W. G.

PHILPOTTS, petitioner,
vs.
PHILIPPINE MANUFACTURING COMPANY and F. N. BERRY, respondents.

Lawrence and Ross for petitioner.

Crossfield and O'Brien for defendants.

STREET, J.:

The petitioner, W. G. Philpotts, a stockholder in the Philippine Manufacturing Company, one of the
respondents herein, seeks by this proceeding to obtain a writ of mandamus to compel the respondents to
permit the plaintiff, in person or by some authorized agent or attorney, to inspect and examine the records
of the business transacted by said company since January 1, 1918. The petition is filed originally in this
court under the authority of section 515 of the Code of Civil Procedure, which gives to this tribunal
concurrent jurisdiction with the Court of First Instance in cases, among others, where any corporation or
person unlawfully excludes the plaintiff from the use and enjoyment of some right to which he is entitled.
The respondents interposed a demurrer, and the controversy is now before us for the determination of the
questions thus presented.

The first point made has reference to a supposed defect of parties, and it is said that the action can not be
maintained jointly against the corporation and its secretary without the addition of the allegation that the
latter is the custodian of the business records of the respondent company.

By the plain language of sections 515 and 222 of our Code of Civil Procedure, the right of action in such
a proceeding as this is given against the corporation; and the respondent corporation in this case was the
only absolutely necessary party. In the Ohio case of Cincinnati Volksblatt Co. vs. Hoffmister (61 Ohio
St., 432; 48 L. R. A., 735), only the corporation was named as defendant, while the complaint, in
language almost identical with that in the case at bar, alleged a demand upon and refusal by the
corporation.

Nevertheless the propriety of naming the secretary of the corporation as a codefendant cannot be
questioned, since such official is customarily charged with the custody of all documents, correspondence,
and records of a corporation, and he is presumably the person against whom the personal orders of the
court would be made effective in case the relief sought should be granted. Certainly there is nothing in the
complaint to indicate that the secretary is an improper person to be joined. The petitioner might have
named the president of the corporation as a respondent also; and this official might be brought in later,
even after judgment rendered, if necessary to the effectuation of the order of the court.
Section 222 of our Code of Civil Procedure is taken from the California Code, and a decision of the
California Supreme Court — Barber vs. Mulford (117 Cal., 356) — is quite clear upon the point that both
the corporation and its officers may be joined as defendants.

The real controversy which has brought these litigants into court is upon the question argued in
connection with the second ground of demurrer, namely, whether the right which the law concedes to a
stockholder to inspect the records can be exercised by a proper agent or attorney of the stockholder as
well as by the stockholder in person. There is no pretense that the respondent corporation or any of its
officials has refused to allow the petitioner himself to examine anything relating to the affairs of the
company, and the petition prays for a peremptory order commanding the respondents to place the records
of all business transactions of the company, during a specified period, at the disposal of the plaintiff or his
duly authorized agent or attorney, it being evident that the petitioner desires to exercise said right through
an agent or attorney. In the argument in support of the demurrer it is conceded by counsel for the
respondents that there is a right of examination in the stockholder granted under section 51 of the
Corporation Law, but it is insisted that this right must be exercised in person.

The pertinent provision of our law is found in the second paragraph of section 51 of Act No. 1459, which
reads as follows: "The record of all business transactions of the corporation and the minutes of any
meeting shall be open to the inspection of any director, member or stockholder of the corporation at
reasonable hours."

This provision is to be read of course in connecting with the related provisions of sections 51 and 52,
defining the duty of the corporation in respect to the keeping of its records.

Now it is our opinion, and we accordingly hold, that the right of inspection given to a stockholder in the
provision above quoted can be exercised either by himself or by any proper representative or attorney in
fact, and either with or without the attendance of the stockholder. This is in conformity with the general
rule that what a man may do in person he may do through another; and we find nothing in the statute that
would justify us in qualifying the right in the manner suggested by the respondents.

This conclusion is supported by the undoubted weight of authority in the United States, where it is
generally held that the provisions of law conceding the right of inspection to stockholders of corporations
are to be liberally construed and that said right may be exercised through any other properly authorized
person. As was said in Foster vs. White (86 Ala., 467), "The right may be regarded as personal, in the
sense that only a stockholder may enjoy it; but the inspection and examination may be made by another.
Otherwise it would be unavailing in many instances." An observation to the same effect is contained in
Martin vs. Bienville Oil Works Co. (28 La., 204), where it is said: "The possession of the right in question
would be futile if the possessor of it, through lack of knowledge necessary to exercise it, were debarred
the right of procuring in his behalf the services of one who could exercise it." In Deadreck vs. Wilson (8
Baxt. [Tenn.], 108), the court said: "That stockholders have the right to inspect the books of the
corporation, taking minutes from the same, at all reasonable times, and may be aided in this by experts
and counsel, so as to make the inspection valuable to them, is a principle too well settled to need
discussion." Authorities on this point could be accumulated in great abundance, but as they may be found
cited in any legal encyclopedia or treaties devoted to the subject of corporations, it is unnecessary here to
refer to other cases announcing the same rule.

In order that the rule above stated may not be taken in too sweeping a sense, we deem it advisable to say
that there are some things which a corporation may undoubtedly keep secret, notwithstanding the right of
inspection given by law to the stockholder; as for instance, where a corporation, engaged in the business
of manufacture, has acquired a formula or process, not generally known, which has proved of utility to it
in the manufacture of its products. It is not our intention to declare that the authorities of the corporation,
and more particularly the Board of Directors, might not adopt measures for the protection of such process
form publicity. There is, however, nothing in the petition which would indicate that the petitioner in this
case is seeking to discover anything which the corporation is entitled to keep secret; and if anything of the
sort is involved in the case it may be brought out at a more advanced stage of the proceedings.lawphil.net

The demurrer is overruled; and it is ordered that the writ of mandamus shall issue as prayed, unless within
5 days from notification hereof the respondents answer to the merits. So ordered.

Arellano, C.J., Torres, Johnson, Araullo, Malcolm and Avanceña, JJ., concur.

G.R. No. 167552 April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,

vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated 10
August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech
Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and Resolution
affirmed the Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping
of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.
The generative facts of the case are as follows:

Petitioner is engaged in the business of importation and distribution of various European industrial
equipment for customers here in the Philippines. It has as one of its customers Impact Systems Sales
("Impact Systems") which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN).
Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the court a quo in said
capacity.

From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to
ninety-one thousand three hundred thirty-eight (₱91,338.00) pesos. Subsequently, respondents sought to
buy from petitioner one unit of sludge pump valued at ₱250,000.00 with respondents making a down
payment of fifty thousand pesos (₱50,000.00).4 When the sludge pump arrived from the United
Kingdom, petitioner refused to deliver the same to respondents without their having fully settled their
indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general
manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner, the pertinent
part of which states:

1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the amount of
THREE HUNDRED SIXTY FIVE THOUSAND (₱365,000.00) PESOS as payment for the purchase of
one unit of Selwood Spate 100D Sludge Pump;

2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the ASSIGNEE6 the
said receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (₱365,000.00) PESOS which receivables the ASSIGNOR is the lawful recipient;

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

Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump
as shown by Invoice No. 12034 dated 30 June 1995.8

Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment,
proceeded to collect from Toledo Power Company the amount of ₱365,135.29 as evidenced by Check
Voucher No. 09339 prepared by said power company and an official receipt dated 15 August 1995 issued
by Impact Systems.10 Alarmed by this development, petitioner made several demands upon respondents
to pay their obligations. As a result, respondents were able to make partial payments to petitioner. On 7
October 1996, petitioner’s counsel sent respondents a final demand letter wherein it was stated that as of
11 June 1996, respondents’ total obligations stood at ₱295,000.00 excluding interests and attorney’s
fees.11 Because of respondents’ failure to abide by said final demand letter, petitioner instituted a
complaint for sum of money, damages, with application for preliminary attachment against herein
respondents before the Regional Trial Court of Cebu City.12

On 8 January 1997, the trial court granted petitioner’s prayer for the issuance of writ of preliminary
attachment.13

On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioner’s allegations
with respect to the sale transactions entered into by Impact Systems and petitioner between January and
April 1995.15 He, however, disputed the total amount of Impact Systems’ indebtedness to petitioner
which, according to him, amounted to only ₱220,000.00.16

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in
interest in this case. According to him, he was acting as mere agent of his principal, which was the Impact
Systems, in his transaction with petitioner and the latter was very much aware of this fact. In support of
this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioner’s Complaint stating –

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

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

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for
Summary Judgment. The trial court granted petitioner’s motion to declare respondent ERWIN in default
"for his failure to answer within the prescribed period despite the opportunity granted"18 but it denied
petitioner’s motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of
the case on 16 October 2001.19 However, the conduct of the pre-trial conference was deferred pending
the resolution by the trial court of the special and affirmative defenses raised by respondent EDWIN.20

After the filing of respondent EDWIN’s Memorandum21 in support of his special and affirmative
defenses and petitioner’s opposition22 thereto, the trial court rendered its assailed Order dated 29 January
2002 dropping respondent EDWIN as a party defendant in this case. According to the trial court –

A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B.
Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a single
proprietorship entity and the complaint shows that defendant Erwin H. Cuizon is the proprietor; that
plaintiff corporation is represented by its general manager Alberto de Jesus in the contract which is dated
June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact] Systems Sales which is
owned solely by defendant Erwin H. Cuizon, made a down payment of ₱50,000.00 that Annex "H" is
dated June 30, 1995 or two days after the execution of Annex "G", thereby showing that [Impact]
Systems Sales ratified the act of Edwin B. Cuizon; the records further show that plaintiff knew that
[Impact] Systems Sales, the principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted the
down payment of ₱50,000.00. Plaintiff, therefore, cannot say that it was deceived by defendant Edwin B.
Cuizon, since in the instant case the principal has ratified the act of its agent and plaintiff knew about said
ratification. Plaintiff could not say that the subject contract was entered into by Edwin B. Cuizon in
excess of his powers since [Impact] Systems Sales made a down payment of ₱50,000.00 two days later.

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

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

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

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

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT

RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS
NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF
HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.25

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

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

Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWIN’s act of collecting
the receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of
Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the
agency relations of respondents, petitioner insists that ERWIN’s action repudiated EDWIN’s power to
sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an
agent, petitioner claims that he should be made personally liable for the obligations of his principal.26

Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into
selling the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner
directs the attention of this Court to the fact that respondents are bound not only by their principal and
agent relationship but are in fact full-blooded brothers whose successive contravening acts bore the
obvious signs of conspiracy to defraud petitioner.27

In his Comment,28 respondent EDWIN again posits the argument that he is not a real party in interest in
this case and it was proper for the trial court to have him dropped as a defendant. He insists that he was a
mere agent of Impact Systems which is owned by ERWIN and that his status as such is known even to
petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the
said business venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly
states that he was acting as a representative of Impact Systems in said transaction.

We do not find merit in the petition.

In a contract of agency, a person binds himself to render some service or to do something in

representation or on behalf of another with the latter’s consent.29 The underlying principle of the contract
of agency is to accomplish results by using the services of others – to do a great variety of things like
selling, buying, manufacturing, and transporting.30 Its purpose is to extend the personality of the
principal or the party for whom another acts and from whom he or she derives the authority to act.31 It is
said that the basis of agency is representation, that is, the agent acts for and on behalf of the principal on
matters within the scope of his authority and said acts have the same legal effect as if they were
personally executed by the principal.32 By this legal fiction, the actual or real absence of the principal is
converted into his legal or juridical presence – qui facit per alium facit per se.33

The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts
as a representative and not for himself; (4) the agent acts within the scope of his authority.34

In this case, the parties do not dispute the existence of the agency relationship between respondents
ERWIN as principal and EDWIN as agent. The only cause of the present dispute is whether respondent
EDWIN exceeded his authority when he signed the Deed of Assignment thereby binding himself
personally to pay the obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted
beyond the authority granted by his principal and he should therefore bear the effect of his deed pursuant
to Article 1897 of the New Civil Code.
We disagree.

Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the
party with whom he contracts. The same provision, however, presents two instances when an agent
becomes personally liable to a third person. The first is when he expressly binds himself to the obligation
and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he
does not give the third party sufficient notice of his powers. We hold that respondent EDWIN does not
fall within any of the exceptions contained in this provision.

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of
Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the
grant of broad powers with which to conduct the business of the principal, thus:

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

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority
when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge
pump unless it received, in full, the payment for Impact Systems’ indebtedness.36 We may very well
assume that Impact Systems desperately needed the sludge pump for its business since after it paid the
amount of fifty thousand pesos (₱50,000.00) as down payment on 3 March 1995,37 it still persisted in
negotiating with petitioner which culminated in the execution of the Deed of Assignment of its
receivables from Toledo Power Company on 28 June 1995.38 The significant amount of time spent on the
negotiation for the sale of the sludge pump underscores Impact Systems’ perseverance to get hold of the
said equipment. There is, therefore, no doubt in our mind that respondent EDWIN’s participation in the
Deed of Assignment was "reasonably necessary" or was required in order for him to protect the business
of his principal. Had he not acted in the way he did, the business of his principal would have been
adversely affected and he would have violated his fiduciary relation with his principal.

We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents
ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil
Code upon which petitioner anchors its claim against respondent EDWIN "does not hold that in case of
excess of authority, both the agent and the principal are liable to the other contracting party."39 To
reiterate, the first part of Article 1897 declares that the principal is liable in cases when the agent acted
within the bounds of his authority. Under this, the agent is completely absolved of any liability. The
second part of the said provision presents the situations when the agent himself becomes liable to a third
party when he expressly binds himself or he exceeds the limits of his authority without giving notice of
his powers to the third person. However, it must be pointed out that in case of excess of authority by the
agent, like what petitioner claims exists here, the law does not say that a third person can recover from
both the principal and the agent.40

As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any
right nor incur any liability arising from the Deed of Assignment, it follows that he is not a real party in
interest who should be impleaded in this case. A real party in interest is one who "stands to be benefited
or injured by the judgment in the suit, or the party entitled to the avails of the suit."41 In this respect, we
sustain his exclusion as a defendant in the suit before the court a quo.

WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August
2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming
the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED.

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

SO ORDERED.

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.
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.

WILLIAM UY and RODEL ROXAS, Petitioners, v. COURT OF APPEALS, HON. ROBERT

BALAO and NATIONAL HOUSING AUTHORITY, Respondents.

DECISION

KAPUNAN, J.:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of land by the owners
thereof. By virtue of such authority, petitioners offered to sell the lands, located in Tuba, Tadiangan,
Benguet to respondent National Housing Authority (NHA) to be utilized and developed as a housing
project.chanroblesvirtuallawlibrary

On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the acquisition of said
lands, with an area of 31.8231 hectares, at the cost of P23.867 million, pursuant to which the parties
executed a series of Deeds of Absolute Sale covering the subject lands. Of the eight parcels of land,
however, only five were paid for by the NHA because of the report 1 it received from the Land
Geosciences Bureau of the Department of Environment and Natural Resources (DENR) that the
remaining area is located at an active landslide area and therefore, not suitable for development into a
housing project.

On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale over the three parcels of
land. The NHA, through Resolution No. 2394, subsequently offered the amount of P1.225 million to the
landowners as daños perjuicios.

On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon City a Complaint
for Damages against NHA and its General Manager Robert Balao.

After trial, the RTC rendered a decision declaring the cancellation of the contract to be justified. The trial
court nevertheless awarded damages to plaintiffs in the sum of P1.255 million, the same amount initially
offered by NHA to petitioners as damages.

Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court and entered a
new one dismissing the complaint. It held that since there was "sufficient justifiable basis" in cancelling
the sale, "it saw no reason" for the award of damages. The Court of Appeals also noted that petitioners
were mere attorneys-in-fact and, therefore, not the real parties-in-interest in the action before the trial
court.

. . . In paragraph 4 of the complaint, plaintiffs alleged themselves to be "sellers’ agents" for several
owners of the 8 lots subject matter of the case. Obviously, William Uy and Rodel Roxas in filing this case
acted as attorneys-in-fact of the lot owners who are the real parties in interest but who were omitted to be
pleaded as party-plaintiffs in the case. This omission is fatal. Where the action is brought by an attorney-
in-fact of a land owner in his name, (as in our present action) and not in the name of his principal, the
action was properly dismissed (Ferrer v. Villamor, 60 SCRA 406 [1974]; Marcelo v. de Leon, 105 Phil.
1175) because the rule is that every action must be prosecuted in the name of the real parties-in-interest
(Section 2, Rule 3, Rules of Court).

When plaintiffs Uy and Roxas sought payment of damages in their favor in view of the partial rescission
of Resolution No. 1632 and the Deed of Absolute Sale covering TCT Nos. 10998, 10999 and 11292
(Prayer complaint, page 5, RTC records), it becomes obviously indispensable that the lot owners be
included, mentioned and named as party-plaintiffs, being the real party-in-interest. Uy and Roxas, as
attorneys-in-fact or apoderados, cannot by themselves lawfully commence this action, more so, when the
supposed special power of attorney, in their favor, was never presented as an evidence in this case.
Besides, even if herein plaintiffs Uy and Roxas were authorized by the lot owners to commence this
action, the same must still be filed in the name of the principal, (Filipino Industrial Corporation v. San
Diego, 23 SCRA 706 [1968]). As such indispensable party, their joinder in the action is mandatory and
the complaint may be dismissed if not so impleaded (NDC v. CA, 211 SCRA 422 [1992]). 2

Their motion for reconsideration having been denied, petitioners seek relief from this Court contending
that:chanroblesvirtual|awlibrary

I. THE RESPONDENT CA ERRED IN DECLARING THAT RESPONDENT NHA HAD ANY LEGAL
BASIS FOR RESCINDING THE SALE INVOLVING THE LAST THREE (3) PARCELS COVERED
BY NHA RESOLUTION NO. 1632.

II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL BASIS TO RESCIND
THE SUBJECT SALE, THE RESPONDENT CA NONETHELESS ERRED IN DENYING HEREIN
PETITIONERS’ CLAIM TO DAMAGES, CONTRARY TO THE PROVISIONS OF ART. 1191 OF
THE CIVIL CODE.

III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT COMPLAINT FINDING

THAT THE PETITIONERS FAILED TO JOIN AS INDISPENSABLE PARTY PLAINTIFF THE
SELLING LOT-OWNERS. 3

We first resolve the issue raised in the third assignment of error.

Petitioners claim that they lodged the complaint not in behalf of their principals but in their own name as
agents directly damaged by the termination of the contract. The damages prayed for were intended not for
the benefit of their principals but to indemnify petitioners for the losses they themselves allegedly
incurred as a result of such termination. These damages consist mainly of "unearned income" and
advances. 4 Petitioners, thus, attempt to distinguish the case at bar from those involving agents or
apoderados instituting actions in their own name but in behalf of their principals. 5 Petitioners in this case
purportedly brought the action for damages in their own name and in their own behalf .
We find this contention unmeritorious.

Section 2, Rule 3 of the Rules of Court requires that every action must be prosecuted and defended in the
name of the real party-in-interest. The real party-in-interest is the party who stands to be benefited or
injured by the judgment or the party entitled to the avails of the suit. "Interest," within the meaning of the
rule, means material interest, an interest in the issue and to be affected by the decree, as distinguished
from mere interest in the question involved, or a mere incidental interest. 6 Cases construing the real
party-in-interest provision can be more easily understood if it is borne in mind that the true meaning of
real party-in-interest may be summarized as follows: An action shall be prosecuted in the name of the
party who, by the substantive law, has the right sought to be enforced. 7

Do petitioners, under substantive law, possess the right they seek to enforce? We rule in the negative.

The applicable substantive law in this case is Article 1311 of the Civil Code, which states:chanrob1es
virtual 1aw library

Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or by stipulation, or by
provision of law. . .

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit
or interest of a person is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person. (Emphasis supplied.)

Petitioners are not parties to the contract of sale between their principals and NHA. They are mere agents
of the owners of the land subject of the sale. As agents, they only render some service or do something in
representation or on behalf of their principals. 8 The rendering of such service did not make them parties
to the contracts of sale executed in behalf of the latter. Since a contract may be violated only by the
parties thereto as against each other, the real parties-in-interest, either as plaintiff or defendant, in an
action upon that contract must, generally, either be parties to said contract. 9

Neither has there been any allegation, much less proof, that petitioners are the heirs of their principals.
Are petitioners assignees to the rights under the contracts of sale? In McMicking v. Banco Español-
Filipino, 10 we held that the rule requiring every action to be prosecuted in the name of the real party-in-
interest

. . . recognizes the assignments of rights of action and also recognizes that when one has a right of action
assigned to him he is then the real party in interest and may maintain an action upon such claim or right.
The purpose of [this rule] is to require the plaintiff to be the real party in interest, or, in other words, he
must be the person to whom the proceeds of the action shall belong, and to prevent actions by persons
who have no interest in the result of the same. . . .chanrobles virtual lawlibrary

Thus, an agent, in his own behalf, may bring an action founded on a contract made for his principal, as an
assignee of such contract. We find the following declaration in Section 372 (1) of the Restatement of the
Law on Agency (Second): 11

SECTION 372. Agent as Owner of Contract Right. —

(1) Unless otherwise agreed, an agent who has or who acquires an interest in a contract which he makes
on behalf of his principal can, although not a promisee, maintain such action thereon as might a transferee
having a similar interest.

The Comment on subsection (1) states:chanrob1es virtual 1aw library

a. Agent a transferee. One who has made a contract on behalf of another may become an assignee of the
contract and bring suit against the other party to it, as any other transferee. The customs of business or the
course of conduct between the principal and the agent may indicate that an agent who ordinarily has
merely a security interest is a transferee of the principal’s rights under the contract and as such is
permitted to bring suit. If the agent has settled with his principal with the understanding that he is to
collect the claim against the obligor by way of reimbursing himself for his advances and commissions, the
agent is in the position of an assignee who is the beneficial owner of the chose in action. He has an
irrevocable power to sue in his principal’s name. . . And, under the statutes which permit the real party in
interest to sue, he can maintain an action in his own name. This power to sue is not affected by a
settlement between the principal and the obligor if the latter has notice of the agent’s interest. . . Even
though the agent has not settled with his principal, he may, by agreement with the principal, have a right
to receive payment and out of the proceeds to reimburse himself for advances and commissions before
turning the balance over to the principal. In such a case, although there is no formal assignment, the agent
is in the position of a transferee of the whole claim for security; he has an irrevocable power to sue in his
principal’s name and, under statutes which permit the real party in interest to sue, he can maintain an
action in his own name.
Petitioners, however, have not shown that they are assignees of their principals to the subject contracts.
While they alleged that they made advances and that they suffered loss of commissions, they have not
established any agreement granting them "the right to receive payment and out of the proceeds to
reimburse [themselves] for advances and commissions before turning the balance over to the
principal[s]."cralaw virtua1aw library

Finally, it does not appear that petitioners are beneficiaries of a stipulation pour autrui under the second
paragraph of Article 1311 of the Civil Code. Indeed, there is no stipulation in any of the Deeds of
Absolute Sale "clearly and deliberately" conferring a favor to any third person.

That petitioners did not obtain their commissions or recoup their advances because of the non-
performance of the contract did not entitle them to file the action below against respondent NHA. Section
372 (2) of the Restatement of the Law on Agency (Second) states:chanrob1es virtual 1aw library

(2) An agent does not have such an interest in a contract as to entitle him to maintain an action at law
upon it in his own name merely because he is entitled to a portion of the proceeds as compensation for
making it or because he is liable for its breach.chanroblesvirtuallawlibrary:red

The following Comment on the above subsection is illuminating:chanrob1es virtual 1aw library

The fact that an agent who makes a contract for his principal will gain or suffer loss by the performance
or nonperformance of the contract by the principal or by the other party thereto does not entitle him to
maintain an action on his own behalf against the other party for its breach. An agent entitled to receive a
commission from his principal upon the performance of a contract which he has made on his principal’s
account does not, from this fact alone, have any claim against the other party for breach of the contract,
either in an action on the contract or otherwise. An agent who is not a promisee cannot maintain an action
at law against a purchaser merely because he is entitled to have his compensation or advances paid out of
the purchase price before payment to the principal. . .

Thus, in Hopkins v. Ives, 12 the Supreme Court of Arkansas, citing Section 372 (2) above, denied the
claim of a real estate broker to recover his alleged commission against the purchaser in an agreement to
purchase property.

In Goduco v. Court of Appeals, 13 this Court held that:chanrob1es virtual 1aw library

. . . granting that appellant had the authority to sell the property, the same did not make the buyer liable
for the commission she claimed. At most, the owner of the property and the one who promised to give her
a commission should be the one liable to pay the same and to whom the claim should have been
directed. . .

As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour autrui under the
contracts of sale, they do not, under substantive law, possess the right they seek to enforce. Therefore,
they are not the real parties-in-interest in this case.

Petitioners not being the real parties-in-interest, any decision rendered herein would be pointless since the
same would not bind the real parties-in-interest. 14

Nevertheless, to forestall further litigation on the substantive aspects of this case, we shall proceed to rule
on the merits. 15

Petitioners submit that respondent NHA had no legal basis to "rescind" the sale of the subject three
parcels of land. The existence of such legal basis, notwithstanding, petitioners argue that they are still
entitled to an award of damages.

Petitioners confuse the cancellation of the contract by the NHA as a rescission of the contract under
Article 1191 of the Civil Code. The right of rescission or, more accurately, resolution, of a party to an
obligation under Article 1191 is predicated on a breach of faith by the other party that violates the
reciprocity between them. 16 The power to rescind, therefore, is given to the injured party. 17 Article
1191 states:chanrob1es virtual 1aw library

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.

In this case, the NHA did not rescind the contract. Indeed, it did not have the right to do so for the other
parties to the contract, the vendors, did not commit any breach, much less a substantial breach, 18 of their
obligation. Their obligation was merely to deliver the parcels of land to the NHA, an obligation that they
fulfilled. The NHA did not suffer any injury by the performance thereof.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
The cancellation, therefore, was not a rescission under Article 1191. Rather, the cancellation was based
on the negation of the cause arising from the realization that the lands, which were the object of the sale,
were not suitable for housing.

Cause is the essential reason which moves the contracting parties to enter into it. 19 In other words, the
cause is the immediate, direct and proximate reason which justifies the creation of an obligation through
the will of the contracting parties. 20 Cause, which is the essential reason for the contract, should be
distinguished from motive, which is the particular reason of a contracting party which does not affect the
other party. 21

For example, in a contract of sale of a piece of land, such as in this case, the cause of the vendor
(petitioner’s principals) in entering into the contract is to obtain the price. For the vendee, NHA, it is the
acquisition of the land. 22 The motive of the NHA, on the other hand, is to use said lands for housing.
This is apparent from the portion of the Deeds of Absolute Sale 23 stating:chanrob1es virtual 1aw library

WHEREAS, under the Executive Order No. 90 dated December 17, 1986, the VENDEE is mandated to
focus and concentrate its efforts and resources in providing housing assistance to the lowest thirty percent
(30%) of urban income earners, thru slum upgrading and development of sites and services projects;

WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by Letter of Instruction No. 630,
prescribed slum improvement and upgrading, as well as the development of sites and services as the
principal housing strategy for dealing with slum, squatter and other blighted communities;

x x x

WHEREAS, the VENDEE, in pursuit of and in compliance with the above-stated purposes offers to buy
and the VENDORS, in a gesture of their willing to cooperate with the above policy and commitments,
agree to sell the aforesaid property together with all the existing improvements there or belonging to the
VENDORS;

NOW, THEREFORE, for and in consideration of the foregoing premises and the terms and conditions
hereinbelow stipulated, the VENDORS hereby, sell, transfer, cede and convey unto the VENDEE, its
assigns, or successors-in-interest, a parcel of land located at Bo. Tadiangan, Tuba, Benguet containing a
total area of FIFTY SIX THOUSAND EIGHT HUNDRED NINETEEN (56,819) SQUARE METERS,
more or less . . .
Ordinarily, a party’s motives for entering into the contract do not affect the contract. However, when the
motive predetermines the cause, the motive may be regarded as the cause. In Liguez v. Court of Appeals,
24 this Court, speaking through Justice J.B.L. Reyes, held:chanrob1es virtual 1aw library

. . . It is well to note, however, that Manresa himself (Vol. 8, pp. 641-642), while maintaining the
distinction and upholding the inoperativeness of the motives of the parties to determine the validity of the
contract, expressly excepts from the rule those contracts that are conditioned upon the attainment of the
motives of either party.

The same view is held by the Supreme Court of Spain, in its decisions of February 4, 1941, and
December 4, 1946, holding that the motive may be regarded as causa when it predetermines the purpose
of the contract.chanrobles lawlibrary : rednad

In this case, it is clear, and petitioners do not dispute, that NHA would not have entered into the contract
were the lands not suitable for housing. In other words, the quality of the land was an implied condition
for the NHA to enter into the contract. On the part of the NHA, therefore, the motive was the cause for its
being a party to the sale.

Were the lands indeed unsuitable for the housing as NHA claimed?

We deem the findings contained in the report of the Land Geosciences Bureau dated 15 July 1991
sufficient basis for the cancellation of the sale, thus:chanrob1es virtual 1aw library

In Tadiangan, Tuba, the housing site is situated in an area of moderate topography. There [are] more areas
of less sloping ground apparently habitable. The site is underlain by . . . thick slide deposits (4-45m)
consisting of huge conglomerate boulders (see Photo No. 2) mix[ed] with silty clay materials. These clay
particles when saturated have some swelling characteristics which is dangerous for any civil structures
especially mass housing development.25cralaw:red

Petitioners content that the report was merely "preliminary," and not conclusive, as indicated in its
title:chanrob1es virtual 1aw library

MEMORANDUM

TO: EDWIN G. DOMINGO

Chief, Lands Geology Division

FROM: ARISTOTLE A. RILLON

Geologist II

SUBJECT: Preliminary Assessment of

Tadiangan Housing Project in Tuba, Benguet 26

Thus, page 2 of the report states in part:chanrob1es virtual 1aw library

x x x

Actually there is a need to conduct further geottechnical [sic] studies in the NHA property. Standard
Penetration Test (SPT) must be carried out to give an estimate of the degree of compaction (the relative
density) of the slide deposit and also the bearing capacity of the soil materials. Another thing to consider
is the vulnerability of the area to landslides and other mass movements due to thick soil cover. Preventive
physical mitigation methods such as surface and subsurface drainage and regrading of the slope must be
done in the area. 27

We read the quoted portion, however, to mean only that further tests are required to determine the "degree
of compaction," "the bearing capacity of the soil materials," and the "vulnerability of the area to
landslides," since the tests already conducted were inadequate to ascertain such geological attributes. It is
only in this sense that the assessment was "preliminary."cralaw virtua1aw library

Accordingly, we hold that the NHA was justified in cancelling the contract. The realization of the mistake
as regards the quality of the land resulted in the negation of the motive/cause thus rendering the contract
inexistent. 28 Article 1318 of the Civil Code states that:chanrob1es virtual 1aw library

ARTICLE 1318. There is no contract unless the following requisites concur:chanrob1es virtual 1aw
library
(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

(Emphasis supplied.)

Therefore, assuming that petitioners are parties, assignees or beneficiaries to the contract of sale, they
would not be entitled to any award of damages.

WHEREFORE, the instant petition is hereby DENIED.

SO ORDERED.
PRUDENTIAL BANK, petitioner,
vs.
THE COURT OF APPEALS, AURORA CRUZ, respondents.

Monique Q. Ignacio for petitioner.

Eduardo C. Tutaan for private respondent.

CRUZ, J.:

We deal here with another controversy involving the integrity of a bank.

The complaint in this case arose when private respondent Aurora F.

Cruz, * with her sister as co-depositor, invested P200,000.00 in Central Bank bills with the Prudential
Bank at its branch in Quezon Avenue, Quezon City, on June 23, 1986. The placement was for 63 days at
13.75% annual interest. For this purpose, the amount of P196,122.88 was withdrawn from the depositors'
Savings Account No. 2546 and applied to the investment. The difference of P3,877.07 represented the
pre-paid interest.

The transaction was evidenced by a Confirmation of Sale1 delivered to Cruz two days later, together with
a Debit Memo2 in the amount withdrawn and applied to the confirmed sale. These documents were issued
by Susan Quimbo, the employee of the bank to whom Cruz was referred and who was apparently in
charge of such transactions.3

Upon maturity of the placement on August 25, 1986, Cruz returned to the bank to "roll-over" or renew her
investment. Quimbo, who again attended to her, prepared a Credit Memo4 crediting the amount of
P200,000.00 in Cruz's savings account passbook. She also prepared a Debit Memo for the amount of
P196,122.88 to cover the re-investment of P200,000.00 minus the prepaid interest of P3,877.02.5

This time, Cruz was asked to sign a Withdrawal Slip6 for P196,122.98, representing the amount to be re-
invested after deduction of the prepaid interest. Quimbo explained this was a new requirement of the
bank. Several days later, Cruz received another Confirmation of Sale7 and a copy of the Debit Memo.8

On October 27, 1986, Cruz returned to the bank and sought to withdraw her P200,000.00. After
verification of her records, however, she was informed that the investment appeared to have been already
withdrawn by her on August 25, 1986. There was no copy on file of the Confirmation of Sale and the
Debit Memo allegedly issued to her by Quimbo. Quimbo herself was not available for questioning as she
had not been reporting for the past week. Shocked by this information, Cruz became hysterical and burst
into tears. The branch manager, Roman Santos, assured her that he would look into the matter.9

Every day thereafter, Cruz went to the bank to inquire about her request to withdraw her investment. She
received no definite answer, not even to the letter she wrote the bank which was received by Santos
himself. 10 Finally, Cruz sent the bank a demand letter dated November 12, 1986 for the amount of
P200,000.00 plus interest. 11 In a reply dated November 20, 1986, the bank's Vice President Lauro J.
Jocson said that there appeared to be an anomaly
and requested Cruz to defer court action as they hoped to settle the matter amicably. 12 Increasingly
worried, Cruz sent another letter reiterating her demand. 13 This time the reply of the bank was
unequivocal and negative. She was told that her request had to be denied because she had already
withdrawn the amount she was claiming. 14

Cruz's reaction was to file a complaint for breach of contract against Prudential Bank in the Regional
Trial Court of Quezon City. She demanded the return of her money with interest, plus damages and
attorney's fees. In its answer, the bank denied liability, insisting that Cruz had withdrawn her investment.
The bank also instituted a third-party complaint against Quimbo, who did not file an answer and was
declared in default. 15 The bank, however, did not present any evidence against her.
After trial, Judge Rodolfo A. Ortiz rendered judgment in favor of the plaintiffs and disposed as follows:

ACCORDINGLY, judgment is hereby rendered ordering the defendant/third-party plaintiff to pay to the
plaintiffs the following amounts:

1. P200,000.00, plus interest thereon at the rate of 13.75% per annum from October 27, 1986, until fully
paid;

2. P30,000.00, as moral damages;

3. P20,000.00, as exemplary damages; and

4. P25,000.00, as reasonable attorney's fees.

The counterclaim and the third-party complaint of the defendant/third-party plaintiff are dismissed.

With costs against the defendant/third-party plaintiff.

The decision was affirmed in toto on appeal to the respondent court.

The judgment of the Court of Appeals 16 is now faulted in this petition, mainly on the ground that the
bank should not have been found liable for a quasi-delict when it was sued for breach of contract.

The petition shall fail. The petitioner is quibbling. It appears to be merely temporizing to delay
enforcement of the liability clearly established against it.

The basic issues are factual. The private respondent claims she has not yet collected her investment of
P200,000.00 and has submitted in proof of their contention the Confirmation of Sale and the Debit Memo
issued to her by Quimbo on the official forms of the bank. The petitioner denies her claim and points to
the Withdrawal Slip, which it says Cruz has not denied having signed. It also contends that the
Confirmation of Sale and the Debit Memo are fake and should not have been given credence by the lower
courts.
The findings of the trial court on these issues have been affirmed by the respondent court and we see no
reason to disturb them. The petitioner has not shown that they have been reached arbitrarily or in
disregard of the evidence of record. On the contrary, we find substantial basis for the conclusion that the
private respondents signed the Withdrawal Slip only as part of the bank's new procedure of re-investment.
She did not actually receive the amount indicated therein, which she was made to understand was being
re-invested in her name. The bank itself so assured her in the Confirmation of Sale and the Debit Memo
later issued to her by Quimbo.

Especially persuasive are the following observations of the trial court: 17

What is more, it could not be that plaintiff Aurora F. Cruz withdrew only the amount of P196,122.98
from their savings account, if her only intention was to make such a withdrawal. For, if, indeed, it was the
desire of the plaintiffs to withdraw their money from the defendant/third-party plaintiff, they could have
withdrawn an amount in round figures. Certainly, it is unbelievable that their withdrawal was in the
irregular amount of P196,122.98 if they really received it. On the contrary, this amount, which is the price
of the Central Bank bills rolled over, indicates that, as claimed by plaintiff Aurora F. Cruz, she did not
receive this money, but it was left by her with the defendant/third-party plaintiff in order to buy Central
Bank bills placement for another sixty-three (63) days, for which she signed a withdrawal slip at the
instance of third-party defendant Susan Quimbo who told her that it was a new bank requirement for the
roll-over of a matured placement which she trustingly believed.

Indeed, the bank has not explained the remarkable coincidence that the amount indicated in the
withdrawal slip is exactly the same amount Cruz was re-investing after deducting therefrom the pre-paid
interest.

The bank has also not, succeeded in impugning the authenticity of the Confirmation of Sale and the Debit
Memo which were made on its official, forms. These are admittedly not available to the general public or
even its depositors and are handled only by its personnel. Even assuming that they were not signed by its
authorized officials, as it claims, there was no obligation on the part of Cruz to verify their authority
because she had the right to presume it. The documents had been issued in the office of the bank itself and
by its own employees with whom she had previously dealt. Such dealings had not been questioned before,
much leas invalidated. There was absolutely no reason why she should not have accepted their authority
to act on behalf of their employer.

It is also worthy of note — and wonder — that although the bank impleaded Quimbo in a third-party
complaint, it did not pursue its suit even when she failed to answer and was declared in default. The bank
did not introduce evidence against her although it could have done so under the rules. No less remarkably,
it did not call on her to testify on its behalf, considering that under the circumstances claimed by it, she
would have been the best witness to show that Cruz had actually withdrawn her P200,000.00 placement.
Instead, the bank chose to rely on its other employees whose testimony was less direct and categorical
than the testimony Quimbo could have given.

We do not find that the Court of Appeals held the bank liable on a quasi-delict. The argument of the
petitioner on this issue is pallid, to say the least, consisting as it does only of the observation that the
article cited by the respondent court on the agent's liability falls under the heading in the Civil Code on
quasi-delicts. On the other hand, the respondent court clearly declared that:

The defendant/third-party plaintiff being liable for the return of the P200,000.00 placement of the
plaintiffs, the extent of the liability of the defendant/third-party plaintiff for damages resultant thereof,
which is contractual, is for all damages which may be reasonably attributed to the non-performance of the
obligation, . . .

xxx xxx xxx

Because of the bad faith of the defendant/third-party plaintiff in its breach of its contract with the
plaintiffs, the latter are, therefore, entitled to an award of moral damages . . . (Emphasis supplied)

There is no question that the petitioner was made liable for its failure or refusal to deliver to Cruz the
amount she had deposited with it and which she had a right to withdraw upon its maturity. That
investment was acknowledged by its own employees, who had the apparent authority to do so and so
could legally bind it by its acts vis-a-vis Cruz. Whatever might have happened to the investment —
whether it was lost or stolen by whoever — was not the concern of the depositor. It was the concern of
the bank.

As far as Cruz was concerned, she had the right to withdraw her P200,000.00 placement when it matured
pursuant to the terms of her investment as acknowledged and reflected in the Confirmation of Sale. The
failure of the bank to deliver the amount to her pursuant to the Confirmation of Sale constituted its breach
of their contract, for which it should be held liable.

The liability of the principal for the acts of the agent is not even debatable. Law and jurisprudence are
clearly and absolutely against the petitioner.

Such liability dates back to the Roman Law maxim, Qui per alium facit per seipsum facere videtur. "He
who does a thing by an agent is considered as doing it himself." This rule is affirmed by the Civil Code
thus:
Art. 1910. The principal must comply with all the obligations which the agent may have contracted within
the scope of his authority.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent
if the former allowed the latter to act as though he had full powers.

Conformably, we have declared in countless decisions that the principal is liable for obligations
contracted by the agent. The agent's apparent representation yields to the principal's true representation
and the contract is considered as entered into between the principal and the third person. 18

A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of
dealings of the officers in their representative capacity but not for acts outside the scope of their authority.
(9 c.q.s. p. 417) A bank holding out its officers and agent as worthy of confidence will not be permitted to
profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor
will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the
bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third
persons where the representation is made in the course of its business by an agent acting within the
general scope of his authority even though, in the particular case, the agent is secretly abusing his
authority and attempting to perpetrate a fraud upon his principal or some other person, for his own
ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021.)

Application of these principles in especially necessary because banks have a fiduciary relationship with
the public and their stability depends on the confidence of the people in their honesty and efficiency. Such
faith will be eroded where banks do not exercise strict care in the selection and supervision of its
employees, resulting in prejudice to their depositors.

It would appear from the facts established in the case before us that the petitioner was less than eager to
present Quimbo at the trial or even to establish her liability although it made the initial effort — which it
did not pursue — to hold her answerable in the third-party complaint. What ever happened to her does not
appear in the record. Her absence from the proceedings feeds the suspicion of her possible misdeed,
which the bank seems to have studiously ignored by its insistence that the missing money had been
actually withdrawn by Cruz. By such insistence, the bank is absolving not only itself but also, in effect
and by extension, the disappeared Quimbo who apparently has much to explain.

We agree with the lower courts that the petitioner acted in bad faith in denying Cruz the obligation she
was claiming against it. It was obvious that an irregularity had been committed by the bank's personnel,
but instead of repairing the injury to Cruz by immediately restoring her money to her, it sought to gloss
over the anomaly in its own operations.
Cruz naturally suffered anxious moments and mental anguish over the loss of the investment. The amount
of P200,000.00 is not small even by present standards. By unjustly withholding it from her on the
unproved defense that she had already withdrawn it, the bank violated the trust she had reposed in it and
thus subjected itself to further liability for moral and exemplary damages.

If a person dealing with a bank does not read the fine print in the contract, it is because he trusts the bank
and relies on its integrity. The ordinary customer applying for a loan or even making a deposit (and so
himself extending the loan to the bank) does not bother with the red tape requirements and the finicky
conditions in the documents he signs. His feeling is that he does not have to be wary of the bank because
it will deal with him fairly and there is no reason to suspect its motives. This is an attitude the bank must
justify.

While this is not to say that bank regulations are meaningless or have no binding effect, they should,
however, not be used for covering up the fault of bank employees when they blunder or, worse,
intentionally cheat him. The misdeeds of such employees must be readily acknowledged and rectified
without delay. The bank must always act in good faith. The ordinary customer does not feel the need for a
lawyer by his side every time he deals with a bank because he is certain that it is not a predator or a
potential adversary. The bank should show that there is really no reason for any apprehension because it
truly deserves his faith in it.

WHEREFORE, the petition is DENIED and the appealed decision is AFFIRMED, with costs against the
petitioner. It is so ordered.

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,

vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION),
ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.

DECISION

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in CA-
G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch
165, in Civil Case No. 54887, as well as the Resolution2 of the CA denying the motion for
reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since
1950, it had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing
operations were conducted on eight parcels of land with a total area of 47,233 square meters. The
properties, located in Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title
Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124 and 451125 under the name of Far East
Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were owned by
Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the laws of
Belgium.3 Jack Glanville, an Australian citizen, was the General Manager and President of EC, while
Claude Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their offices in
Belgium.

In 1986, the management of ESAC grew concerned about the political situation in the Philippines and
wanted to stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams,
a member of EC’s Board of Directors, to dispose of the eight parcels of land. Adams engaged the services
of realtor/broker Lauro G. Marquez so that the properties could be offered for sale to prospective buyers.
Glanville later showed the properties to Marquez.

Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr.
of the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was
authorized to sell the properties for P27,000,000.00 and that the terms of the sale were subject to
negotiation.4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and
his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00
cash. Marquez apprised Glanville of the Litonjua siblings’ offer and relayed the same to Delsaux in
Belgium, but the latter did not respond. On October 28, 1986, Glanville telexed Delsaux in Belgium,
inquiring on his position/ counterproposal to the offer of the Litonjua siblings. It was only on February
12, 1987 that Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss decision," the
final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final
liquidation."5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted
the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26,
1987, confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated
that the Litonjua siblings would confirm full payment within 90 days after execution and preparation of
all documents of sale, together with the necessary governmental clearances.6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust
Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.7
Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be
implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer,
which had given him the impression that "he is prepared to press for a satisfactory conclusion to the
sale."8 He also emphasized to Delsaux that the buyers were concerned because they would incur expenses
in bank commitment fees as a consequence of prolonged period of inaction.9

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines,
the political situation in the Philippines had improved. Marquez received a telephone call from Glanville,
advising that the sale would no longer proceed. Glanville followed it up with a Letter dated May 7, 1987,
confirming that he had been instructed by his principal to inform Marquez that "the decision has been
taken at a Board Meeting not to sell the properties on which Eternit Corporation is situated."10

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had
decided not to proceed with the sale of the subject land, to wit:

May 22, 1987

Mr. L.G. Marquez

L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines

Dear Sir:

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land
which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the position
as far as the Philippines are (sic) concerned. Considering [the] new political situation since the departure
of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our
operations in Manila. In fact, production has started again last week, and (sic) to recognize the
participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a later
state, we would consult you again.

xxx

Yours sincerely,

(Sgd.)
C.F. DELSAUX

cc. To: J. GLANVILLE (Eternit Corp.)11

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for
damages they had suffered on account of the aborted sale. EC, however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton
Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig
City. An amended complaint was filed, in which defendant EC was substituted by Eterton Multi-
Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio
were impleaded as additional defendants on account of their purchase of ESAC shares of stocks and were
the controlling stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in
the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders of
EC never approved any resolution to sell subject properties nor authorized Marquez to sell the same; and
the telex dated October 28, 1986 of Jack Glanville was his own personal making which did not bind EC.

On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended
complaint.12 The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the
plaintiffs and said defendants.

The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of
action.

The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer,
S.A. is also dismissed for lack of merit.13

The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void
and not merely unenforceable, and as such, could not have been ratified by the principal. In any event,
such ratification cannot be given any retroactive effect. Plaintiffs could not assume that defendants had
agreed to sell the property without a clear authorization from the corporation concerned, that is, through
resolutions of the Board of Directors and stockholders. The trial court also pointed out that the supposed
sale involves substantially all the assets of defendant EC which would result in the eventual total
cessation of its operation.14

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding that
the real estate broker in the instant case needed a written authority from appellee corporation and/or that
said broker had no such written authority; and (2) the lower court committed grave error of law in holding
that appellee corporation is not legally bound for specific performance and/or damages in the absence of
an enabling resolution of the board of directors."15 They averred that Marquez acted merely as a broker
or go-between and not as agent of the corporation; hence, it was not necessary for him to be empowered
as such by any written authority. They further claimed that an agency by estoppel was created when the
corporation clothed Marquez with apparent authority to negotiate for the sale of the properties. However,
since it was a bilateral contract to buy and sell, it was equivalent to a perfected contract of sale, which the
corporation was obliged to consummate.

In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither
were Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the
sale involved substantially all of the corporation’s assets, it would necessarily need the authority from the
stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The Litonjuas filed a
motion for reconsideration, which was also denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of
Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special
authority from EC’s board of directors to bind such corporation to the sale of its properties. Delsaux, who
was merely the representative of ESAC (the majority stockholder of EC) had no authority to bind the
latter. The CA pointed out that Delsaux was not even a member of the board of directors of EC.
Moreover, the Litonjuas failed to prove that an agency by estoppel had been created between the parties.

In the instant petition for review, petitioners aver that

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED

CONTRACT OF SALE.

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT

MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE
SALE CAN BE PERFECTED.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX
HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE
VERY LEAST, WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS
WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE
PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the
parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover
obligations prior to final liquidation." Petitioners insist that they had accepted the counter-offer of
respondent EC and that before the counter-offer was withdrawn by respondents, the acceptance was made
known to them through real estate broker Marquez.

Petitioners assert that there was no need for a written authority from the Board of Directors of EC for
Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary agent
because his authority was of a special and limited character in most respects. His only job as a broker was
to look for a buyer and to bring together the parties to the transaction. He was not authorized to sell the
properties or to make a binding contract to respondent EC; hence, petitioners argue, Article 1874 of the
New Civil Code does not apply.

In any event, petitioners aver, what is important and decisive was that Marquez was able to communicate
both the offer and counter-offer and their acceptance of respondent EC’s counter-offer, resulting in a
perfected contract of sale.

Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville,
who was the President and General Manager of respondent EC, and Delsaux, who was the Managing
Director for ESAC Asia, had the necessary authority to sell the subject property or, at least, had been
allowed by respondent EC to hold themselves out in the public as having the power to sell the subject
properties. Petitioners identified such evidence, thus:

1. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager
of Eternit, to sell the properties of said corporation to any interested party, which authority, as
hereinabove discussed, need not be in writing.

2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL
MONTHS, from 1986 to 1987;

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties as evidenced by the
Petitioners’ ACCEPTANCE of the counter-offer;

5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that
an ESCROW agreement was drafted over the subject properties;

6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO

BUY AND SELL";

7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that Petitioners’
offer was allegedly REJECTED by both Glanville and Delsaux.18
Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners’
offer and thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners
insist that Delsaux confirmed his authority to sell the properties in his letter to Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land
which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the position
as far as the Philippines are (sic) concerned. Considering the new political situation since the departure of
MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our
operations in Manila[.] [I]n fact production started again last week, and (sic) to reorganize the
participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a later
stage we would consult you again.

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX19

Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly
permitted by respondent EC to sell the properties within the scope of an apparent authority. Petitioners
insist that respondents held themselves to the public as possessing power to sell the subject properties.

By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are
proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC)
and ESAC reiterate their submissions in the CA. They maintain that Glanville, Delsaux and Marquez had
no authority from the stockholders of respondent EC and its Board of Directors to offer the properties for
sale to the petitioners, or to any other person or entity for that matter. They assert that the decision and
resolution of the CA are in accord with law and the evidence on record, and should be affirmed in toto.

Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux,
conformed to the written authority of Marquez to sell the properties. The authority of Glanville and
Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux negotiated for the sale
of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given the significance of their
positions and their duties in respondent EC at the time of the transaction, and the fact that respondent
ESAC owns 90% of the shares of stock of respondent EC, a formal resolution of the Board of Directors
would be a mere ceremonial formality. What is important, petitioners maintain, is that Marquez was able
to communicate the offer of respondent EC and the petitioners’ acceptance thereof. There was no time
that they acted without the knowledge of respondents. In fact, respondent EC never repudiated the acts of
Glanville, Marquez and Delsaux.

The petition has no merit.

Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in
this case are factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC
to act as its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of their
authority as agents, is a question of fact. In the absence of express written terms creating the relationship
of an agency, the existence of an agency is a fact question.20 Whether an agency by estoppel was created
or whether a person acted within the bounds of his apparent authority, and whether the principal is
estopped to deny the apparent authority of its agent are, likewise, questions of fact to be resolved on the
basis of the evidence on record.21 The findings of the trial court on such issues, as affirmed by the CA,
are conclusive on the Court, absent evidence that the trial and appellate courts ignored, misconstrued, or
misapplied facts and circumstances of substance which, if considered, would warrant a modification or
reversal of the outcome of the case.22

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court
because the Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether
testimonial and documentary. There are, however, recognized exceptions where the Court may delve into
and resolve factual issues, namely:

(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2)
when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact
are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of the
Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify
a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the
absence of evidence and are contradicted by the evidence on record.23

We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant
case falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is
supported by the evidence on record and the law.

It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it
had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective
buyers and to accept any counter-offer. Petitioners likewise failed to prove that their counter-offer had
been accepted by respondent EC, through Glanville and Delsaux. It must be stressed that when specific
performance is sought of a contract made with an agent, the agency must be established by clear, certain
and specific proof.24

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines,
provides:

SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees to be elected from
among the holders of stocks, or where there is no stock, from among the members of the corporation, who
shall hold office for one (1) year and until their successors are elected and qualified.

Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is
not affected by the personal rights,

obligations and transactions of the latter.25 It may act only through its board of directors or, when
authorized either by its by-laws or by its board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern the relation between the corporation and its
officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law.26

Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to
the limitations prescribed by law and the Constitution, as follows:

SEC. 36. Corporate powers and capacity. – Every corporation incorporated under this Code has the power
and capacity:
xxxx

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with
such real and personal property, including securities and bonds of other corporations, as the transaction of
a lawful business of the corporation may reasonably and necessarily require, subject to the limitations
prescribed by the law and the Constitution.

The property of a corporation, however, is not the property of the stockholders or members, and as such,
may not be sold without express authority from the board of directors.27 Physical acts, like the offering of
the properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of
such properties and the execution of the deed of sale covering such property, can be performed by the
corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by specific
acts of the board of directors.28 Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of such director, are not binding on the
corporation.29

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will
have to be with the board of directors through its officers and agents as authorized by a board resolution
or by its by-laws.30 An unauthorized act of an officer of the corporation is not binding on it unless the
latter ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a
corporation by a person purporting to be an agent thereof but without written authority from the
corporation is null and void. The declarations of the agent alone are generally insufficient to establish the
fact or extent of his/her authority.31

By the contract of agency, a person binds himself to render some service or to do something in
representation on behalf of another, with the consent or authority of the latter.32 Consent of both
principal and agent is necessary to create an agency. The principal must intend that the agent shall act for
him; the agent must intend to accept the authority and act on it, and the intention of the parties must find
expression either in words or conduct between them.33

An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or
his failure to repudiate the agency knowing that another person is acting on his behalf without authority.
Acceptance by the agent may be expressed, or implied from his acts which carry out the agency, or from
his silence or inaction according to the circumstances.34 Agency may be oral unless the law requires a
specific form.35 However, to create or convey real rights over immovable property, a special power of
attorney is necessary.36 Thus, when a sale of a piece of land or any portion thereof is through an agent,
the authority of the latter shall be in writing, otherwise, the sale shall be void.37
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of
Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone
offer for sale, for and in its behalf, the eight parcels of land owned by respondent EC including the
improvements thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the
shares of stock of respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners’ claim that
he had likewise been authorized by respondent EC to sell the parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux,
who, in turn, acted on the authority of respondent ESAC, through its Committee for Asia,38 the Board of
Directors of respondent ESAC,39 and the Belgian/Swiss component of the management of respondent
ESAC.40 As such, Adams and Glanville engaged the services of Marquez to offer to sell the properties to
prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he was authorized to
offer for sale the property for P27,000,000.00 and the other terms of the sale subject to negotiations.
When petitioners offered to purchase the property for P20,000,000.00, through Marquez, the latter
relayed petitioners’ offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of
respondent ESAC to petitioners’ offer. However, as admitted by petitioners in their Memorandum,
Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait for
confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on February 12,
1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of respondent ESAC
was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final liquidation.42
The offer of Delsaux emanated only from the "Belgian/Swiss decision," and not the entire management or
Board of Directors of respondent ESAC. While it is true that petitioners accepted the counter-offer of
respondent ESAC, respondent EC was not a party to the transaction between them; hence, EC was not
bound by such acceptance.

While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were
members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly
authorized agents of respondent EC; a board resolution evincing the grant of such authority is needed to
bind EC to any agreement regarding the sale of the subject properties. Such board resolution is not a mere
formality but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned
90% of the shares of stocks of respondent EC; however, the mere fact that a corporation owns a majority
of the shares of stocks of another, or even all of such shares of stocks, taken alone, will not justify their
being treated as one corporation.43

It bears stressing that in an agent-principal relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized
to perform all acts which the latter would have him do. Such a relationship can only be effected with the
consent of the principal, which must not, in any way, be compelled by law or by any court.44

The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC
empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell the said properties to
the petitioners. A person dealing with a known agent is not authorized, under any circumstances, blindly
to trust the agents; statements as to the extent of his powers; such person must not act negligently but
must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his
authority.45 The settled rule is that, persons dealing with an assumed agent are bound at their peril, and if
they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent
of authority, and in case either is controverted, the burden of proof is upon them to prove it.46 In this
case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from
respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As
gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of
the petitioners, that the latter had accepted such offer to sell the land and the improvements thereon.
However, we agree with the ruling of the appellate court that Marquez had no authority to bind
respondent EC to sell the subject properties. A real estate broker is one who negotiates the sale of real
properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land
upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale.
Indeed, an authority to find a purchaser of real property does not include an authority to sell.47

Equally barren of merit is petitioners’ contention that respondent EC is estopped to deny the existence of
a principal-agency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist,
the following must be established: (1) the principal manifested a representation of the agent’s authority or
knowlingly allowed the agent to assume such authority; (2) the third person, in good faith, relied upon
such representation; (3) relying upon such representation, such third person has changed his position to
his detriment.48 An agency by estoppel, which is similar to the doctrine of apparent authority, requires
proof of reliance upon the representations, and that, in turn, needs proof that the representations predated
the action taken in reliance.49 Such proof is lacking in this case. In their communications to the
petitioners, Glanville and Delsaux positively and unequivocally declared that they were acting for and in
behalf of respondent ESAC.

Neither may respondent EC be deemed to have ratified the transactions between the petitioners and
respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various
communications inter se were never submitted to the Board of Directors of respondent EC for ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the
petitioners.

SO ORDERED.

ROMEO J. CALLEJO, SR.