G.R. No. 152613 & No.

152628             June 23, 2006

APEX MINING CO., INC., petitioner,

vs.
SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication board,
provincial mining regulatory board (PMRB-DAVAO), MONKAYO INTEGRATED
SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR, BALITE
COMMUNAL PORTAL MINING COOPERATIVE, DAVAO UNITED MINERS
COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD MINERS
COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS GALANG,
RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN ASION,
MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY
ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA
LICAYAN, LETICIA ALQUEZA and joel brillantes management mining
corporation, Respondents.

x--------------------------------------x

G.R. No. 152619-20             June 23, 2006

BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner,

vs.
SOUTHEAST MINDANAO GOLD MINING CORPORATION, APEX MINING CO., INC.,
the mines adjudication board, provincial mining regulatory board (PMRB-
DAVAO), MONKAYO INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC.,
ROSENDO VILLAFLOR, DAVAO UNITED MINERS COOPERATIVE, ANTONIO
DACUDAO, PUTING-BATO GOLD MINERS COOPERATIVE, ROMEO ALTAMERA,
THELMA CATAPANG, LUIS GALANG, RENATO BASMILLO, FRANCISCO YOBIDO,
EDUARDO GLORIA, EDWIN ASION, MACARIO HERNANDEZ, REYNALDO
CARUBIO, ROBERTO BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO, JOSE
REA, GIL GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and joel brillantes
management mining corporation, Respondents.

x--------------------------------------x

G.R. No. 152870-71             June 23, 2006

THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON. VICTOR O.
RAMOS (Chairman), UNDERSECRETARY VIRGILIO MARCELO (Member) and
DIRECTOR HORACIO RAMOS (Member), petitioners,
vs.
SOUTHEAST MINADANAO GOLD MINING CORPORATION, Respondent.

DECISION

CHICO-NAZARIO, J.:
On 27 February 1931, Governor General Dwight F. Davis issued Proclamation No. 369,
establishing the Agusan-Davao-Surigao Forest Reserve consisting of approximately
1,927,400 hectares.1

The disputed area, a rich tract of mineral land, is inside the forest reserve located at
Monkayo, Davao del Norte, and Cateel, Davao Oriental, consisting of 4,941.6759
hectares.2 This mineral land is encompassed by Mt. Diwata, which is situated in the
municipalities of Monkayo and Cateel. It later became known as the "Diwalwal Gold
Rush Area." It has since the early 1980’s been stormed by conflicts brought about by
the numerous mining claimants scrambling for gold that lies beneath its bosom.

On 21 November 1983, Camilo Banad and his group, who claimed to have first
discovered traces of gold in Mount Diwata, filed a Declaration of Location (DOL) for six
mining claims in the area.

Camilo Banad and some other natives pooled their skills and resources and organized
the Balite Communal Portal Mining Cooperative (Balite).3

On 12 December 1983, Apex Mining Corporation (Apex) entered into operating

agreements with Banad and his group.

From November 1983 to February 1984, several individual applications for mining
locations over mineral land covering certain parts of the Diwalwal gold rush area were
filed with the Bureau of Mines and Geo-Sciences (BMG).

On 2 February 1984, Marcopper Mining Corporation (MMC) filed 16 DOLs or mining

claims for areas adjacent to the area covered by the DOL of Banad and his group. After
realizing that the area encompassed by its mining claims is a forest reserve within the
coverage of Proclamation No. 369 issued by Governor General Davis, MMC abandoned
the same and instead applied for a prospecting permit with the Bureau of Forest
Development (BFD).

On 1 July 1985, BFD issued a Prospecting Permit to MMC covering an area of

4,941.6759 hectares traversing the municipalities of Monkayo and Cateel, an area
within the forest reserve under Proclamation No. 369. The permit embraced the areas
claimed by Apex and the other individual mining claimants.

On 11 November 1985, MMC filed Exploration Permit Application No. 84-40 with the
BMG. On 10 March 1986, the BMG issued to MCC Exploration Permit No. 133 (EP
133).

Discovering the existence of several mining claims and the proliferation of small-scale
miners in the area covered by EP 133, MMC thus filed on 11 April 1986 before the BMG
a Petition for the Cancellation of the Mining Claims of Apex and Small Scale Mining
Permit Nos. (x-1)-04 and (x-1)-05 which was docketed as MAC No. 1061. MMC alleged
that the areas covered by its EP 133 and the mining claims of Apex were within an
established and existing forest reservation (Agusan-Davao-Surigao Forest Reserve)
under Proclamation No. 369 and that pursuant to Presidential Decree No.
463,4 acquisition of mining rights within a forest reserve is through the application for a
permit to prospect with the BFD and not through registration of a DOL with the BMG.

On 23 September 1986, Apex filed a motion to dismiss MMC’s petition alleging that its
mining claims are not within any established or proclaimed forest reserve, and as such,
the acquisition of mining rights thereto must be undertaken via registration of DOL with
the BMG and not through the filing of application for permit to prospect with the BFD.

On 9 December 1986, BMG dismissed MMC’s petition on the ground that the area
covered by the Apex mining claims and MMC’s permit to explore was not a forest
reservation. It further declared null and void MMC’s EP 133 and sustained the validity of
Apex mining claims over the disputed area.

MMC appealed the adverse order of BMG to the Department of Environment and
Natural Resources (DENR).

On 15 April 1987, after due hearing, the DENR reversed the 9 December 1996 order of
BMG and declared MMC’s EP 133 valid and subsisting.

Apex filed a Motion for Reconsideration with the DENR which was subsequently denied.
Apex then filed an appeal before the Office of the President. On 27 July 1989, the Office
of the President, through Assistant Executive Secretary for Legal Affairs, Cancio C.
Garcia,5 dismissed Apex’s appeal and affirmed the DENR ruling.

Apex filed a Petition for Certiorari before this Court. The Petition was docketed as G.R.
No. 92605 entitled, "Apex Mining Co., Inc. v. Garcia."6 On 16 July 1991, this Court
rendered a Decision against Apex holding that the disputed area is a forest reserve;
hence, the proper procedure in acquiring mining rights therein is by initially applying for
a permit to prospect with the BFD and not through a registration of DOL with the BMG.

On 27 December 1991, then DENR Secretary Fulgencio Factoran, Jr. issued

Department Administrative Order No. 66 (DAO No. 66) declaring 729 hectares of the
areas covered by the Agusan-Davao-Surigao Forest Reserve as non-forest lands and
open to small-scale mining purposes.

As DAO No. 66 declared a portion of the contested area open to small scale miners,
several mining entities filed applications for Mineral Production Sharing Agreement
(MPSA).

On 25 August 1993, Monkayo Integrated Small Scale Miners Association (MISSMA)

filed an MPSA application which was denied by the BMG on the grounds that the area
applied for is within the area covered by MMC EP 133 and that the MISSMA was not
qualified to apply for an MPSA under DAO No. 82,7 Series of 1990.
On 5 January 1994, Rosendo Villaflor and his group filed before the BMG a Petition for
Cancellation of EP 133 and for the admission of their MPSA Application. The Petition
was docketed as RED Mines Case No. 8-8-94. Davao United Miners Cooperative
(DUMC) and Balite intervened and likewise sought the cancellation of EP 133.

On 16 February 1994, MMC assigned EP 133 to Southeast Mindanao Gold Mining

Corporation (SEM), a domestic corporation which is alleged to be a 100% -owned
subsidiary of MMC.

On 14 June 1994, Balite filed with the BMG an MPSA application within the contested
area that was later on rejected.

On 23 June 1994, SEM filed an MPSA application for the entire 4,941.6759 hectares
under EP 133, which was also denied by reason of the pendency of RED Mines Case
No. 8-8-94. On 1 September 1995, SEM filed another MPSA application.

On 20 October 1995, BMG accepted and registered SEM’s MPSA application and the
Deed of Assignment over EP 133 executed in its favor by MMC. SEM’s application was
designated MPSA Application No. 128 (MPSAA 128). After publication of SEM’s
application, the following filed before the BMG their adverse claims or oppositions:

a) MAC Case No. 004 (XI) – JB Management Mining Corporation;

b) MAC Case No. 005(XI) – Davao United Miners Cooperative;

c) MAC Case No. 006(XI) – Balite Integrated Small Scale Miner’s Cooperative;

d) MAC Case No. 007(XI) – Monkayo Integrated Small Scale Miner’s

Association, Inc. (MISSMA);

e) MAC Case No. 008(XI) – Paper Industries Corporation of the Philippines;

f) MAC Case No. 009(XI) – Rosendo Villafor, et al.;

g) MAC Case No. 010(XI) – Antonio Dacudao;

h) MAC Case No. 011(XI) – Atty. Jose T. Amacio;

i) MAC Case No. 012(XI) – Puting-Bato Gold Miners Cooperative;

j) MAC Case No. 016(XI) – Balite Communal Portal Mining Cooperative;

k) MAC Case No. 97-01(XI) – Romeo Altamera, et al.8

To address the matter, the DENR constituted a Panel of Arbitrators (PA) to resolve the
following:
 (a) The adverse claims on MPSAA No. 128; and

(b) The Petition to Cancel EP 133 filed by Rosendo Villaflor docketed as RED
Case No. 8-8-94.9

On 13 June 1997, the PA rendered a resolution in RED Mines Case No. 8-8-94. As to
the Petition for Cancellation of EP 133 issued to MMC, the PA relied on the ruling in
Apex Mining Co., Inc. v. Garcia,10 and opined that EP 133 was valid and subsisting. It
also declared that the BMG Director, under Section 99 of the Consolidated Mines
Administrative Order implementing Presidential Decree No. 463, was authorized to
issue exploration permits and to renew the same without limit.

With respect to the adverse claims on SEM’s MPSAA No. 128, the PA ruled that
adverse claimants’ petitions were not filed in accordance with the existing rules and
regulations governing adverse claims because the adverse claimants failed to submit
the sketch plan containing the technical description of their respective claims, which
was a mandatory requirement for an adverse claim that would allow the PA to
determine if indeed there is an overlapping of the area occupied by them and the area
applied for by SEM. It added that the adverse claimants were not claim owners but
mere occupants conducting illegal mining activities at the contested area since only
MMC or its assignee SEM had valid mining claims over the area as enunciated in Apex
Mining Co., Inc. v. Garcia.11 Also, it maintained that the adverse claimants were not
qualified as small-scale miners under DENR Department Administrative Order No. 34
(DAO No. 34),12 or the Implementing Rules and Regulation of Republic Act No. 7076
(otherwise known as the "People’s Small-Scale Mining Act of 1991"), as they were not
duly licensed by the DENR to engage in the extraction or removal of minerals from the
ground, and that they were large-scale miners. The decretal portion of the PA resolution
pronounces:

VIEWED IN THE LIGHT OF THE FOREGOING, the validity of Expoloration Permit No.
133 is hereby reiterated and all the adverse claims against MPSAA No. 128 are
DISMISSED.13

Undaunted by the PA ruling, the adverse claimants appealed to the Mines Adjudication
Board (MAB). In a Decision dated 6 January 1998, the MAB considered erroneous the
dismissal by the PA of the adverse claims filed against MMC and SEM over a mere
technicality of failure to submit a sketch plan. It argued that the rules of procedure are
not meant to defeat substantial justice as the former are merely secondary in
importance to the latter. Dealing with the question on EP 133’s validity, the MAB opined
that said issue was not crucial and was irrelevant in adjudicating the appealed case
because EP 133 has long expired due to its non-renewal and that the holder of the
same, MMC, was no longer a claimant of the Agusan-Davao-Surigao Forest Reserve
having relinquished its right to SEM. After it brushed aside the issue of the validity of EP
133 for being irrelevant, the MAB proceeded to treat SEM’s MPSA application over the
disputed area as an entirely new and distinct application. It approved the MPSA
application, excluding the area segregated by DAO No. 66, which declared 729
hectares within the Diwalwal area as non-forest lands open for small-scale mining. The
MAB resolved:

WHEREFORE, PREMISES CONSIDERED, the decision of the Panel of Arbitrators

dated 13 June 1997 is hereby VACATED and a new one entered in the records of the
case as follows:

1. SEM’s MPSA application is hereby given due course subject to the full and
strict compliance of the provisions of the Mining Act and its Implementing Rules
and Regulations;

2. The area covered by DAO 66, series of 1991, actually occupied and actively
mined by the small-scale miners on or before August 1, 1987 as determined by
the Provincial Mining Regulatory Board (PMRB), is hereby excluded from the
area applied for by SEM;

3. A moratorium on all mining and mining-related activities, is hereby imposed

until such time that all necessary procedures, licenses, permits, and other
requisites as provided for by RA 7076, the Mining Act and its Implementing Rules
and Regulations and all other pertinent laws, rules and regulations are complied
with, and the appropriate environmental protection measures and safeguards
have been effectively put in place;

4. Consistent with the spirit of RA 7076, the Board encourages SEM and all
small-scale miners to continue to negotiate in good faith and arrive at an
agreement beneficial to all. In the event of SEM’s strict and full compliance with
all the requirements of the Mining Act and its Implementing Rules and
Regulations, and the concurrence of the small-scale miners actually occupying
and actively mining the area, SEM may apply for the inclusion of portions of the
areas segregated under paragraph 2 hereof, to its MPSA application. In this light,
subject to the preceding paragraph, the contract between JB [JB Management
Mining Corporation] and SEM is hereby recognized.14

Dissatisfied, the Villaflor group and Balite appealed the decision to this Court. SEM,
aggrieved by the exclusion of 729 hectares from its MPSA application, likewise
appealed. Apex filed a Motion for Leave to Admit Petition for Intervention predicated on
its right to stake its claim over the Diwalwal gold rush which was granted by the Court.
These cases, however, were remanded to the Court of Appeals for proper disposition
pursuant to Rule 43 of the 1997 Rules of Civil Procedure. The Court of Appeals
consolidated the remanded cases as CA-G.R. SP No. 61215 and No. 61216.

In the assailed Decision15 dated 13 March 2002, the Court of Appeals affirmed in toto
the decision of the PA and declared null and void the MAB decision.

The Court of Appeals, banking on the premise that the SEM is the agent of MMC by
virtue of its assignment of EP 133 in favor of SEM and the purported fact that SEM is a
100% subsidiary of MMC, ruled that the transfer of EP 133 was valid. It argued that
since SEM is an agent of MMC, the assignment of EP 133 did not violate the condition
therein prohibiting its transfer except to MMC’s duly designated agent. Thus, despite the
non-renewal of EP 133 on 6 July 1994, the Court of Appeals deemed it relevant to
declare EP 133 as valid since MMC’s mining rights were validly transferred to SEM prior
to its expiration.

The Court of Appeals also ruled that MMC’s right to explore under EP 133 is a property
right which the 1987 Constitution protects and which cannot be divested without the
holder’s consent. It stressed that MMC’s failure to proceed with the extraction and
utilization of minerals did not diminish its vested right to explore because its failure was
not attributable to it.

Reading Proclamation No. 369, Section 11 of Commonwealth Act 137, and Sections 6,
7, and 8 of Presidential Decree No. 463, the Court of Appeals concluded that the
issuance of DAO No. 66 was done by the DENR Secretary beyond his power for it is the
President who has the sole power to withdraw from the forest reserve established under
Proclamation No. 369 as non-forest land for mining purposes. Accordingly, the
segregation of 729 hectares of mining areas from the coverage of EP 133 by the MAB
was unfounded.

The Court of Appeals also faulted the DENR Secretary in implementing DAO No. 66
when he awarded the 729 hectares segregated from the coverage area of EP 133 to
other corporations who were not qualified as small-scale miners under Republic Act No.
7076.

As to the petitions of Villaflor and company, the Court of Appeals argued that their
failure to submit the sketch plan to the PA, which is a jurisdictional requirement, was
fatal to their appeal. It likewise stated the Villaflor and company’s mining claims, which
were based on their alleged rights under DAO No. 66, cannot stand as DAO No. 66 was
null and void. The dispositive portion of the Decision decreed:

WHEREFORE, premises considered, the Petition of Southeast Mindanao Gold Mining

Corporation is GRANTED while the Petition of Rosendo Villaflor, et al., is DENIED for
lack of merit. The Decision of the Panel of Arbitrators dated 13 June 1997 is AFFIRMED
in toto and the assailed MAB Decision is hereby SET ASIDE and declared as NULL and
VOID.16

Hence, the instant Petitions for Review on Certiorari under Rule 45 of the Rules of Court
filed by Apex, Balite and MAB.

During the pendency of these Petitions, President Gloria Macapagal-Arroyo issued

Proclamation No. 297 dated 25 November 2002. This proclamation excluded an area of
8,100 hectares located in Monkayo, Compostela Valley, and proclaimed the same as
mineral reservation and as environmentally critical area. Subsequently, DENR
Administrative Order No. 2002-18 was issued declaring an emergency situation in the
Diwalwal gold rush area and ordering the stoppage of all mining operations therein.
Thereafter, Executive Order No. 217 dated 17 June 2003 was issued by the President
creating the National Task Force Diwalwal which is tasked to address the situation in
the Diwalwal Gold Rush Area.

In G.R. No. 152613 and No. 152628, Apex raises the following issues:

WHETHER OR NOT SOUTHEAST MINDANAO GOLD MINING’S [SEM] E.P. 133 IS

NULL AND VOID DUE TO THE FAILURE OF MARCOPPER TO COMPLY WITH THE
TERMS AND CONDITIONS PRESCRIBED IN EP 133.

II

WHETHER OR NOT APEX HAS A SUPERIOR AND PREFERENTIAL RIGHT TO

STAKE IT’S CLAIM OVER THE ENTIRE 4,941 HECTARES AGAINST SEM AND THE
OTHER CLAIMANTS PURSUANT TO THE TIME-HONORED PRINCIPLE IN MINING
LAW THAT "PRIORITY IN TIME IS PRIORITY IN RIGHT."17

In G.R. No. 152619-20, Balite anchors its petition on the following grounds:

WHETHER OR NOT THE MPSA OF SEM WHICH WAS FILED NINE (9) DAYS LATE
(JUNE 23, 1994) FROM THE FILING OF THE MPSA OF BALITE WHICH WAS FILED
ON JUNE 14, 1994 HAS A PREFERENTIAL RIGHT OVER THAT OF BALITE.

II

WHETHER OR NOT THE DISMISSAL BY THE PANEL OF ARBITRATORS OF THE

ADVERSE CLAIM OF BALITE ON THE GROUND THAT BALITE FAILED TO SUBMIT
THE REQUIRED SKETCH PLAN DESPITE THE FACT THAT BALITE, HAD IN FACT
SUBMITTED ON TIME WAS A VALID DISMISSAL OF BALITE’S ADVERSE CLAIM.

III

WHETHER OR NOT THE ACTUAL OCCUPATION AND SMALL-MINING

OPERATIONS OF BALITE PURSUANT TO DAO 66 IN THE 729 HECTARES WHICH
WAS PART OF THE 4,941.6759 HECTARES COVERED BY ITS MPSA WHICH WAS
REJECTED BY THE BUREAU OF MINES AND GEOSCIENCES WAS ILLEGAL.18

In G.R. No. 152870-71, the MAB submits two issues, to wit:

I
WHETHER OR NOT EP NO. 133 IS STILL VALID AND SUBSISTING.

II

WHETHER OR NOT THE SUBSEQUENT ACTS OF THE GOVERNMENT SUCH AS

THE ISSUANCE OF DAO NO. 66, PROCLAMATION NO. 297, AND EXECUTIVE
ORDER 217 CAN OUTWEIGH EP NO. 133 AS WELL AS OTHER ADVERSE CLAIMS
OVER THE DIWALWAL GOLD RUSH AREA.19

The common issues raised by petitioners may be summarized as follows:

I. Whether or not the Court of Appeals erred in upholding the validity and
continuous existence of EP 133 as well as its transfer to SEM;

II. Whether or not the Court of Appeals erred in declaring that the DENR
Secretary has no authority to issue DAO No. 66; and

III. Whether or not the subsequent acts of the executive department such as the
issuance of Proclamation No. 297, and DAO No. 2002-18 can outweigh Apex
and Balite’s claims over the Diwalwal Gold Rush Area.

On the first issue, Apex takes exception to the Court of Appeals’ ruling upholding the
validity of MMC’s EP 133 and its subsequent transfer to SEM asserting that MMC failed
to comply with the terms and conditions in its exploration permit, thus, MMC and its
successor-in-interest SEM lost their rights in the Diwalwal Gold Rush Area. Apex
pointed out that MMC violated four conditions in its permit. First, MMC failed to comply
with the mandatory work program, to complete exploration work, and to declare a
mining feasibility. Second, it reneged on its duty to submit an Environmental
Compliance Certificate. Third, it failed to comply with the reportorial requirements.
Fourth, it violated the terms of EP 133 when it assigned said permit to SEM despite the
explicit proscription against its transfer.

Apex likewise emphasizes that MMC failed to file its MPSA application required under
DAO No. 8220 which caused its exploration permit to lapse because DAO No. 82
mandates holders of exploration permits to file a Letter of Intent and a MPSA application
not later than 17 July 1991. It said that because EP 133 expired prior to its assignment
to SEM, SEM’s MPSA application should have been evaluated on its own merit.

As regards the Court of Appeals recognition of SEM’s vested right over the disputed
area, Apex bewails the same to be lacking in statutory bases. According to Apex,
Presidential Decree No. 463 and Republic Act No. 7942 impose upon the claimant the
obligation of actually undertaking exploration work within the reserved lands in order to
acquire priority right over the area. MMC, Apex claims, failed to conduct the necessary
exploration work, thus, MMC and its successor-in-interest SEM lost any right over the
area.
In its Memorandum, Balite maintains that EP 133 of MMC, predecessor-in-interest of
SEM, is an expired and void permit which cannot be made the basis of SEM’s MPSA
application.

Similarly, the MAB underscores that SEM did not acquire any right from MMC by virtue
of the transfer of EP 133 because the transfer directly violates the express condition of
the exploration permit stating that "it shall be for the exclusive use and benefit of the
permittee or his duly authorized agents." It added that while MMC is the permittee, SEM
cannot be considered as MMC’s duly designated agent as there is no proof on record
authorizing SEM to represent MMC in its business dealings or undertakings, and neither
did SEM pursue its interest in the permit as an agent of MMC. According to the MAB,
the assignment by MMC of EP 133 in favor of SEM did not make the latter the duly
authorized agent of MMC since the concept of an agent under EP 133 is not equivalent
to the concept of assignee. It finds fault in the assignment of EP 133 which lacked the
approval of the DENR Secretary in contravention of Section 25 of Republic Act No.
794221 requiring his approval for a valid assignment or transfer of exploration permit to
be valid.

SEM, on the other hand, counters that the errors raised by petitioners Apex, Balite and
the MAB relate to factual and evidentiary matters which this Court cannot inquire into in
an appeal by certiorari.

The established rule is that in the exercise of the Supreme Court’s power of review, the
Court not being a trier of facts, does not normally embark on a re-examination of the
evidence presented by the contending parties during the trial of the case considering
that the findings of facts of the Court of Appeals are conclusive and binding on the
Court.22 This rule, however, admits of exceptions as recognized by jurisprudence, to wit:

(1) [w]hen the findings are grounded entirely on speculation, surmises or conjectures;
(2) when the inference made is manifestly mistaken, absurd or impossible; (3) when
there is grave abuse of discretion; (4) when the judgment is based on misapprehension
of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the
Court of Appeals went beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings are contrary to
the trial court; (8) when the findings are conclusions without citation of specific evidence
on which they are based; (9) when the facts set forth in the petition as well as in the
petitioner’s main and reply briefs are not disputed by the respondent; (10) when the
findings of fact are premised on the supposed absence of evidence and contradicted by
the evidence on record; and (11) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties, which, if properly considered, would
justify a different conclusion.23

Also, in the case of Manila Electric Company v. Benamira,24 the Court in a Petition for
Review on Certiorari, deemed it proper to look deeper into the factual circumstances of
the case since the Court of Appeal’s findings are at odds to those of the National Labor
Relations Commission (NLRC). Just like in the foregoing case, it is this Court’s
considered view that a re-evaluation of the attendant facts surrounding the present case
is appropriate considering that the findings of the MAB are in conflict with that of the
Court of Appeals.

At the threshold, it is an undisputed fact that MMC assigned to SEM all its rights under
EP 133 pursuant to a Deed of Assignment dated 16 February 1994.25

EP 133 is subject to the following terms and conditions26 :

1. That the permittee shall abide by the work program submitted with the
application or statements made later in support thereof, and which shall be
considered as conditions and essential parts of this permit;

2. That permittee shall maintain a complete record of all activities and accounting
of all expenditures incurred therein subject to periodic inspection and verification
at reasonable intervals by the Bureau of Mines at the expense of the applicant;

3. That the permittee shall submit to the Director of Mines within 15 days after the
end of each calendar quarter a report under oath of a full and complete
statement of the work done in the area covered by the permit;

4. That the term of this permit shall be for two (2) years to be effective from this
date, renewable for the same period at the discretion of the Director of Mines and
upon request of the applicant;

5. That the Director of Mines may at any time cancel this permit for violation of its
provision or in case of trouble or breach of peace arising in the area subject
hereof by reason of conflicting interests without any responsibility on the part of
the government as to expenditures for exploration that might have been incurred,
or as to other damages that might have been suffered by the permittee; and

6. That this permit shall be for the exclusive use and benefit of the permittee or
his duly authorized agents and shall be used for mineral exploration purposes
only and for no other purpose.

Under Section 9027 of Presidential Decree No. 463, the applicable statute during the
issuance of EP 133, the DENR Secretary, through Director of BMG, is charged with
carrying out the said law. Also, under Commonwealth Act No. 136, also known as "An
Act Creating The Bureau of Mines," which was approved on 7 November 1936, the
Director of Mines has the direct charge of the administration of the mineral lands and
minerals, and of the survey, classification, lease or any other form of concession or
disposition thereof under the Mining Act.28 This power of administration includes the
power to prescribe terms and conditions in granting exploration permits to qualified
entities. Thus, in the grant of EP 133 in favor of the MMC, the Director of the BMG acted
within his power in laying down the terms and conditions attendant thereto.

Condition number 6 categorically states that the permit shall be for the exclusive use
and benefit of MMC or its duly authorized agents. While it may be true that SEM, the
assignee of EP 133, is a 100% subsidiary corporation of MMC, records are bereft of any
evidence showing that the former is the duly authorized agent of the latter. For a
contract of agency to exist, it is essential that the principal consents that the other party,
the agent, shall act on its behalf, and the agent consents so as to act.29 In the case of
Yu Eng Cho v. Pan American World Airways, Inc.,30 this Court had the occasion to set
forth the elements of agency, viz:

(1) consent, express or implied, of the parties to establish the relationship;

(2) the object is the execution of a juridical act in relation to a third person;

(3) the agent acts as a representative and not for himself;

(4) the agent acts within the scope of his authority.

The existence of the elements of agency is a factual matter that needs to be established
or proven by evidence. The burden of proving that agency is extant in a certain case
rests in the party who sets forth such allegation. This is based on the principle that he
who alleges a fact has the burden of proving it.31 It must likewise be emphasized that
the evidence to prove this fact must be clear, positive and convincing.32

In the instant Petitions, it is incumbent upon either MMC or SEM to prove that a contract
of agency actually exists between them so as to allow SEM to use and benefit from EP
133 as the agent of MMC. SEM did not claim nor submit proof that it is the designated
agent of MMC to represent the latter in its business dealings or undertakings. SEM
cannot, therefore, be considered as an agent of MMC which can use EP 133 and
benefit from it. Since SEM is not an authorized agent of MMC, it goes without saying
that the assignment or transfer of the permit in favor of SEM is null and void as it directly
contravenes the terms and conditions of the grant of EP 133.

Furthermore, the concept of agency is distinct from assignment. In agency, the agent
acts not on his own behalf but on behalf of his principal.33 While in assignment, there is
total transfer or relinquishment of right by the assignor to the assignee.34 The assignee
takes the place of the assignor and is no longer bound to the latter. The deed of
assignment clearly stipulates:

1. That for ONE PESO (P1.00) and other valuable consideration received by the
ASSIGNOR from the ASSIGNEE, the ASSIGNOR hereby ASSIGNS, TRANSFERS and
CONVEYS unto the ASSIGNEE whatever rights or interest the ASSIGNOR may have in
the area situated in Monkayo, Davao del Norte and Cateel, Davao Oriental, identified as
Exploration Permit No. 133 and Application for a Permit to Prospect in Bunawan,
Agusan del Sur respectively.35

Bearing in mind the just articulated distinctions and the language of the Deed of
Assignment, it is readily obvious that the assignment by MMC of EP 133 in favor of
SEM did not make the latter the former’s agent. Such assignment involved actual
transfer of all rights and obligations MMC have under the permit in favor of SEM, thus,
making SEM the permittee. It is not a mere grant of authority to SEM, as an agent of
MMC, to use the permit. It is a total abdication of MMC’s rights over the permit. Hence,
the assignment in question did not make SEM the authorized agent of MMC to make
use and benefit from EP 133.

The condition stipulating that the permit is for the exclusive use of the permittee or its
duly authorized agent is not without any reason. Exploration permits are strictly granted
to entities or individuals possessing the resources and capability to undertake mining
operations. Without such a condition, non-qualified entities or individuals could
circumvent the strict requirements under the law by the simple expediency acquiring the
permit from the original permittee.

We cannot lend recognition to the Court of Appeals’ theory that SEM, being a 100%
subsidiary of MMC, is automatically an agent of MMC.

A corporation is an artificial being created by operation of law, having the right of

succession and the powers, attributes, and properties expressly authorized by law or
incident to its existence.36 It is an artificial being invested by law with a personality
separate and distinct from those of the persons composing it as well as from that of any
other legal entity to which it may be related.37 Resultantly, absent any clear proof to the
contrary, SEM is a separate and distinct entity from MMC.

The Court of Appeals pathetically invokes the doctrine of piercing the corporate veil to
legitimize the prohibited transfer or assignment of EP 133. It stresses that SEM is just a
business conduit of MMC, hence, the distinct legal personalities of the two entities
should not be recognized. True, the corporate mask may be removed when the
corporation is just an alter ego or a mere conduit of a person or of another
corporation.38 For reasons of public policy and in the interest of justice, the corporate
veil will justifiably be impaled only when it becomes a shield for fraud, illegality or
inequity committed against a third person.39 However, this Court has made a caveat in
the application of the doctrine of piercing the corporate veil. Courts should be mindful of
the milieu where it is to be applied. Only in cases where the corporate fiction was
misused to such an extent that injustice, fraud or crime was committed against another,
in disregard of its rights may the veil be pierced and removed. Thus, a subsidiary
corporation may be made to answer for the liabilities and/or illegalities done by the
parent corporation if the former was organized for the purpose of evading obligations
that the latter may have entered into. In other words, this doctrine is in place in order to
expose and hold liable a corporation which commits illegal acts and use the corporate
fiction to avoid liability from the said acts. The doctrine of piercing the corporate veil
cannot therefore be used as a vehicle to commit prohibited acts because these acts are
the ones which the doctrine seeks to prevent.

To our mind, the application of the foregoing doctrine is unwarranted. The assignment
of the permit in favor of SEM is utilized to circumvent the condition of non-transferability
of the exploration permit. To allow SEM to avail itself of this doctrine and to approve the
validity of the assignment is tantamount to sanctioning illegal act which is what the
doctrine precisely seeks to forestall.

Quite apart from the above, a cursory consideration of the mining law pertinent to the
case, will, indeed, demonstrate the infraction committed by MMC in its assignment of
EP 133 to SEM.

Presidential Decree No. 463, enacted on 17 May 1974, otherwise known as the Mineral
Resources Development Decree, which governed the old system of exploration,
development, and utilization of mineral resources through "license, concession or lease"
prescribed:

SEC. 97. Assignment of Mining Rights. – A mining lease contract or any interest
therein shall not be transferred, assigned, or subleased without the prior approval of the
Secretary: Provided, That such transfer, assignment or sublease may be made only to a
qualified person possessing the resources and capability to continue the mining
operations of the lessee and that the assignor has complied with all the obligations of
the lease: Provided, further, That such transfer or assignment shall be duly registered
with the office of the mining recorder concerned. (Emphasis supplied.)

The same provision is reflected in Republic Act No. 7942, otherwise known as the
Philippine Mining Act of 1995, which is the new law governing the exploration,
development and utilization of the natural resources, which provides:

SEC. 25. Transfer or Assignment. - An exploration permit may be transferred or

assigned to a qualified person subject to the approval of the Secretary upon the
recommendation of the Director.

The records are bereft of any indication that the assignment bears the imprimatur of the
Secretary of the DENR. Presidential Decree No. 463, which is the governing law when
the assignment was executed, explicitly requires that the transfer or assignment of
mining rights, including the right to explore a mining area, must be with the prior
approval of the Secretary of DENR. Quite conspicuously, SEM did not dispute the
allegation that the Deed of Assignment was made without the prior approval of the
Secretary of DENR. Absent the prior approval of the Secretary of DENR, the
assignment of EP 133, was, therefore, without legal effect for violating the mandatory
provision of Presidential Decree No. 463.

An added significant omission proved fatal to MMC/SEM’s cause. While it is true that
the case of Apex Mining Co., Inc. v. Garcia40 settled the issue of which between Apex
and MMC validly acquired mining rights over the disputed area, such rights, though, had
been extinguished by subsequent events. Records indicate that on 6 July 1993, EP 133
was extended for 12 months or until 6 July 1994.41 MMC never renewed its permit prior
and after its expiration. Thus, EP 133 expired by non-renewal.

With the expiration of EP 133 on 6 July 1994, MMC lost any right to the Diwalwal Gold
Rush Area. SEM, on the other hand, has not acquired any right to the said area
because the transfer of EP 133 in its favor is invalid. Hence, both MMC and SEM have
not acquired any vested right over the 4,941.6759 hectares which used to be covered
by EP 133.

II

The Court of Appeals theorizes that DAO No. 66 was issued beyond the power of the
DENR Secretary since the power to withdraw lands from forest reserves and to declare
the same as an area open for mining operation resides in the President.

Under Proclamation No. 369 dated 27 February 1931, the power to convert forest
reserves as non-forest reserves is vested with the DENR Secretary. Proclamation No.
369 partly states:

From this reserve shall be considered automatically excluded all areas which had
already been certified and which in the future may be proclaimed as classified and
certified lands and approved by the Secretary of Agriculture and Natural Resources.42

However, a subsequent law, Commonwealth Act No. 137, otherwise known as "The
Mining Act" which was approved on 7 November 1936 provides:

Sec. 14. Lands within reservations for purposes other than mining, which, after such
reservation is made, are found to be more valuable for their mineral contents than for
the purpose for which the reservation was made, may be withdrawn from such
reservations by the President with the concurrence of the National Assembly, and
thereupon such lands shall revert to the public domain and be subject to disposition
under the provisions of this Act.

Unlike Proclamation No. 369, Commonwealth Act No. 137 vests solely in the President,
with the concurrence of the National Assembly, the power to withdraw forest reserves
found to be more valuable for their mineral contents than for the purpose for which the
reservation was made and convert the same into non-forest reserves. A similar
provision can also be found in Presidential Decree No. 463 dated 17 May 1974, with the
modifications that (1) the declaration by the President no longer requires the
concurrence of the National Assembly and (2) the DENR Secretary merely exercises
the power to recommend to the President which forest reservations are to be withdrawn
from the coverage thereof. Section 8 of Presidential Decree No. 463 reads:
SEC. 8. Exploration and Exploitation of Reserved Lands. – When lands within
reservations, which have been established for purposes other than mining, are found to
be more valuable for their mineral contents, they may, upon recommendation of the
Secretary be withdrawn from such reservation by the President and established as a
mineral reservation.

Against the backdrop of the applicable statutes which govern the issuance of DAO No.
66, this Court is constrained to rule that said administrative order was issued not in
accordance with the laws. Inescapably, DAO No. 66, declaring 729 hectares of the
areas covered by the Agusan-Davao-Surigao Forest Reserve as non-forest land open
to small-scale mining operations, is null and void as, verily, the DENR Secretary has no
power to convert forest reserves into non-forest reserves.

III

It is the contention of Apex that its right over the Diwalwal gold rush area is superior to
that of MMC or that of SEM because it was the first one to occupy and take possession
of the area and the first to record its mining claims over the area.

For its part, Balite argues that with the issuance of DAO No. 66, its occupation in the
contested area, particularly in the 729 hectares small-scale mining area, has entitled it
to file its MPSA. Balite claims that its MPSA application should have been given
preference over that of SEM because it was filed ahead.

The MAB, on the other hand, insists that the issue on who has superior right over the
disputed area has become moot and academic by the supervening events. By virtue of
Proclamation No. 297 dated 25 November 2002, the disputed area was declared a
mineral reservation.

Proclamation No. 297 excluded an area of 8,100 hectares located in Monkayo,

Compostela Valley, and proclaimed the same as mineral reservation and as
environmentally critical area, viz:

WHEREAS, by virtue of Proclamation No. 369, series of 1931, certain tracts of public
land situated in the then provinces of Davao, Agusan and Surigao, with an area of
approximately 1,927,400 hectares, were withdrawn from settlement and disposition,
excluding, however, those portions which had been certified and/or shall be classified
and certified as non-forest lands;

WHEREAS, gold deposits have been found within the area covered by Proclamation
No. 369, in the Municipality of Monkayo, Compostela Valley Province, and unregulated
small to medium-scale mining operations have, since 1983, been undertaken therein,
causing in the process serious environmental, health, and peace and order problems in
the area;
WHEREAS, it is in the national interest to prevent the further degradation of the
environment and to resolve the health and peace and order problems spawned by the
unregulated mining operations in the said area;

WHEREAS, these problems may be effectively addressed by rationalizing mining

operations in the area through the establishment of a mineral reservation;

WHEREAS, after giving due notice, the Director of Mines and Geoxciences conducted
public hearings on September 6, 9 and 11, 2002 to allow the concerned sectors and
communities to air their views regarding the establishment of a mineral reservation in
the place in question;

WHEREAS, pursuant to the Philippine Mining Act of 1995 (RA 7942), the President
may, upon the recommendation of the Director of Mines and Geosciences, through the
Secretary of Environment and Natural Resources, and when the national interest so
requires, establish mineral reservations where mining operations shall be undertaken by
the Department directly or thru a contractor;

WHEREAS, as a measure to attain and maintain a rational and orderly balance

between socio-economic growth and environmental protection, the President may,
pursuant to Presidential Decree No. 1586, as amended, proclaim and declare certain
areas in the country as environmentally critical;

NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Philippines,

upon recommendation of the Secretary of the Department of Environment and Natural
Resources (DENR), and by virtue of the powers vested in me by law, do hereby exclude
certain parcel of land located in Monkayo, Compostela Valley, and proclaim the same
as mineral reservation and as environmentally critical area, with metes and bound as
defined by the following geographical coordinates;

xxxx

with an area of Eight Thousand One Hundred (8,100) hectares, more or less. Mining
operations in the area may be undertaken either by the DENR directly, subject to
payment of just compensation that may be due to legitimate and existing claimants, or
thru a qualified contractor, subject to existing rights, if any.

The DENR shall formulate and issue the appropriate guidelines, including the
establishment of an environmental and social fund, to implement the intent and
provisions of this Proclamation.

Upon the effectivity of the 1987 Constitution, the State assumed a more dynamic role in
the exploration, development and utilization of the natural resources of the
country.43 With this policy, the State may pursue full control and supervision of the
exploration, development and utilization of the country’s natural mineral resources. The
options open to the State are through direct undertaking or by entering into co-
production, joint venture, or production-sharing agreements, or by entering into
agreement with foreign-owned corporations for large-scale exploration, development
and utilization.44 Thus, Article XII, Section 2, of the 1987 Constitution, specifically states:

SEC. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture, or production-sharing agreements with Filipino
citizens, or corporations or associations at least sixty per centum of whose capital is
owned by such citizens. Such agreements may be for a period not exceeding twenty-
five years, renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. x x x

xxxx

The President may enter into agreements with foreign-owned corporations involving
either technical or financial assistance for large-scale exploration, development, and
utilization of minerals, petroleum, and other mineral oils according to the general terms
and conditions provided by law, based on real contributions to the economic growth and
general welfare of the country. x x x (Underscoring supplied.)

Recognizing the importance of the country’s natural resources, not only for national
economic development, but also for its security and national defense, Section 5 of
Republic Act No. 7942 empowers the President, when the national interest so requires,
to establish mineral reservations where mining operations shall be undertaken directly
by the State or through a contractor.

To implement the intent and provisions of Proclamation No. 297, the DENR Secretary
issued DAO No. 2002-18 dated 12 August 2002 declaring an emergency situation in the
Diwalwal Gold Rush Area and ordering the stoppage of all mining operations therein.

The issue on who has priority right over the disputed area is deemed overtaken by the
above subsequent developments particularly with the issuance of Proclamation 297 and
DAO No. 2002-18, both being constitutionally-sanctioned acts of the Executive Branch.
Mining operations in the Diwalwal Mineral Reservation are now, therefore, within the full
control of the State through the executive branch. Pursuant to Section 5 of Republic Act
No. 7942, the State can either directly undertake the exploration, development and
utilization of the area or it can enter into agreements with qualified entities, viz:

SEC 5. Mineral Reservations. – When the national interest so requires, such as when
there is a need to preserve strategic raw materials for industries critical to national
development, or certain minerals for scientific, cultural or ecological value, the President
may establish mineral reservations upon the recommendation of the Director through
the Secretary. Mining operations in existing mineral reservations and such other
reservations as may thereafter be established, shall be undertaken by the Department
or through a contractor x x x .

It is now up to the Executive Department whether to take the first option, i.e., to
undertake directly the mining operations of the Diwalwal Gold Rush Area. As already
ruled, the State may not be precluded from considering a direct takeover of the mines, if
it is the only plausible remedy in sight to the gnawing complexities generated by the
gold rush. The State need be guided only by the demands of public interest in settling
on this option, as well as its material and logistic feasibility.45 The State can also opt to
award mining operations in the mineral reservation to private entities including
petitioners Apex and Balite, if it wishes. The exercise of this prerogative lies with the
Executive Department over which courts will not interfere.

WHEREFORE, premises considered, the Petitions of Apex, Balite and the MAB are
PARTIALLY GRANTED, thus:

1. We hereby REVERSE and SET ASIDE the Decision of the Court of Appeals,
dated 13 March 2002, and hereby declare that EP 133 of MMC has EXPIRED on
7 July 1994 and that its subsequent transfer to SEM on 16 February 1994 is
VOID.

2. We AFFIRM the finding of the Court of Appeals in the same Decision declaring
DAO No. 66 illegal for having been issued in excess of the DENR Secretary’s
authority.

Consequently, the State, should it so desire, may now award mining operations in the
disputed area to any qualified entity it may determine. No costs.

SO ORDERED.
G.R. No. 76931 May 29, 1991

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,

vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.

G.R. No. 76933 May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED, respondents.

Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel
Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:

This case is a consolidation of two (2) petitions for review on certiorari of a decision1 of
the Court of Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs.
Orient Air Services and Hotel Representatives, Inc." which affirmed, with modification,
the decision2 of the Regional Trial Court of Manila, Branch IV, which dismissed the
complaint and granted therein defendant's counterclaim for agent's overriding
commission and damages.

The antecedent facts are as follows:

On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air),

an air carrier offering passenger and air cargo transportation in the Philippines, and
Orient Air Services and Hotel Representatives (hereinafter referred to as Orient Air),
entered into a General Sales Agency Agreement (hereinafter referred to as the
Agreement), whereby the former authorized the latter to act as its exclusive general
sales agent within the Philippines for the sale of air passenger transportation. Pertinent
provisions of the agreement are reproduced, to wit:

WITNESSETH

In consideration of the mutual convenants herein contained, the parties hereto agree as
follows:

1. Representation of American by Orient Air Services

Orient Air Services will act on American's behalf as its exclusive General Sales Agent
within the Philippines, including any United States military installation therein which are
not serviced by an Air Carrier Representation Office (ACRO), for the sale of air
passenger transportation. The services to be performed by Orient Air Services shall
include:

(a) soliciting and promoting passenger traffic for the services of American and, if
necessary, employing staff competent and sufficient to do so;

(b) providing and maintaining a suitable area in its place of business to be used
exclusively for the transaction of the business of American;

(c) arranging for distribution of American's timetables, tariffs and promotional material to
sales agents and the general public in the assigned territory;

(d) servicing and supervising of sales agents (including such sub-agents as may be
appointed by Orient Air Services with the prior written consent of American) in the
assigned territory including if required by American the control of remittances and
commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public in
the assigned territory.

In connection with scheduled or non-scheduled air passenger transportation within the

United States, neither Orient Air Services nor its sub-agents will perform services for
any other air carrier similar to those to be performed hereunder for American without the
prior written consent of American. Subject to periodic instructions and continued
consent from American, Orient Air Services may sell air passenger transportation to be
performed within the United States by other scheduled air carriers provided American
does not provide substantially equivalent schedules between the points involved.

xxx xxx xxx

4. Remittances

Orient Air Services shall remit in United States dollars to American the ticket stock or
exchange orders, less commissions to which Orient Air Services is entitled hereunder,
not less frequently than semi-monthly, on the 15th and last days of each month for sales
made during the preceding half month.

All monies collected by Orient Air Services for transportation sold hereunder on
American's ticket stock or on exchange orders, less applicable commissions to which
Orient Air Services is entitled hereunder, are the property of American and shall be held
in trust by Orient Air Services until satisfactorily accounted for to American.

5. Commissions

American will pay Orient Air Services commission on transportation sold hereunder by
Orient Air Services or its sub-agents as follows:

(a) Sales agency commission

American will pay Orient Air Services a sales agency commission for all sales of
transportation by Orient Air Services or its sub-agents over American's services and any
connecting through air transportation, when made on American's ticket stock, equal to
the following percentages of the tariff fares and charges:

(i) For transportation solely between points within the United States and between such
points and Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic
Conference of America.

(ii) For transportation included in a through ticket covering transportation between points
other than those described above: 8% or such other rate(s) as may be prescribed by the
International Air Transport Association.

(b) Overriding commission

In addition to the above commission American will pay Orient Air Services an overriding
commission of 3% of the tariff fares and charges for all sales of transportation over
American's service by Orient Air Service or its sub-agents.

xxx xxx xxx

10. Default

If Orient Air Services shall at any time default in observing or performing any of the
provisions of this Agreement or shall become bankrupt or make any assignment for the
benefit of or enter into any agreement or promise with its creditors or go into liquidation,
or suffer any of its goods to be taken in execution, or if it ceases to be in business, this
Agreement may, at the option of American, be terminated forthwith and American may,
without prejudice to any of its rights under this Agreement, take possession of any ticket
forms, exchange orders, traffic material or other property or funds belonging to
American.

11. IATA and ATC Rules

The provisions of this Agreement are subject to any applicable rules or resolutions of
the International Air Transport Association and the Air Traffic Conference of America,
and such rules or resolutions shall control in the event of any conflict with the provisions
hereof.

xxx xxx xxx

13. Termination

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

xxx xxx x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for the months of
January to March 1981 in the amount of US $254,400.40, American Air by itself
undertook the collection of the proceeds of tickets sold originally by Orient Air and
terminated forthwith the Agreement in accordance with Paragraph 13 thereof
(Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit
against Orient Air with the Court of First Instance of Manila, Branch 24, for Accounting
with Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining
Order4 averring the aforesaid basis for the termination of the Agreement as well as
therein defendant's previous record of failures "to promptly settle past outstanding
refunds of which there were available funds in the possession of the defendant, . . . to
the damage and prejudice of plaintiff."5

In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied the
material allegations of the complaint with respect to plaintiff's entitlement to alleged
unremitted amounts, contending that after application thereof to the commissions due it
under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding
commissions. Further, the defendant contended that the actions taken by American Air
in the course of terminating the Agreement as well as the termination itself were
untenable, Orient Air claiming that American Air's precipitous conduct had occasioned
prejudice to its business interests.
Finding that the record and the evidence substantiated the allegations of the defendant,
the trial court ruled in its favor, rendering a decision dated 16 July 1984, the dispositive
portion of which reads:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in

favor of defendant and against plaintiff dismissing the complaint and holding the
termination made by the latter as affecting the GSA agreement illegal and improper and
order the plaintiff to reinstate defendant as its general sales agent for passenger
tranportation in the Philippines in accordance with said GSA agreement; plaintiff is
ordered to pay defendant the balance of the overriding commission on total flown
revenue covering the period from March 16, 1977 to December 31, 1980 in the amount
of US$84,821.31 plus the additional amount of US$8,000.00 by way of proper 3%
overriding commission per month commencing from January 1, 1981 until such
reinstatement or said amounts in its Philippine peso equivalent legally prevailing at the
time of payment plus legal interest to commence from the filing of the counterclaim up to
the time of payment. Further, plaintiff is directed to pay defendant the amount of One
Million Five Hundred Thousand (Pl,500,000.00) pesos as and for exemplary damages;
and the amount of Three Hundred Thousand (P300,000.00) pesos as and by way of
attorney's fees.

Costs against plaintiff.7

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision

promulgated on 27 January 1986, affirmed the findings of the court a quo on their
material points but with some modifications with respect to the monetary awards
granted. The dispositive portion of the appellate court's decision is as follows:

WHEREFORE, with the following modifications —

1) American is ordered to pay Orient the sum of US$53,491.11 representing the

balance of the latter's overriding commission covering the period March 16, 1977 to
December 31, 1980, or its Philippine peso equivalent in accordance with the official rate
of exchange legally prevailing on July 10, 1981, the date the counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding
commission per month starting January 1, 1981 until date of termination, May 9, 1981 or
its Philippine peso equivalent in accordance with the official rate of exchange legally
prevailing on July 10, 1981, the date the counterclaim was filed

3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the
date the answer with counterclaim was filed, until full payment;

4) American is ordered to pay Orient exemplary damages of P200,000.00;

5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.

the rest of the appealed decision is affirmed.

Costs against American.8

American Air moved for reconsideration of the aforementioned decision, assailing the
substance thereof and arguing for its reversal. The appellate court's decision was also
the subject of a Motion for Partial Reconsideration by Orient Air which prayed for the
restoration of the trial court's ruling with respect to the monetary awards. The Court of
Appeals, by resolution promulgated on 17 December 1986, denied American Air's
motion and with respect to that of Orient Air, ruled thus:

Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of
the trial court's award of exemplary damages and attorney's fees, but granted insofar as
the rate of exchange is concerned. The decision of January 27, 1986 is modified in
paragraphs (1) and (2) of the dispositive part so that the payment of the sums
mentioned therein shall be at their Philippine peso equivalent in accordance with the
official rate of exchange legally prevailing on the date of actual payment.9

Both parties appealed the aforesaid resolution and decision of the respondent court,
Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No.
76933. By resolution10 of this Court dated 25 March 1987 both petitions were
consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3%
overriding commission. It is the stand of American Air that such commission is based
only on sales of its services actually negotiated or transacted by Orient Air, otherwise
referred to as "ticketed sales." As basis thereof, primary reliance is placed upon
paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows:

5. Commissions

a) . . .

b) Overriding Commission

In addition to the above commission, American will pay Orient Air Services an overriding
commission of 3% of the tariff fees and charges for all sales of transportation over
American's services by Orient Air Services or its sub-agents. (Emphasis supplied)

Since Orient Air was allowed to carry only the ticket stocks of American Air, and the
former not having opted to appoint any sub-agents, it is American Air's contention that
Orient Air can claim entitlement to the disputed overriding commission based only on
ticketed sales. This is supposed to be the clear meaning of the underscored portion of
the above provision. Thus, to be entitled to the 3% overriding commission, the sale must
be made by Orient Air and the sale must be done with the use of American Air's ticket
stocks.

On the other hand, Orient Air contends that the contractual stipulation of a 3%
overriding commission covers the total revenue of American Air and not merely that
derived from ticketed sales undertaken by Orient Air. The latter, in justification of its
submission, invokes its designation as the exclusive General Sales Agent of American
Air, with the corresponding obligations arising from such agency, such as, the promotion
and solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all
sales of transportation over American Air's services are necessarily by Orient Air."11

It is a well settled legal principle that in the interpretation of a contract, the entirety
thereof must be taken into consideration to ascertain the meaning of its provisions.12
The various stipulations in the contract must be read together to give effect to all.13
After a careful examination of the records, the Court finds merit in the contention of
Orient Air that the Agreement, when interpreted in accordance with the foregoing
principles, entitles it to the 3% overriding commission based on total revenue, or as
referred to by the parties, "total flown revenue."

As the designated exclusive General Sales Agent of American Air, Orient Air was
responsible for the promotion and marketing of American Air's services for air
passenger transportation, and the solicitation of sales therefor. In return for such efforts
and services, Orient Air was to be paid commissions of two (2) kinds: first, a sales
agency commission, ranging from 7-8% of tariff fares and charges from sales by Orient
Air when made on American Air ticket stock; and second, an overriding commission of
3% of tariff fares and charges for all sales of passenger transportation over American
Air services. It is immediately observed that the precondition attached to the first type of
commission does not obtain for the second type of commissions. The latter type of
commissions would accrue for sales of American Air services made not on its ticket
stock but on the ticket stock of other air carriers sold by such carriers or other
authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of
such overriding commissions to sales from American Air ticket stock would erase any
distinction between the two (2) types of commissions and would lead to the absurd
conclusion that the parties had entered into a contract with meaningless provisions.
Such an interpretation must at all times be avoided with every effort exerted to
harmonize the entire Agreement.

An additional point before finally disposing of this issue. It is clear from the records that
American Air was the party responsible for the preparation of the Agreement.
Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra
proferentem", i.e., construed against the party who caused the ambiguity and could
have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code
provides that the interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity.14 To put it differently, when several
interpretations of a provision are otherwise equally proper, that interpretation or
construction is to be adopted which is most favorable to the party in whose favor the
provision was made and who did not cause the ambiguity.15 We therefore agree with
the respondent appellate court's declaration that:

Any ambiguity in a contract, whose terms are susceptible of different interpretations,

must be read against the party who drafted it.16
We now turn to the propriety of American Air's termination of the Agreement. The
respondent appellate court, on this issue, ruled thus:

It is not denied that Orient withheld remittances but such action finds justification from
paragraph 4 of the Agreement, Exh. F, which provides for remittances to American less
commissions to which Orient is entitled, and from paragraph 5(d) which specifically
allows Orient to retain the full amount of its commissions. Since, as stated ante, Orient
is entitled to the 3% override. American's premise, therefore, for the cancellation of the
Agreement did not exist. . . ."

We agree with the findings of the respondent appellate court. As earlier established,
Orient Air was entitled to an overriding commission based on total flown revenue.
American Air's perception that Orient Air was remiss or in default of its obligations under
the Agreement was, in fact, a situation where the latter acted in accordance with the
Agreement—that of retaining from the sales proceeds its accrued commissions before
remitting the balance to American Air. Since the latter was still obligated to Orient Air by
way of such commissions. Orient Air was clearly justified in retaining and refusing to
remit the sums claimed by American Air. The latter's termination of the Agreement was,
therefore, without cause and basis, for which it should be held liable to Orient Air.

On the matter of damages, the respondent appellate court modified by reduction the
trial court's award of exemplary damages and attorney's fees. This Court sees no error
in such modification and, thus, affirms the same.

It is believed, however, that respondent appellate court erred in affirming the rest of the
decision of the trial court.1âwphi1 We refer particularly to the lower court's decision
ordering American Air to "reinstate defendant as its general sales agent for passenger
transportation in the Philippines in accordance with said GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in effect, compels
American Air to extend its personality to Orient Air. Such would be violative of the
principles and essence of agency, defined by law as a contract whereby "a person binds
himself to render some service or to do something in representation or on behalf of
another, WITH THE CONSENT OR AUTHORITY OF THE LATTER .17 (emphasis
supplied) In an agent-principal relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must not, in
any way, be compelled by law or by any court. The Agreement itself between the parties
states that "either party may terminate the Agreement without cause by giving the other
30 days' notice by letter, telegram or cable." (emphasis supplied) We, therefore, set
aside the portion of the ruling of the respondent appellate court reinstating Orient Air as
general sales agent of American Air.

WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and
resolution of the respondent Court of Appeals, dated 27 January 1986 and 17
December 1986, respectively. Costs against petitioner American Air.

SO ORDERED.
G.R. No. L-24332 January 31, 1978

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

vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS,
respondents.

Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.

MUÑOZ PALMA, J.:

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

Hence, this Petition for Review on certiorari.

The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos
were sisters and registered co-owners of a parcel of land known as Lot No. 5983 of the
Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11116 of the
Registry of Cebu. On April 21, 1954, the sisters executed a special power of attorney in
favor of their brother, Simeon Rallos, authorizing him to sell for and in their behalf lot
5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon
Rallos sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to
Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The deed of sale
was registered in the Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a
new transfer certificate of Title No. 12989 was issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion
Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court of First
Instance of Cebu, praying (1) that the sale of the undivided share of the deceased
Concepcion Rallos in lot 5983 be d unenforceable, and said share be reconveyed to her
estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan & Sons
Realty Corporation be cancelled and another title be issued in the names of the
corporation and the "Intestate estate of Concepcion Rallos" in equal undivided and (3)
that plaintiff be indemnified by way of attorney's fees and payment of costs of suit.
Named party defendants were Felix Go Chan & Sons Realty Corporation, Simeon
Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was dropped
from the complaint. The complaint was amended twice; defendant Corporation's Answer
contained a crossclaim against its co-defendant, Simon Rallos while the latter filed third-
party complaint against his sister, Gerundia Rallos While the case was pending in the
trial court, both Simon and his sister Gerundia died and they were substituted by the
respective administrators of their estates.

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

A. On Plaintiffs Complaint —

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

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

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

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

B. On GO CHANTS Cross-Claim:

(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of

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

(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon

Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons Realty
Corporation the sum of P500.00.

C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of

Simeon Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia
Rallos:

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

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

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

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

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

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

(1) Those entered into in the name of another person by one who hi - been given no
authority or legal representation or who has acted beyond his powers; ...

Out of the above given principles, sprung the creation and acceptance of the
relationship of agency whereby one party, caged the principal (mandante), authorizes
another, called the agent (mandatario), to act for and in his behalf in transactions with
third persons. The essential elements of agency are: (1) there is consent, express or
implied of the parties to establish the relationship; (2) the object is the execution of a
juridical act in relation to a third person; (3) the agents acts as a representative and not
for himself, and (4) the agent acts within the scope of his authority. 5

Agency is basically personal representative, and derivative in nature. The authority of

the agent to act emanates from the powers granted to him by his principal; his act is the
act of the principal if done within the scope of the authority. Qui facit per alium facit se.
"He who acts through another acts himself". 6

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

xxx xxx xxx

3. By the death, civil interdiction, insanity or insolvency of the principal or of the

agent; ... (Emphasis supplied)

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

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

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

3. Is the general rule provided for in Article 1919 that the death of the principal or of the
agent extinguishes the agency, subject to any exception, and if so, is the instant case
within that exception? That is the determinative point in issue in this litigation. It is the
contention of respondent corporation which was sustained by respondent court that
notwithstanding the death of the principal Concepcion Rallos the act of the attorney-in-
fact, Simeon Rallos in selling the former's sham in the property is valid and enforceable
inasmuch as the corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule
afore-mentioned.

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

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

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

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

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

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

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

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

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

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

To support such argument reference is made to a portion in Manresa's Commentaries

which We quote:

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

In case of a general power which does not specify the persons to whom represents' on
should be made, it is the general opinion that all acts, executed with third persons who
contracted in good faith, Without knowledge of the revocation, are valid. In such case,
the principal may exercise his right against the agent, who, knowing of the revocation,
continued to assume a personality which he no longer had. (Manresa Vol. 11, pp. 561
and 575; pp. 15-16, rollo)

The above discourse however, treats of revocation by an act of the principal as a mode
of terminating an agency which is to be distinguished from revocation by operation of
law such as death of the principal which obtains in this case. On page six of this Opinion
We stressed that by reason of the very nature of the relationship between principal and
agent, agency is extinguished ipso jure upon the death of either principal or agent.
Although a revocation of a power of attorney to be effective must be communicated to
the parties concerned, 18 yet a revocation by operation of law, such as by death of the
principal is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's
exercise of authority is regarded as an execution of the principal's continuing will. 19
With death, the principal's will ceases or is the of authority is extinguished.

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

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

To support the correctness of this respondent corporation, in its brief, cites the case of
Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was
a co-owner of lands with Agustin Nano. The latter had a power of attorney supposedly
executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land titles. The
power was registered in the Office of the Register of Deeds. When the lawyer-husband
of Angela Blondeau went to that Office, he found all in order including the power of
attorney. But Vallejo denied having executed the power The lower court sustained
Vallejo and the plaintiff Blondeau appealed. Reversing the decision of the court a quo,
the Supreme Court, quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457,
held:

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

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

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

xxx xxx xxx

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

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

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

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

To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke,
mention may be made that the above represents the minority view in American
jurisprudence. Thus in Clayton v. Merrett, the Court said.—
There are several cases which seem to hold that although, as a general principle, death
revokes an agency and renders null every act of the agent thereafter performed, yet that
where a payment has been made in ignorance of the death, such payment will be good.
The leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39
Am. 76, where, in an elaborate opinion, this view ii broadly announced. It is referred to,
and seems to have been followed, in the case of Dick v. Page, 17 Mo. 234, 57 AmD
267; but in this latter case it appeared that the estate of the deceased principal had
received the benefit of the money paid, and therefore the representative of the estate
might well have been held to be estopped from suing for it again. . . . These cases, in so
far, at least, as they announce the doctrine under discussion, are exceptional. The
Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD 76), is
believed to stand almost, if not quite, alone in announcing the principle in its broadest
scope. (52, Misc. 353, 357, cited in 2 C.J. 549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that
the opinion, except so far as it related to the particular facts, was a mere dictum,
Baldwin J. said:

The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial
indication of his views on the general subject, than as the adjudication of the Court upon
the point in question. But accordingly all power weight to this opinion, as the judgment
of a of great respectability, it stands alone among common law authorities and is
opposed by an array too formidable to permit us to following it. (15 Cal. 12,17, cited in 2
C.J. 549)

Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American

jurisprudence, no such conflict exists in our own for the simple reason that our statute,
the Civil Code, expressly provides for two exceptions to the general rule that death of
the principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with an
interest (Art 1930), and (2) that the act of the agent was executed without knowledge of
the death of the principal and the third person who contracted with the agent acted also
in good faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again
We stress the indispensable requirement that the agent acted without knowledge or
notice of the death of the principal In the case before Us the agent Ramon Rallos
executed the sale notwithstanding notice of the death of his principal Accordingly, the
agent's act is unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate
court, and We affirm en toto the judgment rendered by then Hon. Amador E. Gomez of
the Court of First Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs
against respondent realty corporation at all instances.

So Ordered.