
where it is established for the mutual benefit of the principal and of
the agent, or for the interest of the principal and of third persons,
and it cannot be revoked by the principal so long as the interest of
the agent or of a third person subsists. In an agency coupled with an
interest, the agents interest must be in the subject matter of the
power conferred and not merely an interest in the exercise of the
power because it entitles him to compensation. When an agents
interest is confined to earning his agreed compensation, the agency
is not one coupled with an interest, since an agents interest in
obtaining his compensation as such agent is an ordinary incident of
the agency relationship.[26]
Sabans entitlement to his commission having been settled, the Court
must now determine whether Lim is the proper party against whom
Saban should address his claim.
Sabans right to receive compensation for negotiating as broker for
Ybaez arises from the Agency Agreement between them. Lim is not a
party to the contract. However, the record reveals that she had
knowledge of the fact that Ybaez set the price of the lot at
P200,000.00 and that the P600,000.00the price agreed upon by her
and Sabanwas more than the amount set by Ybaez because it
included the amount for payment of taxes and for Sabans
commission as broker for Ybaez.
According to the trial court, Lim made the following payments for
the lot: P113,257.00 for taxes, P50,000.00 for her broker, and
P400.000.00 directly to Ybaez, or a total of Five Hundred Sixty Three
Thousand Two Hundred Fifty Seven Pesos (P563,257.00).[27] Lim, on
the other hand, claims that on March 10, 1994, the date of
execution of the Deed of Absolute Sale, she paid directly to Ybaez
the amount of One Hundred Thousand Pesos (P100,000.00) only,
and gave to Saban P113,257.00 for payment of taxes and P50,000.00
as his commission,[28] and One Hundred Thirty Thousand Pesos
(P130,000.00) on June 28, 1994,[29] or a total of Three Hundred
Ninety Three Thousand Two Hundred Fifty Seven Pesos
36
(P393,257.00). Ybaez, for his part, acknowledged that Lim and her
co-vendees paid him P400,000.00 which he said was the full amount
for the sale of the lot.[30] It thus appears that he received
P100,000.00 on March 10, 1994, acknowledged receipt (through
Saban) of the P113,257.00 earmarked for taxes and P50,000.00 for
commission, and received the balance of P130,000.00 on June 28,
1994. Thus, a total of P230,000.00 went directly to Ybaez.
Apparently, although the amount actually paid by Lim was
P393,257.00, Ybaez rounded off the amount to P400,000.00 and
waived the difference.
Lims act of issuing the four checks amounting to P236,743.00 in
Sabans favor belies her claim that she and her co-vendees did not
agree to purchase the lot at P600,000.00. If she did not agree
thereto, there would be no reason for her to issue those checks
which is the balance of P600,000.00 less the amounts of
P200,000.00 (due to Ybaez), P50,000.00 (commission), and the
P113,257.00 (taxes). The only logical conclusion is that Lim changed
her mind about agreeing to purchase the lot at P600,000.00 after
talking to Ybaez and ultimately realizing that Sabans commission is
even more than what Ybaez received as his share of the purchase
price as vendor. Obviously, this change of mind resulted to the
prejudice of Saban whose efforts led to the completion of the sale
between the latter, and Lim and her co-vendees. This the Court
cannot countenance.
The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is
enlightening for the facts therein are similar to the circumstances of
the present case. In that case, Consejo Infante asked Jose Cunanan
and Juan Mijares to find a buyer for her two lots and the house built
thereon for Thirty Thousand Pesos (P30,000.00) . She promised to
pay them five percent (5%) of the purchase price plus whatever
overprice they may obtain for the property. Cunanan and Mijares
offered the properties to Pio Noche who in turn expressed
willingness to purchase the properties. Cunanan and Mijares
thereafter introduced Noche to Infante. However, the latter told
Cunanan and Mijares that she was no longer interested in selling the
property and asked them to sign a document stating that their
written authority to act as her agents for the sale of the properties
was already cancelled. Subsequently, Infante sold the properties
directly to Noche for Thirty One Thousand Pesos (P31,000.00). The
Court upheld the right of Cunanan and Mijares to their commission,
explaining that
[Infante] had changed her mind even if respondent had found a
buyer who was willing to close the deal, is a matter that would not
give rise to a legal consequence if [Cunanan and Mijares] agreed to
call off the transaction in deference to the request of [Infante]. But
the situation varies if one of the parties takes advantage of the
benevolence of the other and acts in a manner that would promote
his own selfish interest. This act is unfair as would amount to bad
faith. This act cannot be sanctioned without according the party
prejudiced the reward which is due him. This is the situation in
which [Cunanan and Mijares] were placed by [Infante]. [Infante]
took advantage of the services rendered by [Cunanan and Mijares],
but believing that she could evade payment of their commission, she
made use of a ruse by inducing them to sign the deed of
cancellation.This act of subversion cannot be sanctioned and cannot
serve as basis for [Infante] to escape payment of the commission
agreed upon.[31]
The appellate court therefore had sufficient basis for concluding that
Ybaez and Lim connived to deprive Saban of his commission by
dealing with each other directly and reducing the purchase price of
the lot and leaving nothing to compensate Saban for his efforts.
Considering the circumstances surrounding the case, and the
undisputed fact that Lim had not yet paid the balance of
P200,000.00 of the purchase price of P600,000.00, it is just and
proper for her to pay Saban the balance of P200,000.00.
Furthermore, since Ybaez received a total of P230,000.00 from Lim,
or an excess of P30,000.00 from his asking price of P200,000.00,
Saban may claim such excess from Ybaezs estate, if that remedy is
still available,[32] in view of the trial courts dismissal of Sabans
complaint as against Ybaez, with Sabans express consent, due to the
latters demise on November 11, 1994.[33]
The appellate court however erred in ruling that Lim is liable on the
checks because she issued them as an accommodation party.
Section 29 of the Negotiable Instruments Law defines an
accommodation party as a person who has signed the negotiable
instrument as maker, drawer, acceptor or indorser, without
receiving value therefor, for the purpose of lending his name to
some other person. The accommodation party is liable on the
instrument to a holder for value even though the holder at the time
of taking the instrument knew him or her to be merely an
accommodation party. The accommodation party may of course
seek reimbursement from the party accommodated.[34]
As gleaned from the text of Section 29 of the Negotiable
Instruments Law, the accommodation party is one who meets all
these three requisites, viz: (1) he signed the instrument as maker,
drawer, acceptor, or indorser; (2) he did not receive value for the
signature; and (3) he signed for the purpose of lending his name to
some other person. In the case at bar, while Lim signed as drawer of
the checks she did not satisfy the two other remaining requisites.
The absence of the second requisite becomes pellucid when it is
noted at the outset that Lim issued the checks in question on
account of her transaction, along with the other purchasers, with
Ybaez which was a sale and, therefore, a reciprocal contract.
Specifically, she drew the checks in payment of the balance of the
purchase price of the lot subject of the transaction. And she had to
pay the agreed purchase price in consideration for the sale of the lot
to her and her co-vendees. In other words, the amounts covered by
the checks form part of the cause or consideration from Ybaezs end,
as vendor, while the lot represented the cause or consideration on
the side of Lim, as vendee.[35] Ergo, Lim received value for her
signature on the checks.
Neither is there any indication that Lim issued the checks for the
purpose of enabling Ybaez, or any other person for that matter, to
obtain credit or to raise money, thereby totally debunking the
presence of the third requisite of an accommodation party.
WHEREFORE, in view of the foregoing, the petition is DISMISSED.
SO ORDERED.
37
38
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of CONCEPCION
RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF
APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.
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. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the
Court of Appeals from the foregoing judgment insofar as it set aside
the sale of the one-half (1/2) share of Concepcion Rallos. The
appellate tribunal, as adverted to earlier, resolved the appeal on
November 20, 1964 in favor of the appellant corporation sustaining
the sale in question. 1 The appellee administrator, Ramon Rallos,
moved for a reconsider of the decision but the same was denied in a
resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the
death of his principal? Applied more particularly to the instant case,
We have the query. is the sale of the undivided share of Concepcion
Rallos in lot 5983 valid although it was executed by the agent after
the death of his principal? What is the law in this jurisdiction as to
the effect of the death of the principal on the authority of the agent
to act for and in behalf of the latter? Is the fact of knowledge of the
death of the principal a material factor in determining the legal
effect of an act performed after such death?
Before proceedings to the issues, We shall briefly restate certain
principles of law relevant to the matter tinder consideration.
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1. It is a basic axiom in civil law embodied in our Civil Code
that no one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent
him. 3 A contract entered into in the name of another by one who
has no authority or the legal representation or who has acted
beyond his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting party.4
Article 1403 (1) of the same Code also provides:
ART. 1403. The following contracts are unenforceable, unless they
are justified:
(1) Those entered into in the name of another person by one
who hi - been given no authority or legal representation or who has
acted beyond his powers; ...
Out of the above given principles, sprung the creation and
acceptance of the relationship of agency whereby one party, caged
the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third
persons. The essential elements of agency are: (1) there is consent,
express or implied of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person;
(3) the agents acts as a representative and not for himself, and (4)
the agent acts within the scope of his authority. 5
Agency is basically personal representative, and derivative in nature.
The authority of the agent to act emanates from the powers granted
to him by his principal; his act is the act of the principal if done
within the scope of the authority. Qui facit per alium facit se. "He
who acts through another acts himself". 6
2. There are various ways of extinguishing agency, 7 but her
We are concerned only with one cause death of the principal
Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art.
1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of
the principal or of the agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between Principal
and agent, agency is extinguished by the death of the principal or
the agent. This is the law in this jurisdiction.8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains
that the rationale for the law is found in the juridical basis of agency
which is representation Them being an in. integration of the
personality of the principal integration that of the agent it is not
possible for the representation to continue to exist once the death
of either is establish. Pothier agrees with Manresa that by reason of
the nature of agency, death is a necessary cause for its extinction.
Laurent says that the juridical tie between the principal and the
agent is severed ipso jure upon the death of either without necessity
for the heirs of the fact to notify the agent of the fact of death of the
former. 9
The same rule prevails at common law the death of the principal
effects instantaneous and absolute revocation of the authority of
the agent unless the Power be coupled with an interest. 10 This is
the prevalent rule in American Jurisprudence where it is well-settled
that a power without an interest confer. red upon an agent is
dissolved by the principal's death, and any attempted execution of
the power afterward is not binding on the heirs or representatives of
the deceased. 11
3. Is the general rule provided for in Article 1919 that the
death of the principal or of the agent extinguishes the agency,
subject to any exception, and if so, is the instant case within that
exception? That is the determinative point in issue in this litigation.
It is the contention of respondent corporation which was sustained
by respondent court that notwithstanding the death of the principal
Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in
selling the former's sham in the property is valid and enforceable
inasmuch as the corporation acted in good faith in buying the
property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to
the general rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect even after
the death of the principal, if it has been constituted in the common
interest of the latter and of the agent, or in the interest of a third
person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge
of the death of the principal or of any other cause which
extinguishes the agency, is valid and shall be fully effective with
respect to third persons who may have contracted with him in good.
faith.
Article 1930 is not involved because admittedly the special power of
attorney executed in favor of Simeon Rallos was not coupled with an
interest.
Article 1931 is the applicable law. Under this provision, an act done
by the agent after the death of his principal is valid and effective
only under two conditions, viz: (1) that the agent acted without
knowledge of the death of the principal and (2) that the third person
who contracted with the agent himself acted in good faith. Good
faith here means that the third person was not aware of the death
of the principal at the time he contracted with said agent. These two
requisites must concur the absence of one will render the act of the
agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon
Rallos, knew of the death of his principal at the time he sold the
latter's share in Lot No. 5983 to respondent corporation. The
knowledge of the death is clearly to be inferred from the pleadings
filed by Simon Rallos before the trial court. 12 That Simeon Rallos
knew of the death of his sister Concepcion is also a finding of fact of
the court a quo 13 and of respondent appellate court when the
latter stated that Simon Rallos 'must have known of the death of his
sister, and yet he proceeded with the sale of the lot in the name of
both his sisters Concepcion and Gerundia Rallos without informing
appellant (the realty corporation) of the death of the former. 14
On the basis of the established knowledge of Simon Rallos
concerning the death of his principal Concepcion Rallos, Article 1931
of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death
of his principal; it is not enough that the third person acted in good
faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article
1738 of the old Civil rode now Art. 1931 of the new Civil Code
sustained the validity , of a sale made after the death of the principal
40
because it was not shown that the agent knew of his principal's
demise. 15 To the same effect is the case of Herrera, et al., v. Luy
Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera
the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936,
plaintiffs presented no proof and there is no indication in the record,
that the agent Luy Kim Guan was aware of the death of his principal
at the time he sold the property. The death 6f the principal does not
render the act of an agent unenforceable, where the latter had no
knowledge of such extinguishment of the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent
consideration the Court of Appeals reasoned out that there is no
provision in the Code which provides that whatever is done by an
agent having knowledge of the death of his principal is void even
with respect to third persons who may have contracted with him in
good faith and without knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores
the existence of the general rule enunciated in Article 1919 that the
death of the principal extinguishes the agency. That being the
general rule it follows a fortiori that any act of an agent after the
death of his principal is void ab initio unless the same fags under the
exception provided for in the aforementioned Articles 1930 and
1931. Article 1931, being an exception to the general rule, is to be
strictly construed, it is not to be given an interpretation or
application beyond the clear import of its terms for otherwise the
courts will be involved in a process of legislation outside of their
judicial function.
5. Another argument advanced by respondent court is that
the vendee acting in good faith relied on the power of attorney
which was duly registered on the original certificate of title recorded
in the Register of Deeds of the province of Cebu, that no notice of
the death was aver annotated on said certificate of title by the heirs
of the principal and accordingly they must suffer the consequences
of such omission. 17
To support such argument reference is made to a portion in
Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of contracting with
certain persons, the revocation must be made known to them. But if
the agency is general iii nature, without reference to particular
person with whom the agent is to contract, it is sufficient that the
principal exercise due diligence to make the revocation of the
agency publicity known.
In case of a general power which does not specify the persons to
whom represents' on should be made, it is the general opinion that
all acts, executed with third persons who contracted in good faith,
Without knowledge of the revocation, are valid. In such case, the
principal may exercise his right against the agent, who, knowing of
the revocation, continued to assume a personality which he no
longer had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the
principal as a mode of terminating an agency which is to be
distinguished from revocation by operation of law such as death of
the principal which obtains in this case. On page six of this Opinion
We stressed that by reason of the very nature of the relationship
between principal and agent, agency is extinguished ipso jure upon
the death of either principal or agent. Although a revocation of a
power of attorney to be effective must be communicated to the
parties concerned, 18 yet a revocation by operation of law, such as
by death of the principal is, as a rule, instantaneously effective
inasmuch as "by legal fiction the agent's exercise of authority is
regarded as an execution of the principal's continuing will. 19 With
death, the principal's will ceases or is the of authority is
extinguished.
The Civil Code does not impose a duty on the heirs to notify the
agent of the death of the principal What the Code provides in Article
1932 is that, if the agent die his heirs must notify the principal
thereof, and in the meantime adopt such measures as the
circumstances may demand in the interest of the latter. Hence, the
fact that no notice of the death of the principal was registered on
the certificate of title of the property in the Office of the Register of
Deeds, is not fatal to the cause of the estate of the principal
6. Holding that the good faith of a third person in said with
an agent affords the former sufficient protection, respondent court
drew a "parallel" between the instant case and that of an innocent
purchaser for value of a land, stating that if a person purchases a
registered land from one who acquired it in bad faith even to the
extent of foregoing or falsifying the deed of sale in his favor the
registered owner has no recourse against such innocent purchaser
for value but only against the forger. 20
To support the correctness of this respondent corporation, in its
brief, cites the case of Blondeau, et al., v. Nano and Vallejo, 61 Phil.
625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil.
630, one Vallejo was a co-owner of lands with Agustin Nano. The
latter had a power of attorney supposedly executed by Vallejo Nano
in his favor. Vallejo delivered to Nano his land titles. The power was
registered in the Office of the Register of Deeds. When the lawyer-
husband of Angela Blondeau went to that Office, he found all in
order including the power of attorney. But Vallejo denied having
executed the power The lower court sustained Vallejo and the
plaintiff Blondeau appealed. Reversing the decision of the court a
quo, the Supreme Court, quoting the ruling in the case of Eliason v.
Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of the
defendant- appellee must be overruled. Agustin Nano had
possession of Jose Vallejo's title papers. Without those title papers
handed over to Nano with the acquiescence of Vallejo, a fraud could
not have been perpetuated. When Fernando de la Canters, a
member of the Philippine Bar and the husband of Angela Blondeau,
the principal plaintiff, searched the registration record, he found
them in due form including the power of attorney of Vallajo in favor
of Nano. If this had not been so and if thereafter the proper notation
of the encumbrance could not have been made, Angela Blondeau
would not have sent P12,000.00 to the defendant Vallejo.' An
executed transfer of registered lands placed by the registered owner
thereof in the hands of another operates as a representation to a
third party that the holder of the transfer is authorized to deal with
the land.
As between two innocent persons, one of whom must suffer the
consequence of a breach of trust, the one who made it possible by
his act of coincidence bear the loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case
before Us because here We are confronted with one who admittedly
was an agent of his sister and who sold the property of the latter
after her death with full knowledge of such death. The situation is
41
expressly covered by a provision of law on agency the terms of
which are clear and unmistakable leaving no room for an
interpretation contrary to its tenor, in the same manner that the
ruling in Blondeau and the cases cited therein found a basis in
Section 55 of the Land Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any
voluntary instrument is presented for registration shall be conclusive
authority from the registered owner to the register of deeds to
enter a new certificate or to make a memorandum of registration in
accordance with such instruments, and the new certificate or
memorandum Shall be binding upon the registered owner and upon
all persons claiming under him in favor of every purchaser for value
and in good faith: Provided however, That in all cases of registration
provided by fraud, the owner may pursue all his legal and equitable
remedies against the parties to such fraud without prejudice,
however, to the right, of any innocent holder for value of a
certificate of title. ... (Act No. 496 as amended)
7. One last point raised by respondent corporation in support
of the appealed decision is an 1842 ruling of the Supreme Court of
Pennsylvania in Cassiday v. McKenzie wherein payments made to an
agent after the death of the principal were held to be "good", "the
parties being ignorant of the death". Let us take note that the
Opinion of Justice Rogers was premised on the statement that the
parties were ignorant of the death of the principal. We quote from
that decision the following:
... Here the precise point is, whether a payment to an agent when
the Parties are ignorant of the death is a good payment. in addition
to the case in Campbell before cited, the same judge Lord
Ellenboruogh, has decided in 5 Esp. 117, the general question that a
payment after the death of principal is not good. Thus, a payment of
sailor's wages to a person having a power of attorney to receive
them, has been held void when the principal was dead at the time of
the payment. If, by this case, it is meant merely to decide the
general proposition that by operation of law the death of the
principal is a revocation of the powers of the attorney, no objection
can be taken to it. But if it intended to say that his principle applies
where there was 110 notice of death, or opportunity of twice I must
be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the
accident circumstance of the death of the principal, which he did not
know, and which by no possibility could he know? It would be unjust
to the agent and unjust to the debtor. In the civil law, the acts of the
agent, done bona fide in ignorance of the death of his principal are
held valid and binding upon the heirs of the latter. The same rule
holds in the Scottish law, and I cannot believe the common law is so
unreasonable... (39 Am. Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v.
McKenzie may evoke, mention may be made that the above
represents the minority view in American jurisprudence. Thus in
Clayton v. Merrett, the Court said.
There are several cases which seem to hold that although, as a
general principle, death revokes an agency and renders null every
act of the agent thereafter performed, yet that where a payment
has been made in ignorance of the death, such payment will be
good. The leading case so holding is that of Cassiday v. McKenzie, 4
Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this
view ii broadly announced. It is referred to, and seems to have been
followed, in the case of Dick v. Page, 17 Mo. 234, 57 AmD 267; but in
this latter case it appeared that the estate of the deceased principal
had received the benefit of the money paid, and therefore the
representative of the estate might well have been held to be
estopped from suing for it again. . . . These cases, in so far, at least,
as they announce the doctrine under discussion, are exceptional.
The Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S.
282, 39 AmD 76), is believed to stand almost, if not quite, alone in
announcing the principle in its broadest scope. (52, Misc. 353, 357,
cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and
pointing out that the opinion, except so far as it related to the
particular facts, was a mere dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded more
as an extrajudicial indication of his views on the general subject,
than as the adjudication of the Court upon the point in question. But
accordingly all power weight to this opinion, as the judgment of a of
great respectability, it stands alone among common law authorities
and is opposed by an array too formidable to permit us to following
it. (15 Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v.
McKenzie in American jurisprudence, no such conflict exists in our
own for the simple reason that our statute, the Civil Code, expressly
provides for two exceptions to the general rule that death of the
principal revokes ipso jure the agency, to wit: (1) that the agency is
coupled with an interest (Art 1930), and (2) that the act of the agent
was executed without knowledge of the death of the principal and
the third person who contracted with the agent acted also in good
faith (Art. 1931). Exception No. 2 is the doctrine followed in
Cassiday, and again We stress the indispensable requirement that
the agent acted without knowledge or notice of the death of the
principal In the case before Us the agent Ramon Rallos executed the
sale notwithstanding notice of the death of his principal Accordingly,
the agent's act is unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of
respondent appellate court, and We affirm en toto the judgment
rendered by then Hon. Amador E. Gomez of the Court of First
Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs
against respondent realty corporation at all instances.
So Ordered.
42