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Republic of the Philippines From January to April 1995, petitioner sold to Impact Systems

SUPREME COURT various products allegedly amounting to ninety-one thousand three

Manila hundred thirty-eight (₱91,338.00) pesos. Subsequently, respondents
sought to buy from petitioner one unit of sludge pump valued at
THIRD DIVISION ₱250,000.00 with respondents making a down payment of fifty
thousand pesos (₱50,000.00).4 When the sludge pump arrived from
G.R. No. 167552 April 23, 2007 the United Kingdom, petitioner refused to deliver the same to
respondents without their having fully settled their indebtedness to
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner, petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto
vs. de Jesus, general manager of petitioner, executed a Deed of
EDWIN CUIZON and ERWIN CUIZON, Respondents. Assignment of receivables in favor of petitioner, the pertinent part
of which states:
1.) That ASSIGNOR5 has an outstanding receivables from
CHICO-NAZARIO, J.: Toledo Power Corporation in the amount of THREE
Before Us is a petition for review by certiorari assailing the payment for the purchase of one unit of Selwood Spate
Decision1 of the Court of Appeals dated 10 August 2004 and its 100D Sludge Pump;
Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled,
"Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." 2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER,
The assailed Decision and Resolution affirmed the Order3 dated 29 and CONVEY unto the ASSIGNEE6 the said receivables from
January 2002 rendered by Judge Antonio T. Echavez ordering the Toledo Power Corporation in the amount of THREE
dropping of respondent EDWIN Cuizon (EDWIN) as a party HUNDRED SIXTY FIVE THOUSAND (₱365,000.00) PESOS
defendant in Civil Case No. CEB-19672. which receivables the ASSIGNOR is the lawful recipient;

The generative facts of the case are as follows: 3.) That the ASSIGNEE does hereby accept this assignment.7

Petitioner is engaged in the business of importation and distribution Following the execution of the Deed of Assignment, petitioner
of various European industrial equipment for customers here in the delivered to respondents the sludge pump as shown by Invoice No.
Philippines. It has as one of its customers Impact Systems Sales 12034 dated 30 June 1995.8
("Impact Systems") which is a sole proprietorship owned by
respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales Allegedly unbeknownst to petitioner, respondents, despite the
manager of Impact Systems and was impleaded in the court a quo in existence of the Deed of Assignment, proceeded to collect from
said capacity. Toledo Power Company the amount of ₱365,135.29 as evidenced by
Check Voucher No. 09339prepared by said power company and an ("Impact Systems" for brevity), with office located at 46-A
official receipt dated 15 August 1995 issued by Impact del Rosario Street, Cebu City, where he may be served
Systems.10Alarmed by this development, petitioner made several summons and other processes of the Honorable Court.
demands upon respondents to pay their obligations. As a result,
respondents were able to make partial payments to petitioner. On 7 1.3. Defendant Edwin B. Cuizon is of legal age, Filipino,
October 1996, petitioner’s counsel sent respondents a final demand married, a resident of Cebu City. He is the Sales Manager of
letter wherein it was stated that as of 11 June 1996, respondents’ Impact Systems and is sued in this action in such capacity.17
total obligations stood at ₱295,000.00 excluding interests and
attorney’s fees.11 Because of respondents’ failure to abide by said On 26 June 1998, petitioner filed a Motion to Declare Defendant
final demand letter, petitioner instituted a complaint for sum of ERWIN in Default with Motion for Summary Judgment. The trial
money, damages, with application for preliminary attachment court granted petitioner’s motion to declare respondent ERWIN in
against herein respondents before the Regional Trial Court of Cebu default "for his failure to answer within the prescribed period
City.12 despite the opportunity granted"18 but it denied petitioner’s motion
for summary judgment in its Order of 31 August 2001 and scheduled
On 8 January 1997, the trial court granted petitioner’s prayer for the the pre-trial of the case on 16 October 2001.19However, the conduct
issuance of writ of preliminary attachment.13 of the pre-trial conference was deferred pending the resolution by
the trial court of the special and affirmative defenses raised by
On 25 June 1997, respondent EDWIN filed his Answer14 wherein he respondent EDWIN.20
admitted petitioner’s allegations with respect to the sale
transactions entered into by Impact Systems and petitioner After the filing of respondent EDWIN’s Memorandum21 in support of
between January and April 1995.15 He, however, disputed the total his special and affirmative defenses and petitioner’s
amount of Impact Systems’ indebtedness to petitioner which, opposition22 thereto, the trial court rendered its assailed Order
according to him, amounted to only ₱220,000.00.16 dated 29 January 2002 dropping respondent EDWIN as a party
defendant in this case. According to the trial court –
By way of special and affirmative defenses, respondent EDWIN
alleged that he is not a real party in interest in this case. According A study of Annex "G" to the complaint shows that in the Deed of
to him, he was acting as mere agent of his principal, which was the Assignment, defendant Edwin B. Cuizon acted in behalf of or
Impact Systems, in his transaction with petitioner and the latter was represented [Impact] Systems Sales; that [Impact] Systems Sale is a
very much aware of this fact. In support of this argument, petitioner single proprietorship entity and the complaint shows that defendant
points to paragraphs 1.2 and 1.3 of petitioner’s Complaint stating – Erwin H. Cuizon is the proprietor; that plaintiff corporation is
represented by its general manager Alberto de Jesus in the contract
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a which is dated June 28, 1995. A study of Annex "H" to the complaint
resident of Cebu City. He is the proprietor of a single reveals that [Impact] Systems Sales which is owned solely by
proprietorship business known as Impact Systems Sales defendant Erwin H. Cuizon, made a down payment of ₱50,000.00
that Annex "H" is dated June 30, 1995 or two days after the AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A
execution of Annex "G", thereby showing that [Impact] Systems FRAUD.25
Sales ratified the act of Edwin B. Cuizon; the records further show
that plaintiff knew that [Impact] Systems Sales, the principal, To support its argument, petitioner points to Article 1897 of the
ratified the act of Edwin B. Cuizon, the agent, when it accepted the New Civil Code which states:
down payment of ₱50,000.00. Plaintiff, therefore, cannot say that it
was deceived by defendant Edwin B. Cuizon, since in the instant Art. 1897. The agent who acts as such is not personally liable to the
case the principal has ratified the act of its agent and plaintiff knew party with whom he contracts, unless he expressly binds himself or
about said ratification. Plaintiff could not say that the subject exceeds the limits of his authority without giving such party
contract was entered into by Edwin B. Cuizon in excess of his sufficient notice of his powers.
powers since [Impact] Systems Sales made a down payment of
₱50,000.00 two days later. Petitioner contends that the Court of Appeals failed to appreciate
the effect of ERWIN’s act of collecting the receivables from the
In view of the Foregoing, the Court directs that defendant Edwin B. Toledo Power Corporation notwithstanding the existence of the
Cuizon be dropped as party defendant.23 Deed of Assignment signed by EDWIN on behalf of Impact Systems.
While said collection did not revoke the agency relations of
Aggrieved by the adverse ruling of the trial court, petitioner brought respondents, petitioner insists that ERWIN’s action repudiated
the matter to the Court of Appeals which, however, affirmed the 29 EDWIN’s power to sign the Deed of Assignment. As EDWIN did not
January 2002 Order of the court a quo. The dispositive portion of sufficiently notify it of the extent of his powers as an agent,
the now assailed Decision of the Court of Appeals states: petitioner claims that he should be made personally liable for the
obligations of his principal.26
WHEREFORE, finding no viable legal ground to reverse or modify the
conclusions reached by the public respondent in his Order dated Petitioner also contends that it fell victim to the fraudulent scheme
January 29, 2002, it is hereby AFFIRMED.24 of respondents who induced it into selling the one unit of sludge
pump to Impact Systems and signing the Deed of Assignment.
Petitioner’s motion for reconsideration was denied by the appellate Petitioner directs the attention of this Court to the fact that
court in its Resolution promulgated on 17 March 2005. Hence, the respondents are bound not only by their principal and agent
present petition raising, as sole ground for its allowance, the relationship but are in fact full-blooded brothers whose successive
following: contravening acts bore the obvious signs of conspiracy to defraud
IT RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT In his Comment,28 respondent EDWIN again posits the argument
SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, that he is not a real party in interest in this case and it was proper
BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS 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 EDWIN exceeded his authority when he signed the Deed of
ERWIN and that his status as such is known even to petitioner as it is Assignment thereby binding himself personally to pay the
alleged in the Complaint that he is being sued in his capacity as the obligations to petitioner. Petitioner firmly believes that respondent
sales manager of the said business venture. Likewise, respondent EDWIN acted beyond the authority granted by his principal and he
EDWIN points to the Deed of Assignment which clearly states that should therefore bear the effect of his deed pursuant to Article
he was acting as a representative of Impact Systems in said 1897 of the New Civil Code.
We disagree.
We do not find merit in the petition.
Article 1897 reinforces the familiar doctrine that an agent, who acts
In a contract of agency, a person binds himself to render some as such, is not personally liable to the party with whom he
service or to do something in representation or on behalf of another contracts. The same provision, however, presents two instances
with the latter’s consent.29 The underlying principle of the contract when an agent becomes personally liable to a third person. The first
of agency is to accomplish results by using the services of others – is when he expressly binds himself to the obligation and the second
to do a great variety of things like selling, buying, manufacturing, is when he exceeds his authority. In the last instance, the agent can
and transporting.30 Its purpose is to extend the personality of the be held liable if he does not give the third party sufficient notice of
principal or the party for whom another acts and from whom he or his powers. We hold that respondent EDWIN does not fall within
she derives the authority to act.31 It is said that the basis of agency is any of the exceptions contained in this provision.
representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts The Deed of Assignment clearly states that respondent EDWIN
have the same legal effect as if they were personally executed by signed thereon as the sales manager of Impact Systems. As
the principal.32 By this legal fiction, the actual or real absence of the discussed elsewhere, the position of manager is unique in that it
principal is converted into his legal or juridical presence – qui facit presupposes the grant of broad powers with which to conduct the
per alium facit per se.33 business of the principal, thus:

The elements of the contract of agency are: (1) consent, express or The powers of an agent are particularly broad in the case of one
implied, of the parties to establish the relationship; (2) the object is acting as a general agent or manager; such a position presupposes a
the execution of a juridical act in relation to a third person; (3) the degree of confidence reposed and investiture with liberal powers
agent acts as a representative and not for himself; (4) the agent acts for the exercise of judgment and discretion in transactions and
within the scope of his authority.34 concerns which are incidental or appurtenant to the business
entrusted to his care and management. In the absence of an
In this case, the parties do not dispute the existence of the agency agreement to the contrary, a managing agent may enter into any
relationship between respondents ERWIN as principal and EDWIN as contracts that he deems reasonably necessary or requisite for the
agent. The only cause of the present dispute is whether respondent
protection of the interests of his principal entrusted to his liable to a third party when he expressly binds himself or he exceeds
management. x x x.35 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
Applying the foregoing to the present case, we hold that Edwin of authority by the agent, like what petitioner claims exists here, the
Cuizon acted well-within his authority when he signed the Deed of law does not say that a third person can recover from both the
Assignment. To recall, petitioner refused to deliver the one unit of principal and the agent.40
sludge pump unless it received, in full, the payment for Impact
Systems’ indebtedness.36 We may very well assume that Impact As we declare that respondent EDWIN acted within his authority as
Systems desperately needed the sludge pump for its business since an agent, who did not acquire any right nor incur any liability arising
after it paid the amount of fifty thousand pesos (₱50,000.00) as from the Deed of Assignment, it follows that he is not a real party in
down payment on 3 March 1995,37 it still persisted in negotiating interest who should be impleaded in this case. A real party in
with petitioner which culminated in the execution of the Deed of interest is one who "stands to be benefited or injured by the
Assignment of its receivables from Toledo Power Company on 28 judgment in the suit, or the party entitled to the avails of the
June 1995.38The significant amount of time spent on the negotiation suit."41 In this respect, we sustain his exclusion as a defendant in the
for the sale of the sludge pump underscores Impact Systems’ suit before the court a quo.
perseverance to get hold of the said equipment. There is, therefore,
no doubt in our mind that respondent EDWIN’s participation in the WHEREFORE, premises considered, the present petition is DENIED
Deed of Assignment was "reasonably necessary" or was required in and the Decision dated 10 August 2004 and Resolution dated 17
order for him to protect the business of his principal. Had he not March 2005 of the Court of Appeals in CA-G.R. SP No. 71397,
acted in the way he did, the business of his principal would have affirming the Order dated 29 January 2002 of the Regional Trial
been adversely affected and he would have violated his fiduciary Court, Branch 8, Cebu City, is AFFIRMED.
relation with his principal.
Let the records of this case be remanded to the Regional Trial Court,
We likewise take note of the fact that in this case, petitioner is Branch 8, Cebu City, for the continuation of the proceedings against
seeking to recover both from respondents ERWIN, the principal, and respondent Erwin Cuizon.
EDWIN, the agent. It is well to state here that Article 1897 of the
New Civil Code upon which petitioner anchors its claim against SO ORDERED.
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
Republic of the Philippines covered by Transfer Certificate of Title No. 11116 of the Registry of
SUPREME COURT Cebu. On April 21, 1954, the sisters executed a special power of
Manila attorney in favor of their brother, Simeon Rallos, authorizing him to
sell for and in their behalf lot 5983. On March 3, 1955, Concepcion
G.R. No. L-24332 January 31, 1978 Rallos died. On September 12, 1955, Simeon Rallos sold the
undivided shares of his sisters Concepcion and Gerundia in lot 5983
RAMON RALLOS, Administrator of the Estate of CONCEPCION to Felix Go Chan & Sons Realty Corporation for the sum of
RALLOS, petitioner, P10,686.90. The deed of sale was registered in the Registry of Deeds
vs. of Cebu, TCT No. 11118 was cancelled, and a new transfer
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF certificate of Title No. 12989 was issued in the named of the
APPEALS, respondents. vendee.

Seno, Mendoza & Associates for petitioner. On May 18, 1956 Ramon Rallos as administrator of the Intestate
Estate of Concepcion Rallos filed a complaint docketed as Civil Case
Ramon Duterte for private respondent. 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
MUÑOZ PALMA, J.: Chan & Sons Realty Corporation be cancelled and another title be
issued in the names of the corporation and the "Intestate estate of
This is a case of an attorney-in-fact, Simeon Rallos, who after of his Concepcion Rallos" in equal undivided and (3) that plaintiff be
death of his principal, Concepcion Rallos, sold the latter's undivided indemnified by way of attorney's fees and payment of costs of suit.
share in a parcel of land pursuant to a power of attorney which the Named party defendants were Felix Go Chan & Sons Realty
principal had executed in favor. The administrator of the estate of Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but
the went to court to have the sale declared uneanforceable and to subsequently, the latter was dropped from the complaint. The
recover the disposed share. The trial court granted the relief prayed complaint was amended twice; defendant Corporation's Answer
for, but upon appeal the Court of Appeals uphold the validity of the contained a crossclaim against its co-defendant, Simon Rallos while
sale and the complaint. the latter filed third-party complaint against his sister, Gerundia
Rallos While the case was pending in the trial court, both Simon and
Hence, this Petition for Review on certiorari. his sister Gerundia died and they were substituted by the respective
administrators of their estates.
The following facts are not disputed. Concepcion and Gerundia both
surnamed Rallos were sisters and registered co-owners of a parcel After trial the court a quo rendered judgment with the following
of land known as Lot No. 5983 of the Cadastral Survey of Cebu dispositive portion:
A. On Plaintiffs Complaint — (5) Ordering both defendants to pay
the costs jointly and severally.
(1) Declaring the deed of sale, Exh.
"C", null and void insofar as the B. On GO CHANTS Cross-Claim:
one-half pro-indiviso share of
Concepcion Rallos in the property in (1) Sentencing the co-defendant
question, — Lot 5983 of the Juan T. Borromeo, administrator of
Cadastral Survey of Cebu — is the Estate of Simeon Rallos, to pay
concerned; to defendant Felix Co Chan & Sons
Realty Corporation the sum of
(2) Ordering the Register of Deeds P5,343.45, representing the price of
of Cebu City to cancel Transfer one-half (1/2) share of lot 5983;
Certificate of Title No. 12989
covering Lot 5983 and to issue in (2) Ordering co-defendant Juan T.
lieu thereof another in the names of Borromeo, administrator of the
FELIX GO CHAN & SONS REALTY Estate of Simeon Rallos, to pay in
CORPORATION and the Estate of concept of reasonable attorney's
Concepcion Rallos in the proportion fees to Felix Go Chan & Sons Realty
of one-half (1/2) share each pro- Corporation the sum of P500.00.
C. On Third-Party Complaint of defendant Juan T.
(3) Ordering Felix Go Chan & Sons Borromeo administrator of Estate of Simeon Rallos,
Realty Corporation to deliver the against Josefina Rallos special administratrix of the
possession of an undivided one-half Estate of Gerundia Rallos:
(1/2) share of Lot 5983 to the
herein plaintiff; (1) Dismissing the third-party complaint without
prejudice to filing either a complaint against the
(4) Sentencing the defendant Juan regular administrator of the Estate of Gerundia
T. Borromeo, administrator of the Rallos or a claim in the Intestate-Estate of Cerundia
Estate of Simeon Rallos, to pay to Rallos, covering the same subject-matter of the
plaintiff in concept of reasonable third-party complaint, at bar. (pp. 98-100, Record
attorney's fees the sum of on Appeal)
P1,000.00; and
Felix Go Chan & Sons Realty Corporation appealed in due time to (1) Those entered into in the name of another
the Court of Appeals from the foregoing judgment insofar as it set person by one who hi - been given no authority or
aside the sale of the one-half (1/2) share of Concepcion Rallos. The legal representation or who has acted beyond his
appellate tribunal, as adverted to earlier, resolved the appeal on powers; ...
November 20, 1964 in favor of the appellant corporation sustaining
the sale in question. 1 The appellee administrator, Ramon Rallos, Out of the above given principles, sprung the creation and
moved for a reconsider of the decision but the same was denied in a acceptance of the relationship of agency whereby one party, caged
resolution of March 4, 1965. 2 the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third
What is the legal effect of an act performed by an agent after the persons. The essential elements of agency are: (1) there is consent,
death of his principal? Applied more particularly to the instant case, express or implied of the parties to establish the relationship; (2)
We have the query. is the sale of the undivided share of Concepcion the object is the execution of a juridical act in relation to a third
Rallos in lot 5983 valid although it was executed by the agent after person; (3) the agents acts as a representative and not for himself,
the death of his principal? What is the law in this jurisdiction as to and (4) the agent acts within the scope of his authority. 5
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 Agency is basically personal representative, and derivative in nature.
death of the principal a material factor in determining the legal The authority of the agent to act emanates from the powers
effect of an act performed after such death? 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.
Before proceedings to the issues, We shall briefly restate certain "He who acts through another acts himself". 6
principles of law relevant to the matter tinder consideration.
2. There are various ways of extinguishing agency, 7 but her We are
1. It is a basic axiom in civil law embodied in our Civil Code that no concerned only with one cause — death of the principal Paragraph 3
one may contract in the name of another without being authorized of Art. 1919 of the Civil Code which was taken from Art. 1709 of the
by the latter, or unless he has by law a right to represent him. 3 A Spanish Civil Code provides:
contract entered into in the name of another by one who has no
authority or the legal representation or who has acted beyond his ART. 1919. Agency is extinguished.
powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed, xxx xxx xxx
before it is revoked by the other contracting party.4 Article 1403 (1)
of the same Code also provides: 3. By the death, civil interdiction, insanity or
insolvency of the principal or of the agent; ...
ART. 1403. The following contracts are (Emphasis supplied)
unenforceable, unless they are justified:
By reason of the very nature of the relationship between Principal inasmuch as the corporation acted in good faith in buying the
and agent, agency is extinguished by the death of the principal or property in question.
the agent. This is the law in this jurisdiction.8
Articles 1930 and 1931 of the Civil Code provide the exceptions to
Manresa commenting on Art. 1709 of the Spanish Civil Code the general rule afore-mentioned.
explains that the rationale for the law is found in the juridical
basis of agency which is representation Them being an in. ART. 1930. The agency shall remain in full force and
integration of the personality of the principal integration that of the effect even after the death of the principal, if it has
agent it is not possible for the representation to continue to exist been constituted in the common interest of the
once the death of either is establish. Pothier agrees with Manresa latter and of the agent, or in the interest of a third
that by reason of the nature of agency, death is a necessary cause person who has accepted the stipulation in his
for its extinction. Laurent says that the juridical tie between the favor.
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 ART. 1931. Anything done by the agent, without
fact of death of the former. 9 knowledge of the death of the principal or of any
other cause which extinguishes the agency, is valid
The same rule prevails at common law — the death of the principal and shall be fully effective with respect to third
effects instantaneous and absolute revocation of the authority of persons who may have contracted with him in
the agent unless the Power be coupled with an interest. 10 This is good. faith.
the prevalent rule in American Jurisprudence where it is well-settled
that a power without an interest confer. red upon an agent is Article 1930 is not involved because admittedly the special power of
dissolved by the principal's death, and any attempted execution of attorney executed in favor of Simeon Rallos was not coupled with
the power afterward is not binding on the heirs or representatives an interest.
of the deceased. 11
Article 1931 is the applicable law. Under this provision, an act done
3. Is the general rule provided for in Article 1919 that the death of by the agent after the death of his principal is valid and effective
the principal or of the agent extinguishes the agency, subject to any only under two conditions, viz: (1) that the agent acted without
exception, and if so, is the instant case within that exception? That knowledge of the death of the principal and (2) that the third person
is the determinative point in issue in this litigation. It is the who contracted with the agent himself acted in good faith. Good
contention of respondent corporation which was sustained by faith here means that the third person was not aware of the death
respondent court that notwithstanding the death of the principal of the principal at the time he contracted with said agent. These
Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in two requisites must concur the absence of one will render the act of
selling the former's sham in the property is valid and enforceable the agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon 4. In sustaining the validity of the sale to respondent consideration
Rallos, knew of the death of his principal at the time he sold the the Court of Appeals reasoned out that there is no provision in the
latter's share in Lot No. 5983 to respondent corporation. The Code which provides that whatever is done by an agent having
knowledge of the death is clearly to be inferred from the pleadings knowledge of the death of his principal is void even with respect to
filed by Simon Rallos before the trial court. 12 That Simeon Rallos third persons who may have contracted with him in good faith and
knew of the death of his sister Concepcion is also a finding of fact of without knowledge of the death of the principal. 16
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, We cannot see the merits of the foregoing argument as it ignores
and yet he proceeded with the sale of the lot in the name of both the existence of the general rule enunciated in Article 1919 that the
his sisters Concepcion and Gerundia Rallos without informing death of the principal extinguishes the agency. That being the
appellant (the realty corporation) of the death of the former. 14 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
On the basis of the established knowledge of Simon Rallos exception provided for in the aforementioned Articles 1930 and
concerning the death of his principal Concepcion Rallos, Article 1931 1931. Article 1931, being an exception to the general rule, is to be
of the Civil Code is inapplicable. The law expressly requires for its strictly construed, it is not to be given an interpretation or
application lack of knowledge on the part of the agent of the death application beyond the clear import of its terms for otherwise the
of his principal; it is not enough that the third person acted in good courts will be involved in a process of legislation outside of their
faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article judicial function.
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 5. Another argument advanced by respondent court is that the
principal because it was not shown that the agent knew of his vendee acting in good faith relied on the power of attorney which
principal's demise. 15 To the same effect is the case of Herrera, et al., was duly registered on the original certificate of title recorded in the
v. Luy Kim Guan, et al., 1961, where in the words of Justice Jesus Register of Deeds of the province of Cebu, that no notice of the
Barrera the Court stated: death was aver annotated on said certificate of title by the heirs of
the principal and accordingly they must suffer the consequences of
... even granting arguemendo that Luis Herrera did such omission. 17
die in 1936, plaintiffs presented no proof and there
is no indication in the record, that the agent Luy Kim To support such argument reference is made to a portion
Guan was aware of the death of his principal at the in Manresa's Commentaries which We quote:
time he sold the property. The death 6f the
principal does not render the act of an agent If the agency has been granted for the purpose of
unenforceable, where the latter had no knowledge contracting with certain persons, the revocation
of such extinguishment of the agency. (1 SCRA 406, must be made known to them. But if the agency is
412) general iii nature, without reference to particular
person with whom the agent is to contract, it is circumstances may demand in the interest of the latter. Hence, the
sufficient that the principal exercise due diligence to fact that no notice of the death of the principal was registered on
make the revocation of the agency publicity known. 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
In case of a general power which does not specify
the persons to whom represents' on should be 6. Holding that the good faith of a third person in said with an agent
made, it is the general opinion that all acts, affords the former sufficient protection, respondent court drew a
executed with third persons who contracted in good "parallel" between the instant case and that of an innocent
faith, Without knowledge of the revocation, are purchaser for value of a land, stating that if a person purchases a
valid. In such case, the principal may exercise his registered land from one who acquired it in bad faith — even to the
right against the agent, who, knowing of the extent of foregoing or falsifying the deed of sale in his favor — the
revocation, continued to assume a personality registered owner has no recourse against such innocent purchaser
which he no longer had. (Manresa Vol. 11, pp. 561 for value but only against the forger. 20
and 575; pp. 15-16, rollo)
To support the correctness of this respondent corporation, in its
The above discourse however, treats of revocation by an act of the brief, cites the case of Blondeau, et al., v. Nano and Vallejo, 61 Phil.
principal as a mode of terminating an agency which is to be 625. We quote from the brief:
distinguished from revocation by operation of law such as death of
the principal which obtains in this case. On page six of this Opinion In the case of Angel Blondeau et al. v. Agustin Nano
We stressed that by reason of the very nature of the relationship et al., 61 Phil. 630, one Vallejo was a co-owner of
between principal and agent, agency is extinguished ipso jure upon lands with Agustin Nano. The latter had a power of
the death of either principal or agent. Although a revocation of a attorney supposedly executed by Vallejo Nano in his
power of attorney to be effective must be communicated to the favor. Vallejo delivered to Nano his land titles. The
parties concerned, 18 yet a revocation by operation of law, such as power was registered in the Office of the Register of
by death of the principal is, as a rule, instantaneously effective Deeds. When the lawyer-husband of Angela
inasmuch as "by legal fiction the agent's exercise of authority is Blondeau went to that Office, he found all in order
regarded as an execution of the principal's continuing will. 19With including the power of attorney. But Vallejo denied
death, the principal's will ceases or is the of authority is having executed the power The lower court
extinguished. sustained Vallejo and the plaintiff Blondeau
appealed. Reversing the decision of the court a quo,
The Civil Code does not impose a duty on the heirs to notify the the Supreme Court, quoting the ruling in the case
agent of the death of the principal What the Code provides in Article of Eliason v. Wilborn, 261 U.S. 457, held:
1932 is that, if the agent die his heirs must notify the principal
thereof, and in the meantime adopt such measures as the
But there is a narrower ground on act of coincidence bear the loss.
which the defenses of the (pp. 19-21)
defendant- appellee must be
overruled. Agustin Nano had The Blondeau decision, however, is not on all fours with the case
possession of Jose Vallejo's title before Us because here We are confronted with one who
papers. Without those title papers admittedly was an agent of his sister and who sold the property of
handed over to Nano with the the latter after her death with full knowledge of such death. The
acquiescence of Vallejo, a fraud situation is expressly covered by a provision of law on agency the
could not have been perpetuated. terms of which are clear and unmistakable leaving no room for an
When Fernando de la Canters, a interpretation contrary to its tenor, in the same manner that the
member of the Philippine Bar and ruling in Blondeau and the cases cited therein found a basis in
the husband of Angela Blondeau, Section 55 of the Land Registration Law which in part provides:
the principal plaintiff, searched the
registration record, he found them xxx xxx xxx
in due form including the power of
attorney of Vallajo in favor of Nano. The production of the owner's duplicate certificate
If this had not been so and if whenever any voluntary instrument is presented for
thereafter the proper notation of registration shall be conclusive authority from the
the encumbrance could not have registered owner to the register of deeds to enter a
been made, Angela Blondeau would new certificate or to make a memorandum of
not have sent P12,000.00 to the registration in accordance with such instruments,
defendant Vallejo.' An executed and the new certificate or memorandum Shall be
transfer of registered lands placed binding upon the registered owner and upon all
by the registered owner thereof in persons claiming under him in favor of every
the hands of another operates as a purchaser for value and in good faith: Provided
representation to a third party that however, That in all cases of registration provided
the holder of the transfer is by fraud, the owner may pursue all his legal and
authorized to deal with the land. equitable remedies against the parties to such fraud
without prejudice, however, to the right, of any
As between two innocent persons, innocent holder for value of a certificate of title. ...
one of whom must suffer the (Act No. 496 as amended)
consequence of a breach of trust,
the one who made it possible by his 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 the common law is so unreasonable... (39 Am. Dec.
agent after the death of the principal were held to be "good", "the 76, 80, 81; emphasis supplied)
parties being ignorant of the death". Let us take note that the
Opinion of Justice Rogers was premised on the statement that To avoid any wrong impression which the Opinion in Cassiday v.
the parties were ignorant of the death of the principal. We quote McKenzie may evoke, mention may be made that the above
from that decision the following: represents the minority view in American jurisprudence. Thus
in Clayton v. Merrett, the Court said.—
... Here the precise point is, whether a payment to
an agent when the Parties are ignorant of the death There are several cases which seem to hold that
is a good payment. in addition to the case in although, as a general principle, death revokes an
Campbell before cited, the same judge Lord agency and renders null every act of the agent
Ellenboruogh, has decided in 5 Esp. 117, the general thereafter performed, yet that where a payment
question that a payment after the death of principal has been made in ignorance of the death, such
is not good. Thus, a payment of sailor's wages to a payment will be good. The leading case so holding is
person having a power of attorney to receive them, that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282,
has been held void when the principal was dead at 39 Am. 76, where, in an elaborate opinion, this view
the time of the payment. If, by this case, it is meant ii broadly announced. It is referred to, and seems to
merely to decide the general proposition that by have been followed, in the case of Dick v. Page, 17
operation of law the death of the principal is a Mo. 234, 57 AmD 267; but in this latter case it
revocation of the powers of the attorney, no appeared that the estate of the deceased principal
objection can be taken to it. But if it intended to say had received the benefit of the money paid, and
that his principle applies where there was 110 therefore the representative of the estate might
notice of death, or opportunity of twice I must be well have been held to be estopped from suing for it
permitted to dissent from it. again. . . . These cases, in so far, at least, as they
announce the doctrine under discussion, are
... That a payment may be good today, or bad exceptional. The Pennsylvania Case, supra (Cassiday
tomorrow, from the accident circumstance of the v. McKenzie 4 Watts & S. 282, 39 AmD 76), is
death of the principal, which he did not know, and believed to stand almost, if not quite, alone in
which by no possibility could he know? It would be announcing the principle in its broadest scope. (52,
unjust to the agent and unjust to the debtor. In the Misc. 353, 357, cited in 2 C.J. 549)
civil law, the acts of the agent, done bona fide in
ignorance of the death of his principal are held valid So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and
and binding upon the heirs of the latter. The same pointing out that the opinion, except so far as it related to the
rule holds in the Scottish law, and I cannot believe particular facts, was a mere dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be
regarded more as an extrajudicial indication of his
views on the general subject, than as the
adjudication of the Court upon the point in
question. But accordingly all power weight to this
opinion, as the judgment of a of great
respectability, it stands alone among common law
authorities and is opposed by an array too
formidable to permit us to following it. (15 Cal.
12,17, cited in 2 C.J. 549)

Whatever conflict of legal opinion was generated by Cassiday v.

McKenzie in American jurisprudence, no such conflict exists in our
own for the simple reason that our statute, the Civil Code, expressly
provides for two exceptions to the general rule that death of the
principal revokes ipso jure the agency, to wit: (1) that the agency is
coupled with an interest (Art 1930), and (2) that the act of the agent
was executed without knowledge of the death of the principal and
the third person who contracted with the agent acted also in good
faith (Art. 1931). Exception No. 2 is the doctrine followed in
Cassiday, and again We stress the indispensable requirement that
the agent acted without knowledge or notice of the death of the
principal In the case before Us the agent Ramon Rallos executed the
sale notwithstanding notice of the death of his principal
Accordingly, the agent's act is unenforceable against the estate of
his principal.

IN VIEW OF ALL THE FOREGOING, We set aside the ecision of

respondent appellate court, and We affirm en toto the judgment
rendered by then Hon. Amador E. Gomez of the Court of First
Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs
against respondent realty corporation at all instances.

So Ordered.
Republic of the Philippines Melecio Severino and ordering the defendant to convey 428
SUPREME COURT hectares of the land in question to the intervenor as administratrix
Manila of the estate of the said Melecio Severino, to deliver to her the
proceeds in his possession of a certain mortgage placed thereon by
EN BANC him and to pay the costs. From this judgment only the defendant
G.R. No. L-18058 January 16, 1923
The land described in the complaint forms one continuous tract and
FABIOLA SEVERINO, plaintiff-appellee, consists of lots Nos. 827, 828, 834, and 874 of the cadaster of Silay,
vs. Province of Occidental Negros, which measure, respectively, 61
GUILLERMO SEVERINO, defendant-appellant. hectares, 74 ares, and 79 centiares; 76 hectares, 34 ares, and 79
FELICITAS VILLANUEVA, intervenor-appellee. centiares; 52 hectares, 86 ares, and 60 centiares and 608 hectares,
77 ares and 28 centiares, or a total of 799 hectares, 75 ares, and 46
Serafin P. Hilado and A. P. Seva for appellant. centiares.
Jose Ma. Arroyo, Jose Lopez Vito, and Fisher and DeWitt for
appellees. The evidence shows that Melecio Severino died on the 25th day of
May, 1915; that some 428 hectares of the land were recorded in the
OSTRAND, J.: Mortgage Law Register in his name in the year 1901 by virtue of
possessory information proceedings instituted on the 9th day of
This is an action brought by the plaintiff as the alleged natural May of that year by his brother Agapito Severino in his behalf; that
daughter and sole heir of one Melecio Severino, deceased, to during the lifetime of Melecio Severino the land was worked by the
compel the defendant Guillermo Severino to convey to her four defendant, Guillermo Severino, his brother, as administrator for and
parcels of land described in the complaint, or in default thereof to on behalf of the said Melecio Severino; that after Melecio's death,
pay her the sum of P800,000 in damages for wrongfully causing said the defendant Guillermo Severino continued to occupy the land;
land to be registered in his own name. Felicitas Villanueva, in her that in 1916 a parcel survey was made of the lands in the
capacity as administratrix of the estate of Melecio Severino, has municipality of Silay, including the land here in question, and
filed a complaint in intervention claiming in the same relief as the cadastral proceedings were instituted for the registration of the
original plaintiff, except in so far as she prays that the conveyance lands titles within the surveyed area; that in the cadastral
be made, or damages paid, to the estate instead of to the plaintiff proceedings the land here in question was described as four
Fabiola Severino. The defendant answered both complaints with a separate lots numbered as above stated; that Roque Hofileña, as
general denial. lawyer for Guillermo Severino, filed answers in behalf of the latter in
said proceedings claiming the lots mentioned as the property of his
The lower court rendered a judgment recognizing the plaintiff client; that no opposition was presented in the proceedings to the
Fabiola Severino as the acknowledged natural child of the said claims of Guillermo Severino and the court therefore decreed the
title in his favor, in pursuance of which decree certificates of title extent of either 434 or 428 hectares at the time of his
were issued to him in the month of March, 1917. death.

It may be further observed that at the time of the cadastral 6. The trial court erred in declaring that the value of the
proceedings the plaintiff Fabiola Severino was a minor; that land in litigation is P500 per hectare.
Guillermo Severino did not appear personally in the proceedings
and did not there testify; that the only testimony in support of his 7. The trial court erred in granting the petition of the
claims was that of his attorney Hofileña, who swore that he knew plaintiff for an attachment without first giving the
the land and that he also knew that Guillermo Severino inherited defendant an opportunity to be heard.
the land from his father and that he, by himself, and through his
predecessors in interest, had possessed the land for thirty years. 8. The trial court erred in ordering the conveyance of 428
hectares of land by defendant to the administratrix.
The appellant presents the following nine assignments of error:
9. The trial court erred in failing or refusing to make any
1. The trial court erred in admitting the evidence that was finding as to the defendant's contention that the petition
offered by plaintiff in order to establish the fact that said for attachment was utterly devoid of any reasonable
plaintiff was the legally acknowledged natural child of the ground.
deceased Melecio Severino.
In regard to the first two assignments of error, we agree with the
2. The trial court erred in finding that, under the evidence appellant that the trial court erred in making a declaration in the
presented, plaintiff was the legally acknowledged natural present case as to the recognition of Fabiola Severino as the natural
child of Melecio Severino. child of Melecio Severino. We have held in the case of Briz vs. Briz
and Remigio (43 Phil., 763), that "The legitimate heirs or kin of a
3. The trial court erred in rejecting the evidence offered by deceased person who would be prejudiced by a declaration that
defendant to establish the absence of fraud on his part in another person is entitled to recognition as the natural child of such
securing title to the lands in Nacayao. decedent, are necessary and indispensable parties to any action in
which a judgment declaring the right to recognition is sought." In
4. The trial court erred in concluding that the evidence the present action only the widow, the alleged natural child, and
adduced by plaintiff and intervenor established that one of the brothers of the deceased are parties; the other potential
defendant was guilty of fraud in procuring title to the lands heirs have not been included. But, inasmuch as the judgment
in question in his name. appealed from is in favor of the intervenor and not of the plaintiff,
except to the extent of holding that the latter is a recognized
5. The trial court erred in declaring that the land that was natural child of the deceased, this question is, from the view we
formerly placed in the name of Melecio Severino had an take of the case, of no importance in its final disposition. We may
say, however, in this connection, that the point urged in appellant's The sixth assignment of error is also of minor importance in view of
brief that it does not appear affirmatively from the evidence that, at the fact that in the dispositive part of the decision of the trial court,
the time of the conception of Fabiola, her mother was a single the only relief given is an order requiring the appellant to convey to
woman, may be sufficiently disposed of by a reference to article 130 the administratrix the land in question, together with such parts of
of the Civil Code and subsection 1 of section 334 of the Code of Civil the proceeds of the mortgage thereon as remain in his hands. We
Procedure which create the presumption that a child born out of may say further that the court's estimate of the value of the land
wedlock is natural rather than illegitimate. The question of the does not appear unreasonable and that, upon the evidence before
status of the plaintiff Fabiola Severino and her right to share in the us, it will not be disturbed.
inheritance may, upon notice to all the interested parties, be
determined in the probate proceedings for the settlement of the The seventh and within assignments of error relate to the ex
estate of the deceased. parte granting by the trial court of a preliminary attachment in the
case and the refusal of the court to dissolve the same. We find no
The fifth assignment of error relates to the finding of the trial court merit whatever in these assignments and a detailed discussion of
that the land belonging to Melecio Severino had an area of 428 them is unnecessary.
hectares. The appellant contends that the court should have found
that there were only 324 hectares inasmuch as one hundred The third, fourth, and eight assignments of error involve the vital
hectares of the original area were given to Melecio's brother points in the case, are inter-related and may be conveniently
Donato during the lifetime of the father Ramon Severino. As it considered together.
appears that Ramon Severino died in 1896 and that the possessory
information proceedings, upon which the finding of the trial court as The defendant argues that the gist of the instant action is the
to the area of the land is principally based, were not instituted until alleged fraud on his part in causing the land in question to be
the year 1901, we are not disposed to disturb the conclusions of the registered in his name; that the trial court therefore erred in
trial court on this point. Moreover, in the year 1913, the defendant rejecting his offer of evidence to the effect that the land was owned
Guillermo Severino testified under oath, in the case of Montelibano in common by all the heirs of Ramon Severino and did not belong to
vs. Severino, that the area of the land owned by Melecio Severino Melecio Severino exclusively; that such evidence, if admitted, would
and of which he (Guillermo) was the administrator, embraced an have shown that he did not act with fraudulent intent in taking title
area of 424 hectares. The fact that Melecio Severino, in declaring to the land; that the trial court erred in holding him estopped from
the land for taxation in 1906, stated that the area was only 324 denying Melecio's title; that more than a year having elapsed since
hectares and 60 ares while entitled to some weight is not conclusive the entry of the final decree adjudicating the land to the defendant,
and is not sufficient to overcome the positive statement of the said decree cannot now be reopened; that the ordering of the
defendant and the recitals in the record of the possessory defendant to convey the decreed land to the administratrix is, for all
information proceedings. practical purposes, equivalent to the reopening of the decree of
registration; that under section 38 of the Land Registration Act the
defendant has an indefeasible title to the land; and that the
question of ownership of the land being thus judicially settled, the secured from his brothers and sisters a relinguishment in his favor
question as to the previous relations between the parties cannot of such rights as they might have in the land.
now be inquired into.
The relations of an agent to his principal are fiduciary and it is an
Upon no point can the defendant's contentions be sustained. It may elementary and very old rule that in regard to property forming the
first be observed that this is not an action under section 38 of the subject-matter of the agency, he is estopped from acquiring or
Land Registration Act to reopen or set aside a decree; it is an asserting a title adverse to that of the principal. His position is
action in personam against an agent to compel him to return, or analogous to that of a trustee and he cannot consistently, with the
retransfer, to the heirs or the estate of its principal, the property principles of good faith, be allowed to create in himself an interest
committed to his custody as such agent, to execute the necessary in opposition to that of his principal or cestui que trust. Upon this
documents of conveyance to effect such retransfer or, in default ground, and substantially in harmony with the principles of the Civil
thereof, to pay damages. Law (see sentence of the supreme court of Spain of May 1, 1900),
the English Chancellors held that in general whatever a trustee does
That the defendant came into the possession of the property here in for the advantage of the trust estate inures to the benefit of
question as the agent of the deceased Melecio Severino in the the cestui que trust. (Greenlaw vs. King, 5 Jur., 18; Ex parte Burnell,
administration of the property, cannot be successfully disputed. His 7 Jur., 116; Ex parte Hughes, 6 Ves., 617; Ex parte James, 8 Ves.,
testimony in the case of Montelibano vs. Severino (civil case No. 902 337; Oliver vs. Court, 8 Price, 127.) The same principle has been
of the Court of First Instance of Occidental Negros and which forms consistently adhered to in so many American cases and is so well
a part of the evidence in the present case) is, in fact, conclusive in established that exhaustive citations of authorities are superfluous
this respect. He there stated under oath that from the year 1902 up and we shall therefore limit ourselves to quoting a few of the
to the time the testimony was given, in the year 1913, he had been numerous judicial expressions upon the subject. The principle is well
continuously in charge and occupation of the land as stated in the case of Gilbert vs. Hewetson (79 Minn., 326):
the encargado or administrator of Melecio Severino; that he had
always known the land as the property of Melecio Severino; and A receiver, trustee, attorney, agent, or any other person
that the possession of the latter had been peaceful, continuous, and occupying fiduciary relations respecting property or
exclusive. In his answer filed in the same case, the same defendant, persons, is utterly disabled from acquiring for his own
through his attorney, disclaimed all personal interest in the land and benefit the property committed to his custody for
averred that it was wholly the property of his brother Melecio. management. This rule is entirely independent of the fact
whether any fraud has intervened. No fraud in fact need be
Neither is it disputed that the possession enjoyed by the defendant shown, and no excuse will be heard from the trustee. It is to
at the time of obtaining his decree was of the same character as avoid the necessity of any such inquiry that the rule takes so
that held during the lifetime of his brother, except in so far as general a form. The rule stands on the moral obligation to
shortly before the trial of the cadastral case the defendant had refrain from placing one's self in positions which ordinarily
excite conflicts between self-interest and integrity. It seeks
to remove the temptation that might arise out of such a The same doctrine has also been adopted in the Philippines. In the
relation to serve one's self-interest at the expense of one's case of Uy Aloc vs. Cho Jan Ling (19 Phil., 202), the facts are stated
integrity and duty to another, by making it impossible to by the court as follows:
profit by yielding to temptation. It applies universally to all
who come within its principle. From the facts proven at the trial it appears that a number
of Chinese merchants raised a fund by voluntary
In the case of Massie vs. Watts (6 Cranch, 148), the United States subscription with which they purchased a valuable tract of
Supreme Court, speaking through Chief Justice Marshall, said: land and erected a large building to be used as a sort of club
house for the mutual benefit of the subscribers to the fund.
But Massie, the agent of Oneale, has entered and surveyed The subscribers organized themselves into an irregular
a portion of that land for himself and obtained a patent for association, which had no regular articles of association,
it in his own name. According to the clearest and best and was not incorporated or registered in the commercial
established principles of equity, the agent who so acts registry or elsewhere. The association not having any
becomes a trustee for his principal. He cannot hold the land existence as a legal entity, it was agreed to have the title to
under an entry for himself otherwise than as trustee for his the property placed in the name of one of the members, the
principal. defendant, Cho Jan Ling, who on his part accepted the trust,
and agreed to hold the property as the agent of the
In the case of Felix vs. Patrick (145 U. S., 317), the United States members of the association. After the club building was
Supreme Court, after examining the authorities, said: completed with the funds of the members of the
association, Cho Jan Ling collected some P25,000 in rents
The substance of these authorities is that, wherever a for which he failed and refused to account, and upon
person obtains the legal title to land by any artifice or proceedings being instituted to compel him to do so, he set
concealment, or by making use of facilities intended for the up title in himself to the club property as well as to the rents
benefit of another, a court of equity will impress upon the accruing therefrom, falsely alleging that he had bought the
land so held by him a trust in favor of the party who is justly real estate and constructed the building with his own funds,
entitled to them, and will order the trust executed by and denying the claims of the members of the association
decreeing their conveyance to the party in whose favor the that it was their funds which had been used for that
trust was created. (Citing Bank of Metropolis vs. Guttschlick, purpose.
14 Pet., 19, 31; Moses vs. Murgatroyd, 1 Johns. Ch., 119;
Cumberland vs.Codrington, 3 Johns. Ch., 229, 261; The decree of the court provided, among other things, for the
Neilson vs. Blight, 1 Johns. Cas., 205; Weston vs. Barker, 12 conveyance of the club house and the land on which it stood from
Johns., 276.) the defendant, Cho Jan Ling, in whose name it was registered, to the
members of the association. In affirming the decree, this court said:
In the case at bar the legal title of the holder of the 202, the proper procedure in such a case, so long as the
registered title is not questioned; it is admitted that the rights of innocent third persons have not intervened, is to
members of the association voluntarily obtained the compel a conveyance to the rightful owner. This ought and
inscription in the name of Cho Jan Ling, and that they had can be done under the issues raised and the proof
no right to have that inscription cancelled; they do not seek presented in the case at bar.
such cancellation, and on the contrary they allege and prove
that the duly registered legal title to the property is in Cho The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in
Jan Ling, but they maintain, and we think that they rightly point.
maintain, that he holds it under an obligation, both express
and implied, to deal with it exclusively for the benefit of the As will be seen from the authorities quoted, and agent is not only
members of the association, and subject to their will. estopped from denying his principal's title to the property, but he is
also disable from acquiring interests therein adverse to those of his
In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), principal during the term of the agency. But the defendant argues
the plaintiff, Camacho, took title to the land in his own name, while that his title has become res adjudicata through the decree of
acting as agent for the municipality. The court said: registration and cannot now be disturbed.

There have been a number of cases before this court in This contention may, at first sight, appear to possess some force,
which a title to real property was acquired by a person in his but on closer examination it proves untenable. The decree of
own name, while acting under a fiduciary capacity, and who registration determined the legal title to the land as the date of the
afterwards sought to take advantage of the confidence decree; as to that there is no question. That, under section 38 of the
reposed in him by claiming the ownership of the property Land Registration Act, this decree became conclusive after one year
for himself. This court has invariably held such evidence from the date of the entry is not disputed and no one attempts to
competent as between the fiduciary and the cestui que disturb the decree or the proceedings upon which it is based; the
trust. plaintiff in intervention merely contends that in equity the legal title
so acquired inured to the benefit of the estate of Melecio Severino,
xxx xxx xxx the defendant's principal and cestui que trust and asks that this
superior equitable right be made effective by compelling the
What judgment ought to be entered in this case? The court defendant, as the holder of the legal title, to transfer it to the
below simply absolved the defendant from the complaint. estate.
The defendant municipality does not ask for a cancellation
of the deed. On the contrary, the deed is relied upon the We have already shown that before the issuance of the decree of
supplement the oral evidence showing that the title to the registration it was the undoubted duty of the defendant to restore
land is in the defendant. As we have indicated in Consunji the property committed to his custody to his principal, or to the
vs. Tison, 15 Phil., 81, and Uy Aloc vs. Cho Jan Ling, 19 Phil., latter's estate, and that the principal had a right of action in
personam to enforce the performance of this duty and to compel law to unregistered land. Nothing contained in this Act shall
the defendant to execute the necessary conveyance to that effect. in any way be construed to relieve registered land or the
The only question remaining for consideration is, therefore, owners thereof from any rights incident to the relation of
whether the decree of registration extinguishing this personal right husband and wife, or from liability to attachment on mesne
of action. process or levy on execution, or from liability to any lien of
any description established by law on land and the buildings
In Australia and New Zealand, under statutes in this respect similar thereon, or the interest of the owner in such land or
to ours, courts of equity exercise general jurisdiction in matters of buildings, or to change the laws of descent, or the rights of
fraud and error with reference to Torrens registered lands, and partition between coparceners, joint tenants and other
giving attention to the special provisions of the Torrens acts, will cotenants, or the right to take the same by eminent domain,
issue such orders and direction to all the parties to the proceedings or to relieve such land from liability to be appropriated in
as may seem just and proper under the circumstances. They may any lawful manner for the payment of debts, or to change
order parties to make deeds of conveyance and if the order is or affect in any other way any other rights or liabilities
disobeyed, they may cause proper conveyances to be made by a created by law and applicable to unregistered land, except
Master in Chancery or Commissioner in accordance with the as otherwise expressly provided in this Act or in the
practice in equity (Hogg, Australian Torrens System, p. 847). amendments hereof.

In the Untied States courts have even gone so far in the exercise of Section 102 of the Act, after providing for actions for damages in
their equity jurisdiction as to set aside final decrees after the which the Insular Treasurer, as the Custodian of the Assurance Fund
expiration of the statutory period of limitation for the reopening of is a party, contains the following proviso:
such decrees (Baart vs. Martin, 99 Minn., 197). But, considering that
equity follows the law and that our statutes expressly prohibit the Provided, however, That nothing in this Act shall be
reopening of a decree after one year from the date of its entry, this construed to deprive the plaintiff of any action which he
practice would probably be out of question here, especially so as may have against any person for such loss or damage or
the ends of justice may be attained by other equally effective, and deprivation of land or of any estate or interest therein
less objectionable means. without joining the Treasurer of the Philippine Archipelago
as a defendant therein.
Turning to our own Land Registration Act, we find no indication
there of an intention to cut off, through the issuance of a decree of That an action such as the present one is covered by this proviso can
registration, equitable rights or remedies such as those here in hardly admit of doubt. Such was also the view taken by this court in
question. On the contrary, section 70 of the Act provides: the case of Medina Ong-Quingco vs. Imaz and Warner, Barnes &
Co. (27 Phil., 314), in which the plaintiff was seeking to take
Registered lands and ownership therein, shall in all respects advantage of his possession of a certificate of title to deprive the
be subject to the same burdens and incidents attached by defendant of land included in that certificate and sold to him by the
former owner before the land was registered. The court decided guilty of the breach of trust and no rights of innocent third parties
adversely to plaintiff and in so doing said: are adversely affected, there can be no reason why such reparation
should not, in the proper case, take the form of a conveyance or
As between them no question as to the indefeasibility of a transfer of the title to the cestui que trust. No reasons of public
Torrens title could arise. Such an action could have been policy demand that a person guilty of fraud or breach of trust be
maintained at any time while the property remained in the permitted to use his certificate of title as a shield against the
hands of the purchaser. The peculiar force of a Torrens title consequences of his own wrong.
would have been brought into play only when the purchaser
had sold to an innocent third person for value the lands The judgment of the trial court is in accordance with the facts and
described in his conveyance. . . . Generally speaking, as the law. In order to prevent unnecessary delay and further litigation
between the vendor and the purchaser the same rights and it may, however, be well to attach some additional directions to its
remedies exist with reference to land registered under Act dipositive clauses. It will be observed that lots Nos. 827, 828, and
No. 496, as exist in relation to land not so registered. 834 of a total area of approximately 191 hectares, lie wholly within
the area to be conveyed to the plaintiff in intervention and these
In Cabanos vs. Register of Deeds of Laguna and Obiñana (40 Phil., lots may, therefore, be so conveyed without subdivision. The
620), it was held that, while a purchaser of land under a pacto de remaining 237 hectares to be conveyed lie within the western part
retro cannot institute a real action for the recovery thereof where of lot No. 874 and before a conveyance of this portion can be
the vendor under said sale has caused such lands to be registered in effected a subdivision of that lot must be made and a technical
his name without said vendee's consent, yet he may have his description of the portion to be conveyed, as well as of the
personal action based on the contract of sale to compel the remaining portion of the lot, must be prepared. The subdivision
execution of an unconditional deed for the said lands when the shall be made by an authorized surveyor and in accordance with the
period for repurchase has passed. provisions of Circular No. 31 of the General Land Registration Office,
and the subdivision and technical descriptions shall be submitted to
Torrens titles being on judicial decrees there is, of course, a strong the Chief of that office for his approval. Within thirty days after
presumption in favor of their regularity or validity, and in order to being notified of the approval of said subdivision and technical
maintain an action such as the present the proof as to the fiduciary descriptions, the defendant Guillermo Severino shall execute good
relation of the parties and of the breach of trust must be clear and and sufficient deed or deeds of conveyance in favor of the
convincing. Such proof is, as we have seen, not lacking in this case. administratrix of the estate of the deceased Melecio Severino for
said lots Nos. 827, 828, 834, and the 237 hectares segregated from
But once the relation and the breach of trust on the part of the the western part of lot No. 874 and shall deliver to the register of
fiduciary in thus established, there is no reason, neither practical deeds his duplicate certificates of title for all of the four lots in order
nor legal, why he should not be compelled to make such reparation that said certificates may be cancelled and new certificates issued.
as may lie within his power for the injury caused by his wrong, and The cost of the subdivision and the fees of the register of deeds will
as long as the land stands registered in the name of the party who is be paid by the plaintiff in intervention. It is so ordered
With these additional directions the judgment appealed from is
affirmed, with the costs against the appellant. The right of the
plaintiff Fabiola Severino to establish in the probate proceedings of
the estate of Melecio Severino her status as his recognized natural
child is reserved.
G.R. No. 149353 June 26, 2006 the foregoing sale, respondent shall assume the undue balance of
the mortgage and pay the monthly amortization of P4,748.11 for
JOCELYN B. DOLES, Petitioner, the remainder of the 25 years which began on September 3, 1994;
vs. that the property was at that time being occupied by a tenant
MA. AURA TINA ANGELES, Respondent. paying a monthly rent of P3,000.00; that upon verification with the
NHMFC, respondent learned that petitioner had incurred arrearages
DECISION amounting to P26,744.09, inclusive of penalties and interest; that
upon informing the petitioner of her arrears, petitioner denied that
AUSTRIA-MARTINEZ, J.: she incurred them and refused to pay the same; that despite
repeated demand, petitioner refused to cooperate with respondent
This refers to the Petition for Review on Certiorari under Rule 45 of to execute the necessary documents and other formalities required
the Rules of Court questioning the Decision1dated April 30, 2001 of by the NHMFC to effect the transfer of the title over the property;
the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed that petitioner collected rent over the property for the month of
the Decision dated July 29, 1998 of the Regional Trial Court (RTC), January 1997 and refused to remit the proceeds to respondent; and
Branch 21, City of Manila; and the CA Resolution2 dated August 6, that respondent suffered damages as a result and was forced to
2001 which denied petitioner’s Motion for Reconsideration. litigate.

The antecedents of the case follow: Petitioner, then defendant, while admitting some allegations in the
Complaint, denied that she borrowed money from respondent, and
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the averred that from June to September 1995, she referred her friends
RTC a complaint for Specific Performance with Damages against to respondent whom she knew to be engaged in the business of
Jocelyn B. Doles (petitioner), docketed as Civil Case No. 97-82716. lending money in exchange for personal checks through her
Respondent alleged that petitioner was indebted to the former in capitalist Arsenio Pua. She alleged that her friends, namely, Zenaida
the concept of a personal loan amounting to P405,430.00 Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and
representing the principal amount and interest; that on October 5, Elizabeth Tomelden, borrowed money from respondent and issued
1996, by virtue of a "Deed of Absolute Sale",3 petitioner, as seller, personal checks in payment of the loan; that the checks bounced for
ceded to respondent, as buyer, a parcel of land, as well as the insufficiency of funds; that despite her efforts to assist respondent
improvements thereon, with an area of 42 square meters, covered to collect from the borrowers, she could no longer locate them;
by Transfer Certificate of Title No. 382532,4 and located at a that, because of this, respondent became furious and threatened
subdivision project known as Camella Townhomes Sorrente in petitioner that if the accounts were not settled, a criminal case will
Bacoor, Cavite, in order to satisfy her personal loan with be filed against her; that she was forced to issue eight checks
respondent; that this property was mortgaged to National Home amounting to P350,000 to answer for the bounced checks of the
Mortgage Finance Corporation (NHMFC) to secure petitioner’s loan borrowers she referred; that prior to the issuance of the checks she
in the sum of P337,050.00 with that entity; that as a condition for informed respondent that they were not sufficiently funded but the
latter nonetheless deposited the checks and for which reason they solely owned by defendant as appearing in Entry No. 9055 of
were subsequently dishonored; that respondent then threatened to Transfer Certificate of Title No. 382532 (Annex A, Complaint), thus:
initiate a criminal case against her for violation of Batas Pambansa
Blg. 22; that she was forced by respondent to execute an "Absolute "Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles
Deed of Sale" over her property in Bacoor, Cavite, to avoid criminal covering the share of Teodorico Doles on the parcel of land
prosecution; that the said deed had no valid consideration; that she described in this certificate of title by virtue of the special power of
did not appear before a notary public; that the Community Tax attorney to mortgage, executed before the notary public, etc."
Certificate number on the deed was not hers and for which
respondent may be prosecuted for falsification and perjury; and The rule under the Civil Code is that contracts without a cause or
that she suffered damages and lost rental as a result. consideration produce no effect whatsoever. (Art. 1352, Civil Code).

The RTC identified the issues as follows: first, whether the Deed of Respondent appealed to the CA. In her appeal brief, respondent
Absolute Sale is valid; second; if valid, whether petitioner is obliged interposed her sole assignment of error:
to sign and execute the necessary documents to effect the transfer
of her rights over the property to the respondent; and third, THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE
whether petitioner is liable for damages. GROUND OF [sic] THE DEED OF SALE BETWEEN THE PARTIES HAS NO
On July 29, 1998, the RTC rendered a decision the dispositive
portion of which states: On April 30, 2001, the CA promulgated its Decision, the dispositive
portion of which reads:
WHEREFORE, premises considered, the Court hereby orders the
dismissal of the complaint for insufficiency of evidence. With costs WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby
against plaintiff. GRANTED. The Decision of the lower court dated July 29, 1998 is
REVERSED and SET ASIDE. A new one is entered ordering defendant-
SO ORDERED. appellee to execute all necessary documents to effect transfer of
subject property to plaintiff-appellant with the arrearages of the
The RTC held that the sale was void for lack of cause or former’s loan with the NHMFC, at the latter’s expense. No costs.
Plaintiff Angeles’ admission that the borrowers are the friends of
defendant Doles and further admission that the checks issued by The CA concluded that petitioner was the borrower and, in turn,
these borrowers in payment of the loan obligation negates [sic] the would "re-lend" the amount borrowed from the respondent to her
cause or consideration of the contract of sale executed by and friends. Hence, the Deed of Absolute Sale was supported by a valid
between plaintiff and defendant. Moreover, the property is not consideration, which is the sum of money petitioner owed
respondent amounting to P405,430.00, representing both principal impleaded as a defendant nor was he indebted to the respondent
and interest. and, hence, she cannot be made to sign the documents to effect the
transfer of ownership over the entire property.
The CA took into account the following circumstances in their
entirety: the supposed friends of petitioner never presented On August 6, 2001, the CA issued its Resolution denying the motion
themselves to respondent and that all transactions were made by on the ground that the foregoing matters had already been passed
and between petitioner and respondent;7 that the money borrowed upon.
was deposited with the bank account of the petitioner, while
payments made for the loan were deposited by the latter to On August 13, 2001, petitioner received a copy of the CA
respondent’s bank account;8 that petitioner herself admitted in Resolution. On August 28, 2001, petitioner filed the present Petition
open court that she was "re-lending" the money loaned from and raised the following issues:
respondent to other individuals for profit;9 and that the
documentary evidence shows that the actual borrowers, the friends I.
of petitioner, consider her as their creditor and not the
Furthermore, the CA held that the alleged threat or intimidation by
respondent did not vitiate consent, since the same is considered II.
just or legal if made to enforce one’s claim through competent
authority under Article 133511of the Civil Code;12 that with respect WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED
to the arrearages of petitioner on her monthly amortization with BY THE PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD
the NHMFC in the sum of P26,744.09, the same shall be deemed DIRECTLY COLLECT PAYMENT FROM THE DEBTOR.
part of the balance of petitioner’s loan with the NHMFC which
respondent agreed to assume; and that the amount of P3,000.00 III.
representing the rental for January 1997 supposedly collected by
petitioner, as well as the claim for damages and attorney’s fees, is WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED
denied for insufficiency of evidence.13 FOR A CAUSE.14

On May 29, 2001, petitioner filed her Motion for Reconsideration Although, as a rule, it is not the business of this Court to review the
with the CA, arguing that respondent categorically admitted in open findings of fact made by the lower courts, jurisprudence has
court that she acted only as agent or representative of Arsenio Pua, recognized several exceptions, at least three of which are present in
the principal financier and, hence, she had no legal capacity to sue the instant case, namely: when the judgment is based on a
petitioner; and that the CA failed to consider the fact that misapprehension of facts; when the findings of facts of the courts a
petitioner’s father, who co-owned the subject property, was not quo are conflicting; and when the CA manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly fourth, the documentary evidence shows that the actual borrowers,
considered, could justify a different conclusion.15 To arrive at a the friends of petitioner, consider her as their creditor and not the
proper judgment, therefore, the Court finds it necessary to re- respondent.21
examine the evidence presented by the contending parties during
the trial of the case. On the first, third, and fourth points, the CA cites the testimony of
the petitioner, then defendant, during her cross-examination:22
The Petition is meritorious.
Atty. Diza:
The principal issue is whether the Deed of Absolute Sale is
supported by a valid consideration. q. You also mentioned that you were not the one indebted
to the plaintiff?
1. Petitioner argues that since she is merely the agent or
representative of the alleged debtors, then she is not a party to the witness:
loan; and that the Deed of Sale executed between her and the
respondent in their own names, which was predicated on that pre- a. Yes, sir.
existing debt, is void for lack of consideration.
Atty. Diza:
Indeed, the Deed of Absolute Sale purports to be supported by a
consideration in the form of a price certain in money16 and that this q. And you mentioned the persons[,] namely, Elizabeth
sum indisputably pertains to the debt in issue. This Court has Tomelden, Teresa Moraquin, Maria Luisa Inocencio, Zenaida
consistently held that a contract of sale is null and void and Romulo, they are your friends?
produces no effect whatsoever where the same is without cause or
consideration.17 The question that has to be resolved for the witness:
moment is whether this debt can be considered as a valid cause or
consideration for the sale. a. Inocencio and Moraquin are my friends while [as to]
Jacob and Tomelden[,] they were just referred.
To restate, the CA cited four instances in the record to support its
holding that petitioner "re-lends" the amount borrowed from Atty. Diza:
respondent to her friends: first, the friends of petitioner never
presented themselves to respondent and that all transactions were q. And you have transact[ed] with the plaintiff?
made by and between petitioner and respondent;18 second; the
money passed through the bank accounts of petitioner and witness:
respondent;19 third, petitioner herself admitted that she was "re-
lending" the money loaned to other individuals for profit;20 and a. Yes, sir.
Atty. Diza: a. We are both intermediaries. As evidenced by the checks
of the debtors they were deposited to the name of Arsenio
q. What is that transaction? Pua because the money came from Arsenio Pua.

witness: xxxx

a. To refer those persons to Aura and to refer again to Atty. Diza:

Arsenio Pua, sir.
q. Did the plaintiff knew [sic] that you will lend the money
Atty. Diza: to your friends specifically the one you mentioned [a] while
q. Did the plaintiff personally see the transactions with your
friends? witness:

witness: a. Yes, she knows the money will go to those persons.

a. No, sir. Atty. Diza:

Atty. Diza: q. You are re-lending the money?

q. Your friends and the plaintiff did not meet personally? witness:

witness: a. Yes, sir.

a. Yes, sir. Atty. Diza:

Atty. Diza: q. What profit do you have, do you have commission?

q. You are intermediaries? witness:

witness: a. Yes, sir.

Atty. Diza:
q. How much? q. So it is not actually your money but the money of Arsenio
a. Two percent to Tomelden, one percent to Jacob and then
Inocencio and my friends none, sir. a. Yes, sir.

Based on the foregoing, the CA concluded that petitioner is Court:

the real borrower, while the respondent, the real lender.
q. It is not your money?
But as correctly noted by the RTC, respondent, then
plaintiff, made the following admission during her cross witness:
a. Yes, Your Honor.
Atty. Villacorta:
Atty. Villacorta:
q. Who is this Arsenio Pua?
q. Is it not a fact Ms. Witness that the defendant borrowed
witness: from you to accommodate somebody, are you aware of
a. Principal financier, sir.
Atty. Villacorta:
a. I am aware of that.
q. So the money came from Arsenio Pua?
Atty. Villacorta:
q. More or less she [accommodated] several friends of the
a. Yes, because I am only representing him, sir. defendant?

Other portions of the testimony of respondent must witness:

likewise be considered:24
a. Yes, sir, I am aware of that.
Atty. Villacorta:
xxxx q. And because of your assistance, the friends of the
defendant who are in need of money were able to obtain
Atty. Villacorta: loan to [sic] Arsenio Pua through your assistance?

q. And these friends of the defendant borrowed money witness:

from you with the assurance of the defendant?
a. Yes, sir.
Atty. Villacorta:
a. They go direct to Jocelyn because I don’t know them.
q. So that occasion lasted for more than a year?
Atty. Villacorta:
a. Yes, sir.
q. And is it not also a fact Madam witness that everytime
that the defendant borrowed money from you her friends Atty. Villacorta:
who [are] in need of money issued check[s] to you? There
were checks issued to you? q. And some of the checks that were issued by the friends of
the defendant bounced, am I correct?
a. Yes, there were checks issued.
a. Yes, sir.
Atty. Villacorta:
Atty. Villacorta:
q. By the friends of the defendant, am I correct?
q. And because of that Arsenio Pua got mad with you?
a. Yes, sir.
a. Yes, sir.
Atty. Villacorta:
Respondent is estopped to deny that she herself acted as agent of a In the case at bar, both petitioner and respondent have undeniably
certain Arsenio Pua, her disclosed principal. She is also estopped to disclosed to each other that they are representing someone else,
deny that petitioner acted as agent for the alleged debtors, the and so both of them are estopped to deny the same. It is evident
friends whom she (petitioner) referred. from the record that petitioner merely refers actual borrowers and
then collects and disburses the amounts of the loan upon which she
This Court has affirmed that, under Article 1868 of the Civil Code, received a commission; and that respondent transacts on behalf of
the basis of agency is representation.25 The question of whether an her "principal financier", a certain Arsenio Pua. If their respective
agency has been created is ordinarily a question which may be principals do not actually and personally know each other, such
established in the same way as any other fact, either by direct or ignorance does not affect their juridical standing as agents,
circumstantial evidence. The question is ultimately one of especially since the very purpose of agency is to extend the
intention.26Agency may even be implied from the words and personality of the principal through the facility of the agent.
conduct of the parties and the circumstances of the particular
case.27 Though the fact or extent of authority of the agents may not, With respect to the admission of petitioner that she is "re-lending"
as a general rule, be established from the declarations of the agents the money loaned from respondent to other individuals for profit, it
alone, if one professes to act as agent for another, she may be must be stressed that the manner in which the parties designate the
estopped to deny her agency both as against the asserted principal relationship is not controlling. If an act done by one person in behalf
and the third persons interested in the transaction in which he or of another is in its essential nature one of agency, the former is the
she is engaged.28 agent of the latter notwithstanding he or she is not so called.30 The
question is to be determined by the fact that one represents and is
In this case, petitioner knew that the financier of respondent is Pua; acting for another, and if relations exist which will constitute an
and respondent knew that the borrowers are friends of petitioner. agency, it will be an agency whether the parties understood the
exact nature of the relation or not.31
The CA is incorrect when it considered the fact that the "supposed
friends of [petitioner], the actual borrowers, did not present That both parties acted as mere agents is shown by the undisputed
themselves to [respondent]" as evidence that negates the agency fact that the friends of petitioner issued checks in payment of the
relationship—it is sufficient that petitioner disclosed to respondent loan in the name of Pua. If it is true that petitioner was "re-lending",
that the former was acting in behalf of her principals, her friends then the checks should have been drawn in her name and not
whom she referred to respondent. For an agency to arise, it is not directly paid to Pua.
necessary that the principal personally encounter the third person
with whom the agent interacts. The law in fact contemplates, and to With respect to the second point, particularly, the finding of the CA
a great degree, impersonal dealings where the principal need not that the disbursements and payments for the loan were made
personally know or meet the third person with whom her agent through the bank accounts of petitioner and respondent,
transacts: precisely, the purpose of agency is to extend the
personality of the principal through the facility of the agent.29
suffice it to say that in the normal course of commercial dealings petitioner or her father held any direct interest on the property in
and for reasons of convenience and practical utility it can be question so as to validly constitute a mortgage thereon38 and, with
reasonably expected that the facilities of the agent, such as a bank more reason, to effect the delivery of the object of the sale at the
account, may be employed, and that a sub-agent be appointed, consummation stage.39 What is worse, there is a notation that the
such as the bank itself, to carry out the task, especially where there TCT itself has been "cancelled."40
is no stipulation to the contrary.32
In view of these anomalies, the Court cannot entertain the
In view of the two agency relationships, petitioner and respondent
are not privy to the contract of loan between their principals. Since possibility that respondent agreed to assume the balance of the
the sale is predicated on that loan, then the sale is void for lack of mortgage loan which petitioner allegedly owed to the NHMFC,
consideration. especially since the record is bereft of any factual finding that
petitioner was, in the first place, endowed with any ownership
2. A further scrutiny of the record shows, however, that the sale rights to validly mortgage and convey the property. As the
might have been backed up by another consideration that is complainant who initiated the case, respondent bears the burden of
separate and distinct from the debt: respondent averred in her proving the basis of her complaint. Having failed to discharge such
complaint and testified that the parties had agreed that as a burden, the Court has no choice but to declare the sale void for lack
condition for the conveyance of the property the respondent shall of cause. And since the sale is void, the Court finds it unnecessary to
assume the balance of the mortgage loan which petitioner allegedly dwell on the issue of whether duress or intimidation had been
owed to the NHMFC.33 This Court in the recent past has declared foisted upon petitioner upon the execution of the sale.
that an assumption of a mortgage debt may constitute a valid
consideration for a sale.34 Moreover, even assuming the mortgage validly exists, the Court
notes respondent’s allegation that the mortgage with the NHMFC
Although the record shows that petitioner admitted at the time of was for 25 years which began September 3, 1994. Respondent filed
trial that she owned the property described in the TCT,35 the Court her Complaint for Specific Performance in 1997. Since the 25 years
must stress that the Transfer Certificate of Title No. 38253236 on its had not lapsed, the prayer of respondent to compel petitioner to
face shows that the owner of the property which admittedly forms execute necessary documents to effect the transfer of title is
the subject matter of the Deed of Absolute Sale refers neither to the premature.
petitioner nor to her father, Teodorico Doles, the alleged co-owner.
Rather, it states that the property is registered in the name of WHEREFORE, the petition is granted. The Decision and Resolution of
"Household Development Corporation." Although there is an entry the Court of Appeals are REVERSED and SET ASIDE. The complaint of
to the effect that the petitioner had been granted a special power of respondent in Civil Case No. 97-82716 is DISMISSED.
attorney "covering the shares of Teodorico Doles on the parcel of
land described in this certificate,"37 it cannot be inferred from this SO ORDERED.
bare notation, nor from any other evidence on the record, that the
Republic of the Philippines (9) "open-dated" air passage tickets for the
SUPREME COURT Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of
Manila US$2,528.85 for their economy and first class fares. Said tickets
were bought at the then prevailing exchange rate of P3.90 per
FIRST DIVISION US$1.00. The GANAS also paid travel taxes of P100.00 for each
G.R. No. L-57339 December 29, 1983
On 24 April 1970, AIR FRANCE exchanged or substituted the
AIR FRANCE, petitioner, aforementioned tickets with other tickets for the same route. At this
vs. time, the GANAS were booked for the Manila/Osaka segment on
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA AIR FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila
A. GANA, RAMON GANA, MANUEL GANA, MARIA TERESA GANA, return trip on AIR FRANCE Flight 187 on 22 May 1970. The aforesaid
ROBERTO GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE AREVALO, tickets were valid until 8 May 1971, the date written under the
and EMILY SAN JUAN, respondents. printed words "Non valuable apres de (meaning, "not valid after
Benjamin S. Valte for petitioner.
The GANAS did not depart on 8 May 1970.
Napoleon Garcia for private respondents.
Sometime in January, 1971, Jose Gana sought the assistance of
Teresita Manucdoc, a Secretary of the Sta. Clara Lumber Company
where Jose Gana was the Director and Treasurer, for the extension
MELENCIO-HERRERA, J.: of the validity of their tickets, which were due to expire on 8 May
1971. Teresita enlisted the help of Lee Ella Manager of the
In this petition for review on certiorari, petitioner AIR FRANCE Philippine Travel Bureau, who used to handle travel arrangements
assails the Decision of then respondent Court of for the personnel of the Sta. Clara Lumber Company. Ella sent the
Appeals 1 promulgated on 15 December 1980 in CA-G.R. No. 58164- tickets to Cesar Rillo, Office Manager of AIR FRANCE. The tickets
R, entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air France", were returned to Ella who was informed that extension was not
which reversed the Trial Court's judgment dismissing the Complaint possible unless the fare differentials resulting from the increase in
of private respondents for damages arising from breach of contract fares triggered by an increase of the exchange rate of the US dollar
of carriage, and awarding instead P90,000.00 as moral damages. to the Philippine peso and the increased travel tax were first paid.
Ella then returned the tickets to Teresita and informed her of the
Sometime in February, 1970, the late Jose G. Gana and his family, impossibility of extension.
numbering nine (the GANAS), purchased from AIR FRANCE through
Imperial Travels, Incorporated, a duly authorized travel agent, nine
In the meantime, the GANAS had scheduled their departure on 7 On 25 August 1971, the GANAS commenced before the then Court
May 1971 or one day before the expiry date. In the morning of the of First Instance of Manila, Branch III, Civil Case No. 84111 for
very day of their scheduled departure on the first leg of their trip, damages arising from breach of contract of carriage.
Teresita requested travel agent Ella to arrange the revalidation of
the tickets. Ella gave the same negative answer and warned her that AIR FRANCE traversed the material allegations of the Complaint and
although the tickets could be used by the GANAS if they left on 7 alleged that the GANAS brought upon themselves the predicament
May 1971, the tickets would no longer be valid for the rest of their they found themselves in and assumed the consequential risks; that
trip because the tickets would then have expired on 8 May 1971. travel agent Ella's affixing of validating stickers on the tickets
Teresita replied that it will be up to the GANAS to make the without the knowledge and consent of AIR FRANCE, violated airline
arrangements. With that assurance, Ella on his own, attached to the tariff rules and regulations and was beyond the scope of his
tickets validating stickers for the Osaka/Tokyo flight, one a JAL. authority as a travel agent; and that AIR FRANCE was not guilty of
sticker and the other an SAS (Scandinavian Airways System) sticker. any fraudulent conduct or bad faith.
The SAS sticker indicates thereon that it was "Reevaluated by: the
Philippine Travel Bureau, Branch No. 2" (as shown by a circular On 29 May 1975, the Trial Court dismissed the Complaint based on
rubber stamp) and signed "Ador", and the date is handwritten in the Partial and Additional Stipulations of Fact as wen as on the
center of the circle. Then appear under printed headings the documentary and testimonial evidence.
notations: JL. 108 (Flight), 16 May (Date), 1040 (Time), OK (status).
Apparently, Ella made no more attempt to contact AIR FRANCE as The GANAS appealed to respondent Appellate Court. During the
there was no more time. pendency of the appeal, Jose Gana, the principal plaintiff, died.

Notwithstanding the warnings, the GANAS departed from Manila in On 15 December 1980, respondent Appellate Court set aside and
the afternoon of 7 May 1971 on board AIR FRANCE Flight 184 for reversed the Trial Court's judgment in a Decision, which decreed:
Osaka, Japan. There is no question with respect to this leg of the
trip. WHEREFORE, the decision appealed from is set
aside. Air France is hereby ordered to pay
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines appellants moral damages in the total sum of
refused to honor the tickets because of their expiration, and the NINETY THOUSAND PESOS (P90,000.00) plus costs.
GANAS had to purchase new tickets. They encountered the same
difficulty with respect to their return trip to Manila as AIR FRANCE SO ORDERED. 2
also refused to honor their tickets. They were able to return only
after pre-payment in Manila, through their relatives, of the Reconsideration sought by AIR FRANCE was denied, hence,
readjusted rates. They finally flew back to Manila on separate Air petitioner's recourse before this instance, to which we gave due
France Frights on 19 May 1971 for Jose Gana and 26 May 1971 for course.
the rest of the family.
The crucial issue is whether or not, under the environmental milieu 7. APPLICABLE FARE ON THE DATE OF DEPARTURE
the GANAS have made out a case for breach of contract of carriage
entitling them to an award of damages. 3.1 General Rule.

We are constrained to reverse respondent Appellate Court's All journeys must be charged for at the fare (or
affirmative ruling thereon. charge) in effect on the date on which
transportation commences from the point of origin.
Pursuant to tariff rules and regulations of the International Air Any ticket sold prior to a change of fare or charge
Transportation Association (IATA), included in paragraphs 9, 10, and (increase or decrease) occurring between the date
11 of the Stipulations of Fact between the parties in the Trial Court, of commencement of the journey, is subject to the
dated 31 March 1973, an airplane ticket is valid for one year. "The above general rule and must be adjusted
passenger must undertake the final portion of his journey by accordingly. A new ticket must be issued and the
departing from the last point at which he has made a voluntary stop difference is to be collected or refunded as the case
before the expiry of this limit (parag. 3.1.2. ) ... That is the time may be. No adjustment is necessary if the increase
allowed a passenger to begin and to complete his trip (parags. 3.2 or decrease in fare (or charge) occurs when the
and 3.3.). ... A ticket can no longer be used for travel if its validity journey is already commenced. 4
has expired before the passenger completes his trip (parag. 3.5.1.)
... To complete the trip, the passenger must purchase a new ticket The GANAS cannot defend by contending lack of knowledge of
for the remaining portion of the journey" (ibid.) 3 those rules since the evidence bears out that Teresita, who handled
travel arrangements for the GANAS, was duly informed by travel
From the foregoing rules, it is clear that AIR FRANCE cannot be agent Ella of the advice of Reno, the Office Manager of Air France,
faulted for breach of contract when it dishonored the tickets of the that the tickets in question could not be extended beyond the
GANAS after 8 May 1971 since those tickets expired on said date; period of their validity without paying the fare differentials and
nor when it required the GANAS to buy new tickets or have their additional travel taxes brought about by the increased fare rate and
tickets re-issued for the Tokyo/Manila segment of their trip. Neither travel taxes.
can it be said that, when upon sale of the new tickets, it imposed
additional charges representing fare differentials, it was motivated ATTY. VALTE
by self-interest or unjust enrichment considering that an increase of
fares took effect, as authorized by the Civil Aeronautics Board (CAB) Q What did you tell Mrs. Manucdoc,
in April, 1971. This procedure is well in accord with the IATA tariff in turn after being told this by Mr.
rules which provide: Rillo?

6. TARIFF RULES A I told her, because that is the

reason why they accepted again the
tickets when we returned the were about to expire?' Your answer
tickets spin, that they could not be was: 'I am the one who asked her.
extended. They could be extended At that time I told her if the tickets
by paying the additional fare, being used ... I was telling her what
additional tax and additional about their bookings on the return.
exchange during that time. What about their travel on the
return? She told me it is up for the
Q You said so to Mrs. Manucdoc? Ganas to make the arrangement.'
May I know from you what did you
A Yes, sir." ... 5 mean by this testimony of yours?

The ruling relied on by respondent Appellate Court, therefore, A That was on the day when they
in KLM. vs. Court of Appeals, 65 SCRA 237 (1975), holding that it were asking me on May 7, 1971
would be unfair to charge respondents therein with automatic when they were checking the
knowledge or notice of conditions in contracts of adhesion, is tickets. I told Mrs. Manucdoc that I
inapplicable. To all legal intents and purposes, Teresita was the was going to get the tickets. I asked
agent of the GANAS and notice to her of the rejection of the request her what about the tickets onward
for extension of the validity of the tickets was notice to the GANAS, from the return from Tokyo, and
her principals. her answer was it is up for the
Ganas to make the arrangement,
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era because I told her that they could
showing reservations for JAL. Flight 108 for 16 May 1971, without leave on the seventh, but they
clearing the same with AIR FRANCE allegedly because of the could take care of that when they
imminent departure of the GANAS on the same day so that he could arrived in Osaka.
not get in touch with Air France 6 was certainly in contravention of
IATA rules although as he had explained, he did so upon Teresita's Q What do you mean?
assurance that for the onward flight from Osaka and return, the
GANAS would make other arrangements. A The Ganas will make the
arrangement from Osaka, Tokyo
Q Referring you to page 33 of the and Manila.
transcript of the last session, I had
this question which reads as Q What arrangement?
follows: 'But did she say anything to
you when you said that the tickets
A The arrangement for the airline using tickets that were due to expire in an effort, perhaps, to beat
because the tickets would expire on the deadline and in the thought that by commencing the trip the
May 7, and they insisted on leaving. day before the expiry date, they could complete the trip even
I asked Mrs. Manucdoc what about thereafter. It should be recalled that AIR FRANCE was even unaware
the return onward portion because of the validating SAS and JAL. stickers that Ella had affixed
they would be travelling to Osaka, spuriously. Consequently, Japan Air Lines and AIR FRANCE merely
and her answer was, it is up to for acted within their contractual rights when they dishonored the
the Ganas to make the tickets on the remaining segments of the trip and when AIR FRANCE
arrangement. demanded payment of the adjusted fare rates and travel taxes for
the Tokyo/Manila flight.
Q Exactly what were the words of
Mrs. Manucdoc when you told her WHEREFORE, the judgment under review is hereby reversed and set
that? If you can remember, what aside, and the Amended Complaint filed by private respondents
were her exact words? hereby dismissed.

A Her words only, it is up for the No costs.

Ganas to make the arrangement.
Q This was in Tagalog or in English?

A I think it was in English. ... 7

The circumstances that AIR FRANCE personnel at the ticket counter

in the airport allowed the GANAS to leave is not tantamount to an
implied ratification of travel agent Ella's irregular actuations. It
should be recalled that the GANAS left in Manila the day before the
expiry date of their tickets and that "other arrangements" were to
be made with respect to the remaining segments. Besides, the
validating stickers that Ella affixed on his own merely reflect the
status of reservations on the specified flight and could not legally
serve to extend the validity of a ticket or revive an expired one.

The conclusion is inevitable that the GANAS brought upon

themselves the predicament they were in for having insisted on
G.R. No. 114311 November 29, 1996 On 25 November 1985 Villamil-Estrada entered into a
Compromise Agreement with respondent Perez, the terms
COSMIC LUMBER CORPORATION, petitioner, of which follow:
COURT OF APPEAL and ISIDRO PEREZ, respondents. 1. That as per relocation sketch plan dated June 5,
1985 prepared by Engineer Rodolfo dela Cruz the
area at present occupied by defendant wherein his
house is located is 333 square meters on the
BELLOSILLO, J.: easternmost part of lot 443 and which portion has
been occupied by defendant for several years now;
Manager executed on 28 January 1985 a Special Power of 2. That to buy peace said defendant pays unto the
Attorney appointing Paz G. Villamil-Estrada as attorney-in- plaintiff through herein attorney-in-fact the sum of
fact — P26,640.00 computed at P80.00/square meter;

. . . to initiate, institute and file any court action for 3. That plaintiff hereby recognizes ownership and
the ejectment of third persons and/or squatters of possession of the defendant by virtue of this
the entire lot 9127 and 443 and covered by TCT compromise agreement over said portion of 333
Nos. 37648 and 37649, for the said squatters to square m. of lot 443 which portion will be located
remove their houses and vacate the premises in on the easternmost part as indicated in the sketch
order that the corporation may take material as annex A;
possession of the entire lot, and for this purpose, to
appear at the pre-trial conference and enter into 4. Whatever expenses of subdivision, registration,
any stipulation of facts and/or compromise and other incidental expenses shall be shouldered
agreement so far as it shall protect the rights and by the defendant. 3
interest of the corporation in the aforementioned
lots. 1 On 27 November 1985 the "Compromise Agreement" was
approved by the trial court and judgment was rendered in
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her accordance therewith. 4
power of attorney, instituted an action for the ejectment of
private respondent Isidro Perez and recover the possession Although the decision became final and executory it was not
of a portion of Lot No. 443 before the Regional Trial Court of executed within the 5-year period from date of its finality
Dagupan, docketed as Civil Case No. D-7750. 2 allegedly due to the failure of petitioner to produce the
owner's duplicate copy of Title No. 37649 needed to
segregate from Lot No. 443 the portion sold by the requires a Board Resolution of its Directors, a fact which is
attorney-in-fact, Paz G. Villamil-Estrada, to private wanting in said Civil Case No. D-7750, and the General
respondent under the compromise agreement. Thus on 25 Manager is not the proper officer to encumber a corporate
January 1993 respondent filed a complaint to revive the property. 6
judgment, docketed as Civil Case No. D-10459. 5
On 29 October 1993 respondent court dismissed the
Petitioner asserts that it was only when the summons in complaint on the basis of its finding that not one of the
Civil Case No. D-10459 for the revival of judgment was grounds for annulment, namely, lack of jurisdiction, fraud or
served upon it that it came to know of the compromise illegality was shown to exist. 7 It also denied the motion for
agreement entered into between Paz G. Villamil-Estrada reconsideration filed by petitioner, discoursing that the
and respondent Isidro Perez upon which the trial court alleged nullity of the compromise judgment on the ground
based its decision of 26 July 1993 in Civil Case No. D-7750. that petitioner's attorney-in-fact Villamil-Estrada was not
Forthwith, upon learning of the fraudulent transaction, authorized to sell the subject propety may be raised as a
petitioner sought annulment of the decision of the trial defense in the execution of the compromise judgment as it
court before respondent Court of Appeals on the ground does not bind petitioner, but not as a ground for annulment
that the compromise agreement was void because: (a) the of judgment because it does not affect the jurisdiction of
attorney-in-fact did not have the authority to dispose of, the trial court over the action nor does it amount to
sell, encumber or divest the plaintiff of its ownership over extrinsic fraud. 8
its real property or any portion thereof; (b) the authority of
the attorney-in-fact was confined to the institution and Petitioner challenges this verdict. It argues that the decision
filing of an ejectment case against third persons/squatters of the trial court is void because the compromise
on the property of the plaintiff, and to cause their eviction agreement upon which it was based is void. Attorney-in-fact
therefrom; (c) while the special power of attorney made Villamil-Estrada did not possess the authority to sell or was
mention of an authority to enter into a compromise she armed with a Board Resolution authorizing the sale of
agreement, such authority was in connection with, and its property. She was merely empowered to enter into a
limited to, the eviction of third persons/squatters thereat, compromise agreement in the recovery suit she was
in order that "the corporation may take material possession authorized to file against persons squatting on Lot No. 443,
of the entire lot;" (d) the amount of P26,640.00 alluded to such authority being expressly confined to the "ejectment of
as alleged consideration of said agreement was never third persons or squatters of . . . lot . . . (No.) 443 . . . for the
received by the plaintiff; (e) the private defendant acted in said squatters to remove their houses and vacate the
bad faith in. the execution of said agreement knowing fully premises in order that the corporation may take material
well the want of authority of the attorney-in-fact to sell, possession of the entire lot . . ."
encumber or dispose of the real property of plaintiff; and,
(f) the disposal of a corporate property indispensably
We agree with petitioner. The authority granted Villamil- execute. 10 A special power of attorney is necessary to enter
Estrada under the special power of attorney was explicit into any contract by which the ownership of an immovable
and exclusionary: for her to institute any action in court to is transmitted or acquired either gratuitously or for a
eject all persons found on Lots Nos. 9127 and 443 so that valuable consideration. 11 The express mandate required by
petitioner could take material possession thereof, and for law to enable an appointee of an agency (couched) in
this purpose, to appear at the pre-trial and enter into any general terms to sell must be one that expressly mentions a
stipulation of facts and/or compromise agreement but only sale or that includes a sale as a necessary ingredient of the
insofar as this was protective of the rights and interests of act mentioned. 12 For the principal to confer the right upon
petitioner in the property. Nowhere in this authorization an agent to sell real estate, a power of attorney must so
was Villamil-Estrada granted expressly or impliedly any express the powers of the agent in clear and unmistakable
power to sell the subject property nor a portion thereof. language. When there is any reasonable doubt that the
Neither can a conferment of the power to sell be validly language so used conveys such power, no such construction
inferred from the specific authority "to enter into a shall be given the document. 13
compromise agreement" because of the explicit limitation
fixed by the grantor that the compromise entered into shall It is therefore clear that by selling to respondent Perez a
only be "so far as it shall protect the rights and interest of portion of petitioner's land through a compromise
the corporation in the aforementioned lots." In the context agreement, Villamil-Estrada acted without or in obvious
of the specific investiture of powers to Villamil-Estrada, authority. The sale ipso jure is consequently void. So is the
alienation by sale of an immovable certainly cannot be compromise agreement. This being the case, the judgment
deemed protective of the right of petitioner to physically based thereon is necessarily void. Antipodal to the opinion
possess the same, more so when the land was being sold for expressed by respondent court in resolving petitioner's
a price of P80.00 per square meter, very much less than its motion for reconsideration, the nullity of the settlement
assessed value of P250.00 per square meter, and between Villamil-Estrada and Perez impaired the
considering further that petitioner never received the jurisdiction of the trial court to render its decision based on
proceeds of the sale. the compromise agreement. In Alviar v. Court of First
Instance of La Union, 14the Court held —
When the sale of a piece of land or any interest thereon is
through an agent, the authority of the latter shall be in . . . this court does not hesitate to hold that the
writing; otherwise, the sale shall be void. 9 Thus the judgment in question is null and void ab initio. It is
authority of an agent to execute a contract for the sale of not binding upon and cannot be executed against
real estate must be conferred in writing and must give him the petitioners. It is evident that the compromise
specific authority, either to conduct the general business of upon which the judgment was based was not
the principal or to execute a binding contract containing subscribed by them . . . Neither could Attorney
terms and conditions which are in the contract he did
Ortega bind them validly in the compromise fact but she could not legally bind petitioner thereto as she
because he had no special authority . . . was not entrusted with a special authority to sell the land,
as required in Art. 1878, par. (5), of the Civil Code.
As the judgment in question is null and void ab
initio, it is evident that the court acquired no Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party
jurisdiction to render it, much less to order the may now petition the Court of Appeals to annul and set
execution thereof . . . aside judgments of Regional Trial Courts. 16 "Thus, the
Intermediate Appellant Court (now Court of Appeals) shall
. . . A judgment, which is null and void ab initio, exercise . . . (2) Exclusive original jurisdiction over action for
rendered by a court without jurisdiction to do so, is annulment of judgments of the Regional Trial Courts . . ."
without legal efficacy and may properly be However, certain requisites must first be established before
impugned in any proceeding by the party against a final and executory judgment can be the subject of an
whom it is sought to be enforced . . . action for annulment. It must either be void for want of
jurisdiction or for lack of due process of law, or it has been
This ruling was adopted in Jacinto v. Montesa,15 by Mr. obtained by fraud. 17
Justice J. B.L. Reyes, a much-respected authority on civil law,
where the Court declared that a judgment based on a Conformably with law and the above-cited authorities, the
compromise entered into by an attorney without specific petition to annul the decision of the trial court in Civil Case
authority from the client is void. Such judgment may be No. D-7750 before the Court of Appeals was proper.
impugned and its execution restrained in any proceeding by Emanating as it did from a void compromise agreement, the
the party against whom it is sought to be enforced. The trial court had no jurisdiction to render a judgment based
Court also observed that a defendant against whom a thereon. 18
judgment based on a compromise is sought to be enforced
may file a petition for certiorari to quash the execution. He It would also appear, and quite contrary to the finding of
could not move to have the compromise set aside and then the appellate court, that the highly reprehensible conduct
appeal from the order of denial since he was not a party to of attorney-in-fact Villamil-Estrada in Civil Case No. 7750
the compromise. Thus it would appear that the obiter of the constituted an extrinsic or collateral fraud by reason of
appellate court that the alleged nullity of the compromise which the judgment rendered thereon should have been
agreement should be raised as a defense against its struck down. Not all the legal semantics in the world can
enforcement is not legally feasible. Petitioner could not be becloud the unassailable fact that petitioner was deceived
in a position to question the compromise agreement in the and betrayed by its attorney-in-fact, Villamil-Estrada
action to revive the compromise judgment since it was deliberately concealed from petitioner, her principal, that a
never privy to such agreement. Villamil-Estrada who signed compromise agreement had been forged with the end-
the compromise agreement may have been the attorney-in- result that a portion of petitioner's property was sold to the
deforciant, literally for a song. Thus completely kept trial or hearing of the case are reasons for which a new suit
unaware of its agent's artifice, petitioner was not accorded may be sustained to set aside and annul the former
even a fighting chance to repudiate the settlement so much judgment and open the case for a new and fair hearing. 20
so that the judgment based thereon became final and
executory. It may be argued that petitioner knew of the compromise
agreement since the principal is chargeable with and bound
For sure, the Court of Appeals restricted the concept of by the knowledge of or notice to his agent received while
fraudulent acts within too narrow limits. Fraud may assume the agent was acting as such. But the general rule is
different shapes and be committed in as many different intended to protect those who exercise good faith and not
ways and here lies the danger of attempting to define fraud. as a shield for unfair dealing. Hence there is a well-
For man in his ingenuity and fertile imagination will always established exception to the general rule as where the
contrive new schemes to fool the unwary. conduct and dealings of the agent are such as to raise a
clear presumption that he will not communicate to the
There is extrinsic fraud within the meaning of Sec. 9, par. principal the facts in controversy. 21 The logical reason for
(2), of B.P. Blg. 129, where it is one the effect of which this exception is that where the agent is committing a fraud,
prevents a party from hearing a trial, or real contest, or it would be contrary to common sense to presume or to
from presenting all of his case to the court, or where it expect that he would communicate the facts to the
operates upon matters, not pertaining to the judgment principal. Verily, when an agent is engaged in the
itself, but to the manner in which it was procured so that perpetration of a fraud upon his principal for his own
there is not a fair submission of the controversy. In other exclusive benefit, he is not really acting for the principal but
words, extrinsic fraud refers to any fraudulent act of the is really acting for himself, entirely outside the scope of his
prevailing party in the litigation which is committed outside agency. 22 Indeed, the basic tenets of agency rest on the
of the trial of the case, whereby the defeated party has highest considerations of justice, equity and fair play, and
been prevented from exhibiting fully his side of the case by an agent will not be permitted to pervert his authority to his
fraud or deception practiced on him by his own personal advantage, and his act in secret hostility to
opponent. 19 Fraud is extrinsic where the unsuccessful party the interests of his principal transcends the power afforded
has been prevented from exhibiting fully his case, by fraud him. 23
or deception practiced on him by his opponent, as by
keeping him away from court, a false promise of a WHEREFORE, the petition is GRANTED. The decision and
compromise; or where the defendant never had knowledge resolution of respondent Court of Appeals dated 29 October
of the suit, being kept in ignorance by the acts of the 1993 and 10 March 1994, respectively, as well as the
plaintiff; or where an attorney fraudulently or without decision of the Regional Trial Court of Dagupan City in Civil
authority connives at his defeat; these and similar cases Case No. D-7750 dated 27 November 1985, are NULLIFIED
which show that there has never been a real contest in the and SET ASIDE. The "Compromise Agreement" entered into
between Attorney-in-fact Paz G. Villamil-Estrada and
respondent Isidro Perez is declared VOID. This is without
prejudice to the right of petitioner to pursue its complaint
against private respondent Isidro Perez in Civil Case No. D-
7750 for the recovery of possession of a portion of Lot No.

G.R. No. L-18377 December 29, 1962 complaint was answered by the herein petitioner and the other
vendee, Rodrigo S. Gonzales, on December 7, 1959.
ANASTACIO G. DUÑGO, petitioner,
vs. Meanwhile, there were 2 other civil cases filed in the same lower
ADRIANO LOPENA, ROSA RAMOS and HON. ANDRES REYES, Judge of court against the same defendants Anastacio Duñgo and Rodrigo S.
the Court of First Instance of Rizal, respondents. Gonzales. The plaintiff in one was a certain Dionisio Lopena, and in
the other case, the complainants were Bernardo Lopena and Maria
Gatchalian, Padilla & Sison for petitioner. de la Cruz.
Santiago F. Alidio for respondents.
Both complaints involved the same cause of action as that of herein
REGALA, J.: respondents Adriano Lopena and Rosa Ramos. As a matter of fact all
three cases arose out of one transaction. In view of the identical
On September 10, 1959, herein petitioner Anastacio Duñgo and one nature of the above three cases, they were consolidated by the
Rodrigo S. Gonzales purchased 3 parcel of land from the lower court into just one proceeding.
respondents Adriano Lopena and Rosa Ramos for the total price of
P269,804.00. Of this amount P28.000.00 was given as down It must be made clear, however, that this present decision refers
payment with the agreement that the balance of P241,804.00 solely to the interests and claim of Adriano Lopena against
would be paid in 6 monthly installments. Anastacio Duñgo alone.

To secure the payment of the balance Anastacio Duñgo and Rodrigo Before the cases could be tried, a compromise agreement dated
S. Gonzales, the vendees, on September 11, 1958, executed over January 15, 1960 was submitted to the lower court for approval. It
the same 3 parcels of land Deed of Real Estate Mortgage in favor of was signed by herein respondents Adriano Lopena and Rosa Ramos
the respondent Adriano Lopena and Rosa Ramos. This deed was on one hand, and Rodrigo S. Gonzales, on the other. It was not
duly registered with the Office of the Register of Deeds Rizal, with signed by the herein petitioner. However, Rodrigo S. Gonzales
the condition that failure of the vendees to pay any of the represented that his signature was for both himself and the herein
installments on their maturity dates shall automatically cause the petitioner. Moreover, Anastacio Duñgo's counsel of record, Atty.
entire unpaid balance to become due and demandable. Manuel O. Chan, the same lawyer who signed and submitted for
him the answer to the complaint, was present at the preparation of
The vendees defaulted on the first installment. It resulted then that the compromise agreement and this counsel affixed his signature
on November 7, 1959, the vendors, herein respondents Adriano thereto.
Lopena and Rosa Ramos, filed a complaint for the foreclosure of the
aforementioned real estate mortgage with the Court of First The text of this agreement is hereunder quoted:
Instance of Rizal the Hon. Judge Andres Reyes, presiding. This
COME NOW the parties in the above entitled cases and unto (1) MMA R. SANTOS, Filipino, of legal age, single, with
this Hon. Court respectfully set forth: residence and postal address at ..........., Rizal Avenue,
Manila, hereinafter referred to as the PAYOR,
That, the plaintiffs, have agreed to give the defendants up
to June 30, 1960 to pay the mortgage indebtedness in each (2) ANASTACIO C. DUÑGO Filipino, of legal age, single, with
of the said cases; residence and postal address at 137 N. Domingo, Quezon
City, and RODRIGO S. GONZALES, Filipino, of legal age,
That, should the defendants fail to pay the said mortgage married to Magdalena Balatbat, with residence and postal
indebtedness, judgments of foreclosure shall thereafter be address at 73 Maryland, Quezon City, hereinafter referred
entered against the said defendants; to as the DEBTOR,

That, the defendants hereby waive the period of and

redemption provided by law after entry of judgments;
(3) DIONISIO LOPENA, married to Teofila Nofuente, LIBRADA
That, in the event of sale of the properties involved in these LOPENA, married to Arellano Cawagas, BERNARDO LOPENA,
three cases, the defendants agree that the said properties married to Maria de la Cruz, and ADRIANO LOPENA, married
shall be sold at one time at public auction, that is, one piece to Rosa Ramos, all of whom are Filipinos, of legal ages, with
of property cannot be sold without the others. residence and postal address at Sucat, Muntinlupa, Rizal,
hereinafter represented by their attorney of record,
This compromise agreement was approved by the lower ANTONIO LOPENA, hereinafter referred to as the CREDITOR,
court on the same day it was submitted, January 15, 1960.
W I T N E S S E T H:
Subsequently, on May 3, 1960, a so-called Tri-Party Agreement was
drawn. The signatories to it were Anastacio Duñgo (herein WHEREAS, the DEBTOR is indebted to the CREDITOR as of
petitioner) and Rodrigo S. Gonzales as debtors, Adriano Lopena and this date in the aggregate amount of P503,000.00 for the
Rosa Ramos (herein respondents) as creditors, and, one Emma R. collection of which, the latter as party plaintiffs have
Santos as pay or. The stipulations of the Tri-Party Agreement were institute foreclosure proceedings against the former as
as follows: . party defendant in Civil Cases Nos. 5872, 5873 and 5874
now pending in the Court of First Instance, Pasig, Rizal;
WHEREAS, the PAYOR, hereby submits and binds herself to
KNOW ALL MEN BY THESE PRESENTS: the force and effect of the Order dated January 15, 1960, of
the Court of First Instance of Pasig, Rizal, Branch VI, which
This contract entered into by and between —
order is hereby made an integral part of this agreement as of the public auction sale and to the confirmation of the sale
ANNEX "A"; to be made by the court.

WHEREAS, the PAYOR with due knowledge and consent of (d) That the CREDITOR, at his option, may execute the
the DEBTOR, hereby proposes to pay the aforesaid August installment stated in letter (a) of this paragraph if
indebtedness in the sum of P503,000.00 to the CREDITOR the PAYOR has paid regularly the May, June, and July
for and in behalf of the DEBTOR under the following terms installments, and provided further that one half (½) of the
and condition petitions: August installment in the amount of P156,500.00 is paid on
the said date of August 31, 1960.
(a) To pay the said P503,000.00 in installments in the
following schedule of amounts and time: P50,000.00 on or NOW, THEREFORE, for and in consideration of the foregoing
before May 31, 1960 70,000.00 on or before June 30, 1960 stipulations, the DEBTOR and CREDITOR hereby accept,
70,000.00 on or before July 31, 1960 313,000.00 on or approve and ratify the above-mentioned propositions of the
before Aug. 31, 1960. PAYOR and all the parties herein bind and oblige themselves
to comply to the covenants and stipulations aforestated;
(b) That the DEBTOR and the PAYOR hereby waive any right
to object and oblige themselves not to oppose the motion That by mutual agreements of all the parties herein, this
that the CREDITOR may file during the first week of July TRI-PARTY AGREEMENT may be submitted to Court to form
1960, or subsequently thereafter, informing the Court of integral parts of the records of the Civil Cases mentioned
the exact money obligation of the DEBTOR which shall be above;
P503,000.00 minus whatever payments, if any, made before
June 30, 1960 by the PAYOR and praying for the issuance of IN WITNESS WHEREOF, the parties hereunto affix their
an order to sell the property covered by the mortgage. signature on this 3rd day of May, 1960 in the City of Manila,
(c) That the CREDITOR, once he has the order referred to,
should not execute the same by giving it to the sheriff if the When Anastacio Duñgo (herein petitioner) and Rodrigo S. Gonzales
PAYOR is regular and punctual in the payment of all of the failed to pay the balance of their indebtedness on June 30, 1960,
installments stated above. PROVIDED, however, if the herein respondents Lopena and Ramos filed on July 5, 1960, a
PAYOR defaults or fails to pay anyone of the installments in Motion for the Sale of Mortgaged Property. Although this last
the manner stated above, the PAYOR and the DEBTOR motion was filed ex parte, Anastacio Duñgo and Rodrigo S. Gonzales
hereby permit the CREDITOR to execute the order of sale were notified of it by the lower court. Neither of them, however,
referred to above, and they (PAYOR and DEBTOR) hereby despite the notice, filed any opposition thereto. As a result, the
waive any and all objection's or oppositions to the propriety lower court granted the above motion on July 19, 1960, and
ordered the sale of the mortgaged property.
On August 25, 1960, the 3 parcels of land above-mentioned were subsequent thereto, valid or void insofar as the petitioner herein is
sold by the Sheriff at a public auction where at herein petitioners, concerned?
together with the plaintiffs of the other two cases won as the
highest bidders. The said sheriff's sale was later confirmed by the (2) Did the lower court abuse its discretion when it dismissed the
lower court on August 30, 1960. In this connection, it should also appeal of the herein petitioner?
made of record that before confirming the sale, the lower court
gave due notice of the motion for the confirmation to the herein Petitioner Anastacio Duñgo insists that the Compromise Agreement
petitioner who filed no opposition therefore. was void ab initio and could have no effect whatsoever against him
because he did not sign the same. Furthermore, as it was void, all
On August 31, 1960, Anastacio Duñgo filed a motion to set aside all the proceedings subsequent to its execution, including the Order
the proceedings on the ground that the compromise agreement approving it, were similarly void and could not result to anything
dated January 15, 1960 was void ab initio with respect to him adverse to his interest.
because he did not sign the same. Consequently, he argued, all
subsequent proceedings under and by virtue of the compromise The argument was not well taken. It is true that a compromise is, in
agreement, including the foreclosure sale of August 25, 1960, were itself, a contract. It is as such that the Civil Code speaks of it.
void and null as regards him. This motion to set aside, however, was
denied by the lower court in its order of December 14, 1960. ART. 2028. A compromise is a contract whereby the parties,
by making reciprocal concessions, avoid a litigation or put
Upon denial of the said motion to set aside, Anastacio Duñgo filed a an end to one already commenced.
Notice of Appeal from the order of August 31, 1960 approving the
foreclosure sale of August 25, 1960, as well as the order of Moreover, under Art. 1878 of the Civil Code, a third person
December 14, 1960, denying his motion to set aside. The approval cannot bind another to a compromise agreement unless he,
of the record on appeal however, was opposed by the herein the third person, has obtained a special power of attorney
respondent spouses who claimed that the judgment was not for that purpose from the party intended to be bound.
appealable having been rendered by virtue of the compromise
agreement. The opposition was contained in a motion to dismiss the ART. 1878. Special powers of attorney are necessary in the
appeal. Anastacio Duñgo filed a reply to the above motion. Soon following cases:
thereafter, the lower court dismissed the appeal.
xxx xxx xxx
Two issues were raised to this Court for review, to wit:
xxx xxx xxx
(1) Was the compromise agreement of January 15, 1960, the Order
of the same date approving the same, and, all the proceedings (3) To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a order is hereby made an integral part of this agreement as
prescription already acquired; Annex "A"

However, although the Civil Code expressly requires a special power Having so consented to making that court order approving
of attorney in order that one may compromise an interest of the compromise agreement an integral part of the Tri-Party
another, it is neither accurate nor correct to conclude that its Agreement, how can the petitioner herein now repudiate
absence renders the compromise agreement void. In such a case, the compromise agreement and claim he has not authorized
the compromise is merely unenforceable. This results from its it?
nature is a contract. It must be governed by the rules and the law on
contracts. When it appears that the client, on becoming aware the
compromise and the judgment thereon, fails to repudiate promptly
ART. 1403. The following contracts are the action of his attorney, he will not afterwards be heard to
unenforceable, unless they are ratified: contest its validity (Rivero vs. Rivero, 59 Phil. 15).

(1) Those entered into in the name of another person by Besides, this Court has not overlooked the fact that which indeed
one who has been given no authority or legal Anastacio Duñgo was not a signatory to the compromise
representation, or who has acted beyond his powers; agreement, the principal provision of the said instrument was for his
benefit. Originally, Anastacio Duñgo's obligation matured and
Logically, then, the next inquiry in this case should be whether the became demandable on October 10, 1959. However, the
herein petitioner, Anastacio Duñgo had or had not ratified the compromise agreement extended the date of maturity to June 30,
compromise agreement. If he had, then the compromise agreement 1960. More than anything, therefore, the compromise agreement
was legally enforced against him; otherwise, he should be sustained operated to benefit the herein petitioner because it afforded him
in his contention that it never bound him, nor ever could it be made more time and opportunity to fulfill his monetary obligations under
to bind him. the contract. If only for this reason, this Court believes that the
herein petitioner should not be heard to repudiate the said
The ratification of the compromise agreement was conclusively agreement.
established by the Tri-Party Agreement of May 1960. It is to be
noted that the compromise agreement was submitted to and Lastly, the compromise agreement stated "that, should the
approved by the lower court January 15, 1960. Now, the Tri-Party defendants fail to pay the said mortgage indebtedness, judgment of
Agreement referred itself to that order when it stipulated thus: foreclosure shall thereafter be entered against the said
defendants:" Beyond doubt, this was ratified by the Tri-Party
WHEREAS, the MAYOR, hereby submits and binds herself to Agreement when it covenanted that —
the force and effect of the order dated January 15, 1960, of
the Court of First Instance of Pasig, Rizal, Branch which
If the MAYOR defaults or fails to pay anyone of the the juridical relation of the parties to the original contract is
installments in the manner stated above, the MAYOR and extended to a third person; it is necessary that the old debtor be
the DEBTOR hereby permit the CREDITOR to execute the released from the obligation, and the third person or new debtor
order of sale referred to above (the Judgment of take his place in the new relation. Without such release, there is no
Foreclosure), and they (PAYOR and DEBTOR) hereby waive novation; the third person who has assumed the obligation of the
any and all objections or oppositions to the propriety of the debtor merely becomes a co-debtor or surety. If there is no
public auction sale and to the confirmation of the sale to be agreement as to solidarity, the first and the new debtors are
made by the Court. considered obligation jointly. (IV Tolentino, Civil Code, p. 360, citing
Manresa. There was no such release of the original debtor in the Tri-
Petitioner Duñgo finally argued that even assuming that the Party Agreement.
compromise agreement was valid, it nevertheless could not be
enforced against him because it has been novated by the Tri-Party It is a very common thing in the business affairs for a stranger to a
Agreement which brought in a third party, namely, Emma R. Santos, contract to assume its obligations; an while this may have the effect
who assumed the mortgaged obligation of the herein petitioner. of adding to the number of persons liable, it does not necessarily
imply the extinguishment of the liability of the first debtor (Rios v
This Court cannot accept the argument. Novation by presumption Jacinto, etc., 49 Phil. 7; Garcia vs. Khu Yek Ching, 65 Phil. 466). The
has never been favored. To be sustained, it need be established that mere fact that the creditor receives a guaranty or accepts payments
the old and new contracts are incompatible in all points, or that the from a third person who has agreed to assume the obligation, when
will to novate appears by express agreement of the parties or in acts there is no agreement that the first debtor shall be released from
of similar import. (Martinez v. Cavives, 25 Phil. 581; Tiy Sinco vs. responsibility, do not constitute a novation, and the creditor can still
Havana, 45 Phil. 707; Asia Banking Corp. vs. Lacson Co.. 48 Phil. 482; enforce the obligation against the original debtor (Straight vs.
Pascual vs. Lacsamana, 53 O.G. 2467, April 1957). Haskell, 49 Phil. 614; Pacific Commercial Co. vs. Sotto, 34 Phil. 237;
Estate of Mota vs. Serra, 47 Phil. 446).
An obligation to pay a sum of money is not novated, in a new
instrument wherein the old is ratified, by changing only the term of In view of all the foregoing, We hold that the Tri-Party Agreement
payment and adding other obligations not incompatible with the old was an instrument intended to render effective the compromise
one (Inchausti vs. Yulo, 34 Phil. 978; Pablo vs. Sapungan, 71 Phil. agreement. It merely complemented an ratified the same. That a
145) or wherein the old contract is merely supplemented by the third person was involved in it is inconsequential. Nowhere in the
new one Ramos vs. Gibbon, 67 Phil. 371). new agreement may the release of the herein petitioner be even
Herein petitioner claims that when a third party Emma R. Santos,
came in and assumed the mortgaged obligation, novation resulted Having held that the compromise agreement was validity and
thereby inasmuch as a new debtor was substituted in place of the enforceable against the herein petitioner, it follows that the lower
original one. In this kind of novation, however, it is not enough that
court committed no abuse of discretion when it dismissed the
appeal of the herein petitioner.

WHEREFORE, the petition for certiorari and mandamus filed by the

herein petitioner is hereby dismissed. The order of the lower court
dismissing the appeal is her by affirmed, with costs.
G.R. No. 111448 January 16, 2002 meter.5 Zenaida Ranullo, board member and vice-president of AF
Realty, accepted the offer and issued a check in the amount of
AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. P300,000.00 payable to the order of Dieselman. Polintan received
RANULLO, petitioners, the check and signed an "Acknowledgement Receipt"6 indicating
vs. that the amount of P300,000.00 represents the partial payment of
DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and the property but refundable within two weeks should AF Realty
MIDAS DEVELOPMENT CORPORATION, respondents. disapprove Ranullo's action on the matter.

SANDOVAL-GUTIERREZ, J.: On June 29, 1988, AF Realty confirmed its intention to buy the lot.
Hence, Ranullo asked Polintan for the board resolution of Dieselman
Petition for review on certiorari assailing the Decision dated authorizing the sale of the property. However, Polintan could only
December 10, 1992 and the Resolution (Amending Decision) dated give Ranullo the original copy of TCT No. 39849, the tax declaration
August 5, 1993 of the Court of Appeals in CA-G.R. CV No. 30133. and tax receipt for the lot, and a photocopy of the Articles of
Incorporation of Dieselman.7
Dieselman Freight Service Co. (Dieselman for brevity) is a domestic
corporation and a registered owner of a parcel of commercial lot On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman,
consisting of 2,094 square meters, located at 104 E. Rodriguez acknowledged receipt of the said P300,000.00 as "earnest money"
Avenue, Barrio Ugong, Pasig City, Metro Manila. The property is but required AF Realty to finalize the sale at P4,000.00 per square
covered by Transfer Certificate of Title No. 39849 issued by the meter.8 AF Realty replied that it has paid an initial down payment of
Registry of Deeds of the Province of Rizal.1 P300,000.00 and is willing to pay the balance.9

On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and
directors of Dieselman, issued a letter denominated as "Authority demanded from AF Realty the return of the title of the lot earlier
To Sell Real Estate"2 to Cristeta N. Polintan, a real estate broker of delivered by Polintan.10
the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look
for a buyer/buyers and negotiate the sale" of the lot at P3,000.00 Claiming that there was a perfected contract of sale between them,
per square meter, or a total of P6,282,000.00. Cruz, Jr. has no AF Realty filed with the Regional Trial Court, Branch 160, Pasig City a
written authority from Dieselman to sell the lot. complaint for specific performance (Civil Case No. 56278) against
Dieselman and Cruz, Jr.. The complaint prays that Dieselman be
In turn, Cristeta Polintan, through a letter3 dated May 19, 1988, ordered to execute and deliver a final deed of sale in favor of AF
authorized Felicisima ("Mimi") Noble4 to sell the same lot. Realty.11 In its amended complaint,12 AF Realty asked for payment of
P1,500,000.00 as compensatory damages; P400,000.00 as
Felicisima Noble then offered for sale the property to AF Realty & attorney's fees; and P500,000.00 as exemplary damages.
Development, Inc. (AF Realty) at P2,500.00 per square
In its answer, Dieselman alleged that there was no meeting of the the Transfer Certificate of Title No. 39849 of the Registry of
minds between the parties in the sale of the property and that it did Deed of Rizal, Metro Manila District II, including the
not authorize any person to enter into such transaction on its improvements thereon, and ordering defendants to pay
behalf. plaintiffs attorney's fees in the amount of P50,000.00 and to
pay the costs.
Meanwhile, on July 30, 1988, Dieselman and Midas Development
Corporation (Midas) executed a Deed of Absolute Sale13 of the same "The counterclaim of defendants is necessarily dismissed.
property. The agreed price was P2,800.00 per square meter. Midas
delivered to Dieselman P500,000.00 as down payment and "The counterclaim and/or the complaint in intervention are
deposited the balance of P5,300,000.00 in escrow account with the likewise dismissed
Constrained to protect its interest in the property, Midas filed on
April 3, 1989 a Motion for Leave to Intervene in Civil Case No. Dissatisfied, all the parties appealed to the Court of Appeals.
56278. Midas alleged that it has purchased the property and took
possession thereof, hence Dieselman cannot be compelled to sell AF Realty alleged that the trial court erred in not holding Dieselman
and convey it to AF Realty. The trial court granted Midas' motion. liable for moral, compensatory and exemplary damages, and in
dismissing its counterclaim against Midas.
After trial, the lower court rendered the challenged Decision holding
that the acts of Cruz, Jr. bound Dieselman in the sale of the lot to AF Upon the other hand, Dieselman and Midas claimed that the trial
Realty.14 Consequently, the perfected contract of sale between court erred in finding that a contract of sale between Dieselman and
Dieselman and AF Realty bars Midas' intervention. The trial court AF Realty was perfected. Midas further averred that there was no
also held that Midas acted in bad faith when it initially paid bad faith on its part when it purchased the lot from Dieselman.
Dieselman P500,000.00 even without seeing the latter's title to the
property. Moreover, the notarial report of the sale was not In its Decision dated December 10, 1992, the Court of Appeals
submitted to the Clerk of Court of the Quezon City RTC and the reversed the judgment of the trial court holding that since Cruz, Jr.
balance of P5,300,000.00 purportedly deposited in escrow by Midas was not authorized in writing by Dieselman to sell the subject
with a bank was not established.1âwphi1.nêt property to AF Realty, the sale was not perfected; and that the Deed
of Absolute Sale between Dieselman and Midas is valid, there being
The dispositive portion of the trial court's Decision reads: no bad faith on the part of the latter. The Court of Appeals then
declared Dieselman and Cruz, Jr. jointly and severally liable to AF
"WHEREFORE, foregoing considered, judgment is hereby Realty for P100,000.00 as moral damages; P100,000.00 as
rendered ordering defendant to execute and deliver to exemplary damages; and P100,000.00 as attorney's fees.16
plaintiffs the final deed of sale of the property covered by
On August 5, 1993, the Court of Appeals, upon motions for have. Nemo dat quod non habet. In the same manner,
reconsideration filed by the parties, promulgated an Amending Felicisima Noble could not have possessed authority
Decision, the dispositive portion of which reads: broader in scope, being a mere extension of Polintan's
purported authority, for it is a legal truism in our jurisdiction
"WHEREFORE, The Decision promulgated on October 10, that a spring cannot rise higher than its source. Succinctly
1992, is hereby AMENDED in the sense that only defendant stated, the alleged sale of the subject property was effected
Mr. Manuel Cruz, Jr. should be made liable to pay the through persons who were absolutely without any authority
plaintiffs the damages and attorney's fees awarded therein, whatsoever from Dieselman.
plus the amount of P300,000.00 unless, in the case of the
said P300,000.00, the same is still deposited with the Court "The argument that Dieselman ratified the contract by
which should be restituted to plaintiffs. accepting the P300,000.00 as partial payment of the
purchase price of the subject property is equally untenable.
"SO ORDERED."17 The sale of land through an agent without any written
authority is void.
AF Realty now comes to this Court via the instant petition alleging
that the Court of Appeals committed errors of law. xxx xxx xxx

The focal issue for consideration by this Court is who between "On the contrary, anent the sale of the subject property by
petitioner AF Realty and respondent Midas has a right over the Dieselman to intervenor Midas, the records bear out that
subject lot. Midas purchased the same from Dieselman on 30 July 1988.
The notice of lis pendens was subsequently annotated on
The Court of Appeals, in reversing the judgment of the trial court, the title of the property by plaintiffs on 15 August 1988.
made the following ratiocination: However, this subsequent annotation of the notice of lis
pendens certainly operated prospectively and did not
"From the foregoing scenario, the fact that the board of retroact to make the previous sale of the property to Midas
directors of Dieselman never authorized, verbally and in a conveyance in bad faith. A subsequently registered notice
writing, Cruz, Jr. to sell the property in question or to look of lis pendens surely is not proof of bad faith. It must
for buyers and negotiate the sale of the subject property is therefore be borne in mind that the 30 July 1988 deed of
undeniable. sale between Midas and Dieselman is a document duly
certified by notary public under his hand and seal. x x x.
"While Cristeta Polintan was actually authorized by Cruz, Jr. Such a deed of sale being public document acknowledged
to look for buyers and negotiate the sale of the subject before a notary public is admissible as to the date and fact
property, it should be noted that Cruz, Jr. could not confer of its execution without further proof of its due execution
on Polintan any authority which he himself did not and delivery (Bael vs. Intermediate Appellate Court, 169
SCRA617; Joson vs. Baltazar, 194 SCRA 114) and to prove respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial
the defects and lack of consent in the execution thereof, the payment of the lot effectively binds respondent Dieselman.22
evidence must be strong and not merely preponderant x x
x."18 We are not persuaded.

We agree with the Court of Appeals. Involved in this case is a sale of land through an agent. Thus, the law
on agency under the Civil Code takes precedence. This is well
Section 23 of the Corporation Code expressly provides that the stressed in Yao Ka Sin Trading vs. Court of Appeals:23
corporate powers of all corporations shall be exercised by the board
of directors. Just as a natural person may authorize another to do "Since a corporation, such as the private respondent, can
certain acts in his behalf, so may the board of directors of a act only through its officers and agents, all acts within the
corporation validly delegate some of its functions to individual powers of said corporation may be performed by agents of
officers or agents appointed by it.19 Thus, contracts or acts of a its selection; and, except so far as limitations or restrictions
corporation must be made either by the board of directors or by a may be imposed by special charter, by-law, or statutory
corporate agent duly authorized by the board.20 Absent such valid provisions, the same general principles of law which govern
delegation/authorization, the rule is that the declarations of an the relation of agency for a natural person govern the
individual director relating to the affairs of the corporation, but not officer or agent of a corporation, of whatever status or rank,
in the course of, or connected with, the performance of authorized in respect to his power to act for the corporation; and
duties of such director, are held not binding on the corporation.21 agents when once appointed, or members acting in their
stead, are subject to the same rules, liabilities, and
In the instant case, it is undisputed that respondent Cruz, Jr. has no incapacities as are agents of individuals and private
written authority from the board of directors of respondent persons." (Emphasis supplied)
Dieselman to sell or to negotiate the sale of the lot, much less to
appoint other persons for the same purpose. Respondent Cruz, Jr.'s Pertinently, Article 1874 of the same Code provides:
lack of such authority precludes him from conferring any authority
to Polintan involving the subject realty. Necessarily, neither could "ART. 1874. When a sale of piece of land or any interest
Polintan authorize Felicisima Noble. Clearly, the collective acts of therein is through an agent, the authority of the
respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in latter shall be in writing; otherwise, the sale shall be void."
the purported contract of sale. (Emphasis supplied)

Petitioner AF Realty maintains that the sale of land by an Considering that respondent Cruz, Jr., Cristeta Polintan and
unauthorized agent may be ratified where, as here, there is Felicisima Ranullo were not authorized by respondent Dieselman to
acceptance of the benefits involved. In this case the receipt by sell its lot, the supposed contract is void. Being a void contract, it is
not susceptible of ratification by clear mandate of Article 1409 of WHEREFORE, the assailed Decision and Resolution of the Court of
the Civil Code, thus: Appeals are hereby AFFIRMED withMODIFICATION in the sense that
the award of damages and attorney's fees is deleted. Respondent
"ART. 1409. The following contracts are inexistent and void Dieselman is ordered to return to petitioner AF Realty its partial
from the very beginning: payment of P300,000.00. Costs against petitioners.


(7) Those expressly prohibited or declared void by law.

"These contracts cannot be ratified. Neither can the right to

set up the defense of illegality be waived." (Emphasis

Upon the other hand, the validity of the sale of the subject lot to
respondent Midas is unquestionable. As aptly noted by the Court of
Appeals,24 the sale was authorized by a board resolution of
respondent Dieselman dated May 27, 1988.1âwphi1.nêt

The Court of Appeals awarded attorney's fees and moral and

exemplary damages in favor of petitioner AF Realty and against
respondent Cruz, Jr.. The award was made by reason of a breach of
contract imputable to respondent Cruz, Jr. for having acted in bad
faith. We are no persuaded. It bears stressing that petitioner
Zenaida Ranullo, board member and vice-president of petitioner AF
Realty who accepted the offer to sell the property, admitted in her
testimony25 that a board resolution from respondent Dieselman
authorizing the sale is necessary to bind the latter in the
transaction; and that respondent Cruz, Jr. has no such written
authority. In fact, despite demand, such written authority was not
presented to her.26 This notwithstanding, petitioner Ranullo
tendered a partial payment for the unauthorized transaction.
Clearly, respondent Cruz, Jr. should not be held liable for damages
and attorney's fees.
G.R. No. 144805 June 8, 2006 In 1986, the management of ESAC grew concerned about the
political situation in the Philippines and wanted to stop its
EDUARDO V. LINTONJUA, JR. and ANTONIO K. operations in the country. The Committee for Asia of ESAC
LITONJUA, Petitioners, instructed Michael Adams, a member of EC’s Board of Directors, to
vs. dispose of the eight parcels of land. Adams engaged the services of
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES realtor/broker Lauro G. Marquez so that the properties could be
CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK & TRUST offered for sale to prospective buyers. Glanville later showed the
COMPANY, Respondents. properties to Marquez.

DECISION Marquez thereafter offered the parcels of land and the

improvements thereon to Eduardo B. Litonjua, Jr. of the Litonjua &
CALLEJO, SR., J.: Company, Inc. In a Letter dated September 12, 1986, Marquez
declared that he was authorized to sell the properties
On appeal via a Petition for Review on Certiorari is the Decision1 of for P27,000,000.00 and that the terms of the sale were subject to
the Court of Appeals (CA) in CA-G.R. CV No. 51022, which affirmed negotiation.4
the Decision of the Regional Trial Court (RTC), Pasig City, Branch
165, in Civil Case No. 54887, as well as the Resolution2 of the CA Eduardo Litonjua, Jr. responded to the offer. Marquez showed the
denying the motion for reconsideration thereof. property to Eduardo Litonjua, Jr., and his brother Antonio K.
Litonjua. The Litonjua siblings offered to buy the property
The Eternit Corporation (EC) is a corporation duly organized and for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua
registered under Philippine laws. Since 1950, it had been engaged in siblings’ offer and relayed the same to Delsaux in Belgium, but the
the manufacture of roofing materials and pipe products. Its latter did not respond. On October 28, 1986, Glanville telexed
manufacturing operations were conducted on eight parcels of land Delsaux in Belgium, inquiring on his position/ counterproposal to
with a total area of 47,233 square meters. The properties, located in the offer of the Litonjua siblings. It was only on February 12, 1987
Mandaluyong City, Metro Manila, were covered by Transfer that Delsaux sent a telex to Glanville stating that, based on the
Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, "Belgian/Swiss decision," the final offer was "US$1,000,000.00
451122, 451124 and 451125 under the name of Far East Bank & and P2,500,000.00 to cover all existing obligations prior to final
Trust Company, as trustee. Ninety (90%) percent of the shares of liquidation."5
stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC),
a corporation organized and registered under the laws of Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex
Belgium.3 Jack Glanville, an Australian citizen, was the General sent by Delsaux. Litonjua, Jr. accepted the counterproposal of
Manager and President of EC, while Claude Frederick Delsaux was Delsaux. Marquez conferred with Glanville, and in a Letter dated
the Regional Director for Asia of ESAC. Both had their offices in February 26, 1987, confirmed that the Litonjua siblings had
Belgium. accepted the counter-proposal of Delsaux. He also stated that the
Litonjua siblings would confirm full payment within 90 days after 334 Makati Stock Exchange Bldg.
execution and preparation of all documents of sale, together with 6767 Ayala Avenue
the necessary governmental clearances.6 Makati, Metro Manila
The Litonjua brothers deposited the amount of US$1,000,000.00
with the Security Bank & Trust Company, Ermita Branch, and Dear Sir:
drafted an Escrow Agreement to expedite the sale.7
Re: Land of Eternit Corporation
Sometime later, Marquez and the Litonjua brothers inquired from
Glanville when the sale would be implemented. In a telex dated I would like to confirm officially that our Group has decided not to
April 22, 1987, Glanville informed Delsaux that he had met with the proceed with the sale of the land which was proposed to you.
buyer, which had given him the impression that "he is prepared to
press for a satisfactory conclusion to the sale."8 He also emphasized The Committee for Asia of our Group met recently (meeting every
to Delsaux that the buyers were concerned because they would six months) and examined the position as far as the Philippines are
incur expenses in bank commitment fees as a consequence of (sic) concerned. Considering [the] new political situation since the
prolonged period of inaction.9 departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations
Meanwhile, with the assumption of Corazon C. Aquino as President in Manila. In fact, production has started again last week, and (sic)
of the Republic of the Philippines, the political situation in the to recognize the participation in the Corporation.
Philippines had improved. Marquez received a telephone call from
Glanville, advising that the sale would no longer proceed. Glanville We regret that we could not make a deal with you this time, but in
followed it up with a Letter dated May 7, 1987, confirming that he case the policy would change at a later state, we would consult you
had been instructed by his principal to inform Marquez that "the again.
decision has been taken at a Board Meeting not to sell the
properties on which Eternit Corporation is situated."10 xxx

Delsaux himself later sent a letter dated May 22, 1987, confirming Yours sincerely,
that the ESAC Regional Office had decided not to proceed with the
sale of the subject land, to wit: (Sgd.)
May 22, 1987
cc. To: J. GLANVILLE (Eternit Corp.)11
Mr. L.G. Marquez
L.G. Marquez, Inc.
When apprised of this development, the Litonjuas, through counsel, The counterclaim of Eternit Corporation now Eterton Multi-
wrote EC, demanding payment for damages they had suffered on Resources Corporation and Eteroutremer, S.A. is also dismissed for
account of the aborted sale. EC, however, rejected their demand. lack of merit.13

The Litonjuas then filed a complaint for specific performance and The trial court declared that since the authority of the
damages against EC (now the Eterton Multi-Resources Corporation) agents/realtors was not in writing, the sale is void and not merely
and the Far East Bank & Trust Company, and ESAC in the RTC of unenforceable, and as such, could not have been ratified by the
Pasig City. An amended complaint was filed, in which defendant EC principal. In any event, such ratification cannot be given any
was substituted by Eterton Multi-Resources Corporation; Benito C. retroactive effect. Plaintiffs could not assume that defendants had
Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio agreed to sell the property without a clear authorization from the
were impleaded as additional defendants on account of their corporation concerned, that is, through resolutions of the Board of
purchase of ESAC shares of stocks and were the controlling Directors and stockholders. The trial court also pointed out that the
stockholders of EC. supposed sale involves substantially all the assets of defendant EC
which would result in the eventual total cessation of its operation.14
In their answer to the complaint, EC and ESAC alleged that since
Eteroutremer was not doing business in the Philippines, it cannot be The Litonjuas appealed the decision to the CA, alleging that "(1) the
subject to the jurisdiction of Philippine courts; the Board and lower court erred in concluding that the real estate broker in the
stockholders of EC never approved any resolution to sell subject instant case needed a written authority from appellee corporation
properties nor authorized Marquez to sell the same; and the telex and/or that said broker had no such written authority; and (2) the
dated October 28, 1986 of Jack Glanville was his own personal lower court committed grave error of law in holding that appellee
making which did not bind EC. corporation is not legally bound for specific performance and/or
damages in the absence of an enabling resolution of the board of
On July 3, 1995, the trial court rendered judgment in favor of directors."15 They averred that Marquez acted merely as a broker or
defendants and dismissed the amended complaint.12The fallo of the go-between and not as agent of the corporation; hence, it was not
decision reads: necessary for him to be empowered as such by any written
authority. They further claimed that an agency by estoppel was
WHEREFORE, the complaint against Eternit Corporation now created when the corporation clothed Marquez with apparent
Eterton Multi-Resources Corporation and Eteroutremer, S.A. is authority to negotiate for the sale of the properties. However, since
dismissed on the ground that there is no valid and binding sale it was a bilateral contract to buy and sell, it was equivalent to a
between the plaintiffs and said defendants. perfected contract of sale, which the corporation was obliged to
The complaint as against Far East Bank and Trust Company is
likewise dismissed for lack of cause of action. In reply, EC alleged that Marquez had no written authority from the
Board of Directors to bind it; neither were Glanville and Delsaux
authorized by its board of directors to offer the property for sale. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE
Since the sale involved substantially all of the corporation’s assets, it AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE
would necessarily need the authority from the stockholders. SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY
On June 16, 2000, the CA rendered judgment affirming the decision SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT
of the RTC. 16 The Litonjuas filed a motion for reconsideration, which TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID
was also denied by the appellate court. PROPERTIES.17

The CA ruled that Marquez, who was a real estate broker, was a Petitioners maintain that, based on the facts of the case, there was
special agent within the purview of Article 1874 of the New Civil a perfected contract of sale of the parcels of land and the
Code. Under Section 23 of the Corporation Code, he needed a improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to
special authority from EC’s board of directors to bind such cover obligations prior to final liquidation." Petitioners insist that
corporation to the sale of its properties. Delsaux, who was merely they had accepted the counter-offer of respondent EC and that
the representative of ESAC (the majority stockholder of EC) had no before the counter-offer was withdrawn by respondents, the
authority to bind the latter. The CA pointed out that Delsaux was acceptance was made known to them through real estate broker
not even a member of the board of directors of EC. Moreover, the Marquez.
Litonjuas failed to prove that an agency by estoppel had been
created between the parties. Petitioners assert that there was no need for a written authority
from the Board of Directors of EC for Marquez to validly act as
In the instant petition for review, petitioners aver that broker/middleman/intermediary. As broker, Marquez was not an
ordinary agent because his authority was of a special and limited
I character in most respects. His only job as a broker was to look for a
buyer and to bring together the parties to the transaction. He was
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO not authorized to sell the properties or to make a binding contract
PERFECTED CONTRACT OF SALE. to respondent EC; hence, petitioners argue, Article 1874 of the New
Civil Code does not apply.
In any event, petitioners aver, what is important and decisive was
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN that Marquez was able to communicate both the offer and counter-
HOLDING THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM offer and their acceptance of respondent EC’s counter-offer,
RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED. resulting in a perfected contract of sale.

III Petitioners posit that the testimonial and documentary evidence on

record amply shows that Glanville, who was the President and
General Manager of respondent EC, and Delsaux, who was the offer was allegedly REJECTED by both Glanville and
Managing Director for ESAC Asia, had the necessary authority to sell Delsaux.18
the subject property or, at least, had been allowed by respondent
EC to hold themselves out in the public as having the power to sell Petitioners insist that it is incongruous for Glanville and Delsaux to
the subject properties. Petitioners identified such evidence, thus: make a counter-offer to petitioners’ offer and thereafter reject such
offer unless they were authorized to do so by respondent EC.
1. The testimony of Marquez that he was chosen by Petitioners insist that Delsaux confirmed his authority to sell the
Glanville as the then President and General Manager of properties in his letter to Marquez, to wit:
Eternit, to sell the properties of said corporation to any
interested party, which authority, as hereinabove discussed, Dear Sir,
need not be in writing.
Re: Land of Eternit Corporation
2. The fact that the NEGOTIATIONS for the sale of the
subject properties spanned SEVERAL MONTHS, from 1986 I would like to confirm officially that our Group has decided not to
to 1987; proceed with the sale of the land which was proposed to you.

3. The COUNTER-OFFER made by Eternit through GLANVILLE The Committee for Asia of our Group met recently (meeting every
to sell its properties to the Petitioners; six months) and examined the position as far as the Philippines are
(sic) concerned. Considering the new political situation since the
4. The GOOD FAITH of Petitioners in believing Eternit’s offer departure of MR. MARCOS and a certain stabilization in the
to sell the properties as evidenced by the Petitioners’ Philippines, the Committee has decided not to stop our operations
ACCEPTANCE of the counter-offer; in Manila[.] [I]n fact production started again last week, and (sic) to
reorganize the participation in the Corporation.
5. The fact that Petitioners DEPOSITED the price of
[US]$1,000,000.00 with the Security Bank and that an We regret that we could not make a deal with you this time, but in
ESCROW agreement was drafted over the subject case the policy would change at a later stage we would consult you
properties; again.

6. Glanville’s telex to Delsaux inquiring In the meantime, I remain

BUY AND SELL"; Yours sincerely,

7. More importantly, Exhibits "G" and "H" of the C.F. DELSAUX19

Respondents, which evidenced the fact that Petitioners’
Petitioners further emphasize that they acted in good faith when Anent the first issue, we agree with the contention of respondents
Glanville and Delsaux were knowingly permitted by respondent EC that the issues raised by petitioner in this case are factual. Whether
to sell the properties within the scope of an apparent authority. or not Marquez, Glanville, and Delsaux were authorized by
Petitioners insist that respondents held themselves to the public as respondent EC to act as its agents relative to the sale of the
possessing power to sell the subject properties. properties of respondent EC, and if so, the boundaries of their
authority as agents, is a question of fact. In the absence of express
By way of comment, respondents aver that the issues raised by the written terms creating the relationship of an agency, the existence
petitioners are factual, hence, are proscribed by Rule 45 of the Rules of an agency is a fact question.20 Whether an agency by estoppel
of Court. On the merits of the petition, respondents EC (now EMC) was created or whether a person acted within the bounds of his
and ESAC reiterate their submissions in the CA. They maintain that apparent authority, and whether the principal is estopped to deny
Glanville, Delsaux and Marquez had no authority from the the apparent authority of its agent are, likewise, questions of fact to
stockholders of respondent EC and its Board of Directors to offer be resolved on the basis of the evidence on record.21 The findings of
the properties for sale to the petitioners, or to any other person or the trial court on such issues, as affirmed by the CA, are conclusive
entity for that matter. They assert that the decision and resolution on the Court, absent evidence that the trial and appellate courts
of the CA are in accord with law and the evidence on record, and ignored, misconstrued, or misapplied facts and circumstances of
should be affirmed in toto. substance which, if considered, would warrant a modification or
reversal of the outcome of the case.22
Petitioners aver in their subsequent pleadings that respondent EC,
through Glanville and Delsaux, conformed to the written authority It must be stressed that issues of facts may not be raised in the
of Marquez to sell the properties. The authority of Glanville and Court under Rule 45 of the Rules of Court because the Court is not a
Delsaux to bind respondent EC is evidenced by the fact that trier of facts. It is not to re-examine and assess the evidence on
Glanville and Delsaux negotiated for the sale of 90% of stocks of record, whether testimonial and documentary. There are, however,
respondent EC to Ruperto Tan on June 1, 1997. Given the recognized exceptions where the Court may delve into and resolve
significance of their positions and their duties in respondent EC at factual issues, namely:
the time of the transaction, and the fact that respondent ESAC owns
90% of the shares of stock of respondent EC, a formal resolution of (1) When the conclusion is a finding grounded entirely on
the Board of Directors would be a mere ceremonial formality. What speculations, surmises, or conjectures; (2) when the inference made
is important, petitioners maintain, is that Marquez was able to is manifestly mistaken, absurd, or impossible; (3) when there is
communicate the offer of respondent EC and the petitioners’ grave abuse of discretion; (4) when the judgment is based on a
acceptance thereof. There was no time that they acted without the misapprehension of facts; (5) when the findings of fact are
knowledge of respondents. In fact, respondent EC never repudiated conflicting; (6) when the Court of Appeals, in making its findings,
the acts of Glanville, Marquez and Delsaux. went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings of
The petition has no merit. the Court of Appeals are contrary to those of the trial court; (8)
when the findings of fact are conclusions without citation of specific Indeed, a corporation is a juridical person separate and distinct from
evidence on which they are based; (9) when the Court of Appeals its members or stockholders and is not affected by the personal
manifestly overlooked certain relevant facts not disputed by the rights,
parties, which, if properly considered, would justify a different
conclusion; and (10) when the findings of fact of the Court of obligations and transactions of the latter.25 It may act only through
Appeals are premised on the absence of evidence and are its board of directors or, when authorized either by its by-laws or by
contradicted by the evidence on record.23 its board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern the
We have reviewed the records thoroughly and find that the relation between the corporation and its officers or agents, subject
petitioners failed to establish that the instant case falls under any of to the articles of incorporation, by-laws, or relevant provisions of
the foregoing exceptions. Indeed, the assailed decision of the Court law.26
of Appeals is supported by the evidence on record and the law.
Under Section 36 of the Corporation Code, a corporation may sell or
It was the duty of the petitioners to prove that respondent EC had convey its real properties, subject to the limitations prescribed by
decided to sell its properties and that it had empowered Adams, law and the Constitution, as follows:
Glanville and Delsaux or Marquez to offer the properties for sale to
prospective buyers and to accept any counter-offer. Petitioners SEC. 36. Corporate powers and capacity. – Every corporation
likewise failed to prove that their counter-offer had been accepted incorporated under this Code has the power and capacity:
by respondent EC, through Glanville and Delsaux. It must be
stressed that when specific performance is sought of a contract xxxx
made with an agent, the agency must be established by clear,
certain and specific proof.24 7. To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and personal
Section 23 of Batas Pambansa Bilang 68, otherwise known as the property, including securities and bonds of other corporations, as
Corporation Code of the Philippines, provides: the transaction of a lawful business of the corporation may
reasonably and necessarily require, subject to the limitations
SEC. 23. The Board of Directors or Trustees. – Unless otherwise prescribed by the law and the Constitution.
provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted The property of a corporation, however, is not the property of the
and all property of such corporations controlled and held by the stockholders or members, and as such, may not be sold without
board of directors or trustees to be elected from among the holders express authority from the board of directors.27 Physical acts, like
of stocks, or where there is no stock, from among the members of the offering of the properties of the corporation for sale, or the
the corporation, who shall hold office for one (1) year and until their acceptance of a counter-offer of prospective buyers of such
successors are elected and qualified. properties and the execution of the deed of sale covering such
property, can be performed by the corporation only by officers or circumstances.34 Agency may be oral unless the law requires a
agents duly authorized for the purpose by corporate by-laws or by specific form.35 However, to create or convey real rights over
specific acts of the board of directors.28 Absent such valid immovable property, a special power of attorney is
delegation/authorization, the rule is that the declarations of an necessary.36 Thus, when a sale of a piece of land or any portion
individual director relating to the affairs of the corporation, but not thereof is through an agent, the authority of the latter shall be in
in the course of, or connected with, the performance of authorized writing, otherwise, the sale shall be void.37
duties of such director, are not binding on the corporation.29
In this case, the petitioners as plaintiffs below, failed to adduce in
While a corporation may appoint agents to negotiate for the sale of evidence any resolution of the Board of Directors of respondent EC
its real properties, the final say will have to be with the board of empowering Marquez, Glanville or Delsaux as its agents, to sell, let
directors through its officers and agents as authorized by a board alone offer for sale, for and in its behalf, the eight parcels of land
resolution or by its by-laws.30An unauthorized act of an officer of owned by respondent EC including the improvements thereon. The
the corporation is not binding on it unless the latter ratifies the bare fact that Delsaux may have been authorized to sell to Ruperto
same expressly or impliedly by its board of directors. Any sale of real Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot
property of a corporation by a person purporting to be an agent be used as basis for petitioners’ claim that he had likewise been
thereof but without written authority from the corporation is null authorized by respondent EC to sell the parcels of land.
and void. The declarations of the agent alone are generally
insufficient to establish the fact or extent of his/her authority.31 Moreover, the evidence of petitioners shows that Adams and
Glanville acted on the authority of Delsaux, who, in turn, acted on
By the contract of agency, a person binds himself to render some the authority of respondent ESAC, through its Committee for
service or to do something in representation on behalf of another, Asia,38 the Board of Directors of respondent ESAC,39 and the
with the consent or authority of the latter.32 Consent of both Belgian/Swiss component of the management of respondent
principal and agent is necessary to create an agency. The principal ESAC.40 As such, Adams and Glanville engaged the services of
must intend that the agent shall act for him; the agent must intend Marquez to offer to sell the properties to prospective buyers. Thus,
to accept the authority and act on it, and the intention of the on September 12, 1986, Marquez wrote the petitioner that he was
parties must find expression either in words or conduct between authorized to offer for sale the property for P27,000,000.00 and the
them.33 other terms of the sale subject to negotiations. When petitioners
offered to purchase the property for P20,000,000.00, through
An agency may be expressed or implied from the act of the Marquez, the latter relayed petitioners’ offer to Glanville; Glanville
principal, from his silence or lack of action, or his failure to had to send a telex to Delsaux to inquire the position of respondent
repudiate the agency knowing that another person is acting on his ESAC to petitioners’ offer. However, as admitted by petitioners in
behalf without authority. Acceptance by the agent may be their Memorandum, Delsaux was unable to reply immediately to
expressed, or implied from his acts which carry out the agency, or the telex of Glanville because Delsaux had to wait for confirmation
from his silence or inaction according to the from respondent ESAC.41 When Delsaux finally responded to
Glanville on February 12, 1987, he made it clear that, based on the properties to the petitioners. A person dealing with a known agent
"Belgian/Swiss decision" the final offer of respondent ESAC was is not authorized, under any circumstances, blindly to trust the
US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations agents; statements as to the extent of his powers; such person must
prior to final liquidation.42 The offer of Delsaux emanated only from not act negligently but must use reasonable diligence and prudence
the "Belgian/Swiss decision," and not the entire management or to ascertain whether the agent acts within the scope of his
Board of Directors of respondent ESAC. While it is true that authority.45 The settled rule is that, persons dealing with an
petitioners accepted the counter-offer of respondent ESAC, assumed agent are bound at their peril, and if they would hold the
respondent EC was not a party to the transaction between them; principal liable, to ascertain not only the fact of agency but also the
hence, EC was not bound by such acceptance. nature and extent of authority, and in case either is controverted,
the burden of proof is upon them to prove it.46 In this case, the
While Glanville was the President and General Manager of petitioners failed to discharge their burden; hence, petitioners are
respondent EC, and Adams and Delsaux were members of its Board not entitled to damages from respondent EC.
of Directors, the three acted for and in behalf of respondent ESAC,
and not as duly authorized agents of respondent EC; a board It appears that Marquez acted not only as real estate broker for the
resolution evincing the grant of such authority is needed to bind EC petitioners but also as their agent. As gleaned from the letter of
to any agreement regarding the sale of the subject properties. Such Marquez to Glanville, on February 26, 1987, he confirmed, for and
board resolution is not a mere formality but is a condition sine qua in behalf of the petitioners, that the latter had accepted such offer
non to bind respondent EC. Admittedly, respondent ESAC owned to sell the land and the improvements thereon. However, we agree
90% of the shares of stocks of respondent EC; however, the mere with the ruling of the appellate court that Marquez had no authority
fact that a corporation owns a majority of the shares of stocks of to bind respondent EC to sell the subject properties. A real estate
another, or even all of such shares of stocks, taken alone, will not broker is one who negotiates the sale of real properties. His
justify their being treated as one corporation.43 business, generally speaking, is only to find a purchaser who is
willing to buy the land upon terms fixed by the owner. He has no
It bears stressing that in an agent-principal relationship, the authority to bind the principal by signing a contract of sale. Indeed,
personality of the principal is extended through the facility of the an authority to find a purchaser of real property does not include an
agent. In so doing, the agent, by legal fiction, becomes the principal, authority to sell.47
authorized to perform all acts which the latter would have him do.
Such a relationship can only be effected with the consent of the Equally barren of merit is petitioners’ contention that respondent
principal, which must not, in any way, be compelled by law or by EC is estopped to deny the existence of a principal-agency
any court.44 relationship between it and Glanville or Delsaux. For an agency by
estoppel to exist, the following must be established: (1) the
The petitioners cannot feign ignorance of the absence of any regular principal manifested a representation of the agent’s authority or
and valid authority of respondent EC empowering Adams, Glanville knowlingly allowed the agent to assume such authority; (2) the third
or Delsaux to offer the properties for sale and to sell the said person, in good faith, relied upon such representation; (3) relying
upon such representation, such third person has changed his
position to his detriment.48 An agency by estoppel, which is similar
to the doctrine of apparent authority, requires proof of reliance
upon the representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.49 Such proof
is lacking in this case. In their communications to the petitioners,
Glanville and Delsaux positively and unequivocally declared that
they were acting for and in behalf of respondent ESAC.

Neither may respondent EC be deemed to have ratified the

transactions between the petitioners and respondent ESAC, through
Glanville, Delsaux and Marquez. The transactions and the various
communications inter se were never submitted to the Board of
Directors of respondent EC for ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of

merit. Costs against the petitioners.

G.R. No. 118375 October 3, 2003 also dated 11 August 1980 and for the amount of Ninety Five
Thousand Pesos (₱95,000.00). The proceeds of these checks were to
CELESTINA T. NAGUIAT, petitioner, constitute the loan granted by Naguiat to Queaño.3
COURT OF APPEALS and AURORA QUEAÑO, respondents. To secure the loan, Queaño executed a Deed of Real Estate
Mortgage dated 11 August 1980 in favor of Naguiat, and
DECISION surrendered to the latter the owner’s duplicates of the titles
covering the mortgaged properties.4 On the same day, the mortgage
TINGA, J.: deed was notarized, and Queaño issued to Naguiat a promissory
note for the amount of TWO HUNDRED THOUSAND PESOS
Before us is a Petition for Review on Certiorari under Rule 45, (₱200,000.00), with interest at 12% per annum, payable on 11
assailing the decision of the Sixteenth Division of the respondent September 1980.5Queaño also issued a Security Bank and Trust
Court of Appeals promulgated on 21 December 19941 , which Company check, postdated 11 September 1980, for the amount of
affirmed in toto the decision handed down by the Regional Trial TWO HUNDRED THOUSAND PESOS (₱200,000.00) and payable to
Court (RTC) of Pasay City.2 the order of Naguiat.

The case arose when on 11 August 1981, private respondent Aurora Upon presentment on its maturity date, the Security Bank check
Queaño (Queaño) filed a complaint before the Pasay City RTC for was dishonored for insufficiency of funds. On the following day, 12
cancellation of a Real Estate Mortgage she had entered into with September 1980, Queaño requested Security Bank to stop payment
petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, of her postdated check, but the bank rejected the request pursuant
declaring the questioned Real Estate Mortgage void, which Naguiat to its policy not to honor such requests if the check is drawn against
appealed to the Court of Appeals. After the Court of Appeals upheld insufficient funds.6
the RTC decision, Naguiat instituted the present
petition.1ªvvphi1.nét On 16 October 1980, Queaño received a letter from Naguiat’s
lawyer, demanding settlement of the loan. Shortly thereafter,
The operative facts follow: Queaño and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat.
At the meeting, Queaño told Naguiat that she did not receive the
Queaño applied with Naguiat for a loan in the amount of Two proceeds of the loan, adding that the checks were retained by
Hundred Thousand Pesos (₱200,000.00), which Naguiat granted. On Ruebenfeldt, who purportedly was Naguiat’s agent.7
11 August 1980, Naguiat indorsed to Queaño Associated Bank Check
No. 090990 (dated 11 August 1980) for the amount of Ninety Five Naguiat applied for the extrajudicial foreclosure of the mortgage
Thousand Pesos (₱95,000.00), which was earlier issued to Naguiat with the Sheriff of Rizal Province, who then scheduled the
by the Corporate Resources Financing Corporation. She also issued foreclosure sale on 14 August 1981. Three days before the
her own Filmanbank Check No. 065314, to the order of Queaño, scheduled sale, Queaño filed the case before the Pasay City
RTC,8 seeking the annulment of the mortgage deed. The trial court doubt or difference arises as to the truth or the falsehood of alleged
eventually stopped the auction sale.9 facts.16

On 8 March 1991, the RTC rendered judgment, declaring the Deed Surely, there are established exceptions to the rule on the
of Real Estate Mortgage null and void, and ordering Naguiat to conclusiveness of the findings of facts of the lower courts.17 But
return to Queaño the owner’s duplicates of her titles to the Naguiat’s case does not fall under any of the exceptions. In any
mortgaged lots.10 Naguiat appealed the decision before the Court of event, both the decisions of the appellate and trial courts are
Appeals, making no less than eleven assignments of error. The Court supported by the evidence on record and the applicable laws.
of Appeals promulgated the decision now assailed before us that
affirmed in toto the RTC decision. Hence, the present petition. Against the common finding of the courts below, Naguiat vigorously
insists that Queaño received the loan proceeds. Capitalizing on the
Naguiat questions the findings of facts made by the Court of status of the mortgage deed as a public document, she cites the rule
Appeals, especially on the issue of whether Queaño had actually that a public document enjoys the presumption of validity and
received the loan proceeds which were supposed to be covered by truthfulness of its contents. The Court of Appeals, however, is
the two checks Naguiat had issued or indorsed. Naguiat claims that correct in ruling that the presumption of truthfulness of the recitals
being a notarial instrument or public document, the mortgage deed in a public document was defeated by the clear and convincing
enjoys the presumption that the recitals therein are true. Naguiat evidence in this case that pointed to the absence of
also questions the admissibility of various representations and consideration.18 This Court has held that the presumption of
pronouncements of Ruebenfeldt, invoking the rule on the non- truthfulness engendered by notarized documents is rebuttable,
binding effect of the admissions of third persons.11 yielding as it does to clear and convincing evidence to the contrary,
as in this case.19
The resolution of the issues presented before this Court by Naguiat
involves the determination of facts, a function which this Court does On the other hand, absolutely no evidence was submitted by
not exercise in an appeal by certiorari. Under Rule 45 which governs Naguiat that the checks she issued or endorsed were actually
appeal by certiorari, only questions of law may be raised12 as the encashed or deposited. The mere issuance of the checks did not
Supreme Court is not a trier of facts.13 The resolution of factual result in the perfection of the contract of loan. For the Civil Code
issues is the function of lower courts, whose findings on these provides that the delivery of bills of exchange and mercantile
matters are received with respect and are in fact generally binding documents such as checks shall produce the effect of payment only
on the Supreme Court.14 A question of law which the Court may pass when they have been cashed.20 It is only after the checks have
upon must not involve an examination of the probative value of the produced the effect of payment that the contract of loan may be
evidence presented by the litigants.15 There is a question of law in a deemed perfected. Art. 1934 of the Civil Code provides:
given case when the doubt or difference arises as to what the law is
on a certain state of facts; there is a question of fact when the "An accepted promise to deliver something by way of commodatum
or simple loan is binding upon the parties, but the commodatum or
simple loan itself shall not be perfected until the delivery of the of ₱220,000.00 payable to Naguiat, to cover for Queaño’s alleged
object of the contract." liability to Naguiat under the loan agreement.24

A loan contract is a real contract, not consensual, and, as such, is The Court of Appeals recognized the existence of an "agency by
perfected only upon the delivery of the object of the contract.21 In estoppel25 citing Article 1873 of the Civil Code.26Apparently, it
this case, the objects of the contract are the loan proceeds which considered that at the very least, as a consequence of the
Queaño would enjoy only upon the encashment of the checks interaction between Naguiat and Ruebenfeldt, Queaño got the
signed or indorsed by Naguiat. If indeed the checks were encashed impression that Ruebenfeldt was the agent of Naguiat, but Naguiat
or deposited, Naguiat would have certainly presented the did nothing to correct Queaño’s impression. In that situation, the
corresponding documentary evidence, such as the returned checks rule is clear. One who clothes another with apparent authority as
and the pertinent bank records. Since Naguiat presented no such his agent, and holds him out to the public as such, cannot be
proof, it follows that the checks were not encashed or credited to permitted to deny the authority of such person to act as his agent,
Queaño’s account.1awphi1.nét to the prejudice of innocent third parties dealing with such person
in good faith, and in the honest belief that he is what he appears to
Naguiat questions the admissibility of the various written be.27 The Court of Appeals is correct in invoking the said rule on
representations made by Ruebenfeldt on the ground that they could agency by estoppel.1awphi1.nét
not bind her following the res inter alia acta alteri nocere non debet
rule. The Court of Appeals rejected the argument, holding that since More fundamentally, whatever was the true relationship between
Ruebenfeldt was an authorized representative or agent of Naguiat Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the
the situation falls under a recognized exception to the rule.22 Still, checks issued or indorsed to Queaño were never encashed or
Naguiat insists that Ruebenfeldt was not her agent. deposited to her account of Naguiat.

Suffice to say, however, the existence of an agency relationship All told, we find no compelling reason to disturb the finding of the
between Naguiat and Ruebenfeldt is supported by ample evidence. courts a quo that the lender did not remit and the borrower did not
As correctly pointed out by the Court of Appeals, Ruebenfeldt was receive the proceeds of the loan. That being the case, it follows that
not a stranger or an unauthorized person. Naguiat instructed the mortgage which is supposed to secure the loan is null and void.
Ruebenfeldt to withhold from Queaño the checks she issued or The consideration of the mortgage contract is the same as that of
indorsed to Queaño, pending delivery by the latter of additional the principal contract from which it receives life, and without which
collateral. Ruebenfeldt served as agent of Naguiat on the loan it cannot exist as an independent contract.28 A mortgage contract
application of Queaño’s friend, Marilou Farralese, and it was in being a mere accessory contract, its validity would depend on the
connection with that transaction that Queaño came to know validity of the loan secured by it.29
Naguiat.23 It was also Ruebenfeldt who accompanied Queaño in her
meeting with Naguiat and on that occasion, on her own and without WHEREFORE, the petition is denied and the assailed decision is
Queaño asking for it, Reubenfeldt actually drew a check for the sum affirmed. Costs against petitioner.
G.R. No. 113074 January 22, 1997 ASSIGNOR uses and has been using on the products
manufactured by ASSIGNEE, and for which ASSIGNOR is the
ALFRED HAHN, petitioner, authorized exclusive Dealer of the ASSIGNEE in the
vs. Philippines, the same being evidenced by certificate of
COURT OF APPEALS and BAYERSCHE MOTOREN WERKE registration issued by the Director of Patents on 12
AKTIENGSELLSCHAFT (BMW), respondents. December 1963 and is referred to as Trademark No. 10625;

WHEREAS, the ASSIGNOR has agreed to transfer and

consequently record said transfer of the said BMW
MENDOZA, J.: trademark and device in favor of the ASSIGNEE herein with
the Philippines Patent Office;
This is a petition for review of the decision1 of the Court of Appeals
dismissing a complaint for specific performance which petitioner NOW THEREFORE, in view of the foregoing and in
had filed against private respondent on the ground that the consideration of the stipulations hereunder stated, the
Regional Trial Court of Quezon City did not acquire jurisdiction over ASSIGNOR hereby affirms the said assignment and transfer
private respondent, a nonresident foreign corporation, and of the in favor of the ASSIGNEE under the following terms and
appellate court's order denying petitioner's motion for conditions:
1. The ASSIGNEE shall take appropriate steps against any
The following are the facts: user other than ASSIGNOR or infringer of the BMW
trademark in the Philippines; for such purpose, the
Petitioner Alfred Hahn is a Filipino citizen doing business under the ASSIGNOR shall inform the ASSIGNEE immediately of any
name and style "Hahn-Manila." On the other hand, private such use or infringement of the said trademark which
respondent Bayerische Motoren Werke Aktiengesellschaft (BMW) is comes to his knowledge and upon such information the
a nonresident foreign corporation existing under the laws of the ASSIGNOR shall automatically act as Attorney-In-Fact of the
former Federal Republic of Germany, with principal office at ASSIGNEE for such case, with full power, authority and
Munich, Germany. responsibility to prosecute unilaterally or in concert with
ASSIGNEE, any such infringer of the subject mark and for
On March 7, 1967, petitioner executed in favor of private purposes hereof the ASSIGNOR is hereby named and
respondent a "Deed of Assignment with Special Power of Attorney," constituted as ASSIGNEE's Attorney-In-Fact, but any such
which reads in full as follows: suit without ASSIGNEE's consent will exclusively be the
responsibility and for the account of the ASSIGNOR,
WHEREAS, the ASSIGNOR is the present owner and holder
of the BMW trademark and device in the Philippines which
2. That the ASSIGNOR and the ASSIGNEE shall continue States and the fact that few customers returned for repairs and
business relations as has been usual in the past without a servicing because of the durability of BMW parts and the efficiency
formal contract, and for that purpose, the dealership of of petitioner's service.
ASSIGNOR shall cover the ASSIGNEE's complete production
program with the only limitation that, for the present, in Because of Hahn's insistence on the former business relation, BMW
view of ASSIGNEE's limited production, the latter shall not withdrew on March 26, 1993 its offer of a "standard importer
be able to supply automobiles to ASSIGNOR. contract" and terminated the exclusive dealer relationship effective
June 30, 1993. 4 At a conference of BMW Regional Importers held
Per the agreement, the parties "continue[d] business relations as on April 26, 1993 in Singapore, Hahn was surprised to find Alvarez
has been usual in the past without a formal contract." But on among those invited from the Asian region. On April 29, 1993, BMW
February 16, 1993, in a meeting with a BMW representative and the proposed that Hahn and CMC jointly import and distribute BMW
president of Columbia Motors Corporation (CMC), Jose Alvarez, cars and parts.
petitioner was informed that BMW was arranging to grant the
exclusive dealership of BMW cars and products to CMC, which had Hahn found the proposal unacceptable. On May 14, 1993, he filed a
expressed interest in acquiring the same. On February 24, 1993, complaint for specific performance and damages against BMW to
petitioner received confirmation of the information from BMW compel it to continue the exclusive dealership. Later he filed an
which, in a letter, expressed dissatisfaction with various aspects of amended complaint to include an application for temporary
petitioner's business, mentioning among other things, decline in restraining order and for writs of preliminary, mandatory and
sales, deteriorating services, and inadequate showroom and prohibitory injunction to enjoin BMW from terminating his exclusive
warehouse facilities, and petitioner's alleged failure to comply with dealership. Hahn's amended complaint alleged in pertinent parts:
the standards for an exclusive BMW dealer.2 Nonetheless, BMW
expressed willingness to continue business relations with the 2. Defendant [BMW] is a foreign corporation doing business
petitioner on the basis of a "standard BMW importer" contract, in the Philippines with principal offices at Munich, Germany.
otherwise, it said, if this was not acceptable to petitioner, BMW It may be served with summons and other court processes
would have no alternative but to terminate petitioner's exclusive through the Secretary of the Department of Trade and
dealership effective June 30, 1993. Industry of the Philippines. . . .

Petitioner protested, claiming that the termination of his exclusive xxx xxx xxx
dealership would be a breach of the Deed of Assignment.3 Hahn
insisted that as long as the assignment of its trademark and device 5. On March 7, 1967, Plaintiff executed in favor of
subsisted, he remained BMW's exclusive dealer in the Philippines defendant BMW a Deed of Assignment with Special Power
because the assignment was made in consideration of the exclusive of Attorney covering the trademark and in consideration
dealership. In the same letter petitioner explained that the decline thereof, under its first whereas clause, Plaintiff was duly
in sales was due to lower prices offered for BMW cars in the United
acknowledged as the "exclusive Dealer of the Assignee in thus, follows that the exclusive dealership should continue
the Philippines. . . . for so long as defendant BMW enjoys the use and
ownership of the trademark assigned to it by Plaintiff.
xxx xxx xxx
The case was docketed as Civil Case No. Q-93-15933 and raffled to
8. From the time the trademark "BMW & DEVICE" was first Branch 104 of the Quezon City Regional Trial Court, which on June
used by the Plaintiff in the Philippines up to the present, 14, 1993 issued a temporary restraining order. Summons and copies
Plaintiff, through its firm name "HAHN MANILA" and of the complaint and amended complaint were thereafter served on
without any monetary contribution from defendant BMW, the private respondent through the Department of Trade and
established BMW's goodwill and market presence in the Industry, pursuant to Rule 14, §14 of the Rules of Court. The order,
Philippines. Pursuant thereto, Plaintiff has invested a lot of summons and copies of the complaint and amended complaint
money and resources in order to single-handedly compete were later sent by the DTI to BMW via registered mail on June 15,
against other motorcycle and car companies. . . . Moreover, 19935 and received by the latter on June 24, 1993.
Plaintiff has built buildings and other infrastructures such as
service centers and showrooms to maintain and promote On June 17, 1993, without proof of service on BMW, the hearing on
the car and products of defendant BMW. the application for the writ of preliminary injunction proceeded ex
parte, with petitioner Hahn testifying. On June 30, 1993, the trial
xxx xxx xxx court issued an order granting the writ of preliminary injunction
upon the filing of a bond of P100,000.00. On July 13, 1993, following
10. In a letter dated February 24, 1993, defendant BMW the posting of the required bond, a writ of preliminary injunction
advised Plaintiff that it was willing to maintain with Plaintiff was issued.
a relationship but only "on the basis of a standard BMW
importer contract as adjusted to reflect the particular On July 1, 1993, BMW moved to dismiss the case, contending that
situation in the Philippines" subject to certain conditions, the trial court did not acquire jurisdiction over it through the service
otherwise, defendant BMW would terminate Plaintiffs of summons on the Department of Trade and Industry, because it
exclusive dealership and any relationship for cause effective (BMW) was a foreign corporation and it was not doing business in
June 30, 1993. . . . the Philippines. It contended that the execution of the Deed of
Assignment was an isolated transaction; that Hahn was not its agent
xxx xxx xxx because the latter undertook to assemble and sell BMW cars and
products without the participation of BMW and sold other products;
15. The actuations of defendant BMW are in breach of the and that Hahn was an indentor or middleman transacting business
assignment agreement between itself and plaintiff since the in his own name and for his own account.
consideration for the assignment of the BMW trademark is
the continuance of the exclusive dealership agreement. It
Petitioner Alfred Hahn opposed the motion. He argued that BMW when the very question was whether the court had jurisdiction over
was doing business in the Philippines through him as its agent, as it.
shown by the fact that BMW invoices and order forms were used to
document his transactions; that he gave warranties as exclusive The Court of Appeals enjoined the trial court from hearing
BMW dealer; that BMW officials periodically inspected standards of petitioner's complaint. On December 20, 1993, it rendered
service rendered by him; and that he was described in service judgment finding the trial court guilty of grave abuse of discretion in
booklets and international publications of BMW as a "BMW deferring resolution of the motion to dismiss. It stated:
Importer" or "BMW Trading Company" in the Philippines.
Going by the pleadings already filed with the respondent
The trial court6 deferred resolution of the motion to dismiss until court before it came out with its questioned order of July
after trial on the merits for the reason that the grounds advanced 26, 1993, we rule and so hold that petitioner's (BMW)
by BMW in its motion did not seem to be indubitable. motion to dismiss could be resolved then and there, and
that the respondent judge's deferment of his action thereon
Without seeking reconsideration of the aforementioned order, until after trial on the merit constitutes, to our mind, grave
BMW filed a petition for certiorari with the Court of Appeals alleging abuse of discretion.
xxx xxx xxx
OTHERWISE INJUDICIOUSLY IN PROCEEDINGS LEADING . . . [T]here is not much appreciable disagreement as regards
TOWARD THE ISSUANCE OF THE WRIT OF PRELIMINARY the factual matters relating to the motion to dismiss. What
INJUNCTION, AND IN PRESCRIBING THE TERMS FOR THE truly divide (sic) the parties and to which they greatly differ
ISSUANCE THEREOF. is the legal conclusions they respectively draw from such
facts, (sic) with Hahn maintaining that on the basis thereof,
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING BMW is doing business in the Philippines while the latter
IMMEDIATELY DISMISS THE CASE A QUO. Then, after stating that any ruling which the trial court might make
on the motion to dismiss would anyway be elevated to it on appeal,
BMW asked for the immediate issuance of a temporary restraining the Court of Appeals itself resolved the motion. It ruled that BMW
order and, after hearing, for a writ of preliminary injunction, to was not doing business in the country and, therefore, jurisdiction
enjoin the trial court from proceeding further in Civil Case No. Q-93- over it could not be acquired through service of summons on the
15933. Private respondent pointed out that, unless the trial court's DTI pursuant to Rule 14, §14. 'The court upheld private
order was set aside, it would be forced to submit to the jurisdiction respondent's contention that Hahn acted in his own name and for
of the court by filing its answer or to accept judgment in default, his own account and independently of BMW, based on Alfred
Hahn's allegations that he had invested his own money and totalling one hundred eighty (180) days or more;
resources in establishing BMW's goodwill in the Philippines and on participating in the management, supervision or control of
BMW's claim that Hahn sold products other than those of BMW. It any domestic business, firm, entity or corporation in the
held that petitioner was a mere indentor or broker and not an agent Philippines; and any other act or acts that imply a continuity
through whom private respondent BMW transacted business in the of commercial dealings or arrangements, and contemplate
Philippines. Consequently, the Court of Appeals dismissed to that extent the performance of acts or works, or the
petitioner's complaint against BMW. exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the
Hence, this appeal. Petitioner contends that the Court of Appeals purpose and object of the business organization: Provided,
erred (1) in finding that the trial court gravely abused its discretion however, That the phrase "doing business" shall not be
in deferring action on the motion to dismiss and (2) in finding that deemed to include mere investment as a shareholder by a
private respondent BMW is not doing business in the Philippines foreign entity in domestic corporations duly registered to do
and, for this reason, dismissing petitioner's case. business, and/or the exercise of rights as such investor; nor
having a nominee director or officer to represent its
Petitioner's appeal is well taken. Rule 14, §14 provides: interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines
§14. Service upon private foreign corporations. — If the which transacts business in its own name and for its own
defendant is a foreign corporation, or a nonresident joint account. (Emphasis supplied)
stock company or association, doing business in the
Philippines, service may be made on its resident agent Thus, the phrase includes "appointing representatives or
designated in accordance with law for that purpose, or, if distributors in the Philippines" but not when the representative or
there be no such agent, on the government official distributor "transacts business in its name and for its own account."
designated by law to that effect, or on any of its officers or In addition, §1(f)(1) of the Rules and Regulations implementing (IRR)
agents within the Philippines. (Emphasis added). the Omnibus Investment Code of 1987 (E.O. No. 226) provided:

What acts are considered "doing business in the Philippines" are (f) "Doing business" shall be any act or combination of acts,
enumerated in §3(d) of the Foreign Investments Act of 1991 (R.A. enumerated in Article 44 of the Code. In particular, "doing
No. 7042) as follows:7 business" includes:

d) the phrase "doing business" shall include soliciting (1) . . . A foreign firm which does business through
orders, service contracts, opening offices, whether called middlemen acting in their own names, such as indentors,
"liaison" offices or branches; appointing representatives or commercial brokers or commission merchants, shall not be
distributors domiciled in the Philippines or who in any deemed doing business in the Philippines. But such
calendar year stay in the country for a period or periods indentors, commercial brokers or commission merchants
shall be the ones deemed to be doing business in the As the above quoted allegations of the amended complaint show,
Philippines. however, there is nothing to support the appellate court's finding
that Hahn solicited orders alone and for his own account and
The question is whether petitioner Alfred Hahn is the agent or without "interference from, let alone direction of, BMW." (p. 13) To
distributor in the Philippines of private respondent BMW. If he is, the contrary, Hahn claimed he took orders for BMW cars and
BMW may be considered doing business in the Philippines and the transmitted them to BMW. Upon receipt of the orders, BMW fixed
trial court acquired jurisdiction over it (BMW) by virtue of the the downpayment and pricing charges, notified Hahn of the
service of summons on the Department of Trade and Industry. scheduled production month for the orders, and reconfirmed the
Otherwise, if Hahn is not the agent of BMW but an independent orders by signing and returning to Hahn the acceptance sheets.
dealer, albeit of BMW cars and products, BMW, a foreign Payment was made by the buyer directly to BMW. Title to cars
corporation, is not considered doing business in the Philippines purchased passed directly to the buyer and Hahn never paid for the
within the meaning of the Foreign Investments Act of 1991 and the purchase price of BMW cars sold in the Philippines. Hahn was
IRR, and the trial court did not acquire jurisdiction over it (BMW). credited with a commission equal to 14% of the purchase price
upon the invoicing of a vehicle order by BMW. Upon confirmation in
The Court of Appeals held that petitioner Alfred Hahn acted in his writing that the vehicles had been registered in the Philippines and
own name and for his own account and not as agent or distributor serviced by him, Hahn received an additional 3% of the full purchase
in the Philippines of BMW on the ground that "he alone had price. Hahn performed after-sale services, including warranty
contacts with individuals or entities interested in acquiring BMW services, for which he received reimbursement from BMW. All
vehicles. Independence characterizes Hahn's undertakings, for orders were on invoices and forms of BMW.8
which reason he is to be considered, under governing statutes, as
doing business." (p. 13) In support of this conclusion, the appellate These allegations were substantially admitted by BMW which, in its
court cited the following allegations in Hahn's amended complaint: petition for certiorari before the Court of Appeals, stated:9

8. From the time the trademark "BMW & DEVICE" was first 9.4. As soon as the vehicles are fully manufactured and full
used by the Plaintiff in the Philippines up to the present, payment of the purchase prices are made, the vehicles are
Plaintiff, through its firm name "HAHN MANILA" and shipped to the Philippines. (The payments may be made by
without any monetary contributions from defendant BMW, the purchasers or third-persons or even by Hahn.) The bills
established BMW's goodwill and market presence in the of lading are made up in the name of the purchasers, but
Philippines. Pursuant thereto, Plaintiff invested a lot of Hahn-Manila is therein indicated as the person to be
money and resources in order to single-handedly compete notified.
against other motorcycle and car companies. . . . Moreover,
Plaintiff has built buildings and other infrastructures such as 9.5. It is Hahn who picks up the vehicles from the Philippine
service centers and showrooms to maintain and promote ports, for purposes of conducting pre-delivery inspections.
the car and products of defendant BMW. Thereafter, he delivers the vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is present activities not adequately prepared to cope with the
credited with a commission of fourteen percent (14%) of forthcoming challenges.11
the full purchase price thereof, and as soon as he confirms
in writing that the vehicles have been registered in the In effect, BMW was holding Hahn accountable to it under the 1967
Philippines and have been serviced by him, he will receive Agreement.
an additional three percent (3%) of the full purchase prices
as commission. This case fits into the mould of Communications Materials,
Inc. v. Court of Appeals,12 in which the foreign corporation entered
Contrary to the appellate court's conclusion, this arrangement into a "Representative Agreement" and a "Licensing Agreement"
shows an agency. An agent receives a commission upon the with a domestic corporation, by virtue of which the latter was
successful conclusion of a sale. On the other hand, a broker earns appointed "exclusive representative" in the Philippines for a
his pay merely by bringing the buyer and the seller together, even if stipulated commission. Pursuant to these contracts, the domestic
no sale is eventually made. corporation sold products exported by the foreign corporation and
put up a service center for the products sold locally. This Court held
As to the service centers and showrooms which he said he had put that these acts constituted doing business in the Philippines. The
up at his own expense, Hahn said that he had to follow BMW arrangement showed that the foreign corporation's purpose was to
specifications as exclusive dealer of BMW in the Philippines. penetrate the Philippine market and establish its presence in the
According to Hahn, BMW periodically inspected the service centers Philippines.
to see to it that BMW standards were maintained. Indeed, it would
seem from BMW's letter to Hahn that it was for Hahn's alleged In addition, BMW held out private respondent Hahn as its exclusive
failure to maintain BMW standards that BMW was terminating distributor in the Philippines, even as it announced in the Asian
Hahn's dealership. region that Hahn was the "official BMW agent" in the Philippines.13

The fact that Hahn invested his own money to put up these service The Court of Appeals also found that petitioner Alfred Hahn dealt in
centers and showrooms does not necessarily prove that he is not an other products, and not exclusively in BMW products, and, on this
agent of BMW. For as already noted, there are facts in the record basis, ruled that Hahn was not an agent of BMW. (p. 14) This finding
which suggest that BMW exercised control over Hahn's activities as is based entirely on allegations of BMW in its motion to dismiss filed
a dealer and made regular inspections of Hahn's premises to in the trial court and in its petition for certiorari before the Court of
enforce compliance with BMW standards and specifications.10 For Appeals.14 But this allegation was denied by Hahn15 and therefore
example, in its letter to Hahn dated February 23, 1996, BMW stated: the Court of Appeals should not have cited it as if it were the fact.

In the last years we have pointed out to you in several Indeed this is not the only factual issue raised, which should have
discussions and letters that we have to tackle the Philippine indicated to the Court of Appeals the necessity of affirming the trial
market more professionally and that we are through your court's order deferring resolution of BMW's motion to dismiss.
Petitioner alleged that whether or not he is considered an agent of This is not to say, however, that the petitioner's right to
BMW, the fact is that BMW did business in the Philippines because question the jurisdiction of the court over its person is now
it sold cars directly to Philippine buyers. 16 This was denied by BMW, to be deemed a foreclosed matter. If it is true, as Signetics
which claimed that Hahn was not its agent and that, while it was claims, that its only involvement in the Philippines was
true that it had sold cars to Philippine buyers, this was done without through a passive investment in Sigfil, which it even later
solicitation on its part.17 disposed of, and that TEAM Pacific is not its agent, then it
cannot really be said to be doing business in the Philippines.
It is not true then that the question whether BMW is doing business It is a defense, however, that requires the contravention of
could have been resolved simply by considering the parties' the allegations of the complaint, as well as a full ventilation,
pleadings. There are genuine issues of facts which can only be in effect, of the main merits of the case, which should not
determined on the basis of evidence duly presented. BMW cannot thus be within the province of a mere motion to dismiss. So,
short circuit the process on the plea that to compel it to go to trial also, the issue posed by the petitioner as to whether a
would be to deny its right not to submit to the jurisdiction of the foreign corporation which has done business in the country,
trial court which precisely it denies. Rule 16, §3 authorizes courts to but which has ceased to do business at the time of the filing
defer the resolution of a motion to dismiss until after the trial if the of a complaint, can still be made to answer for a cause of
ground on which the motion is based does not appear to be action which accrued while it was doing business, is another
indubitable. Here the record of the case bristles with factual issues matter that would yet have to await the reception and
and it is not at all clear whether some allegations correspond to the admission of evidence. Since these points have seasonably
proof. been raised by the petitioner, there should be no real cause
for what may understandably be its apprehension, i.e., that
Anyway, private respondent need not apprehend that by by its participation during the trial on the merits, it may,
responding to the summons it would be waiving its objection to the absent an invocation of separate or independent reliefs of
trial court's jurisdiction. It is now settled that, for purposes of having its own, be considered to have voluntarily submitted itself
summons served on a foreign corporation in accordance with Rule to the court's jurisdiction.19
14, §14, it is sufficient that it be alleged in the complaint that the
foreign corporation is doing business in the Philippines. The court Far from committing an abuse of discretion, the trial court properly
need not go beyond the allegations of the complaint in order to deferred resolution of the motion to dismiss and thus avoided
determine whether it has Jurisdiction.18 A determination that the prematurely deciding a question which requires a factual basis, with
foreign corporation is doing business is only tentative and is made the same result if it had denied the motion and conditionally
only for the purpose of enabling the local court to acquire assumed jurisdiction. It is the Court of Appeals which, by ruling that
jurisdiction over the foreign corporation through service of BMW is not doing business on the basis merely of uncertain
summons pursuant to Rule 14, §14. Such determination does not allegations in the pleadings, disposed of the whole case with finality
foreclose a contrary finding should evidence later show that it is not and thereby deprived petitioner of his right to be heard on his cause
transacting business in the country. As this Court has explained: of action. Nor was there justification for nullifying the writ of
preliminary injunction issued by the trial court. Although the certain Mr. Gumar to prepare his travel plans. The latter, in turn,
injunction was issued ex parte, the fact is that BMW was purchased a ticket from BA where the following itinerary was
subsequently heard on its defense by filing a motion to dismiss. indicated:3

WHEREFORE, the decision of the Court of Appeals is REVERSED and CARRIER FLIGHT DATE TIME STATUS
the case is REMANDED to the trial court for further proceedings.
MANILA MNL PR 310 Y 16 APR. 1730 OK

BOMBAY BOM BA 19 M 23 APR. 0840 OK

G.R. No. 121824 January 29, 1998 HONGKONG HKG PR 311 Y


Since BA had no direct flights from Manila to Bombay, Mahtani had
AIRLINES, respondents.
to take a flight to Hongkong via PAL, and upon arrival in Hongkong
he had to take a connecting flight to Bombay on board BA.

Prior to his departure, Mahtani checked in at the PAL counter in

Manila his two pieces of luggage containing his clothings and
personal effects, confident that upon reaching Hongkong, the same
In this appeal by certiorari, petitioner British Airways (BA) seeks to would be transferred to the BA flight bound for Bombay.
set aside the decision of respondent Court of Appeals1 promulgated
on September 7, 1995, which affirmed the award of damages and
Unfortunately, when Mahtani arrived in Bombay he discovered that
attorney's fees made by the Regional Trial Court of Cebu, 7th
his luggage was missing and that upon inquiry from the BA
Judicial Region, Branch 17, in favor of private respondent GOP
representatives, he was told that the same might have been
Mahtani as well as the dismissal of its third-party complaint against
diverted to London. After patiently waiting for his luggage for one
Philippine Airlines (PAL).2
week, BA finally advised him to file a claim by accomplishing the
"Property Irregularity Report."4
The material and relevant facts are as follows:

On April 16, 1989, Mahtani decided to visit his relatives in Bombay,

India. In anticipation of his visit, he obtained the services of a
Back in the Philippines, specifically on June 11, 1990, Mahtani filed The Third-Party Complaint against third-party defendant
his complaint for damages and attorney's fees 5 against BA and Mr. Philippine Airlines is DISMISSED for lack of cause of action.
Gumar before the trial court, docketed as Civil Case No. CEB-9076.
On September 4, 1990, BA filed its answer with counter claim to
the complaint raising, as special and affirmative defenses, that Dissatisfied, BA appealed to the Court of Appeals, which however,
Mahtani did not have a cause of action against it. Likewise, on affirmed the trial court's findings. Thus:
November 9, 1990, BA filed a third-party complaint 7 against PAL
alleging that the reason for the non-transfer of the luggage was due WHEREFORE, in view of all the foregoing considerations,
to the latter's late arrival in Hongkong, thus leaving hardly any time finding the Decision appealed from to be in accordance with
for the proper transfer of Mahtani's luggage to the BA aircraft law and evidence, the same is hereby AFFIRMED in toto,
bound for Bombay. with costs against defendant-appellant.

On February 25, 1991, PAL filed its answer to the third-party SO ORDERED. 10
complaint, wherein it disclaimed any liability, arguing that there
was, in fact, adequate time to transfer the luggage to BA facilities in BA is now before us seeking the reversal of the Court of Appeals'
Hongkong. Furthermore, the transfer of the luggage to Hongkong decision.
authorities should be considered as transfer to BA.8
In essence, BA assails the award of compensatory damages and
After appropriate proceedings and trial, on March 4, 1993, the trial attorney's fees, as well as the dismissal of its third-party complaint
court rendered its decision in favor of Mahtani, 9 the dispositive against PAL.11
portion of which reads as follows:
Regarding the first assigned issue, BA asserts that the award of
WHEREFORE, premises considered, judgment is rendered compensatory damages in the separate sum of P7,000.00 for the
for the plaintiff and against the defendant for which loss of Mahtani's two pieces of luggage was without basis since
defendant is ordered to pay plaintiff the sum of Seven Mahtani in his complaint12 stated the following as the value of his
Thousand (P7,000.00) Pesos for the value of the two (2) suit personal belongings:
cases; Four Hundred U.S. ($400.00) Dollars representing the
value of the contents of plaintiff's luggage; Fifty Thousand 8. On the said travel, plaintiff took with him the following
(P50,000.00) Pesos for moral and actual damages and items and its corresponding value, to wit:
twenty percent (20%) of the total amount imposed against
the defendant for attorney's fees and costs of this action. 1. personal belonging P10,000.00

2. gifts for his parents and relatives $5,000.00

Moreover, he failed to declare a higher valuation with respect to his In this regard, the trial court granted the following award as
luggage, a condition provided for in the ticket, which reads:13 compensatory damages:

Liability for loss, delay, or damage to baggage is limited Since plaintiff did not declare the value of the contents in
unless a higher value is declared in advance and additional his luggage and even failed to show receipts of the alleged
charges are paid: gifts for the members of his family in Bombay, the most that
can be expected for compensation of his lost luggage (2 suit
1. For most international travel (including domestic cases) is Twenty U.S. Dollars ($20.00) per kilo, or combined
corporations of international journeys) the liability limit is value of Four Hundred ($400.00) U.S. Dollars for Twenty
approximately U.S. $9.07 per pound (U.S. $20.000) per kilo kilos representing the contents plus Seven Thousand
for checked baggage and U.S. $400 per passenger for (P7,000.00) Pesos representing the purchase price of the
unchecked baggage. two (2) suit cases.

Before we resolve the issues raised by BA, it is needful to state that However, as earlier stated, it is the position of BA that there should
the nature of an airline's contract of carriage partakes of two types, have been no separate award for the luggage and the contents
namely: a contract to deliver a cargo or merchandise to its thereof since Mahtani failed to declare a separate higher valuation
destination and a contract to transport passengers to their for the luggage,18 and therefore, its liability is limited, at most, only
destination. A business intended to serve the traveling public to the amount stated in the ticket.
primarily, it is imbued with public interest, hence, the law governing
common carriers imposes an exacting standard.14 Neglect or Considering the facts of the case, we cannot assent to such specious
malfeasance by the carrier's employees could predictably furnish argument.
bases for an action for damages.15
Admittedly, in a contract of air carriage a declaration by the
In the instant case, it is apparent that the contract of carriage was passenger of a higher value is needed to recover a greater amount.
between Mahtani and BA. Moreover, it is indubitable that his Article 22(1) of the Warsaw Convention,19 provides as follows:
luggage never arrived in Bombay on time. Therefore, as in a number
of cases16we have assessed the airlines' culpability in the form of xxx xxx xxx
damages for breach of contract involving misplaced luggage.
(2) In the transportation of checked baggage and goods, the
In determining the amount of compensatory damages in this kind of liability of the carrier shall be limited to a sum of 250 francs
cases, it is vital that the claimant satisfactorily prove during the trial per kilogram, unless the consignor has made, at time the
the existence of the factual basis of the damages and its causal package was handed over to the carrier, a special
connection to defendant's acts.17 declaration of the value at delivery and has paid a
supplementary sum if the case so requires. In that case the
carrier will be liable to pay a sum not exceeding the A — Exemplary damages.
declared sum, unless he proves that the sum is greater than
the actual value to the consignor at delivery. Q — How much?

American jurisprudence provides that an air carrier is not liable for A — P100,000.00.
the loss of baggage in an amount in excess of the limits specified in
the tariff which was filed with the proper authorities, such tariff Q — What else?
being binding, on the passenger regardless of the passenger's lack
of knowledge thereof or assent thereto.20 This doctrine is A — The things I lost, $5,000.00 for the gifts
recognized in this jurisdiction.21 I lost and my personal belongings,
Notwithstanding the foregoing, we have, nevertheless, ruled against
blind reliance on adhesion contracts where the facts and Q — What about the filing of this case?
circumstances justify that they should be disregarded.22
A — The court expenses and attorney's fees
In addition, we have held that benefits of limited liability are subject is 30%.
to waiver such as when the air carrier failed to raise timely
objections during the trial when questions and answers regarding Indeed, it is a well-settled doctrine that where the proponent offers
the actual claims and damages sustained by the passenger were evidence deemed by counsel of the adverse party to be inadmissible
asked.23 for any reason, the latter has the right to object. However, such
right is a mere privilege which can be waived. Necessarily, the
Given the foregoing postulates, the inescapable conclusion is that objection must be made at the earliest opportunity, lest silence
BA had waived the defense of limited liability when it allowed when there is opportunity to speak may operate as a waiver of
Mahtani to testify as to the actual damages he incurred due to the objections.25BA has precisely failed in this regard.
misplacement of his luggage, without any objection. In this regard,
we quote the pertinent transcript of stenographic notes of To compound matters for BA, its counsel failed, not only to
Mahtani's direct testimony:24 interpose a timely objection, but even conducted his own cross-
examination as well.26 In the early case of Abrenica v. Gonda,27 we
Q — How much are you going to ask from ruled that:
this court?
. . . (I)t has been repeatedly laid down as a rule of evidence
A — P100,000.00. that a protest or objection against the admission of any
evidence must be made at the proper time, and that if not
Q — What else? so made it will be understood to have been waived. The
proper time to make a protest or objection is when, from The rule that carriage by plane although performed by successive
the question addressed to the witness, or from the answer carriers is regarded as a single operation and that the carrier issuing
thereto, or from the presentation of proof, the the passenger's ticket is considered the principal party and the
inadmissibility of evidence is, or may be inferred. other carrier merely subcontractors or agent, is a settled issue.

Needless to say, factual findings of the trial court, as affirmed by the We cannot agree with the dismissal of the third-complaint.
Court of Appeals, are entitled to great respect.28 Since the actual
value of the luggage involved appreciation of evidence, a task within In Firestone Tire and Rubber Company of the Philippines
the competence of the Court of Appeals, its ruling regarding the v. Tempengko,31 we expounded on the nature of a third-party
amount is assuredly a question of fact, thus, a finding not complaint thus:
reviewable by this Court.29
The third-party complaint is, therefore, a procedural device
As to the issue of the dismissal of BA's third-party complaint against whereby a "third party" who is neither a party nor privy to
PAL, the Court of Appeals justified its ruling in this wise, and we the act or deed complained of by the plaintiff, may be
quote:30 brought into the case with leave of court, by the defendant,
who acts, as third-party plaintiff to enforce against such
Lastly, we sustain the trial court's ruling dismissing third-party defendant a right for contribution, indemnity,
appellant's third-party complaint against PAL. subrogation or any other relief, in respect of the plaintiff's
claim. The third-party complaint is actually independent of
The contract of air transportation in this case pursuant to and separate and distinct from the plaintiff's complaint.
the ticket issued by appellant to plaintiff-appellee was Were it not for this provision of the Rules of Court, it would
exclusively between the plaintiff Mahtani and defendant- have to be filed independently and separately from the
appellant BA. When plaintiff boarded the PAL plane from original complaint by the defendant against the third-party.
Manila to Hongkong, PAL was merely acting as a But the Rules permit defendant to bring in a third-party
subcontractor or agent of BA. This is shown by the fact that defendant or so to speak, to litigate his separate cause of
in the ticket issued by appellant to plaintiff-appellee, it is action in respect of plaintiff's claim against a third-party in
specifically provided on the "Conditions of Contract," the original and principal case with the object of avoiding
paragraph 4 thereof that: circuitry of action and unnecessary proliferation of law suits
and of disposing expeditiously in one litigation the entire
4. . . . carriage to be performed hereunder subject matter arising from one particular set of facts.
by several successive carriers is regarded as
a single operation. Undeniably, for the loss of his luggage, Mahtani is entitled to
damages from BA, in view of their contract of carriage. Yet, BA
adamantly disclaimed its liability and instead imputed it to PAL
which the latter naturally denies. In other words, BA and PAL are Our pronouncement that BA is the principal is consistent with our
blaming each other for the incident. ruling in Lufthansa German Airlines v. Court of Appeals.36 In that
case, Lufthansa issued a confirmed ticket to Tirso Antiporda
In resolving this issue, it is worth observing that the contract of air covering five-leg trip aboard different airlines. Unfortunately, Air
transportation was exclusively between Mahtani and BA, the latter Kenya, one of the airlines which was to carry Antiporda to a specific
merely endorsing the Manila to Hongkong leg of the former's destination "bumped" him off.
journey to PAL, as its subcontractor or agent. In fact, the fourth
paragraph of the "Conditions of Contracts" of the ticket32 issued by An action for damages was filed against Lufthansa which, however,
BA to Mahtani confirms that the contract was one of continuous air denied any liability, contending that its responsibility towards its
transportation from Manila to Bombay. passenger is limited to the occurrence of a mishap on its own line.
Consequently, when Antiporda transferred to Air Kenya, its
4. . . . carriage to be performed hereunder by several obligation as a principal in the contract of carriage ceased; from
successive carriers is regarded as a single operation. there on, it merely acted as a ticketing agent for Air Kenya.

Prescinding from the above discussion, it is undisputed that PAL, in In rejecting Lufthansa's argument, we ruled:
transporting Mahtani from Manila to Hongkong acted as the agent
of BA. In the very nature of their contract, Lufthansa is clearly the
principal in the contract of carriage with Antiporda and
Parenthetically, the Court of Appeals should have been cognizant of remains to be so, regardless of those instances when actual
the well-settled rule that an agent is also responsible for any carriage was to be performed by various carriers. The
negligence in the performance of its function.33 and is liable for issuance of confirmed Lufthansa ticket in favor of Antiporda
damages which the principal may suffer by reason of its negligent covering his entire five-leg trip abroad successive carriers
act.34 Hence, the Court of Appeals erred when it opined that BA, concretely attest to this.
being the principal, had no cause of action against PAL, its agent or
sub-contractor. Since the instant petition was based on breach of contract of
carriage, Mahtani can only sue BA alone, and not PAL, since the
Also, it is worth mentioning that both BA and PAL are members of latter was not a party to the contract. However, this is not to say
the International Air Transport Association (IATA), wherein member that PAL is relieved from any liability due to any of its negligent acts.
airlines are regarded as agents of each other in the issuance of the In China Air Lines, Ltd. v. Court of Appeals,37while not exactly in
tickets and other matters pertaining to their point, the case, however, illustrates the principle which governs this
relationship.35 Therefore, in the instant case, the contractual particular situation. In that case, we recognized that a carrier (PAL),
relationship between BA and PAL is one of agency, the former being acting as an agent of another carrier, is also liable for its own
the principal, since it was the one which issued the confirmed ticket, negligent acts or omission in the performance of its duties.
and the latter the agent.
Accordingly, to deny BA the procedural remedy of filing a third-
party complaint against PAL for the purpose of ultimately
determining who was primarily at fault as between them, is without
legal basis. After all, such proceeding is in accord with the doctrine
against multiplicity of cases which would entail receiving the same
or similar evidence for both cases and enforcing separate judgments
therefor. It must be borne in mind that the purpose of a third-party
complaint is precisely to avoid delay and circuitry of action and to
enable the controversy to be disposed of in one suit.38 It is but
logical, fair and equitable to allow BA to sue PAL for indemnification,
if it is proven that the latter's negligence was the proximate cause of
Mahtani's unfortunate experience, instead of totally absolving PAL
from any liability.

WHEREFORE, in view of the foregoing, the decision of the Court of

Appeals in CA-G.R. CV No. 43309 dated September 7, 1995 is hereby
MODIFIED, reinstating the third-party complaint filed by British
Airways dated November 9, 1990 against Philippine Airlines. No