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G.R. No.

L-24332 January 31, 1978

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,


Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.


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

Hence, this Petition for Review on certiorari.

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

On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the sale of the
undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation
be cancelled and another title be issued in the names of the corporation and the "Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by way of attorney's fees and payment of
costs of suit. Named party defendants were Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was dropped from the complaint. The complaint was
amended twice; defendant Corporation's Answer contained a crossclaim against its co-defendant, Simon Rallos while the latter filed third-party complaint against his sister, Gerundia Rallos While the case was pending in
the trial court, both Simon and his sister Gerundia died and they were substituted by the respective administrators of their estates.

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

A. On Plaintiffs Complaint

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

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

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

(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00; and

(5) Ordering both defendants to pay the costs jointly and severally.

B. On GO CHANTS Cross-Claim:

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

(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons Realty Corporation the sum of P500.00.

C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of Simeon Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia Rallos:

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

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

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

Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter tinder consideration.

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

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

(1) Those entered into in the name of another person by one who hi - been given no authority or legal representation or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby one party, caged the principal (mandante), authorizes another, called the agent (mandatario), to act for and in
his behalf in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agents acts as a representative and not for himself, and (4) the agent acts within the scope of his authority. 5

Agency is basically personal representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of
the authority. Qui facit per alium facit se. "He who acts through another acts himself". 6

2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil
Code provides:

ART. 1919. Agency is extinguished.

xxx xxx xxx

3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ... (Emphasis supplied)

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

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

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

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

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

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

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

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

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

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

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

... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is no indication in the record, that the agent Luy Kim Guan was aware of the death of his principal at the time he sold
the property. The death 6f the principal does not render the act of an agent unenforceable, where the latter had no knowledge of such extinguishment of the agency. (1 SCRA 406, 412)

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

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

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

To support such argument reference is made to a portion in Manresa's Commentaries which We quote:

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

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

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

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

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

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

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

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

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

xxx xxx xxx

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

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

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

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

To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be made that the above represents the minority view in American jurisprudence. Thus in Clayton v. Merrett, the Court

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.

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.
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Petitioner, DECISION

- versus - CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision[1] of the Court of Appeals dated 10 August 2004 and its
and ERWIN Resolution[2] dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez. The
Respondents. assailed Decision and Resolution affirmed the Order[3] dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of

respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.

The generative facts of the case are as follows:

Petitioner is engaged in the business of importation and distribution of various European industrial equipment for customers here in the Philippines. It has as one of its customers Impact Systems Sales (Impact

Systems) which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the court a quo in said capacity.

From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to ninety-one thousand three hundred thirty-eight (P91,338.00) pesos. Subsequently, respondents sought to buy from

petitioner one unit of sludge pump valued at P250,000.00 with respondents making a down payment of fifty thousand pesos (P50,000.00).[4] When the sludge pump arrived from the United Kingdom, petitioner refused to

deliver the same to respondents without their having fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of

Assignment of receivables in favor of petitioner, the pertinent part of which states:

1.) That ASSIGNOR[5] has an outstanding receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment for the purchase
of one unit of Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the ASSIGNEE [6] the said receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR is the lawful recipient;

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

Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump as shown by Invoice No. 12034 dated 30 June 1995.[8]

Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29 as evidenced by Check

Voucher No. 0933[9] prepared by said power company and an official receipt dated 15 August 1995 issued by Impact Systems.[10] Alarmed by this development, petitioner made several demands upon respondents to pay

their obligations. As a result, respondents were able to make partial payments to petitioner. On 7 October 1996, petitioners counsel sent respondents a final demand letter wherein it was stated that as of 11 June 1996,

respondents total obligations stood at P295,000.00 excluding interests and attorneys fees.[11] Because of respondents failure to abide by said final demand letter, petitioner instituted a complaint for sum of money, damages,

with application for preliminary attachment against herein respondents before the Regional Trial Court of Cebu City.[12]

On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of preliminary attachment. [13]

On 25 June 1997, respondent EDWIN filed his Answer[14] wherein he admitted petitioners allegations with respect to the sale transactions entered into by Impact Systems and petitioner between January and

April 1995. He, however, disputed the total amount of Impact Systems indebtedness to petitioner which, according to him, amounted to only P220,000.00.[16]

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in interest in this case.According to him, he was acting as mere agent of his principal, which was the Impact

Systems, in his transaction with petitioner and the latter was very much aware of this fact. In support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioners Complaint stating

1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the proprietor of a single proprietorship business known as Impact Systems Sales (Impact Systems for brevity), with office
located at 46-A del Rosario Street, Cebu City, where he may be served summons and other processes of the Honorable Court.

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the Sales Manager of Impact Systems and is sued in this action in such capacity. [17]

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for Summary Judgment. The trial court granted petitioners motion to declare respondent ERWIN in default for

his failure to answer within the prescribed period despite the opportunity granted [18] but it denied petitioners motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16

October 2001.[19] However, the conduct of the pre-trial conference was deferred pending the resolution by the trial court of the special and affirmative defenses raised by respondent EDWIN.[20]

After the filing of respondent EDWINs Memorandum[21] in support of his special and affirmative defenses and petitioners opposition [22] thereto, the trial court rendered its assailed Order dated 29 January

2002 dropping respondent EDWIN as a party defendant in this case. According to the trial court
A study of Annex G to the complaint shows that in the Deed of Assignment, defendant Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a
single proprietorship entity and the complaint shows that defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is represented by its general manager Alberto de Jesus in the contract which is
dated June 28, 1995. A study of Annex H to the complaint reveals that [Impact] Systems Sales which is owned solely by defendant Erwin H. Cuizon, made a down payment of P50,000.00 that Annex H is dated
June 30, 1995 or two days after the execution of Annex G, thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further show that plaintiff knew that [Impact] Systems
Sales, the principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted the down payment of P50,000.00. Plaintiff, therefore, cannot say that it was deceived by defendant Edwin B. Cuizon, since
in the instant case the principal has ratified the act of its agent and plaintiff knew about said ratification. Plaintiff could not say that the subject contract was entered into by Edwin B. Cuizon in excess of his
powers since [Impact] Systems Sales made a down payment of P50,000.00 two days later.

In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party defendant. [23]

Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals which, however, affirmed the 29 January 2002 Order of the court a quo. The dispositive portion of the now assailed

Decision of the Court of Appeals states:

WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the public respondent in his Order dated January 29, 2002, it is hereby AFFIRMED.[24]

Petitioners motion for reconsideration was denied by the appellate court in its Resolution promulgated on 17 March 2005.Hence, the present petition raising, as sole ground for its allowance, the following:


To support its argument, petitioner points to Article 1897 of the New Civil Code which states:

Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient
notice of his powers.

Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs act of collecting the receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of Assignment signed

by EDWIN on behalf of Impact Systems. While said collection did not revoke the agency relations of respondents, petitioner insists that ERWINs action repudiated EDWINs power to sign the Deed of Assignment. As EDWIN

did not sufficiently notify it of the extent of his powers as an agent, petitioner claims that he should be made personally liable for the obligations of his principal.[26]

Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into selling the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner directs the

attention of this Court to the fact that respondents are bound not only by their principal and agent relationship but are in fact full-blooded brothers whose successive contravening acts bore the obvious signs of conspiracy

to defraud petitioner.[27]

In his Comment,[28] respondent EDWIN again posits the argument that he is not a real party in interest in this case and it was proper for the trial court to have him dropped as a defendant. He insists that he was a mere agent

of Impact Systems which is owned by ERWIN and that his status as such is known even to petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the said business

venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly states that he was acting as a representative of Impact Systems in said transaction.

We do not find merit in the petition.

In a contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another with the latters consent. [29] The underlying principle of the contract of agency is to

accomplish results by using the services of others to do a great variety of things like selling, buying, manufacturing, and transporting. [30] Its purpose is to extend the personality of the principal or the party for whom another

acts and from whom he or she derives the authority to act.[31] It is said that the basis of agency is representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said

acts have the same legal effect as if they were personally executed by the principal. [32] By this legal fiction, the actual or real absence of the principal is converted into his legal or juridical presence qui facit per alium facit per


The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a

representative and not for himself; (4) the agent acts within the scope of his authority. [34]

In this case, the parties do not dispute the existence of the agency relationship between respondents ERWIN as principal and EDWIN as agent. The only cause of the present dispute is whether respondent EDWIN exceeded

his authority when he signed the Deed of Assignment thereby binding himself personally to pay the obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted beyond the authority granted by his

principal and he should therefore bear the effect of his deed pursuant to Article 1897 of the New Civil Code.

We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the party with whom he contracts. The same provision, however, presents two instances when an agent becomes

personally liable to a third person. The first is when he expressly binds himself to the obligation and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he does not give the third

party sufficient notice of his powers. We hold that respondent EDWIN does not fall within any of the exceptions contained in this provision.

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the grant of broad

powers with which to conduct the business of the principal, thus:

The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such a position presupposes a degree of confidence reposed and investiture with liberal
powers for the exercise of judgment and discretion in transactions and concerns which are incidental or appurtenant to the business entrusted to his care and management. In the absence of an agreement to
the contrary, a managing agent may enter into any contracts that he deems reasonably necessary or requisite for the protection of the interests of his principal entrusted to his management. x x x.[35]

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless it

received, in full, the payment for Impact Systems indebtedness. [36] We may very well assume that Impact Systems desperately needed the sludge pump for its business since after it paid the amount of fifty thousand pesos

(P50,000.00) as down payment on 3 March 1995,[37] it still persisted in negotiating with petitioner which culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28 June

1995.[38] The significant amount of time spent on the negotiation for the sale of the sludge pump underscores Impact Systems perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind that

respondent EDWINs participation in the Deed of Assignment was reasonably necessary or was required in order for him to protect the business of his principal. Had he not acted in the way he did, the business of his

principal would have been adversely affected and he would have violated his fiduciary relation with his principal.

We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil Code upon

which petitioner anchors its claim against respondent EDWIN does not hold that in case of excess of authority, both the agent and the principal are liable to the other contracting party. [39] To reiterate, the first part of Article

1897 declares that the principal is liable in cases when the agent acted within the bounds of his authority. Under this, the agent is completely absolved of any liability. The second part of the said provision presents the

situations when the agent himself becomes liable to a third party when he expressly binds himself or he exceeds the limits of his authority without giving notice of his powers to the third person. However, it must be pointed

out that in case of excess of authority by the agent, like what petitioner claims exists here, the law does not say that a third person can recover from both the principal and the agent.[40]

As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any right nor incur any liability arising from the Deed of Assignment, it follows that he is not a real party in interest who

should be impleaded in this case. A real party in interest is one who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit.[41] In this respect, we sustain his exclusion as a

defendant in the suit before the court a quo.

WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming the Order dated 29

January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED.

Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the continuation of the proceedings against respondent ERWIN CUIZON.



TUAZON, Spouses ANASTACIO and Present:
Petitioners, Panganiban, J.,
- versus - Carpio Morales, and
Garcia, JJ
Respondents. July 14, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --- -- -- -- -- x


tripped of nonessentials, the present case involves the collection of a sum of money. Specifically, this case arose from the failure of petitioners to pay respondents predecessor-in-interest. This fact was shown by the

non-encashment of checks issued by a third person, but indorsed by herein Petitioner Maria Tuazon in favor of the said predecessor. Under these circumstances, to enable respondents to collect on the indebtedness,

the check drawer need not be impleaded in the Complaint. Thus, the suit is directed, not against the drawer, but against the debtor who indorsed the checks in payment of the obligation.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the July 31, 2002 Decision[2]of the Court of Appeals (CA) in CA-GR CV No. 46535. The decretal portion of the assailed Decision reads:

WHEREFORE, the appeal is DISMISSED and the appealed decision is AFFIRMED.

On the other hand, the affirmed Decision[3] of Branch 34 of the Regional Trial Court (RTC) of Gapan, Nueva Ecija, disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, ordering the defendants spouses Leonilo Tuazon and Maria Tuazon to pay the plaintiffs, as follows:

1. The sum of P1,750,050.00, with interests from the filing of the second amended complaint;

2. The sum of P50,000.00, as attorneys fees;

3. The sum of P20,000.00, as moral damages

4. And to pay the costs of suit.

x x x x x x x x x[4]

The Facts

The facts are narrated by the CA as follows:

[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988, spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from [the deceased Bartolome]
Ramos [predecessor-in-interest of respondents]. That of this [quantity,] x x x only 4,437 cavans [have been paid for so far], leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment therefor, the
spouses Tuazon issued x x x [several] Traders Royal Bank checks.


[B]ut when these [checks] were encashed, all of the checks bounced due to insufficiency of funds. [Respondents] advanced that before issuing said checks[,] spouses Tuazon already knew that they had no
available fund to support the checks, and they failed to provide for the payment of these despite repeated demands made on them.

[Respondents] averred that because spouses Tuazon anticipated that they would be sued, they conspired with the other [defendants] to defraud them as creditors by executing x x x fictitious sales of their
properties. They executed x x x simulated sale[s] [of three lots] in favor of the x x x spouses Buenaventura x x x[,] as well as their residential lot and the house thereon[,] all located at Nueva Ecija, and another
simulated deed of sale dated July 12, 1988 of a Stake Toyota registered with the Land Transportation Office of Cabanatuan City on September 7, 1988. [Co-petitioner] Melecio Tuazon, a son of spouses Tuazon,
registered a fictitious Deed of Sale on July 19, 1988 x x x over a residential lot located at Nueva Ecija. Another simulated sale of a Toyota Willys was executed on January 25, 1988 in favor of their other son,
[co-petitioner] Alejandro Tuazon x x x. As a result of the said sales, the titles of these properties issued in the names of spouses Tuazon were cancelled and new ones were issued in favor of the [co-]defendants
spouses Buenaventura, Alejandro Tuazon and Melecio Tuazon. Resultantly, by the said ante-dated and simulated sales and the corresponding transfers there was no more property left registered in the names
of spouses Tuazon answerable to creditors, to the damage and prejudice of [respondents].

For their part, defendants denied having purchased x x x rice from [Bartolome] Ramos. They alleged that it was Magdalena Ramos, wife of said deceased, who owned and traded the merchandise
and Maria Tuazon was merely her agent. They argued that it was Evangeline Santos who was the buyer of the rice and issued the checks to Maria Tuazon as payments therefor. In good faith[,] the checks were
received [by petitioner] from Evangeline Santos and turned over to Ramos without knowing that these were not funded. And it is for this reason that [petitioners] have been insisting on the inclusion of
Evangeline Santos as an indispensable party, and her non-inclusion was a fatal error. Refuting that the sale of several properties were fictitious or simulated, spouses Tuazon contended that these were sold
because they were then meeting financial difficulties but the disposals were made for value and in good faith and done before the filing of the instant suit. To dispute the contention of plaintiffs that they were
the buyers of the rice, they argued that there was no sales invoice, official receipts or like evidence to prove this. They assert that they were merely agents and should not be held answerable. [5]

The corresponding civil and criminal cases were filed by respondents against Spouses Tuazon. Those cases were later consolidated and amended to include Spouses Anastacio and Mary Buenaventura, with Alejandro Tuazon

and Melecio Tuazon as additional defendants. Having passed away before the pretrial, Bartolome Ramos was substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the case, petitioners moved to file a third-party complaint against her. Allegedly, she was primarily liable to respondents, because she was the one who had

purchased the merchandise from their predecessor, as evidenced by the fact that the checks had been drawn in her name. The RTC, however, denied petitioners Motion.

Since the trial court acquitted petitioners in all three of the consolidated criminal cases, they appealed only its decision finding them civilly liable to respondents.

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioners had failed to prove the existence of an agency between respondents and Spouses Tuazon. The appellate court disbelieved petitioners contention that Evangeline Santos should

have been impleaded as an indispensable party. Inasmuch as all the checks had been indorsed by Maria Tuazon, who thereby became liable to subsequent holders for the amounts stated in those checks, there was no need

to implead Santos.

Hence, this Petition.[6]


Petitioners raise the following issues for our consideration:

1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners are not agents of the respondents.

2. Whether or not the Honorable Court of Appeals erred in rendering judgment against the petitioners despite x x x the failure of the respondents to include in their action Evangeline Santos,
an indispensable party to the suit.[7]

The Courts Ruling

The Petition is unmeritorious.

First Issue:

Well-entrenched is the rule that the Supreme Courts role in a petition under Rule 45 is limited to reviewing errors of law allegedly committed by the Court of Appeals. Factual findings of the trial court, especially when

affirmed by the CA, are conclusive on the parties and this Court. [8] Petitioners have not given us sufficient reasons to deviate from this rule.
In a contract of agency, one binds oneself to render some service or to do something in representation or on behalf of another, with the latters consent or authority.[9] The following are the elements of agency:

(1) the parties consent, express or implied, to establish the relationship; (2) the object, which is the execution of a juridical act in relation to a third person; (3) the representation, by which the one who acts as an agent does

so, not for oneself, but as a representative; (4) the limitation that the agent acts within the scope of his or her authority.[10] As the basis of agency is representation, there must be, on the part of the principal, an actual

intention to appoint, an intention naturally inferable from the principals words or actions. In the same manner, there must be an intention on the part of the agent to accept the appointment and act upon it. Absent such

mutual intent, there is generally no agency.[11]

This Court finds no reversible error in the findings of the courts a quo that petitioners were the rice buyers themselves; they were not mere agents of respondents in their rice dealership. The question of

whether a contract is one of sale or of agency depends on the intention of the parties. [12]

The declarations of agents alone are generally insufficient to establish the fact or extent of their authority. [13]The law makes no presumption of agency; proving its existence, nature and extent is incumbent

upon the person alleging it.[14] In the present case, petitioners raise the fact of agency as an affirmative defense, yet fail to prove its existence.

The Court notes that petitioners, on their own behalf, sued Evangeline Santos for collection of the amounts represented by the bounced checks, in a separate civil case that they sought to be consolidated with

the current one. If, as they claim, they were mere agents of respondents, petitioners should have brought the suit against Santos for and on behalf of their alleged principal, in accordance with Section 2 of Rule 3 of the Rules

on Civil Procedure.[15]Their filing a suit against her in their own names negates their claim that they acted as mere agents in selling the rice obtained from Bartolome Ramos.

Second Issue:
Indispensable Party

Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be impleaded as an indispensable party. They insist that respondents Complaint against them is based on the bouncing checks she issued;

hence, they point to her as the person primarily liable for the obligation.

We hold that respondents cause of action is clearly founded on petitioners failure to pay the purchase price of the rice. The trial court held that Petitioner Maria Tuazon had indorsed the questioned checks in favor of

respondents, in accordance with Sections 31 and 63 of the Negotiable Instruments Law.[16] That Santos was the drawer of the checks is thus immaterial to the respondents cause of action.
As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks were to be accepted or paid, or both, according to their tenor; and that in case they were dishonored, she would pay the corresponding

amount.[17] After an instrument is dishonored by nonpayment, indorsers cease to be merely secondarily liable; they become principal debtors whose liability becomes identical to that of the original obligor. The holder of a

negotiable instrument need not even proceed against the maker before suing the indorser. [18] Clearly, Evangeline Santos -- as the drawer of the checks -- is not an indispensable party in an action against Maria Tuazon, the

indorser of the checks.

Indispensable parties are defined as parties in interest without whom no final determination can be had. [19] The instant case was originally one for the collection of the purchase price of the rice bought by Maria Tuazon from

respondents predecessor. In this case, it is clear that there is no privity of contract between respondents and Santos. Hence, a final determination of the rights and interest of the parties may be made without any need to

implead her.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioners.



MANAGEMENT SERVICES, INC. x - - - - - - - - - - - - -- - - - - - - - - -
Petitioner, Present: -----------------------

- versus -
DINOPOL, in his capacity as Labor Arbiter, NLRC; NCR, Arbitration Branch, Quezon City


Sunace International Management Services (Sunace), a corporation duly organized and existing under the laws of the Philippines, deployed to Taiwan Divina A. Montehermozo (Divina) as a domestic helper under a 12-month

contract effective February 1, 1997.[1] The deployment was with the assistance of a Taiwanese broker, Edmund Wang, President of Jet Crown International Co., Ltd.

After her 12-month contract expired on February 1, 1998, Divina continued working for her Taiwanese employer, Hang Rui Xiong, for two more years, after which she returned to the Philippines on February

4, 2000.

Shortly after her return or on February 14, 2000, Divina filed a complaint[2] before the National Labor Relations Commission (NLRC) against Sunace, one Adelaide Perez, the Taiwanese broker, and the employer-

foreign principal alleging that she was jailed for three months and that she was underpaid.

The following day or on February 15, 2000, Labor Arbitration Associate Regina T. Gavin issued Summons [3] to the Manager of Sunace, furnishing it with a copy of Divinas complaint and directing it to appear for

mandatory conference on February 28, 2000.

The scheduled mandatory conference was reset. It appears to have been concluded, however.

On April 6, 2000, Divina filed her Position Paper[4] claiming that under her original one-year contract and the 2-year extended contract which was with the knowledge and consent of Sunace, the following

amounts representing income tax and savings were deducted:

Year Deduction for Deduction for Savings

Income Tax

1997 NT10,450.00 NT23,100.00

1998 NT9,500.00 NT36,000.00
1999 NT13,300.00 NT36,000.00;[5]
and while the amounts deducted in 1997 were refunded to her, those deducted in 1998 and 1999 were not. On even date, Sunace, by its Proprietor/General Manager Maria Luisa Olarte, filed its Verified Answer and Position

Paper,[6] claiming as follows, quoted verbatim:



3. Complainant could not anymore claim nor entitled for the refund of her 24 months savings as she already took back her saving already last year and the employer did not deduct any money from her salary,
in accordance with a Fascimile Message from the respondent SUNACEs employer, Jet Crown International Co. Ltd., a xerographic copy of which is herewith attached as ANNEX 2 hereof;



4. There is no basis for the grant of tax refund to the complainant as the she finished her one year contract and hence, was not illegally dismissed by her employer. She could only lay claim over the tax refund
or much more be awarded of damages such as attorneys fees as said reliefs are available only when the dismissal of a migrant worker is without just valid or lawful cause as defined by law or

The rationales behind the award of tax refund and payment of attorneys fees is not to enrich the complainant but to compensate him for actual injury suffered. Complainant did not suffer injury, hence, does
not deserve to be compensated for whatever kind of damages.

Hence, the complainant has NO cause of action against respondent SUNACE for monetary claims, considering that she has been totally paid of all the monetary benefits due her under her Employment Contract to
her full satisfaction.

6. Furthermore, the tax deducted from her salary is in compliance with the Taiwanese law, which respondent SUNACE has no control and complainant has to obey and this
Honorable Office has no authority/jurisdiction to intervene because the power to tax is a sovereign power which the Taiwanese Government is supreme in its own territory. The sovereign power
of taxation of a state is recognized under international law and among sovereign states.

7. That respondent SUNACE respectfully reserves the right to file supplemental Verified Answer and/or Position Paper to substantiate its prayer for the dismissal of the above case against the herein respondent. AND

x x x x (Emphasis and underscoring supplied)

Reacting to Divinas Position Paper, Sunace filed on April 25, 2000 an . . . ANSWER TO COMPLAINANTS POSITION PAPER[7] alleging that Divinas 2-year extension of her contract was without its knowledge and consent, hence,

it had no liability attaching to any claim arising therefrom, and Divina in fact executed a Waiver/Quitclaim and Release of Responsibility and an Affidavit of Desistance, copy of each document was annexed to said . . .


To Sunaces . . . ANSWER TO COMPLAINANTS POSITION PAPER, Divina filed a 2-page reply,[8] without, however, refuting Sunaces disclaimer of knowledge of the extension of her contract and without saying anything about

the Release, Waiver and Quitclaim and Affidavit of Desistance.

The Labor Arbiter, rejected Sunaces claim that the extension of Divinas contract for two more years was without its knowledge and consent in this wise:

We reject Sunaces submission that it should not be held responsible for the amount withheld because her contract was extended for 2 more years without its knowledge
and consent because as Annex B[9] shows, Sunace and Edmund Wang have not stopped communicating with each other and yet the matter of the contracts extension and Sunaces alleged
non-consent thereto has not been categorically established.

What Sunace should have done was to write to POEA about the extension and its objection thereto, copy furnished the complainant herself, her foreign employer, Hang
Rui Xiong and the Taiwanese broker, Edmund Wang.

And because it did not, it is presumed to have consented to the extension and should be liable for anything that resulted thereform (sic).[10] (Underscoring supplied)

The Labor Arbiter rejected too Sunaces argument that it is not liable on account of Divinas execution of a Waiver and Quitclaim and an Affidavit of Desistance. Observed the Labor Arbiter:

Should the parties arrive at any agreement as to the whole or any part of the dispute, the same shall be reduced to writing and signed by the parties and their respective counsel (sic), if
any, before the Labor Arbiter.

The settlement shall be approved by the Labor Arbiter after being satisfied that it was voluntarily entered into by the parties and after having explained to them the terms and
consequences thereof.

A compromise agreement entered into by the parties not in the presence of the Labor Arbiter before whom the case is pending shall be approved by him, if after confronting the parties,
particularly the complainants, he is satisfied that they understand the terms and conditions of the settlement and that it was entered into freely voluntarily (sic) by them and the agreement is not
contrary to law, morals, and public policy.

And because no consideration is indicated in the documents, we strike them down as contrary to law, morals, and public policy.[11]

He accordingly decided in favor of Divina, by decision of October 9, 2000,[12] the dispositive portion of which reads:

Wherefore, judgment is hereby rendered ordering respondents SUNACE INTERNATIONAL SERVICES and its owner ADELAIDA PERGE, both in their personal capacities and as agent of
Hang Rui Xiong/Edmund Wang to jointly and severally pay complainant DIVINA A. MONTEHERMOZO the sum of NT91,950.00 in its peso equivalent at the date of payment, as refund for the amounts
which she is hereby adjudged entitled to as earlier discussed plus 10% thereof as attorneys fees since compelled to litigate, complainant had to engage the services of counsel.

SO ORDERED.[13] (Underescoring supplied)

On appeal of Sunace, the NLRC, by Resolution of April 30, 2002,[14] affirmed the Labor Arbiters decision.

Via petition for certiorari,[15] Sunace elevated the case to the Court of Appeals which dismissed it outright by Resolution of November 12, 2002, [16] the full text of which reads:

The petition for certiorari faces outright dismissal.

The petition failed to allege facts constitutive of grave abuse of discretion on the part of the public respondent amounting to lack of jurisdiction when the NLRC affirmed the Labor
Arbiters finding that petitioner Sunace International Management Services impliedly consented to the extension of the contract of private respondent Divina A. Montehermozo. It is undisputed
that petitioner was continually communicating with private respondents foreign employer (sic). As agent of the foreign principal, petitioner cannot profess ignorance of such extension as obviously, the
act of the principal extending complainant (sic) employment contract necessarily bound it. Grave abuse of discretion is not present in the case at bar.

ACCORDINGLY, the petition is hereby DENIED DUE COURSE and DISMISSED.[17]


(Emphasis on words in capital letters in the original; emphasis on words in small letters and underscoring supplied)

Its Motion for Reconsideration having been denied by the appellate court by Resolution of January 14, 2004,[18] Sunace filed the present petition for review on certiorari.

The Court of Appeals affirmed the Labor Arbiter and NLRCs finding that Sunace knew of and impliedly consented to the extension of Divinas 2-year contract. It went on to state that It is undisputed that

[Sunace] was continually communicating with [Divinas] foreign employer. It thus concluded that [a]s agent of the foreign principal, petitioner cannot profess ignorance of such extension as obviously, the act of the

principal extending complainant (sic) employment contract necessarily bound it.

Contrary to the Court of Appeals finding, the alleged continuous communication was with the Taiwanese broker Wang, not with the foreign employer Xiong.

The February 21, 2000 telefax message from the Taiwanese broker to Sunace, the only basis of a finding of continuous communication, reads verbatim:


Regarding to Divina, she did not say anything about her saving in police station. As we contact with her employer, she took back her saving already last years. And they did
not deduct any money from her salary. Or she will call back her employer to check it again. If her employer said yes! we will get it back for her.

Thank you and best regards.

Edmund Wang

The finding of the Court of Appeals solely on the basis of the above-quoted telefax message, that Sunace continually communicated with the foreign principal (sic) and therefore was aware of and had

consented to the execution of the extension of the contract is misplaced. The message does not provide evidence that Sunace was privy to the new contract executed after the expiration on February 1, 1998 of the

original contract. That Sunace and the Taiwanese broker communicated regarding Divinas allegedly withheld savings does not necessarily mean that Sunace ratified the extension of the contract. As Sunace points out

in its Reply[20] filed before the Court of Appeals,

As can be seen from that letter communication, it was just an information given to the petitioner that the private respondent had t[aken] already her savings from her
foreign employer and that no deduction was made on her salary. It contains nothing about the extension or the petitioners consent thereto.[21]

Parenthetically, since the telefax message is dated February 21, 2000, it is safe to assume that it was sent to enlighten Sunace who had been directed, by Summons issued on February 15, 2000, to

appear on February 28, 2000 for a mandatory conference following Divinas filing of the complaint on February 14, 2000.

Respecting the Court of Appeals following dictum:

As agent of its foreign principal, [Sunace] cannot profess ignorance of such an extension as obviously, the act of its principal extending [Divinas] employment contract necessarily bound

it too is a misapplication, a misapplication of the theory of imputed knowledge.

The theory of imputed knowledge ascribes the knowledge of the agent, Sunace, to the principal, employer Xiong, not the other way around.[23] The knowledge of the principal-foreign employer cannot, therefore, be

imputed to its agent Sunace.

There being no substantial proof that Sunace knew of and consented to be bound under the 2-year employment contract extension, it cannot be said to be privy thereto. As such, it and its owner cannot

be held solidarily liable for any of Divinas claims arising from the 2-year employment extension. As the New Civil Code provides,

Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and obligations arising from the contract are not transmissible by
their nature, or by stipulation or by provision of law. [24]
Furthermore, as Sunace correctly points out, there was an implied revocation of its agency relationship with its foreign principal when, after the termination of the original employment contract, the

foreign principal directly negotiated with Divina and entered into a new and separate employment contract in Taiwan. Article 1924 of the New Civil Code reading

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

thus applies.

In light of the foregoing discussions, consideration of the validity of the Waiver and Affidavit of Desistance which Divina executed in favor of Sunace is rendered unnecessary.

WHEREFORE, the petition is GRANTED. The challenged resolutions of the Court of Appeals are hereby REVERSED and SET ASIDE. The complaint of respondent Divina A. Montehermozo against petitioner



[G.R. No. 117356. June 19, 2000]




Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the respondent court's
resolution of September 30, 1994 modifying said decision. Both decision and resolution amended the judgment dated February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil Case No. 90-

The facts of this case as found by both the trial and appellate courts are as follows:

St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co., Inc., (VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts (SLDRs) to
STM as proof of purchases. Among these was SLDR No. 1214M, which gave rise to the instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained 50 kilograms and
priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated October 16, 1989." [1] The transaction it covered was a "direct sale."[2] The SLDR also contains an additional note which reads: "subject for
(sic) availability of a (sic) stock at NAWACO (warehouse)."[3]

On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989 and three checks
postdated November 13, 1989 in payment. That same day, CSC wrote petitioner that it had been authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter were a copy of SLDR
No. 1214M and a letter of authority from STM authorizing CSC "to withdraw for and in our behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated October 16, 1989 in
the total quantity of 25,000 bags."[4]

On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the
said checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also covered SLDR No. 1213.

Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to allow further
withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a letter dated January 23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it had been refused further
withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags had been withdrawn. [5] CSC thus inquired when it would be allowed to withdraw the remaining 23,000 bags.

On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar against SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the cleared checks. [6]

On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000 bags.

Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared checks had been fully withdrawn and hence, there would be no more deliveries of the commodity to STM's
account. Petitioner also noted that CSC had represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.

On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under the name of St. Therese Merchandising) and herein
petitioner. Since the former could not be served with summons, the case proceeded only against the latter. During the trial, it was discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy
who could not be reached through summons.[7] CSC, however, did not bother topursue its case against her, but instead used her as its witness.

CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M. Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that petitioner be ordered
to deliver the 23,000 bags covered by SLDR No. 1214M and sought the award of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and litigation expenses.

Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags. [8] Since STM had already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer
authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with CSC.

Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery receipts issued pursuant to a series of transactions entered into between it and STM. The SLDRs prescribed
delivery of the sugar to the party specified therein and did not authorize the transfer of said party's rights and interests.

Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator to defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good faith. Petitioner
then prayed that CSC be ordered to pay it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed that cross-
defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the merits.

As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:

"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against defendant Victorias Milling Company:

"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of refined sugar due under SLDR No. 1214;

"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as unrealized profits, the amount of P800,000.00 as exemplary damages and the amount of P1,357,000.00, which is 10% of the
acquisition value of the undelivered bags of refined sugar in the amount of P13,570,000.00, as attorney's fees, plus the costs.


It made the following observations:

"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No. 1214 as well as the purchase price
of P15,950,000.00 for the 25,000 bags of sugar bought by her covered by SLDR No. 1213 on the same date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15 inclusive which are post-
dated checks dated October 27, 1989 issued by St. Therese Merchandising in favor of Victorias Milling Company at the time it purchased the 50,000 bags of sugar covered by SLDR No. 1213 and 1214. Said checks
appear to have been honored and duly credited to the account of Victorias Milling Company because on October 27, 1989 Victorias Milling Company issued official receipt no. 34734 in favor of St. Therese
Merchandising for the amount of P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita Ng Go is further supported by Exhibit F, which is a computer printout of defendant Victorias Milling Company
showing the quantity and value of the purchases made by St. Therese Merchandising, the SLDR no. issued to cover the purchase, the official reciept no. and the status of payment. It is clear in Exhibit 'F' that with
respect to the sugar covered by SLDR No. 1214 the same has been fully paid as indicated by the word 'cleared' appearing under the column of 'status of payment.'

"On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the 25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not been fully paid
is supported only by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling Company. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren assertion that the purchase
price has not been fully paid and is not corroborated by any positive evidence. There is an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by the buyer in payment of the purchased
price were dishonored. However, said witness failed to present in Court any dishonored check or any replacement check. Said witness likewise failed to present any bank record showing that the checks issued by
the buyer, Teresita Ng Go, in payment of the purchase price of the sugar covered by SLDR No. 1214 were dishonored." [10]

Petitioner appealed the trial courts decision to the Court of Appeals.

On appeal, petitioner averred that the dealings between it and STM were part of a series of transactions involving only one account or one general contract of sale. Pursuant to this contract, STM or any of its
authorized agents could withdraw bags of sugar only against cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM and since the latter had already withdrawn its full quota of sugar
under the said SLDR, CSC was already precluded from seeking delivery of the 23,000 bags of sugar.

Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were separate and independent transactions and that the details of the series of purchases were contained in a single
statement with a consolidated summary of cleared check payments and sugar stock withdrawals because this a more convenient system than issuing separate statements for each purchase.

The appellate court considered the following issues: (a) Whether or not the transaction between petitioner and STM involving SLDR No. 1214M was a separate, independent, and single transaction; (b) Whether or
not CSC had the capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M could compel petitioner to deliver
23,000 bags allegedly unwithdrawn.

On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's judgment, to wit:

"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-appellant to:

"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;

" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags of refined sugar, as attorneys fees;

"3) Pay the costs of suit.


Both parties then seasonably filed separate motions for reconsideration.

In its resolution dated September 30, 1994, the appellate court modified its decision to read:

"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-appellant to:

"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;

"(2) Pay costs of suit.


The appellate court explained the rationale for the modification as follows:

"There is merit in plaintiff-appellee's position.

"Exhibit F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12,586 cannot be made the basis for such a finding. The rule is explicit that courts should consider the evidence only for the
purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to afford the party against whom the evidence is presented to object thereto if he deems it necessary. Plaintiff-appellee is,
therefore, correct in its argument that Exhibit F' which was offered to prove that checks in the total amount of P15,950,000.00 had been cleared. (Formal Offer of Evidence for Plaintiff, Records p. 58) cannot be used to
prove the proposition that 12,586 bags of sugar remained undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect that it had withdrawn
only 2,000 bags of sugar from SLDR after which it was not allowed to withdraw anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to defendant-
appellant asking the latter to allow it to withdraw the remaining 23,000 bags of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that sugar delivery to the STM corresponded only to the value of
cleared checks; and that all sugar corresponded to cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It did not present evidence to show how many bags of sugar had
been withdrawn against SLDR No. 1214M, precisely because of its theory that all sales in question were a series of one single transaction and withdrawal of sugar depended on the clearing of checks paid therefor.

"After a second look at the evidence, We see no reason to overturn the findings of the trial court on this point." [13]

Hence, the instant petition, positing the following errors as grounds for review:

"1. The Court of Appeals erred in not holding that STM's and private respondent's specially informing petitioner that respondent was authorized by buyer STM to withdraw sugar against SLDR No. 1214M "for and in our
(STM) behalf," (emphasis in the original) private respondent's withdrawing 2,000 bags of sugar for STM, and STM's empowering other persons as its agents to withdraw sugar against the same SLDR No. 1214M, rendered
respondent like the other persons, an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA 252, and precluded it from subsequently claiming and proving being an assignee of SLDR No. 1214M and from
suing by itself for its enforcement because it was conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431, Civil Code).

" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain relevant and undisputed facts which, had they been considered, would have shown that petitioner was not liable, except for 69
bags of sugar, and which would justify review of its conclusion of facts by this Honorable Court.

" 3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and 1626 of the Civil Code when it ruled that compensation applied only to credits from one SLDR or contract and not to those
from two or more distinct contracts between the same parties; and erred in denying petitioner's right to setoff all its credits arising prior to notice of assignment from other sales or SLDRs against private respondent's claim
as assignee under SLDR No. 1214M, so as to extinguish or reduce its liability to 69 bags, because the law on compensation applies precisely to two or more distinct contracts between the same parties (emphasis in the

"4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in Exh. F between petitioner and STM, respondent's admission of its balance, and STM's acquiescence thereto by silence for
almost one year did not render Exh. `F' an account stated and its balance binding.

"5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No. 1214, namely, (a) its subject matter being generic, and (b) the sale of sugar being subject to its availability at the Nawaco
warehouse, made the sale conditional and prevented STM or private respondent from acquiring title to the sugar; and the non-availability of sugar freed petitioner from further obligation.

"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being against its assignor."[14]

Simply stated, the issues now to be resolved are:

(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence, estopped to sue upon SLDR No. 1214M as an assignee.

(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on the other SLDRs.

(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR No. 1214M was a conditional sale or a contract to sell and hence freed petitioner from further obligations.

(4)....Whether or not the Court of Appeals committed an error of law in not applying the "clean hands doctrine" to preclude CSC from seeking judicial relief.

The issues will be discussed in seriatim.

Anent the first issue, we find from the records that petitioner raised this issue for the first time on appeal. It is settled that an issue which was not raised during the trial in the court below could not be raised for the first
time on appeal as to do so would be offensive to the basic rules of fair play, justice, and due process. [15] Nonetheless, the Court of Appeals opted to address this issue, hence, now a matter for our consideration.

Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion of said letter reads:

"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our behalf (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214
dated October 16, 1989 in the total quantity of 25, 000 bags."[16]

The Civil Code defines a contract of agency as follows:

"Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter."

It is clear from Article 1868 that the basis of agency is representation. [17] On the part of the principal, there must be an actual intention to appoint [18] or an intention naturally inferable from his words or actions;[19] and on
the part of the agent, there must be an intention to accept the appointment and act on it,[20] and in the absence of such intent, there is generally no agency. [21] One factor which most clearly distinguishes agency from
other legal concepts is control; one person - the agent - agrees to act under the control or direction of another - the principal. Indeed, the very word "agency" has come to connote control by the principal.[22]The control
factor, more than any other, has caused the courts to put contracts between principal and agent in a separate category. [23] The Court of Appeals, in finding that CSC, was not an agent of STM, opined:

"This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the law makes no presumption of agency, and it is always a fact to be proved, with the burden of proof resting upon the
persons alleging the agency, to show not only the fact of its existence, but also its nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently establish the existence of an
agency relation between plaintiff-appellee and STM. The fact alone that it (STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in our (STM's) behalf" should not be eyed as pointing to the existence of an
agency relation ...It should be viewed in the context of all the circumstances obtaining. Although it would seem STM represented plaintiff-appellee as being its agent by the use of the phrase "for and in our (STM's) behalf"
the matter was cleared when on 23 January 1990, plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M had been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiff-appellee has
shown that the 25, 000 bags of sugar covered by the SLDR No. 1214M were sold and transferred by STM to it ...A conclusion that there was a valid sale and transfer to plaintiff-appellee may, therefore, be made thus
capacitating plaintiff-appellee to sue in its own name, without need of joining its imputed principal STM as co-plaintiff."[24]

In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form, and not an agent of STM. Private respondent CSC was not subject to STM's control. The question of whether a contract
is one of sale or agency depends on the intention of the parties as gathered from the whole scope and effect of the language employed.[25] That the authorization given to CSC contained the phrase "for and in our
(STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention of the parties.[26] That no agency was meant to be established by the CSC and STM is clearly shown by CSC's communication to
petitioner that SLDR No. 1214M had been "sold and endorsed" to it.[27] The use of the words "sold and endorsed" means that STM and CSC intended a contract of sale, and not an agency. Hence, on this score, no error was
committed by the respondent appellate court when it held that CSC was not STM's agent and could independently sue petitioner.

On the second issue, proceeding from the theory that the transactions entered into between petitioner and STM are but serial parts of one account, petitioner insists that its debt has been offset by its claim for STM's
unpaid purchases, pursuant to Article 1279 of the Civil Code. [28] However, the trial court found, and the Court of Appeals concurred, that the purchase of sugar covered by SLDR No. 1214M was a separate and independent
transaction; it was not a serial part of a single transaction or of one account contrary to petitioner's insistence. Evidence on record shows, without being rebutted, that petitioner had been paid for the sugar purchased
under SLDR No. 1214M. Petitioner clearly had the obligation to deliver said commodity to STM or its assignee. Since said sugar had been fully paid for, petitioner and CSC, as assignee of STM, were not mutually creditors
and debtors of each other. No reversible error could thereby be imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil Code to the present case.
Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a conditional sale or a contract to sell, with title to the sugar still remaining with the vendor. Noteworthy, SLDR No.
1214M contains the following terms and conditions:

"It is understood and agreed that by payment by buyer/trader of refined sugar and/or receipt of this document by the buyer/trader personally or through a representative, title to refined sugar is transferred to
buyer/trader and delivery to him/it is deemed effected and completed (stress supplied) and buyer/trader assumes full responsibility therefore"[29]

The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the buyer or his assignee upon payment of the purchase price. Said terms clearly establish a contract of sale, not a
contract to sell. Petitioner is now estopped from alleging the contrary. The contract is the law between the contracting parties. [30] And where the terms and conditions so stipulated are not contrary to law, morals, good
customs, public policy or public order, the contract is valid and must be upheld.[31] Having transferred title to the sugar in question, petitioner is now obliged to deliver it to the purchaser or its assignee.

As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into a conspiracy to defraud it of its sugar. This conspiracy is allegedly evidenced by: (a) the fact that STM's selling price to CSC
was below its purchasing price; (b) CSC's refusal to pursue its case against Teresita Ng Go; and (c) the authority given by the latter to other persons to withdraw sugar against SLDR No. 1214M after she had sold her rights
under said SLDR to CSC. Petitioner prays that the doctrine of "clean hands" should be applied to preclude CSC from seeking judicial relief. However, despite careful scrutiny, we find here the records bare of convincing
evidence whatsoever to support the petitioner's allegations of fraud. We are now constrained to deem this matter purely speculative, bereft of concrete proof.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.


G.R. No. L-55764 February 16, 1982




This is a petition to review a decision of the Court of Appeals in Social Security System, et al. vs. Manila Cosmos Aerated Water Factory, Inc., CA-G.R. No. SP 03296-R, adverse to the petitioner. The antecedent facts consist
of the following:

In a petition filed with the Social Security Commission SSC the Social Security System (SSS) together with Jose Concepcion, Manuel Chan, Manuel Ong, Roberto Lai, Arturo Gonzales, William Co, Federico Marcial, Santiago
Mancuba, Jesus Crelencia, Alfredo So and Pedro Aquino, the individual petitioners were sought to be declared employees of Manila Cosmos AerAted Water Factory, Inc. (Cosmos) and not independent contractors under
the following Agreement to Peddle Soft Drinks.

1. The MANUFACTURER shall provide the PEDDLER with a delivery truck to be used by the latter, under his own responsibility, exclusively in the sales of the products of the former purchased by the PEDDLER from the

2. The PEDDLER himself shall carefully and in strict observance to traffic regulations, drive the truck furnished him by the MANUFACTURER or should he employ a driver or helpers, such driver or helpers shall be his
employees under his direction and responsibility, and not that of the MANUFACTURER, and their compensation including salaries, wages, overtime pay, separation pay, bonus or other remunerations and privileges shall be
for the PEDDLERS own account;

3. The PEDDLER shall be responsible for any damage to property, death or injuries to persons or damage to the truck used by him caused by his own acts or that of his driver and helpers;

4. The PEDDLER shall secure at his own expense all necessary license and permits required by law or ordinance, and shall bear any and all expenses which may be incurred by him in the sales of the MANUFACTURER'S
products, covered by this contract;

5. All goods soft drinks) purchased by the PEDDLER shall be charged to him at a factory price of P0.86 per case of the 6.6 oz. size, ex-warehouse; PROVIDED, However, that, if the PEDDLER purchases a total of not less than
200 cases of the 6.5 oz. size a day, he shall be entitled to a dealer's discount of P7.30;

6. Upon the execution of this agreement, the PEDDLER shall give a cash bond in the amount of P500.00 against which the MANUFACTURER shall charge the PEDDLER with any unpaid account at the end of the day or with
any damage to the truck or other account which is properly chargeable to the PEDDLER; within 30 days after termination of this agreement, the cash bond, after deducting proper charges, shall be returned to the

7. The PEDDLER shall liquidate and pay his account at the end of each day, and his failure to do so shall subject his cash bond or so much thereof as may be necessary to such set offs and payments as shall be proper
against the accounts in question;

8. This contract shall be effective only up to December 31, 1962 and supersedes any or all other previous contracts that may have been entered into between the parties; However, either of the parties may terminate the
same upon seven (7) days prior notice to the other;

9. Upon the termination of this agreement, unless the same is renewed, the delivery truck and such other equipment furnished by the MANUFACTURER to the PEDDLER shall be returned by the latter in good order and
workable condition, ordinary wear and tear excepted, and shall promptly settle his outstanding account if any, with the manufacturer. (Rollo, pp. 24-25.)

The status of the individual petitioners was important because if they were employees of Cosmos and not independent contractors, then Cosmos would have "to pay the employer's share of premium contributions
(employer's and employees' share) for and in behalf of the delivery helpers, as employees of respondent corporation, plus the penalties thereon for late remittance of premium contributions, covering the period of
delinquency from the respective dates of their coverage up to the present" as prayed for in the petition.

After hearing, the SSC rendered a resolution in favor of the SSS and the peddlers holding that an employer-employee relationship existed between Cosmos and the peddlers. Cosmos appealed to the Court of Appeals and
in a decision promulgated on October 16, 1979, that Court affirmed the resolution of the SSC. However, upon a motion for reconsideration, the Court of Appeals on October 13, 1980, set aside its previous decision and
reversed the resolution of the SSC. Hence, the instant appeal where the petitioner is the SSS alone; the individual peddlers have not seen fit to appeal.

We could have dismissed the instant petition by minute resolution because precedents warrant such an action. But to put an end to litigations of this sort and arrest what Cosmos calls judicial harassment, a decision is in

In Mafinco Trading Corporation vs.Ople, et al. No. L-37790, March 25, 1976, 70 SCRA 139, the question was whether there was an employer- employee relationship under the terms of a peddling contract in words almost
Identical to the one quoted above. This Court, thru Mr. Justice Aquino said:
A restatement of the provisions of the peddling contract is necessary in order to find out whether under that instrument Repomanta and Moralde were independent contractors or mere employees of Mafinco.

Under the peddling contract, Mafinco would provide the peddler with a delivery truck to be used in the distribution of Cosmos soft drinks (Par. 1). Should the peddler employ a driver and helpers, he would be responsible
for their compensation and social security contributions and he should comply with applicable labor laws "in relation to his employees" (Par. 2).

The peddler would be responsible for any damage to persons or property or to the truck caused by his own acts or omissions or those of his driver and helpers (Par. 3). Mafinco would bear the cost of gasoline and
maintenance of the truck (Par. 4). The peddler would secure at his own expense the necessary licenses and permits and bear the expenses to be incurred in the sale of Cosmos products (Par. 5).

The soft drinks would be charged to the peddler at P2.52 per case of 24 bottles, ex-warehouse. Should he purchase at least 250 cases a day, he would be entitled to a peddler's discount of eleven pesos (Par. 6). The peddler
would post a cash bond in the sum of P1,500 to answer for his obligations to Mafinco (Par. 7) and another cash bond of P1,000 to answer for his obligations to his employees (Par. 11). He should liquidate his accounts at
the end of each day (Par. 8). The contract would be effective up to May 31, 1973. Either party might terminate it upon five days prior notice to the other (Par. 9).

We hold that under their peddling contracts of Repomanta and Moralde were not employees of Mafinco but were independent contractors as found by the NLRC and its fact-finder and by the committee appointed by the
Secretary of labor to look into the status of Cosmos and Mafinco peddlers. They were distributors of Cosmos soft drinks with their own capital and employees. Ordinarily, an employee or a mere peddler does not execute a
formal contract of employment. He is simply hired and he works under the direction and control of the employer.

Repomanta and Moralde voluntarily executed with Mafinco formal peddling contracts which indicate the manner in which they would sell Cosmos soft drinks. That circumstance signifies that they were acting as
independent businessmen. They were free to sign or not to sign that contract. If they did not want to sell Cosmos products under the conditions defined in that contract; they were free to reject it.

But having signed it, they were bound by its stipulations and the consequences thereof under existing labor laws. One such stipulation is the right of the parties to terminate the contract upon five days' prior notice (Par.
9). Whether the termination in this case was an unwarranted dismissal of an employee, as contended by Repomanta and Moralde, is a point that cannot be resolved without submission of evidence. Using the contract
itself as the sole criterion, the termination should perforce be characterized as simply the exercise of a right freely stipulated upon by the parties.

In determining the existence of employer-employee relationship, the following elements are generally considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages: (3) the power of
dismissal: and (4) the power to control the employees' conduct although the latter is flip, most important element (Viaa Al-Lagadan and Piga 99 Phil, 406, 411, Citing 35 Am. Jur. 445).

On the other hand, an independent contractor is "one who exercise independent employment and contracts to do a piece of work according to his own methods and without being subject to control of his employer except
as to the result of the work" (Mansal vs. P.P. Gocheco Lumber Co., 96 Phil. 941).

Among the factors to be considered are whether the contractor is carrying on an independent business; whether the work is part of the employer's general business; the nature and extent of the work; the skill required;
the term and duration of the relationship; the right to assign the performance of the work to another; the power to terminate the relationship; the existence of a contract for the performance of a specified piece of work;
the control and supervision of the work; the employer's powers and duties with respect to the hiring, firing, and payment of the contractor's servants; the control of the premises; the duty to supply the premises, tools,
appliances, material and labor; and the mode, manner, and terms of payment. (56 C.J.S. 46).

Those tests to determine the existence of an employer-employee relationship or whether the person doing a particular work for another is an independent contractor cannot be satisfactorily applied in the instant case. It
should be obvious by now that the instant case is a penumbral, sui generis case lying on the shadowy borderline that separates an employee from an independent contractor.

In determining whether the relationship is that of employer and employee or whether one is an independent contractor, "each case must be determined on its own facts and all the features of the relationship are to be
considered" (56 C.J.S. 45). We are convinced that on the basis of the peddling contract, no employer-employee relationship was created. (At pp. 161-163, emphasis supplied.)

We hold that conformably to Mafinco, the peddling contract involved in the instant petition makes the peddler an independent contractor. Additionally, We have taken into account the fact that the individual petitioners
before the SSC who were the principal beneficiaries of the petition have become indifferent to their cause.

WHEREFORE, the judgment of the Court of Appeals is hereby affirmed. Costs against the petitioner.