PASCUAL & DRAGON VS CIR AND CTA GRN 78133 October 18, 1988 Gancayco, J.

: FACTS: Petitioners bought two parcels of land and another 3 parcels the following year. The 2 parcels were sold in 1968 while the other 3 were sold in 1970. Realizing profits from the sale, petitioners filed capital gains tax. However, they were assessed with deficiency tax for corporate income taxes. ISSUE: Whether or not petitioners formed an unregistered partnership thereby assessed with corporate income tax. RULING: By the contract of partnership, two or more persons bind themselves to contribute money, industry or property to a common fund with the intention of dividing profits among themselves. There is no evidence though, that petitioners entered into an agreement to contribute MPI to a common fund and that they intend to divide profits among themselves. The petitioners purchased parcels of land and became coowners thereof. Their transactions of selling the lots were isolated cases. The character of habituality peculiar to the business transactions for the purpose of gain was not present. The sharing of returns foes not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. There must be a clear intent to form partnership, the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole property.

ROJAS VS. MAGLANAFACTS:Maglana and Rojas executed their Articles of Copartnership called Eastcoast DevelopmentEnterpises which had an indefinite term of existenceand was registered with the SEC and had a TimberLicense. One of the EDEs purposes was to apply orsecure timber and/or private forest lands and tooperate, develop and promote such f orestsrightsandconcessions.MshallmanagethebusinessaffairswhileRshall betheloggingsuperintendent.Allprofitsandlosses shall be divided share and sharealike between them.Later on, the two availed the services of Pahamotangasindustrial partner and executed another articles of co-partnership with the latter. The purpose of thissecondpartnership was to hold and secure renewalof timber license and the term of which was fixed to30 years.Stil later on, th ethree executed a conditional sale of interest in the partnership wherein M and R shallpurchase the interest, shareand participation in thepartnership of P. It was also agreed that afterpayment of such including amount of loansecuredby P in favor of the partnership, the two shall becomeowners of all equipment contributed by P.After this,the two continued the partnership without anywritten agreement or reconstitution of their articlesof partnership.Subsequently, R entered into a managementcontract with CMS Estate Inc. M wrote him re:hiscontributiontothecapitalinvestmentsaswellashisdutiesasloggingsuperintendent.Rrepliedthathewilnotbe abletocomply with bo th. M then told Rthat the latters share will just be 20% of the netprofits. Such was the sharing from 1957 to 1959without complaint or dispute. R took funds from thepartnership more than his contribution. Mnotified Rthat he dissolved the partnership. R filed an actionagainst M for the recovery of propertiesandaccounting of the partnership and damages.CFI:the partnership of M and R is after P retired isone of de facto and at will; the sharing of profits andlosses is onthe basis of actual contributions; there isno evidence these properties were acquired by thepartnership funds thus it should not belong to it;neither is entitled to damages; the letter of M ineffect dissolvedthe partnership; sale of forestconcession is validand bindingand shouldbecons idered as Ms contribution; R must pay or turnover to the partnership the profits he received fromCMS and pay his personal account to the partnership;Mmust be paid 85k which he shouldve received butwas not paid to him and must be considered as hiscontribution.ISSUE:what is the nature of the partnership andlegal relationship of M-R after P retired from thesecond partnership? MayM unilaterally dissolve thepartnership? SC:There was no intention to dissolve the firstpartnership upon the constitution of the second aseverything else wasthe same except for the fact thatthey took in an industrial partner: they pursued thesame purposes, the capitalcontributions call for thesame amounts, all subsequent renewals of TimberLicense were secured in favor of thefirst partnership,all businesses were carried out under the registeredarticles.M and R agreed to purchase theinterest, share andparticipation of P and after, they became owners of the equipment contributed by P. Bothconsideredthemselves as partners as per their letters. It is not apartnership de facto or at will as it was existingandduly registered. The letter of M dissolving thepartnership is in effect a notice of withdrawal andmay be doneby expressly withdrawing even beforeexpiration of the period with or without justifiablecause. As tothe liquidation of the partnership it shall be divided share and share alike after an accounting has been made. R is not entitled toany profits as he failed to give theamount he had undertaken to contribute thus, hadbecome a debtor of thepartnership.M cannot be liable for damages as R abandoned thepartnership thru his acts and also took funds inanamount more than his contribution.Goguilay and Partnership vs. Sycip et. Al.Reyes J& L: &Facts:Tan Sin and Goguilay into a partnership in business of buying and selling real state properties. Partners stipulatedthat Tan Sin will be the managing partner and that heirs shall represent the deceased partnership incurred debtsand Tan Sin died, he was represents the deceased partner should the 10 years lifetime of the partnership has notyet expired. When the partnership incurred debts and Tan Sin will be managing partnership has not yet expired.

Tuazon, et. Al. vs. Heirs of Bartolome Ramos. G.R. No. 156262, July 14, 2005 Facts: Heirs of Bartolome Ramos alleged that spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from [the deceased Bartolome] Ramos [predecessor-in-interest of respondents]. That of this [quantity,] . . . only 4,437 cavans [have been paid for so far], leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment therefor, the spouses Tuazon issued several Traders Royal Bank checks. But when these checks were encashed, all of the checks bounced due to insufficiency of funds. [Respondents] advanced that before issuing said checks[,] spouses Tuazon already knew that they had no available fund to support the checks, and they failed to provide for the payment of these despite repeated demands made on them. For their part, defendants denied having purchased rice from [Bartolome] Ramos. They alleged that it was Magdalena Ramos, wife of said deceased, who owned and traded the merchandise and Maria Tuazon was merely her agent. They argued that it was Evangeline Santos who was the buyer of the rice and issued the checks to Maria Tuazon as payments therefor. In good faith[,] the checks were received [by petitioner] from Evangeline Santos and turned over to Ramos without knowing that these were not funded. Issue: WON there was a contract of agency between spouses Tuazon and spouses Ramos Held: there was no contract of Agency Ratio: In a contract of agency, one binds oneself to render some service or to do something in representation or on behalf of another, with the latter's consent or authority. 9 The following are the elements of agency: (1) the parties' consent, express or implied, to establish the relationship; (2) the object, which is the execution of a juridical act in relation to a third person; (3) the representation, by which the one who acts as an agent does so, not for oneself, but as a representative; (4) the limitation that the agent acts within the scope of his or her authority. 10 As the basis of agency is representation, there must be, on the part of the principal, an actual intention to appoint, an intention naturally inferable from the principal's words or actions. In the same manner, there must be an intention on the part of the agent to accept the appointment and act upon it. Absent such mutual intent, there is generally no agency. 11 This Court finds no reversible error in the findings of the courts a quo that petitioners were the rice buyers themselves; they were not mere agents of respondents in their rice dealership. The question of whether a contract is one of sale or of agency depends on the intention of the parties. The Court notes that petitioners, on their own behalf, sued Evangeline Santos for collection of the amounts represented by the bounced checks, in a separate civil case that they sought to be consolidated with the current one. If, as they claim, they were mere agents of respondents, petitioners should have brought the suit against Santos for and on behalf of their alleged principal, in accordance with Section 2 of Rule 3 of the Rules on Civil Procedure. 15 Their filing a suit against her in their own names negates their claim that they acted as mere agents in selling the rice obtained from Bartolome Ramos.

[G.R. No. 114311. November 29, 1996]

COSMIC

LUMBER CORPORATION, petitioner, PEREZ, respondents.

vs. COURT

OF

APPEALS

and

ISIDRO

COSMIC LUMBER CORPORATION through its General Manager executed on 28 January 1985 a Special Power of Attorney appointing Paz G. Villamil-Estrada as attorney-in-fact x x x to initiate, institute and file any court action for the ejectment of third persons and/or squatters of the entire lot 9127 and 443 and covered by TCT Nos. 37648 and 37649, for the said squatters to remove their houses and vacate the premises in order that the corporation may take material possession of the entire lot, and for this purpose, to appear at the pre-trial conference and enter into any stipulation of facts and/or compromise agreement so far as it shall protect the rights and interest of the corporation in the aforementioned lots.[1] On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney, instituted an action for the ejectment of private respondent Isidro Perez and recover the possession of a portion of Lot No. 443 before the Regional Trial Court of Dagupan, docketed as Civil Case No. D-7750.[2] On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement with respondent Perez, the terms of which follow: 1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer Rodolfo dela Cruz the area at present occupied by defendant wherein his house is located is 333 square meters on the easternmost part of lot 443 and which portion has been occupied by defendant for several years now; 2. That to buy peace said defendant pays unto the plaintiff through herein attorney-in-fact the sum of P26,640.00 computed at P80.00/square meter; 3. That plaintiff hereby recognizes ownership and possession of the defendant by virtue of this compromise agreement over said portion of 333 square m. of lot 443 which portion will be located on the easternmost part as indicated in the sketch as annex A; 4. Whatever expenses of subdivision, registration, and other incidental expenses shall be shouldered by the defendant.[3] On 27 November 1985 the Compromise Agreement was approved by the trial court and judgment was rendered in accordance therewith.[4] Although the decision became final and executory it was not executed within the 5-year period from date of its finality allegedly due to the failure of petitioner to produce the owners duplicate copy of Title No. 37649 needed to segregate from Lot No. 443 the portion sold by the attorney-in-fact, Paz G. Villamil-Estrada, to private respondent under the compromise agreement. Thus on 25 January 1993 respondent filed a complaint to revive the judgment, docketed as Civil Case No. D-10459.[5] Petitioner asserts that it was only when the summons in Civil Case No. D-10459 for the revival of judgment was served upon it that it came to know of the compromise agreement entered into between Paz G. Villamil-Estrada and respondent Isidro Perez upon which the trial court based its decision of26 July 1993 in Civil Case No. D-7750. Forthwith, upon learning of the fraudulent transaction, petitioner

sought annulment of the decision of the trial court before respondent Court of Appeals on the ground that the compromise agreement was void because: (a) the attorney-in-fact did not have the authority to dispose of, sell, encumber or divest the plaintiff of its ownership over its real property or any portion thereof; (b) the authority of the attorney-in-fact was confined to the institution and filing of an ejectment case against third persons/squatters on the property of the plaintiff, and to cause their eviction therefrom; (c) while the special power of attorney made mention of an authority to enter into a compromise agreement, such authority was in connection with, and limited to, the eviction of third persons/squatters thereat, in order that the corporation may take material possession of the entire lot; (d) the amount of P26,640.00 alluded to as alleged consideration of said agreement was never received by the plaintiff; (e) the private defendant acted in bad faith in the execution of said agreement knowing fully well the want of authority of the attorney-in-fact to sell, encumber or dispose of the real property of plaintiff; and, (f) the disposal of a corporate property indispensably requires a Board Resolution of its Directors, a fact which is wanting in said Civil Case No. D-7750, and the General Manager is not the proper officer to encumber a corporate property.[6] On 29 October 1993 respondent court dismissed the complaint on the basis of its finding that not one of the grounds for annulment, namely, lack of jurisdiction, fraud or illegality was shown to exist. [7] It also denied the motion for reconsideration filed by petitioner, discoursing that the alleged nullity of the compromise judgment on the ground that petitioners attorney in fact Villamit-Estrada was not authorized to sell the subject property may be raised as a defense in the execution of the compromise judgment as it does not bind petitioner, but not as a ground for annulment of judgment because it does not affect the jurisdiction of the trial court over the action nor does it amount to extrinsic fraud.[8] Petitioner challenges this verdict. It argues that the decision of the trial court is void because the compromise agreement upon which it was based is void. Attorney-in-fact Villamil-Estrada did not possess the authority to sell or was she armed with a Board Resolution authorizing the sale of its property. She was merely empowered to enter into a compromise agreement in the recovery suit she was authorized to file against persons squatting on Lot No. 443, such authority being expressly confined to the ejectment of third persons or squatters of x x x lot x x x (No.) 443 x x x for the said squatters to remove their houses and vacate the premises in order that the corporation may take material possession of the entire lot x x x x We agree with petitioner. The authority granted Villamil-Estrada under the special power of attorney was explicit and exclusionary: for her to institute any action in court to eject all persons found on Lots Nos. 9127 and 443 so that petitioner could take material possession thereof, and for this purpose, to appear at the pre-trial and enter into any stipulation of facts and/or compromise agreement but only insofar as this was protective of the rights and interests of petitioner in the property. Nowhere in this authorization was Villamil-Estrada granted expressly or impliedly any power to sell the subject property nor a portion thereof. Neither can a conferment of the power to sell be validly inferred from the specific authority to enter into a compromise agreement because of the explicit limitation fixed by the grantor that the compromise entered into shall only be so far as it shall protect the rights and interest of the corporation in the aforementioned lots. In the context of the specific investiture of powers to Villamil-Estrada, alienation by sale of an immovable certainly cannot be deemed protective of the right of petitioner to physically possess the same, more so when the land was being sold for a price of P80.00 per square meter, very much less than its assessed value of P250.00 per square meter, and considering further that petitioner never received the proceeds of the sale. When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. [9] Thus the authority of an agent to execute a contract for the sale of real estate must be conferred in writing and must give him specific authority, either to conduct the general business of the principal or to execute a binding contract containing terms and conditions which are in the contract he did execute.[10] A special power of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration.[11] The express mandate required by law to enable an appointee of an agency (couched) in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. [12] For the principal to confer the right upon an agent to sell real estate, a power of attorney must so express the powers of the agent in clear and unmistakable language. When there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document.[13] It is therefore clear that by selling to respondent Perez a portion of petitioners land through a compromise agreement, Villamil-Estrada acted without or in obvious authority. The sale ipso jure is consequently void. So is the compromise agreement. This being the case, the judgment based thereon is necessarily void. Antipodal to the opinion expressed by respondent court in resolving petitioners motion for reconsideration, the nullity of the settlement between Villamil-Estrada and Perez impaired the jurisdiction of the trial court to render its decision based on the compromise agreement. InAlviar v. Court of First Instance of La Union,[14] the Court held -

x x x x this court does not hesitate to hold that the judgment in question is null and void ab initio. It is not binding upon and cannot be executed against the petitioners. It is evident that the compromise upon which the judgment was based was not subscribed by them x x x x Neither could Attorney Ortega bind them validly in the compromise because he had no special authority x x x x As the judgment in question is null and void ab initio, it is evident that the court acquired no jurisdiction to render it, much less to order the execution thereof x x x x x x x A judgment, which is null and void ab initio, rendered by a court without jurisdiction to do so, is without legal efficacy and may properly be impugned in any proceeding by the party against whom it is sought to be enforced x x x x This ruling was adopted in Jacinto v. Montesa,[15] by Mr. Justice J.B.L. Reyes, a much-respected authority on civil law, where the Court declared that a judgment based on a compromise entered into by an attorney without specific authority from the client is void. Such judgment may be impugned and its execution restrained in any proceeding by the party against whom it is sought to be enforced. The Court also observed that a defendant against whom a judgment based on a compromise is sought to be enforced may file a petition for certiorari to quash the execution. He could not move to have the compromise set aside and then appeal from the order of denial since he was not a party to the compromise. Thus it would appear that the obiter of the appellate court that the alleged nullity of the compromise agreement should be raised as a defense against its enforcement is not legally feasible. Petitioner could not be in a position to question the compromise agreement in the action to revive the compromise judgment since it was never privy to such agreement. Villamil-Estrada who signed the compromise agreement may have been the attorney-in-fact but she could not legally bind petitioner thereto as she was not entrusted with a special authority to sell the land, as required in Art. 1878, par. (5), of the Civil Code. Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of Appeals to annul and set aside judgments of Regional Trial Courts. [16] Thus, the Intermediate Appellate Court (now Court of Appeals) shall exercise x x x x (2) Exclusive original jurisdiction over action for annulment of judgments of the Regional Trial Courts x x x x However, certain requisites must first be established before a final and executory judgment can be the subject of an action for annulment. It must either be void for want of jurisdiction or for lack of due process of law, or it has been obtained by fraud.[17] Conformably with law and the above-cited authorities, the petition to annul the decision of the trial court in Civil Case No. D-7750 before the Court of Appeals was proper. Emanating as it did from a void compromise agreement, the trial court had no jurisdiction to render a judgment based thereon.[18] It would also appear, and quite contrary to the finding of the appellate court that the highly reprehensible conduct of attorney-in-fact Villamil-Estrada in Civil Case No. 7750 constituted an extrinsic or collateral fraud by reason of which the judgment rendered thereon should have been struck down. Not all the legal semantics in the world can becloud the unassailable fact that petitioner was deceived and betrayed by its attorney-in-fact. Villamil-Estrada deliberately concealed from petitioner, her principal, that a compromise agreement had been forged with the end-result that a portion of petitioners property was sold to the deforciant, literally for a song. Thus completely kept unaware of its agents artifice, petitioner was not accorded even a fighting chance to repudiate the settlement so much so that the judgment based thereon became final and executory. For sure, the Court of Appeals restricted the concept of fraudulent acts within too narrow limits. Fraud may assume different shapes and be committed in as many different ways and here lies the danger of attempting to define fraud. For man in his ingenuity and fertile imagination will always contrive new schemes to fool the unwary. There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is one the effect of which prevents a party from hearing a trial, or real contest, or from presenting all of his case to the court, or where it operates upon matters, not pertaining to the judgment itself, but to the manner in which it was procured so that there is not a fair submission of the controversy. In other words, extrinsic fraud refers to any fraudulent act of the prevailing party in the litigation which is committed outside of the trial of the case, whereby the defeated party has been prevented from exhibiting fully his side of the case by fraud or deception practiced on him by his opponent. [19] Fraud is extrinsic where the unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception practiced on him by his opponent, as by keeping him away from court, a false promise of a compromise; or where the defendant never had knowledge of the suit, being kept in ignorance by the acts of the plaintiff; or where an attorney fraudulently or without authority connives at his defeat; these and similar cases which show that there has never been a real contest in the trial or hearing of the case are reasons for which a new suit may be sustained to set aside and annul the former judgment and open the case for a new and fair hearing.[20] It may be argued that petitioner knew of the compromise agreement since the principal is chargeable with and bound by the knowledge of or notice to his agent received while the agent was acting as such. But the general rule is intended to protect those who exercise good faith and not as a

shield for unfair dealing. Hence there is a well-established exception to the general rule as where the conduct and dealings of the agent are such as to raise a clear presumption that he will not communicate to the principal the facts in controversy.[21] The logical reason for this exception is that where the agent is committing a fraud, it would be contrary to common sense to presume or to expect that he would communicate the facts to the principal. Verily, when an agent is engaged in the perpetration of a fraud upon his principal for his own exclusive benefit, he is not really acting for the principal but is really acting for himself, entirely outside the scope of his agency.[22] Indeed, the basic tenets of agency rest on the highest considerations of justice, equity and fair play, and an agent will not be permitted to pervert his authority to his own personal advantage, and his act in secret hostility to the interests of his principal transcends the power afforded him.[23] WHEREFORE, the petition is GRANTED. The decision and resolution of respondent Court of Appeals dated 29 October 1993 and 10 March 1994, respectively, as well as the decision of the Regional Trial Court of Dagupan City in Civil Case No. D-7750 dated 27 November 1985, are NULLIFIED and SET ASIDE. The Compromise Agreement entered into between Attorney-in-fact Paz G. Villamil-Estrada and respondent Isidro Perez is declared VOID. This is without prejudice to the right of petitioner to pursue its complaint against private respondent Isidro Perez in Civil Case No. D-7750 for the recovery of possession of a portion of Lot No. 443. YUN KWAN BYUNG, Petitioner, Present: CARPIO, J., Chairperson, CARPIO MORALES,* LEONARDO-DE CASTRO,** DEL CASTILLO, and ABAD, JJ. GAMING Promulgated: December 11, 2009 G.R. No. 163553

- versus -

PHILIPPINE AMUSEMENT AND CORPORATION, Respondent.

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

The Case

Yun Kwan Byung (petitioner) filed this Petition for Review [1] assailing the Court of Appeals Decision[2] dated 27 May 2003 in CA-G.R. CV No. 65699 as well as the Resolution[3] dated 7 May 2004 denying the Motion for Reconsideration. In the assailed decision, the Court of Appeals (CA) affirmed the Regional Trial Courts Decision [4] dated 6 May 1999. The Regional Trial Court of Manila, Branch 13 (trial court), dismissed petitioners demand against respondent Philippine Amusement and Gaming Corporation (PAGCOR) for the redemption of gambling chips. The Facts PAGCOR is a government-owned and controlled corporation tasked to establish and operate gambling clubs and casinos as a means to promote tourism and generate sources of revenue for the government. To achieve these objectives, PAGCOR is vested with the power to enter into contracts of every kind and for any lawful purpose that pertains to its business. Pursuant to this authority, PAGCOR launched its Foreign Highroller Marketing Program (Program). The Program aims to invite patrons from foreign countries to play at the dollar pit of designated PAGCOR-operated casinos under specified terms and conditions and in accordance with industry practice.[5] The Korean-based ABS Corporation was one of the international groups that availed of the Program. In a letter-agreement dated 25 April 1996 (Junket Agreement), ABS Corporation agreed to bring in foreign players to play at the five designated gaming tables of the Casino Filipino Silahis at the

Grand Boulevard Hotel in Manila (Casino Filipino). The relevant stipulations of the Junket Agreement state:

1.

PAGCOR will provide ABS Corporation

with separate junket chips. The junket chips will be distinguished from the chips being used by other players in the gaming tables. ABS Corporation will distribute these junket chips to its players and at the end of the playing period, ABS Corporation will collect the junket chips from its players and make an accounting to the casino treasury. 2. ABS Corporation will assume sole

responsibility to pay the winnings of its foreign players and settle the collectibles from losing players. 3. ABS Corporation shall hold PAGCOR absolutely free and harmless from any damage, claim or liability which may arise from any cause in connection with the Junket Agreement. In providing the gaming facilities and services to these foreign players, PAGCOR is entitled to receive from ABS Corporation a 12.5% share in the gross winnings of ABS Corporation or 1.5 million US dollars, whichever is higher, over a playing period of 6 months. PAGCOR has the option to extend the period.[6]

5.

Petitioner, a Korean national, alleges that from November 1996 to March 1997, he came to the Philippines four times to play for high stakes at the Casino Filipino. [7] Petitioner claims that in the course of the games, he was able to accumulate gambling chips worth US$2.1 million. Petitioner presented as evidence during the trial gambling chips with a face value of US$1.1 million. Petitioner contends that when he presented the gambling chips for encashment with PAGCORs employees or agents, PAGCOR refused to redeem them.[8] Petitioner brought an action against PAGCOR seeking the redemption of gambling chips valued at US$2.1 million. Petitioner claims that he won the gambling chips at the Casino Filipino, playing continuously day and night. Petitioner alleges that every time he would come to Manila, PAGCOR would extend to him amenities deserving of a high roller. A PAGCOR official who meets him at the airport would bring him to Casino Filipino, a casino managed and operated by PAGCOR. The card dealers were all PAGCOR employees, the gambling chips, equipment and furnitures belonged to PAGCOR, and PAGCOR enforced all the regulations dealing with the operation of foreign exchange gambling pits. Petitioner states that he was able to redeem his gambling chips with the cashier during his first few winning trips. But later on, the casino cashier refused to encash his gambling chips so he had no recourse but to deposit his gambling chips at the Grand Boulevard Hotels deposit box, every time he departed from Manila.[9] PAGCOR claims that petitioner, who was brought into the Philippines by ABS Corporation, is a junket player who played in the dollar pit exclusively leased by ABS Corporation for its junket players. PAGCOR alleges that it provided ABS Corporation with distinct junket chips. ABS Corporation distributed these chips to its junket players. At the end of each playing period, the junket players would surrender the chips to ABS Corporation. Only ABS Corporation would make an accounting of these chips to PAGCORs casino treasury.[10] As additional information for the junket players playing in the gaming room leased to ABS Corporation, PAGCOR posted a notice written in English and Korean languages which reads: NOTICE This GAMING ROOM is exclusively operated by ABS under arrangement with PAGCOR, the former is solely accountable for all PLAYING CHIPS wagered on the tables. Any financial ARRANGEMENT/TRANSACTION between PLAYERS and ABS shall only be binding upon said PLAYERS and ABS.[11] PAGCOR claims that this notice is a standard precautionary measure [12] to avoid confusion between junket players of ABS Corporation and PAGCORs players. PAGCOR argues that petitioner is not a PAGCOR player because under PAGCORs gaming rules, gambling chips cannot be brought outside the casino. The gambling chips must be converted to cash at the end of every gaming period as they are inventoried every shift. Under PAGCORs rules, it is

impossible for PAGCOR players to accumulate two million dollars worth of gambling chips and to bring the chips out of the casino premises.[13] Since PAGCOR disclaimed liability for the winnings of players recruited by ABS Corporation and refused to encash the gambling chips, petitioner filed a complaint for a sum of money before the trial court.[14] PAGCOR filed a counterclaim against petitioner. Then, trial ensued. On 6 May 1999, the trial court dismissed the complaint and counterclaim. Petitioner appealed the trial courts decision to the CA. On 27 May 2003, the CA affirmed the appealed decision. On 27 June 2003, petitioner moved for reconsideration which was denied on 7 May 2004. Aggrieved by the CAs decision and resolution, petitioner elevated the case before this Court.

The Ruling of the Trial Court The trial court ruled that based on PAGCORs charter, [15] PAGCOR has no authority to lease any portion of the gambling tables to a private party like ABS Corporation. Section 13 of Presidential Decree No. 1869 or the PAGCORs charter states: Sec. 13. Exemptions xxx (4) Utilization of Foreign Currencies The Corporation shall have the right and authority, solely and exclusively in connection with the operations of the casino(s), to purchase, receive, exchange and disburse foreign exchange, subject to the following terms and conditions: (a) A specific area in the casino(s) or gaming pit shall be put up solely and exclusively for players and patrons utilizing foreign currencies; (b) The Corporation shall appoint and designate a duly accredited commercial bank agent of the Central Bank, to handle, administer and manage the use of foreign currencies in the casino(s); (c) The Corporation shall provide an office at casino(s) exclusively for the employees of the designated bank, agent of the Central Bank, where the Corporation shall maintain a dollar account which will be utilized exclusively for the above purpose and the casino dollar treasury employees; (d) Only persons with foreign passports or certificates of identity (for Hong Kong patron only) duly issued by the government or country of their residence will be allowed to play in the foreign exchange gaming pit; (e) Only foreign exchange prescribed to form part of the Philippine International Reserve and the following foreign exchange currencies: Australian Dollar, Singapore Dollar, Hong Kong Dollar, shall be used in this gaming pit; (f) The disbursement, administration, management and recording of foreign exchange currencies used in the casino(s) shall be carried out in accordance with existing foreign exchange regulations, and periodical reports of the transactions in such foreign exchange currencies by the Corporation shall be duly recorded and reported to the Central Bank thru the designated Agent Bank; and

(g) The Corporation shall issue the necessary rules and regulations for the guidance and information of players qualified to participate in the foreign exchange gaming pit, in order to make certain that the terms and conditions as above set forth are strictly complied with.

The trial court held that only PAGCOR could use foreign currency in its gaming tables. When PAGCOR accepted only a fixed portion of the dollar earnings of ABS Corporation in the concept of a lease of facilities, PAGCOR shared its franchise with ABS Corporation in violation of the PAGCORs charter. Hence, the Junket Agreement is void. Since the Junket Agreement is not permitted by PAGCORs charter, the mutual rights and obligations of the parties to this case would be resolved based on agency and estoppel.[16] The trial court found that the petitioner wanted to redeem gambling chips that were specifically used by ABS Corporation at its gaming tables. The gambling chips come in distinctive orange or yellow

colors with stickers bearing denominations of 10,000 or 1,000. The 1,000 gambling chips are smaller in size and the words no cash value marked on them. The 10,000 gambling chips do not reflect the no cash value sign. The senior treasury head of PAGCOR testified that these were the gambling chips used by the previous junket operators and PAGCOR merely continued using them. However, the gambling chips used in the regular casino games were of a different quality.[17] The trial court pointed out that PAGCOR had taken steps to warn players brought in by all junket operators, including ABS Corporation, that they were playing under special rules. Apart from the different kinds of gambling chips used, the junket players were confined to certain gaming rooms. In these rooms, notices were posted that gambling chips could only be encashed there and nowhere else. A photograph of one such notice, printed in Korean and English, stated that the gaming room was exclusively operated by ABS Corporation and that ABS Corporation was solely accountable for all the chips wagered on the gaming tables. Although petitioner denied seeing this notice, this disclaimer has the effect of a negative evidence that can hardly prevail against the positive assertions of PAGCOR officials whose credibility is also not open to doubt. The trial court concluded that petitioner had been alerted to the existence of these special gambling rules, and the mere fact that he continued to play under the same restrictions over a period of several months confirms his acquiescence to them. Otherwise, petitioner could have simply chose to stop gambling.[18] In dismissing petitioners complaint, the trial court concluded that petitioners demand against PAGCOR for the redemption of the gambling chips could not stand. The trial court stated that petitioner, a stranger to the agreement between PAGCOR and ABS Corporation, could not under principles of equity be charged with notice other than of the apparent authority with which PAGCOR had clothed its employees and agents in dealing with petitioner. Since petitioner was made aware of the special rules by which he was playing at the Casino Filipino, petitioner could not now claim that he was not bound by them. The trial court explained that in an unlawful transaction, the courts will extend equitable relief only to a party who was unaware of all its dimensions and whose ignorance of them exposed him to the risk of being exploited by the other. Where the parties enter into such a relationship with the opportunity to know all of its ramifications, as in this case, there is no room for equitable considerations to come to the rescue of any party. The trial court ruled that it would leave the parties where they are.[19]

The Ruling of the Court of Appeals In dismissing the appeal, the appellate court addressed the four errors assigned by petitioner. First, petitioner maintains that he was never a junket player of ABS Corporation. Petitioner also denies seeing a notice that certain gaming rooms were exclusively operated by entities under special agreement.[20] The CA ruled that the records do not support petitioners theory. Petitioners own testimony reveals that he enjoyed special accommodations at the Grand Boulevard Hotel. This similar accommodation was extended to players brought in by ABS Corporation and other junket operators. Petitioner cannot disassociate himself from ABS Corporation for it is unlikely that an unknown high roller would be accorded choice accommodations by the hotel unless the accommodation was facilitated by a junket operator who enjoyed such privilege.[21] The CA added that the testimonies of PAGCORs employees affirming that notices were posted in English and Korean in the gaming areas are credible in the absence of any convincing proof of ill motive. Further, the specified gaming areas used only special chips that could be bought and exchanged at certain cashier booths in that area.[22] Second, petitioner attacks the validity of the contents of the notice. Since the Junket Agreement is void, the notice, which was issued pursuant to the Junket Agreement, is also void and cannot affect petitioner.[23]

The CA reasoned that the trial court never declared the notice valid and neither did it enforce the contents thereof. The CA emphasized that it was the act of cautioning and alerting the players that was upheld. The trial court ruled that signs and warnings were in place to inform the public, petitioner included, that special rules applied to certain gaming areas even if the very agreement giving rise to these rules is void.[24]

Third, petitioner takes the position that an implied agency existed between PAGCOR and ABS Corporation.[25] The CA disagreed with petitioners view. A void contract has no force and effect from the very beginning. It produces no effect either against or in favor of anyone. Neither can it create, modify or extinguish the juridical relation to which it refers. Necessarily, the Junket Agreement, being void from the beginning, cannot give rise to an implied agency. The CA explained that it cannot see how the principle of implied agency can be applied to this case. Article 1883[26] of the Civil Code applies only to a situation where the agent is authorized by the principal to enter into a particular transaction, but instead of contracting on behalf of the principal, the agent acts in his own name.[27] The CA concluded that no such legal fiction existed between PAGCOR and ABS Corporation. PAGCOR entered into a Junket Agreement to lease to ABS Corporation certain gaming areas. It was never PAGCORs intention to deal with the junket players. Neither did PAGCOR intend ABS Corporation to represent PAGCOR in dealing with the junket players. Representation is the basis of agency but unfortunately for petitioner none is found in this case.[28] The CA added that the special gaming chips, while belonging to PAGCOR, are mere accessories in the void Junket Agreement with ABS Corporation. In Article 1883, the phrase things belonging to the principal refers only to those things or properties subject of a particular transaction authorized by the principal to be entered into by its purported agent. Necessarily, the gambling chips being mere incidents to the void lease agreement cannot fall under this category.[29] The CA ruled that Article 2152[30] of the Civil Code is also not applicable. The circumstances relating to negotiorum gestio are non-existent to warrant an officious manager to take over the management and administration of PAGCOR.[31] Fourth, petitioner asks for equitable relief.[32] The CA explained that although petitioner was never a party to the void Junket Agreement, petitioner cannot deny or feign blindness to the signs and warnings all around him. The notices, the special gambling chips, and the separate gaming areas were more than enough to alert him that he was playing under different terms. Petitioner persisted and continued to play in the casino. Petitioner also enjoyed the perks extended to junket players of ABS Corporation. For failing to heed these signs and warnings, petitioner can no longer be permitted to claim equitable relief. When parties do not come to court with clean hands, they cannot be allowed to profit from their own wrong doing.[33]

The Issues Petitioners raise three issues in this petition: 1. Whether the CA erred in holding that PAGCOR is not liable to petitioner, disregarding the doctrine of implied agency, or agency by estoppel; 2. Whether the CA erred in using intent of the contracting parties as the test for creation of agency, when such is not relevant since the instant case involves liability of the presumed principal in implied agency to a third party; and 3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least adopted, the acts of the agent, ABS Corporation.[34] The Ruling of the Court The petition lacks merit.

Courts will not enforce debts arising from illegal gambling

Gambling is prohibited by the laws of the Philippines as specifically provided in Articles 195 to 199 of the Revised Penal Code, as amended. Gambling is an act beyond the pale of good morals, [35] and is thus prohibited and punished to repress an evil that undermines the social, moral, and economic growth of the nation.[36] Presidential Decree No. 1602 (PD 1602),[37] which modified Articles 195-199 of the Revised Penal Code and repealed inconsistent provisions, [38] prescribed stiffer penalties on illegal gambling.[39] As a rule, all forms of gambling are illegal. The only form of gambling allowed by law is that stipulated under Presidential Decree No. 1869, which gave PAGCOR its franchise to maintain and operate gambling casinos. The issue then turns on whether PAGCOR can validly share its franchise with junket operators to operate gambling casinos in the country. Section 3(h) of PAGCORs charter states: Section 3. Corporate Powers. - The Corporation shall have the following powers and functions, among others: xxx h) to enter into, make, perform, and carry out contracts of every kind and for any lawful purpose pertaining to the business of the Corporation, or in any manner incident thereto, as principal, agent or otherwise, with any person, firm, association, or corporation. xxx

The Junket Agreement would be valid if under Section 3(h) of PAGCORs charter, PAGCOR could share its gambling franchise with another entity. In Senator Jaworski v. Phil. Amusement and Gaming Corp.,[40] the Court discussed the extent of the grant of the legislative franchise to PAGCOR on its authority to operate gambling casinos: A legislative franchise is a special privilege granted by the state to corporations. It is a privilege of public concern which cannot be exercised at will and pleasure, but should be reserved for public control and administration, either by the government directly, or by public agents, under such conditions and regulations as the government may impose on them in the interest of the public. It is Congress that prescribes the conditions on which the grant of the franchise may be made. Thus the manner of granting the franchise, to whom it may be granted, the mode of conducting the business, the charter and the quality of the service to be rendered and the duty of the grantee to the public in exercising the franchise are almost always defined in clear and unequivocal language. After a circumspect consideration of the foregoing discussion and the contending positions of the parties, we hold that PAGCOR has acted beyond the limits of its authority when it passed on or shared its franchise to SAGE. In the Del Mar case where a similar issue was raised when PAGCOR entered into a joint venture agreement with two other entities in the operation and management of jai alai games, the Court, in an En Banc Resolution dated 24 August 2001, partially granted the motions for clarification filed by respondents therein insofar as it prayed that PAGCOR has a valid franchise, but only by itself ( i.e. not in association with any other person or entity), to operate, maintain and/or manage the game of jai-alai. In the case at bar, PAGCOR executed an agreement with SAGE whereby the former grants the latter the authority to operate and maintain sports betting stations and Internet gaming operations. In essence, the grant of authority gives SAGE the privilege to actively participate, partake and share PAGCORs franchise to operate a gambling activity. The grant of franchise is a special privilege that constitutes a right and a duty to be performed by the grantee. The grantee must not perform its activities arbitrarily and whimsically but must abide by the limits set by its franchise and strictly adhere to its terms and conditionalities. A corporation as a creature of the State is presumed to exist for the common good. Hence, the special privileges and franchises it receives are subject to the laws of the State and the limitations of its charter. There is therefore a reserved right of the State to inquire how these privileges had been employed, and whether they have been abused. (Emphasis supplied)

THUS, PAGCOR HAS THE SOLE AND EXCLUSIVE AUTHORITY TO OPERATE A GAMBLING ACTIVITY. WHILE PAGCOR IS ALLOWED UNDER ITS CHARTER TO ENTER INTO OPERATORS OR MANAGEMENT CONTRACTS, PAGCOR IS NOT ALLOWED UNDER THE SAME CHARTER TO RELINQUISH OR SHARE ITS FRANCHISE. PAGCOR CANNOT DELEGATE ITS POWER IN VIEW OF THE LEGAL PRINCIPLE OF DELEGATA POTESTAS DELEGARE NON POTEST, INASMUCH AS THERE IS NOTHING IN THE CHARTER TO SHOW THAT IT HAS BEEN EXPRESSLY AUTHORIZED TO DO SO.[41] Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of ABS Corporation from its foreign currency collection, allowed ABS Corporation to operate gaming tables in the dollar pit. The Junket Agreement is in direct violation of PAGCORs charter and is therefore void. Since the Junket Agreement violates PAGCORs charter, gambling between the junket player and the junket operator under such agreement is illegal and may not be enforced by the courts. Article 2014[42] of the Civil Code, which refers to illegal gambling, states that no action can be maintained by the winner for the collection of what he has won in a game of chance. Although not raised as an issue by petitioner, we deem it necessary to discuss the applicability of Republic Act No. 9487[43] (RA 9487) to the present case. RA 9487 amended the PAGCOR charter, granting PAGCOR the power to enter into special agreement with third parties to share the privileges under its franchise for the operation of gambling casinos:

Section 1. The Philippine Amusement and Gaming Corporation (PAGCOR) franchise granted under Presidential Decree N o. 1869 otherwise known as the PAGCOR Charter, is hereby further amended to read as follows: XXX (2) SECTION 3(H) IS HEREBY AMENDED TO READ AS FOLLOWS: SEC. 3. CORPORATE POWERS. x x x (h) to enter into, make, conclude, perform, and carry out contracts of every kind and nature and for any lawful purpose which are necessary, appropriate, proper or incidental to any business or purpose of the PAGCOR, including but not limited to investment agreements, joint venture agreements, management agreements, agency agreements, whether as principal or as an agent, manpower supply agreements, or any other similar agreements or arrangements with any person, firm, association or corporation. (Boldfacing supplied)

PAGCOR sought the amendment of its charter precisely to address and remedy the legal impediment raised in Senator Jaworski v. Phil. Amusement and Gaming Corp. Unfortunately for petitioner, RA 9487 cannot be applied to the present case. The Junket Agreement was entered into between PAGCOR and ABS Corporation on 25 April 1996 when the PAGCOR charter then prevailing (PD 1869) prohibited PAGCOR from entering into any arrangement with a third party that would allow such party to actively participate in the casino operations. It is a basic principle that laws should only be applied prospectively unless the legislative intent to give them retroactive effect is expressly declared or is necessarily implied from the language used. [44] RA 9487 does not provide for any retroactivity of its provisions. All laws operate prospectively absent

a clear contrary language in the text, [45] and that in every case of doubt, the doubt will be resolved against the retroactive operation of laws.[46]

Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the law when the acts giving rise to the claimed liabilities took place. This makes the gambling activity participated in by petitioner illegal. Petitioner cannot sue PAGCOR to redeem the cash value of the gambling chips or recover damages arising from an illegal activity for two reasons. First, petitioner engaged in gambling with ABS Corporation and not with PAGCOR. Second, the court cannot assist petitioner in enforcing an illegal act. Moreover, for a court to grant petitioners prayer would mean enforcing the Junket Agreement, which is void.

Now, to address the issues raised by petitioner in his petition, petitioner claims that he is a third party proceeding against the liability of a presumed principal and claims relief, alternatively, on the basis of implied agency or agency by estoppel. Article 1869 of the Civil Code states that implied agency is derived from the acts 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. Implied agency, being an actual agency, is a fact to be proved by deductions or inferences from other facts.[47] On the other hand, apparent authority is based on estoppel and can arise from two instances. First, the principal may knowingly permit the agent to hold himself out as having such authority, and the principal becomes estopped to claim that the agent does not have such authority. Second, the principal may clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that the agent actually has such authority.[48] In an agency by estoppel, there is no agency at all, but the one assuming to act as agent has apparent or ostensible, although not real, authority to represent another.[49]

The law makes no presumption of agency and proving its existence, nature and extent is incumbent upon the person alleging it.[50] Whether or not an agency has been created is a question to be determined by the fact that one represents and is acting for another. [51]

Acts and conduct of PAGCOR negates the existence of an implied agency or an agency by estoppel

Petitioner alleges that there is an implied agency. Alternatively, petitioner claims that even assuming that no actual agency existed between PAGCOR and ABS Corporation, there is still an agency by estoppel based on the acts and conduct of PAGCOR showing apparent authority in favor of ABS Corporation. Petitioner states that one factor which distinguishes agency from other legal precepts is control and the following undisputed facts show a relationship of implied agency: 1. Three floors of the Grand Boulevard Hotel[52] were leased to PAGCOR for conducting gambling operations;[53]

2. Of the three floors, PAGCOR allowed ABS Corporation to use one whole floor for foreign exchange gambling, conducted by PAGCOR dealers using PAGCOR facilities, operated by PAGCOR employees and using PAGCOR chips bearing the PAGCOR logo;[54] 3. PAGCOR controlled the release, withdrawal and return of all the gambling chips given to ABS Corporation in that part of the casino and at the end of the day, PAGCOR conducted an inventory of the gambling chips;[55] ABS Corporation accounted for all gambling chips with the Commission on Audit (COA), the official auditor of PAGCOR;[56] PAGCOR enforced, through its own manager, all the rules and regulations on the operation of the gambling pit used by ABS Corporation.[57]

4. 5.

Petitioners argument is clearly misplaced. The basis for agency is representation,[58] 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. [59] On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions, while on the part of the agent, there must be an intention to accept the appointment and act on it.[60] Absent such mutual intent, there is generally no agency.[61] There is no implied agency in this case because PAGCOR did not hold out to the public as the principal of ABS Corporation. PAGCORs actions did not mislead the public into believing that an agency can be implied from the arrangement with the junket operators, nor did it hold out ABS Corporation with any apparent authority to represent it in any capacity. The Junket Agreement was merely a contract of lease of facilities and services.

The players brought in by ABS Corporation were covered by a different set of rules in acquiring and encashing chips. The players used a different kind of chip than what was used in the regular gaming areas of PAGCOR, and that such junket players played specifically only in the third floor area and did not mingle with the regular patrons of PAGCOR. Furthermore, PAGCOR, in posting notices stating that the players are playing under special rules, exercised the necessary precaution to warn the gaming public that no agency relationship exists.

For the second assigned error, petitioner claims that the intention of the parties cannot apply to him as he is not a party to the contract.

We disagree. The Court of Appeals correctly used the intent of the contracting parties in determining whether an agency by estoppel existed in this case. 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.[62]

There can be no apparent authority of an agent without acts or conduct on the part of the principal and such acts or conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person as claimant, and such must have produced a change of position to its detriment.[63] Such proof is lacking in this case.

In the entire duration that petitioner played in Casino Filipino, he was dealing only with ABS Corporation, and availing of the privileges extended only to players brought in by ABS Corporation. The facts that he enjoyed special treatment upon his arrival in Manila and special accommodations in Grand Boulevard Hotel, and that he was playing in special gaming rooms are all indications that petitioner cannot claim good faith that he believed he was dealing with PAGCOR. Petitioner cannot be considered as an innocent third party and he cannot claim entitlement to equitable relief as well.

For his third and final assigned error, petitioner asserts that PAGCOR ratified the acts of ABS Corporation.

The trial court has declared, and we affirm, that the Junket Agreement is void. A void or inexistent contract is one which has no force and effect from the very beginning. Hence, it is as if it has never been entered into and cannot be validated either by the passage of time or by ratification. [64] Article 1409 of the Civil Code provides that contracts expressly prohibited or declared void by law, such as gambling contracts, cannot be ratified.[65]

WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals Decision dated 27 May 2003 as well as the Resolution dated 7 May 2004 as modified by this Decision. SO ORDERED.

EN BANC G.R. No. L-18805 August 14, 1967

THE BOARD OF LIQUIDATORS1 representing THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES,plaintiff-appellant, vs. HEIRS OF MAXIMO M. KALAW,2 JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA,3 and LEONOR MOLL, defendants-appellees. Simeon M. Gopengco and Solicitor General for plaintiff-appellant. L. H. Hernandez, Emma Quisumbing, Fernando and Quisumbing, Jr.; Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendants-appellees. SANCHEZ, J.: The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental organization on May 7, 1940 by Commonwealth Act 518 avowedly for the protection, preservation and development of the coconut industry in the Philippines. On August 1, 1946, NACOCO's charter was amended [Republic Act 5] to grant that corporation the express power "to buy, sell, barter, export, and in any other manner deal in, coconut, copra, and dessicated coconut, as well as their by-products, and to act as agent, broker or commission merchant of the producers, dealers or merchants" thereof. The charter amendment was enacted to stabilize copra prices, to serve coconut producers by securing advantageous prices for them, to cut down to a minimum, if not altogether eliminate, the margin of middlemen, mostly aliens.4 General manager and board chairman was Maximo M. Kalaw; defendants Juan Bocar and Casimiro Garcia were members of the Board; defendant Leonor Moll became director only on December 22, 1947. NACOCO, after the passage of Republic Act 5, embarked on copra trading activities. Amongst the scores of contracts executed by general manager Kalaw are the disputed contracts, for the delivery of copra, viz: (a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons, $167.00: per ton, f. o. b., delivery: August and September, 1947. This contract was later assigned to Louis Dreyfus & Co. (Overseas) Ltd. (b) August 14, 1947: Alexander Adamson & Co., for 2,000 long tons $145.00 per long ton, f.o.b., Philippine ports, to be shipped: September-October, 1947. This contract was also assigned to Louis Dreyfus & Co. (Overseas) Ltd.

(c) August 22, 1947: Pacific Vegetable Co., for 3,000 tons, $137.50 per ton, delivery: September, 1947. (d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long tons, $160.00 per ton, c.i.f., Los Angeles, California, delivery: November, 1947. (e) September 9, 1947: Franklin Baker Division of General Foods Corporation, for 1,500 long tons, $164,00 per ton, c.i.f., New York, to be shipped in November, 1947. (f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for 3,000 long tons, $154.00 per ton, f.o.b., 3 Philippine ports, delivery: November, 1947. (g) September 13, 1947: Juan Cojuangco, for 2,000 tons, $175.00 per ton, delivery: November and December, 1947. This contract was assigned to Pacific Vegetable Co. (h) October 27, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: December, 1947 and January, 1948. This contract was assigned to Pacific Vegetable Co. (i) October 28, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: January, 1948. This contract was assigned to Pacific Vegetable Co. An unhappy chain of events conspired to deter NACOCO from fulfilling these contracts. Nature supervened. Four devastating typhoons visited the Philippines: the first in October, the second and third in November, and the fourth in December, 1947. Coconut trees throughout the country suffered extensive damage. Copra production decreased. Prices spiralled. Warehouses were destroyed. Cash requirements doubled. Deprivation of export facilities increased the time necessary to accumulate shiploads of copra. Quick turnovers became impossible, financing a problem. When it became clear that the contracts would be unprofitable, Kalaw submitted them to the board for approval. It was not until December 22, 1947 when the membership was completed. Defendant Moll took her oath on that date. A meeting was then held. Kalaw made a full disclosure of the situation, apprised the board of the impending heavy losses. No action was taken on the contracts. Neither did the board vote thereon at the meeting of January 7, 1948 following. Then, on January 11, 1948, President Roxas made a statement that the NACOCO head did his best to avert the losses, emphasized that government concerns faced the same risks that confronted private companies, that NACOCO was recouping its losses, and that Kalaw was to remain in his post. Not long thereafter, that is, on January 30, 1948, the board met again with Kalaw, Bocar, Garcia and Moll in attendance. They unanimously approved the contracts hereinbefore enumerated. As was to be expected, NACOCO but partially performed the contracts, as follows: Buyers Pacific Vegetable Oil Spencer Kellog Franklin Baker Louis Dreyfus Louis Dreyfus (Adamson contract of July 30, 1947) Louis Dreyfus (Adamson Contract of August 14, 1947) TOTALS Tons Delivered 2,386.45 None 1,000 800 1,150 1,755 7,091.45 Undelivered 4,613.55 1,000 500 2,200 850 245 9,408.55

The buyers threatened damage suits. Some of the claims were settled, viz: Pacific Vegetable Oil Co., in copra delivered by NACOCO, P539,000.00; Franklin Baker Corporation, P78,210.00; Spencer Kellog & Sons, P159,040.00. But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of Manila, upon claims as follows: For the undelivered copra under the July 30 contract (Civil Case 4459);

P287,028.00; for the balance on the August 14 contract (Civil Case 4398), P75,098.63; for that per the September 12 contract reduced to judgment (Civil Case 4322, appealed to this Court in L-2829), P447,908.40. These cases culminated in an out-of-court amicable settlement when the Kalaw management was already out. The corporation thereunder paid Dreyfus P567,024.52 representing 70% of the total claims. With particular reference to the Dreyfus claims, NACOCO put up the defenses that: (1) the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license to do business here; and (2) failure to deliver was due to force majeure, the typhoons. To project the utter unreasonableness of this compromise, we reproduce in haec verba this finding below: x x x However, in similar cases brought by the same claimant [Louis Dreyfus & Co. (Overseas) Ltd.] against Santiago Syjuco for non-delivery of copra also involving a claim of P345,654.68 wherein defendant set upsame defenses as above, plaintiff accepted a promise of P5,000.00 only (Exhs. 31 & 32 Heirs.) Following the same proportion, the claim of Dreyfus against NACOCO should have been compromised for only P10,000.00, if at all. Now, why should defendants be held liable for the large sum paid as compromise by the Board of Liquidators? This is just a sample to show how unjust it would be to hold defendants liable for the readiness with which the Board of Liquidators disposed of the NACOCO funds, although there was much possibility of successfully resisting the claims, or at least settlement for nominal sums like what happened in the Syjuco case.5 All the settlements sum up to P1,343,274.52. In this suit started in February, 1949, NACOCO seeks to recover the above sum of P1,343,274.52 from general manager and board chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902 of the old Civil Code (now Article 2176, new Civil Code); and defendant board members, including Kalaw, with bad faith and/or breach of trust for having approved the contracts. The fifth amended complaint, on which this case was tried, was filed on July 2, 1959. Defendants resisted the action upon defenses hereinafter in this opinion to be discussed. The lower court came out with a judgment dismissing the complaint without costs as well as defendants' counterclaims, except that plaintiff was ordered to pay the heirs of Maximo Kalaw the sum of P2,601.94 for unpaid salaries and cash deposit due the deceased Kalaw from NACOCO. Plaintiff appealed direct to this Court. Plaintiff's brief did not, question the judgment on Kalaw's counterclaim for the sum of P2,601.94. Right at the outset, two preliminary questions raised before, but adversely decided by, the court below, arrest our attention. On appeal, defendants renew their bid. And this, upon established jurisprudence that an appellate court may base its decision of affirmance of the judgment below on a point or points ignored by the trial court or in which said court was in error.6 1. First of the threshold questions is that advanced by defendants that plaintiff Board of Liquidators has lost its legal personality to continue with this suit. Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs: (1) under Section 3, Rule 104, of the Rules of Court [which superseded Section 66 of the Corporation Law]7 whereby, upon voluntary dissolution of a corporation, the court may direct "such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation;" (2) under Section 77 of the Corporation Law, whereby a corporation whose corporate existence is terminated, "shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established;" and (3) under Section 78 of the Corporation Law, by virtue of which the corporation, within the three year period just mentioned, "is authorized and empowered to convey all of its property to trustees for the benefit of members, stockholders, creditors, and others interested."8 It is defendants' pose that their case comes within the coverage of the second method. They reason out that suit was commenced in February, 1949; that by Executive Order 372, dated November 24, 1950, NACOCO, together with other government-owned corporations, was abolished, and the Board of Liquidators was entrusted with the function of settling and closing its affairs; and that, since the three

year period has elapsed, the Board of Liquidators may not now continue with, and prosecute, the present case to its conclusion, because Executive Order 372 provides in Section 1 thereof that Sec.1. The National Abaca and Other Fibers Corporation, the National Coconut Corporation, the National Tobacco Corporation, the National Food Producer Corporation and the former enemy-owned or controlled corporations or associations, . . . are hereby abolished. The said corporations shall be liquidated in accordance with law, the provisions of this Order, and/or in such manner as the President of the Philippines may direct; Provided, however, That each of the said corporations shall nevertheless be continued as a body corporate for a period of three (3) years from the effective date of this Executive Order for the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and, convey its property in the manner hereinafter provided. Citing Mr. Justice Fisher, defendants proceed to argue that even where it may be found impossible within the 3 year period to reduce disputed claims to judgment, nonetheless, "suits by or against a corporation abate when it ceases to be an entity capable of suing or being sued" (Fisher, The Philippine Law of Stock Corporations, pp. 390-391). Corpus Juris Secundum likewise is authority for the statement that "[t]he dissolution of a corporation ends its existence so that there must be statutory authority for prolongation of its life even for purposes of pending litigation"9 and that suit "cannot be continued or revived; nor can a valid judgment be rendered therein, and a judgment, if rendered, is not only erroneous, but void and subject to collateral attack." 10 So it is, that abatement of pending actions follows as a matter of course upon the expiration of the legal period for liquidation, 11 unless the statute merely requires a commencement of suit within the added time. 12 For, the court cannot extend the time alloted by statute. 13 We, however, express the view that the executive order abolishing NACOCO and creating the Board of Liquidators should be examined in context. The proviso in Section 1 of Executive Order 372, whereby the corporate existence of NACOCO was continued for a period of three years from the effectivity of the order for "the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and convey its property in the manner hereinafter provided", is to be read not as an isolated provision but in conjunction with the whole. So reading, it will be readily observed that no time limit has been tacked to the existence of the Board of Liquidators and its function of closing the affairs of the various government owned corporations, including NACOCO. By Section 2 of the executive order, while the boards of directors of the various corporations were abolished, their powers and functions and duties under existing laws were to be assumed and exercised by the Board of Liquidators. The President thought it best to do away with the boards of directors of the defunct corporations; at the same time, however, the President had chosen to see to it that the Board of Liquidators step into the vacuum. And nowhere in the executive order was there any mention of the lifespan of the Board of Liquidators. A glance at the other provisions of the executive order buttresses our conclusion. Thus, liquidation by the Board of Liquidators may, under section 1, proceed in accordance with law, the provisions of the executive order, "and/or in such manner as the President of the Philippines may direct." By Section 4, when any property, fund, or project is transferred to any governmental instrumentality "for administration or continuance of any project," the necessary funds therefor shall be taken from the corresponding special fund created in Section 5. Section 5, in turn, talks of special funds established from the "net proceeds of the liquidation" of the various corporations abolished. And by Section, 7, fifty per centum of the fees collected from the copra standardization and inspection service shall accrue "to the special fund created in section 5 hereof for the rehabilitation and development of the coconut industry." Implicit in all these, is that the term of life of the Board of Liquidators is without time limit. Contemporary history gives us the fact that the Board of Liquidators still exists as an office with officials and numerous employees continuing the job of liquidation and prosecution of several court actions. Not that our views on the power of the Board of Liquidators to proceed to the final determination of the present case is without jurisprudential support. The first judicial test before this Court is National Abaca and Other Fibers Corporation vs. Pore, L-16779, August 16, 1961. In that case, the corporation, already dissolved, commenced suit within the three-year extended period for liquidation. That suit was for recovery of money advanced to defendant for the purchase of hemp in behalf of the corporation. She failed to account for that money. Defendant moved to dismiss, questioned the corporation's capacity to sue. The lower court ordered plaintiff to include as co-party plaintiff, The Board of Liquidators, to which the corporation's liquidation was entrusted by Executive Order 372. Plaintiff failed to effect inclusion. The lower court dismissed the suit. Plaintiff moved to reconsider. Ground: excusable negligence, in that its counsel prepared the amended complaint, as directed, and instructed the board's incoming and outgoing correspondence clerk, Mrs. Receda Vda. de Ocampo, to mail the original thereof to the court

and a copy of the same to defendant's counsel. She mailed the copy to the latter but failed to send the original to the court. This motion was rejected below. Plaintiff came to this Court on appeal. We there said that "the rule appears to be well settled that, in the absence of statutory provision to the contrary, pending actions by or against a corporation are abated upon expiration of the period allowed by law for the liquidation of its affairs." We there said that "[o]ur Corporation Law contains no provision authorizing a corporation, after three (3) years from the expiration of its lifetime, to continue in its corporate name actions instituted by it within said period of three (3) years." 14 However, these precepts notwithstanding, we, in effect, held in that case that the Board of Liquidators escapes from the operation thereof for the reason that "[o]bviously, the complete loss of plaintiff's corporate existence after the expiration of the period of three (3) years for the settlement of its affairs is what impelled the President to create a Board of Liquidators, to continue the management of such matters as may then be pending."15 We accordingly directed the record of said case to be returned to the lower court, with instructions to admit plaintiff's amended complaint to include, as party plaintiff, the Board of Liquidators. Defendants' position is vulnerable to attack from another direction. By Executive Order 372, the government, the sole stockholder, abolished NACOCO, and placed its assets in the hands of the Board of Liquidators. The Board of Liquidators thus became the trustee on behalf of the government. It was an express trust. The legal interest became vested in the trustee the Board of Liquidators. The beneficial interest remained with the sole stockholder the government. At no time had the government withdrawn the property, or the authority to continue the present suit, from the Board of Liquidators. If for this reason alone, we cannot stay the hand of the Board of Liquidators from prosecuting this case to its final conclusion. 16 The provisions of Section 78 of the Corporation Law the third method of winding up corporate affairs find application. We, accordingly, rule that the Board of Liquidators has personality to proceed as: party-plaintiff in this case. 2. Defendants' second poser is that the action is unenforceable against the heirs of Kalaw. Appellee heirs of Kalaw raised in their motion to dismiss, 17 which was overruled, and in their nineteenth special defense, that plaintiff's action is personal to the deceased Maximo M. Kalaw, and may not be deemed to have survived after his death.18 They say that the controlling statute is Section 5, Rule 87, of the 1940 Rules of Court.19 which provides that "[a]ll claims for money against the decedent, arising from contract, express or implied", must be filed in the estate proceedings of the deceased. We disagree. The suit here revolves around the alleged negligent acts of Kalaw for having entered into the questioned contracts without prior approval of the board of directors, to the damage and prejudice of plaintiff; and is against Kalaw and the other directors for having subsequently approved the said contracts in bad faith and/or breach of trust." Clearly then, the present case is not a mere action for the recovery of money nor a claim for money arising from contract. The suit involves alleged tortious acts. And the action is embraced in suits filed "to recover damages for an injury to person or property, real or personal", which survive. 20 The leading expositor of the law on this point is Aguas vs. Llemos, L-18107, August 30, 1962. There, plaintiffs sought to recover damages from defendant Llemos. The complaint averred that Llemos had served plaintiff by registered mail with a copy of a petition for a writ of possession in Civil Case 4824 of the Court of First Instance at Catbalogan, Samar, with notice that the same would be submitted to the Samar court on February 23, 1960 at 8:00 a.m.; that in view of the copy and notice served, plaintiffs proceeded to the said court of Samar from their residence in Manila accompanied by their lawyers, only to discover that no such petition had been filed; and that defendant Llemos maliciously failed to appear in court, so that plaintiffs' expenditure and trouble turned out to be in vain, causing them mental anguish and undue embarrassment. Defendant died before he could answer the complaint. Upon leave of court, plaintiffs amended their complaint to include the heirs of the deceased. The heirs moved to dismiss. The court dismissed the complaint on the ground that the legal representative, and not the heirs, should have been made the party defendant; and that, anyway, the action being for recovery of money, testate or intestate proceedings should be initiated and the claim filed therein. This Court, thru Mr. Justice Jose B. L. Reyes, there declared: Plaintiffs argue with considerable cogency that contrasting the correlated provisions of the Rules of Court, those concerning claims that are barred if not filed in the estate settlement proceedings (Rule 87, sec. 5) and those defining actions that survive and may be prosecuted against the executor or administrator (Rule 88, sec. 1), it is apparent that actions for damages caused by tortious conduct of a defendant (as in the case at bar) survive the death of the latter.

Under Rule 87, section 5, the actions that are abated by death are: (1) claims for funeral expenses and those for the last sickness of the decedent; (2) judgments for money; and (3) "all claims for money against the decedent, arising from contract express or implied." None of these includes that of the plaintiffs-appellants; for it is not enough that the claim against the deceased party be for money, but it must arise from "contract express or implied", and these words (also used by the Rules in connection with attachments and derived from the common law) were construed in Leung Ben vs. O'Brien, 38 Phil. 182, 189-194, "to include all purely personal obligations other than those which have their source in delict or tort." Upon the other hand, Rule 88, section 1, enumerates actions that survive against a decedent's executors or administrators, and they are: (1) actions to recover real and personal property from the estate; (2) actions to enforce a lien thereon; and (3) actions to recover damages for an injury to person or property. The present suit is one for damages under the last class, it having been held that "injury to property" is not limited to injuries to specific property, but extends to other wrongs by which personal estate is injured or diminished (Baker vs. Crandall, 47 Am. Rep. 126; also 171 A.L.R., 1395). To maliciously cause a party to incur unnecessary expenses, as charged in this case, is certainly injury to that party's property (Javier vs. Araneta, L-4369, Aug. 31, 1953). The ruling in the preceding case was hammered out of facts comparable to those of the present. No cogent reason exists why we should break away from the views just expressed. And, the conclusion remains: Action against the Kalaw heirs and, for the matter, against the Estate of Casimiro Garcia survives. The preliminaries out of the way, we now go to the core of the controversy. 3. Plaintiff levelled a major attack on the lower court's holding that Kalaw justifiedly entered into the controverted contracts without the prior approval of the corporation's directorate. Plaintiff leans heavily on NACOCO's corporate by-laws. Article IV (b), Chapter III thereof, recites, as amongst the duties of the general manager, the obligation: "(b) To perform or execute on behalf of the Corporation upon prior approval of the Board, all contracts necessary and essential to the proper accomplishment for which the Corporation was organized." Not of de minimis importance in a proper approach to the problem at hand, is the nature of a general manager's position in the corporate structure. A rule that has gained acceptance through the years is that a corporate officer "intrusted with the general management and control of its business, has implied authority to make any contract or do any other act which is necessary or appropriate to the conduct of the ordinary business of the corporation. 21As such officer, "he may, without any special authority from the Board of Directors perform all acts of an ordinary nature, which by usage or necessity are incident to his office, and may bind the corporation by contracts in matters arising in the usual course of business. 22 The problem, therefore, is whether the case at bar is to be taken out of the general concept of the powers of a general manager, given the cited provision of the NACOCO by-laws requiring prior directorate approval of NACOCO contracts. The peculiar nature of copra trading, at this point, deserves express articulation. Ordinary in this enterprise are copra sales for future delivery. The movement of the market requires that sales agreements be entered into, even though the goods are not yet in the hands of the seller. Known in business parlance as forward sales, it is concededly the practice of the trade. A certain amount of speculation is inherent in the undertaking. NACOCO was much more conservative than the exporters with big capital. This short-selling was inevitable at the time in the light of other factors such as availability of vessels, the quantity required before being accepted for loading, the labor needed to prepare and sack the copra for market. To NACOCO, forward sales were a necessity. Copra could not stay long in its hands; it would lose weight, its value decrease. Above all, NACOCO's limited funds necessitated a quick turnover. Copra contracts then had to be executed on short notice at times within twenty-four hours. To be appreciated then is the difficulty of calling a formal meeting of the board. Such were the environmental circumstances when Kalaw went into copra trading.

Long before the disputed contracts came into being, Kalaw contracted by himself alone as general manager for forward sales of copra. For the fiscal year ending June 30, 1947, Kalaw signed some 60 such contracts for the sale of copra to divers parties. During that period, from those copra sales, NACOCO reaped a gross profit of P3,631,181.48. So pleased was NACOCO's board of directors that, on December 5, 1946, in Kalaw's absence, it voted to grant him a special bonus "in recognition of the signal achievement rendered by him in putting the Corporation's business on a self-sufficient basis within a few months after assuming office, despite numerous handicaps and difficulties." These previous contract it should be stressed, were signed by Kalaw without prior authority from the board. Said contracts were known all along to the board members. Nothing was said by them. The aforesaid contracts stand to prove one thing: Obviously, NACOCO board met the difficulties attendant to forward sales by leaving the adoption of means to end, to the sound discretion of NACOCO's general manager Maximo M. Kalaw. Liberally spread on the record are instances of contracts executed by NACOCO's general manager and submitted to the board after their consummation, not before. These agreements were not Kalaw's alone. One at least was executed by a predecessor way back in 1940, soon after NACOCO was chartered. It was a contract of lease executed on November 16, 1940 by the then general manager and board chairman, Maximo Rodriguez, and A. Soriano y Cia., for the lease of a space in Soriano Building On November 14, 1946, NACOCO, thru its general manager Kalaw, sold 3,000 tons of copra to the Food Ministry, London, thru Sebastian Palanca. On December 22, 1947, when the controversy over the present contract cropped up, the board voted to approve a lease contract previously executed between Kalaw and Fidel Isberto and Ulpiana Isberto covering a warehouse of the latter. On the same date, the board gave its nod to a contract for renewal of the services of Dr. Manuel L. Roxas. In fact, also on that date, the board requested Kalaw to report for action all copra contracts signed by him "at the meeting immediately following the signing of the contracts." This practice was observed in a later instance when, on January 7, 1948, the board approved two previous contracts for the sale of 1,000 tons of copra each to a certain "SCAP" and a certain "GNAPO". And more. On December 19, 1946, the board resolved to ratify the brokerage commission of 2% of Smith, Bell and Co., Ltd., in the sale of 4,300 long tons of copra to the French Government. Such ratification was necessary because, as stated by Kalaw in that same meeting, "under an existing resolution he is authorized to give a brokerage fee of only 1% on sales of copra made through brokers." On January 15, 1947, the brokerage fee agreements of 1-1/2% on three export contracts, and 2% on three others, for the sale of copra were approved by the board with a proviso authorizing the general manager to pay a commission up to the amount of 1-1/2% "without further action by the Board." On February 5, 1947, the brokerage fee of 2% of J. Cojuangco & Co. on the sale of 2,000 tons of copra was favorably acted upon by the board. On March 19, 1947, a 2% brokerage commission was similarly approved by the board for Pacific Trading Corporation on the sale of 2,000 tons of copra. It is to be noted in the foregoing cases that only the brokerage fee agreements were passed upon by the board,not the sales contracts themselves. And even those fee agreements were submitted only when the commission exceeded the ceiling fixed by the board. Knowledge by the board is also discernible from other recorded instances.1wph1.t When the board met on May 10, 1947, the directors discussed the copra situation: There was a slow downward trend but belief was entertained that the nadir might have already been reached and an improvement in prices was expected. In view thereof, Kalaw informed the board that "he intends to wait until he has signed contracts to sell before starting to buy copra."23 In the board meeting of July 29, 1947, Kalaw reported on the copra price conditions then current: The copra market appeared to have become fairly steady; it was not expected that copra prices would again rise very high as in the unprecedented boom during January-April, 1947; the prices seemed to oscillate between $140 to $150 per ton; a radical rise or decrease was not indicated by the trends. Kalaw continued to say that "the Corporation has been closing contracts for the sale of copra generally with a margin of P5.00 to P7.00 per hundred kilos." 24 We now lift the following excerpts from the minutes of that same board meeting of July 29, 1947: 521. In connection with the buying and selling of copra the Board inquired whether it is the practice of the management to close contracts of sale first before buying. The General Manager replied that this practice is generally followed but that it is not always possible to do so for two reasons:

(1) The role of the Nacoco to stabilize the prices of copra requires that it should not cease buying even when it does not have actual contracts of sale since the suspension of buying by the Nacoco will result in middlemen taking advantage of the temporary inactivity of the Corporation to lower the prices to the detriment of the producers. (2) The movement of the market is such that it may not be practical always to wait for the consummation of contracts of sale before beginning to buy copra. The General Manager explained that in this connection a certain amount of speculation is unavoidable. However, he said that the Nacoco is much more conservative than the other big exporters in this respect.25 Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors. 26 In varying language, existence of such authority is established, by proof of the course of business, the usage and practices of the company and by the knowledge which the board of directors has, or must bepresumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. 27 So also, x x x authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised. 28 x x x Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affairs, his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors to manage its business.29 In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid aside the by-law requirement of prior approval. Under the given circumstances, the Kalaw contracts are valid corporate acts. 4. But if more were required, we need but turn to the board's ratification of the contracts in dispute on January 30, 1948, though it is our (and the lower court's) belief that ratification here is nothing more than a mere formality. Authorities, great in number, are one in the idea that "ratification by a corporation of an unauthorized act or contract by its officers or others relates back to the time of the act or contract ratified, and is equivalent to original authority;" and that " [t]he corporation and the other party to the transaction are in precisely the same position as if the act or contract had been authorized at the time." 30 The language of one case is expressive: "The adoption or ratification of a contract by a corporation is nothing more or less than the making of an original contract. The theory of corporate ratification is predicated on the right of a corporation to contract, and any ratification or adoption is equivalent to a grant of prior authority." 31 Indeed, our law pronounces that "[r]atification cleanses the contract from all its defects from the moment it was constituted." 32 By corporate confirmation, the contracts executed by Kalaw are thus purged of whatever vice or defect they may have. 33 In sum, a case is here presented whereunder, even in the face of an express by-law requirement of prior approval, the law on corporations is not to be held so rigid and inflexible as to fail to recognize equitable considerations. And, the conclusion inevitably is that the embattled contracts remain valid. 5. It would be difficult, even with hostile eyes, to read the record in terms of "bad faith and/or breach of trust" in the board's ratification of the contracts without prior approval of the board. For, in reality, all that we have on the government's side of the scale is that the board knew that the contracts so confirmed would cause heavy losses.

As we have earlier expressed, Kalaw had authority to execute the contracts without need of prior approval. Everybody, including Kalaw himself, thought so, and for a long time. Doubts were first thrown on the way only when the contracts turned out to be unprofitable for NACOCO. Rightfully had it been said that bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty thru some motive or interest or ill will; it partakes of the nature of fraud.34 Applying this precept to the given facts herein, we find that there was no "dishonest purpose," or "some moral obliquity," or "conscious doing of wrong," or "breach of a known duty," or "Some motive or interest or ill will" that "partakes of the nature of fraud." Nor was it even intimated here that the NACOCO directors acted for personal reasons, or to serve their own private interests, or to pocket money at the expense of the corporation. 35 We have had occasion to affirm that bad faith contemplates a "state of mind affirmatively operating with furtive design or with some motive of self-interest or ill will or for ulterior purposes." 36 Briggs vs. Spaulding, 141 U.S. 132, 148-149, 35 L. ed. 662, 669, quotes with approval from Judge Sharswood (in Spering's App., 71 Pa. 11), the following: "Upon a close examination of all the reported cases, although there are many dicta not easily reconcilable, yet I have found no judgment or decree which has held directors to account, except when they have themselves been personally guilty of some fraud on the corporation, or have known and connived at some fraud in others, or where such fraud might have been prevented had they given ordinary attention to their duties. . . ." Plaintiff did not even dare charge its defendant-directors with any of these malevolent acts. Obviously, the board thought that to jettison Kalaw's contracts would contravene basic dictates of fairness. They did not think of raising their voice in protest against past contracts which brought in enormous profits to the corporation. By the same token, fair dealing disagrees with the idea that similar contracts, when unprofitable, should not merit the same treatment. Profit or loss resulting from business ventures is no justification for turning one's back on contracts entered into. The truth, then, of the matter is that in the words of the trial court the ratification of the contracts was "an act of simple justice and fairness to the general manager and the best interest of the corporation whose prestige would have been seriously impaired by a rejection by the board of those contracts which proved disadvantageous." 37 The directors are not liable." 38 6. To what then may we trace the damage suffered by NACOCO. The facts yield the answer. Four typhoons wreaked havoc then on our copra-producing regions. Result: Copra production was impaired, prices spiralled, warehouses destroyed. Quick turnovers could not be expected. NACOCO was not alone in this misfortune. The record discloses that private traders, old, experienced, with bigger facilities, were not spared; also suffered tremendous losses. Roughly estimated, eleven principal trading concerns did run losses to about P10,300,000.00. Plaintiff's witness Sisenando Barretto, head of the copra marketing department of NACOCO, observed that from late 1947 to early 1948 "there were many who lost money in the trade." 39 NACOCO was not immune from such usual business risk. The typhoons were known to plaintiff. In fact, NACOCO resisted the suits filed by Louis Dreyfus & Co. by pleading in its answers force majeure as an affirmative defense and there vehemently asserted that "as a result of the said typhoons, extensive damage was caused to the coconut trees in the copra producing regions of the Philippines and according to estimates of competent authorities, it will take about one year until the coconut producing regions will be able to produce their normal coconut yield and it will take some time until the price of copra will reach normal levels;" and that "it had never been the intention of the contracting parties in entering into the contract in question that, in the event of a sharp rise in the price of copra in the Philippine market produce by force majeureor by caused beyond defendant's control, the defendant should buy the copra contracted for at exorbitant prices far beyond the buying price of the plaintiff under the contract." 40 A high regard for formal judicial admissions made in court pleadings would suffice to deter us from permitting plaintiff to stray away therefrom, to charge now that the damage suffered was because of Kalaw's negligence, or for that matter, by reason of the board's ratification of the contracts. 41 Indeed, were it not for the typhoons, 42 NACOCO could have, with ease, met its contractual obligations. Stock accessibility was no problem. NACOCO had 90 buying agencies spread throughout the islands. It could purchase 2,000 tons of copra a day. The various contracts involved delivery of but 16,500 tons

over a five-month period. Despite the typhoons, NACOCO was still able to deliver a little short of 50% of the tonnage required under the contracts. As the trial court correctly observed, this is a case of damnum absque injuria. Conjunction of damage and wrong is here absent. There cannot be an actionable wrong if either one or the other is wanting. 43 7. On top of all these, is that no assertion is made and no proof is presented which would link Kalaw's acts ratified by the board to a matrix for defraudation of the government. Kalaw is clear of the stigma of bad faith. Plaintiff's corporate counsel 44 concedes that Kalaw all along thought that he had authority to enter into the contracts, that he did so in the best interests of the corporation; that he entered into the contracts in pursuance of an overall policy to stabilize prices, to free the producers from the clutches of the middlemen. The prices for which NACOCO contracted in the disputed agreements, were at a level calculated to produce profits and higher than those prevailing in the local market. Plaintiff's witness, Barretto, categorically stated that "it would be foolish to think that one would sign (a) contract when you are going to lose money" and that no contract was executed "at a price unsafe for the Nacoco." 45 Really, on the basis of prices then prevailing, NACOCO envisioned a profit of around P752,440.00. 46 Kalaw's acts were not the result of haphazard decisions either. Kalaw invariably consulted with NACOCO's Chief Buyer, Sisenando Barretto, or the Assistant General Manager. The dailies and quotations from abroad were guideposts to him. Of course, Kalaw could not have been an insurer of profits. He could not be expected to predict the coming of unpredictable typhoons. And even as typhoons supervened Kalaw was not remissed in his duty. He exerted efforts to stave off losses. He asked the Philippine National Bank to implement its commitment to extend a P400,000.00 loan. The bank did not release the loan, not even the sum of P200,000.00, which, in October, 1947, was approved by the bank's board of directors. In frustration, on December 12, 1947, Kalaw turned to the President, complained about the bank's short-sighted policy. In the end, nothing came out of the negotiations with the bank. NACOCO eventually faltered in its contractual obligations. That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence, would seem to be supported by the fact that even as the contracts were being questioned in Congress and in the NACOCO board itself, President Roxas defended the actuations of Kalaw. On December 27, 1947, President Roxas expressed his desire "that the Board of Directors should reelect Hon. Maximo M. Kalaw as General Manager of the National Coconut Corporation." 47 And, on January 7, 1948, at a time when the contracts had already been openly disputed, the board, at its regular meeting, appointed Maximo M. Kalaw as acting general manager of the corporation. Well may we profit from the following passage from Montelibano vs. Bacolod-Murcia Milling Co., Inc., L15092, May 18, 1962: "They (the directors) hold such office charged with the duty to act for the corporation according to their best judgment, and in so doing they cannot be controlled in the reasonable exercise and performance of such duty. Whether the business of a corporation should be operated at a loss during a business depression, or closed down at a smaller loss, is a purely business and economic problem to be determined by the directors of the corporation, and not by the court. It is a well known rule of law that questions of policy of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment for the judgment of the board of directors; the board is the business manager of the corporation, and solong as it acts in good faith its orders are not reviewable by the courts." (Fletcher on Corporations, Vol. 2, p. 390.)48 Kalaw's good faith, and that of the other directors, clinch the case for defendants. 49 Viewed in the light of the entire record, the judgment under review must be, as it is hereby, affirmed. Without costs. So ordered.

BOARD OF LIQUIDATORS vs.HEIRS OF MAXIMO M. KALAW FACTS: Kalaw is the General Manager and Board Chairman of NACOCO(National Coconut Corporation). In 1947, NACOCO contracted to sell coconut product with several buyers. That year, there were four typhoons that hit Phil. Coconut trees throughout the country suffered extensive damage. Copra production decreased. When it became clear that the contracts would be unprofitable Kalaw submitted them to the board for approval. Which was approved by the Board. As was to be expected, NACOCO but partially performed the contracts.the buyers filed a case for the full performance of the Contract. settlements were paid. NACOCO seeks to recover from Kalaw the said paid settlements. For bad faith and/or breach trust for having approved the contracts.According to Kalaw he did so acted for the best interest of the Corp.Trial Court decided for Kalaw. ISSUE: Is Kalaw liable? HELD: judgment affirmed. RATIO:Kalaw is not liable. the trial court correctly observed, this is a case of damnum absque injuria. Conjunction of damage and wrong is here absent. There cannot be an actionable wrong if either one or the other is wanting. Kalaw all along thought that he had authority to enter into the contracts; that he did so in the best interests of the corporation.

Manila Memorial Park Inc. vs Linsangan (November 22, 2004) Post under case digests, Civil Law at Tuesday, February 21, 2012 Posted by Schizophrenic Mind Facts: Florencia Baluyot is authorized by the Manila Memorial ParkInc. (MMPI) to sell burial lots to those interested in purchasing. Herein respondent Atty. Linsangan was approached by Florencia with an offer to sell to the former a lot that she alleges to have already been previously sold but the owner thereof has cancelled and thus, Atty. Linsangan shall only continue the payment thereof amounting to P95,000, Atty. Linsangan agreed and payed an initial P35, 000. Thereafter, Florencia advised Atty. Linsangan that there were changes in the contract and that she needed him to sign a new contract stipulating the total price of P132, 000 but Florencia assured Atty. Linsangan that he would only pay the agreed P95, 000. In the new contract, Atty. Linsangan acceded that he has read and understood all the stipulations therein. The payment was made in installments for two years which Atty.

Linsangan completed, however, after two years, Florencia informed Linsangan that their contract was cancelled and offered a different lot, Atty. Linsangan refused the offer and filed a suit for breach of contract against MMPI and Florencia. MMPI avers that Florencia acted beyond the scope of her authority as MMPIs agent since the latter did not allow her to renegotiate existing contracts but only to sell new contracts. Atty. Lnsangan on the other hand argues that MMPI should be liable for the acts of its agents.

Issue: Whether or not MMPI is liable for the acts of Florencia

Held: NO. The SC ruled that Florencia acted outside the scope of her authority as agent of MMPI and Atty. Linsangan failed to ascertain the authority given to Florencia especially that their agreement on the second contract had a different stipulation than what he and Florencia agreed upon. Moreover, Atty. Linsangans signature over the new contract signifies his agreement thereto and serves as a form of ratification for the acts of Florencia which were outside the authority given her. As such, the SC ruled

that the principal cannot be held liable for actions of agents outside the scope of their authority when such acts are ratified by the principal himself. On the part of MMPI, they did not ratify Florencias acts, nor did they know of such actions.

[G.R. No. 151319. November 22, 2004]

MANILA MEMORIAL PARK CEMETERY, INC., petitioner, vs. PEDRO L. LINSANGAN, respondent. For resolution in this case is a classic and interesting texbook question in the law on agency. This is a petition for review assailing the Decision[1] of the Court of Appeals dated 22 June 2001, and its Resolution[2] dated 12 December 2001 in CA G.R. CV No. 49802 entitled Pedro L. Linsangan v. Manila Memorial Cemetery, Inc. et al., finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and severally liable with Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan. The facts of the case are as follows: Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a memorial lot under Contract No. 25012 was no longer interested in acquiring the lot and had opted to sell his rights subject to reimbursement of the amounts he already paid. The contract was for P95,000.00. Baluyot reassured Atty. Linsangan that once reimbursement is made to the former buyer, the contract would be transferred to him. Atty. Linsangan agreed and gave BaluyotP35,295.00 representing the amount to be reimbursed to the original buyer and to complete the down payment to MMPCI.[3] Baluyot issued handwritten and typewritten receipts for these payments.[4] Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued Contract No. 28660, a new contract covering the subject lot in the name of the latter instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured him that he would still be paying the old price of P95,000.00 with P19,838.00 credited as full down payment leaving a balance of about P75,000.00.[5] Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83, Garden Estate I denominated as Contract No. 28660 and the Official Receipt No. 118912 dated 6 April 1985 for the amount of P19,838.00. Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected to the new contract price, as the same was not the amount previously agreed upon. To convince Atty. Linsangan, Baluyot executed a document [6] confirming that while the contract price is P132,250.00, Atty. Linsangan would pay only the original price of P95,000.00. The document reads in part: The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference will be issued as discounted to conform to the previous price as previously agreed upon. --- P95,000.00

Prepared by: (Signed) (MRS.) FLORENCIA C. BALUYOT Agency Manager Holy Cross Memorial Park 4/18/85 Dear Atty. Linsangan: This will confirm our agreement that while the offer to purchase under Contract No. 28660 states that the total price of P132,250.00 your undertaking is to pay only the total sum of P95,000.00 under the old price. Further the total sum of P19,838.00 already paid by you under O.R. # 118912 dated April 6, 1985 has been credited in the total purchase price thereby leaving a balance of P75,162.00 on a monthly installment of P1,800.00 including interests (sic) charges for a period of five (5) years. (Signed) FLORENCIA C. BALUYOT By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of P1,800.00 each in favor of MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated checks in favor of MMPCI. On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for reasons the latter could not explain, and presented to him another proposal for the purchase of an equivalent property. He refused the new proposal and insisted that Baluyot and MMPCI honor their undertaking. For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a Complaint[7] for Breach of Contract and Damages against the former. Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was cancelled conformably with the terms of the contract[8] because of non-payment of arrearages.[9] MMPCI stated that Baluyot was not an agent but an independent contractor, and as such was not authorized to represent MMPCI or to use its name except as to the extent expressly stated in the Agency Manager Agreement.[10] Moreover, MMPCI was not aware of the arrangements entered into by Atty. Linsangan and Baluyot, as it in fact received a down payment and monthly installments as indicated in the contract. [11] Official receipts showing the application of payment were turned over to Baluyot whom Atty. Linsangan had from the beginning allowed to receive the same in his behalf. Furthermore, whatever misimpression that Atty. Linsangan may have had must have been rectified by the Account Updating Arrangement signed by Atty. Linsangan which states that he expressly admits that Contract No. 28660 on account of serious delinquencyis now due for cancellation under its terms and conditions.[12] The trial court held MMPCI and Baluyot jointly and severally liable. [13] It found that Baluyot was an agent of MMPCI and that the latter was estopped from denying this agency, having received and enchased the checks issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted that Baluyot was authorized to receive only the down payment, it allowed her to continue to receive postdated checks from Atty. Linsangan, which it in turn consistently encashed.[14] The dispositive portion of the decision reads: WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of plaintiff declaring Contract No. 28660 as valid and subsisting and ordering defendants to perform their undertakings thereof which covers burial lot No. A11 (15), Block 83, Section Garden I, Holy Cross Memorial Park located at Novaliches, Quezon City. All payments made by plaintiff to defendants should be credited for his accounts. NO DAMAGES, NO ATTORNEYS FEES but with costs against the defendants. The cross claim of defendant Manila Memorial Cemetery Incorporated as against defendant Baluyot is GRANTED up to the extent of the costs. SO ORDERED.[15] MMPCI appealed the trial courts decision to the Court of Appeals. [16] It claimed that Atty. Linsangan is bound by the written contract with MMPCI, the terms of which were clearly set forth therein and read, understood, and signed by the former.[17] It also alleged that Atty. Linsangan, a practicing

lawyer for over thirteen (13) years at the time he entered into the contract, is presumed to know his contractual obligations and is fully aware that he cannot belatedly and unilaterally change the terms of the contract without the consent, much less the knowledge of the other contracting party, which was MMPCI. And in this case, MMPCI did not agree to a change in the contract and in fact implemented the same pursuant to its clear terms. In view thereof, because of Atty. Linsangans delinquency, MMPCI validly cancelled the contract. MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the latter exceeded the terms of her agency, neither did MMPCI ratify Baluyots acts. It added that it cannot be charged with making any misrepresentation, nor of having allowed Baluyot to act as though she had full powers as the written contract expressly stated the terms and conditions which Atty. Linsangan accepted and understood. In canceling the contract, MMPCI merely enforced the terms and conditions imposed therein.[18] Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the formers obligation, as a party knowingly dealing with an alleged agent, to determine the limitations of such agents authority, particularly when such alleged agents actions were patently questionable. According to MMPCI, Atty. Linsangan did not even bother to verify Baluyots authority or ask copies of official receipts for his payments.[19] The Court of Appeals affirmed the decision of the trial court. It upheld the trial courts finding that Baluyot was an agent of MMPCI at the time the disputed contract was entered into, having represented MMPCIs interest and acting on its behalf in the dealings with clients and customers. Hence, MMPCI is considered estopped when it allowed Baluyot to act and represent MMPCI even beyond her authority. [20] The appellate court likewise found that the acts of Baluyot bound MMPCI when the latter allowed the former to act for and in its behalf and stead. While Baluyots authority may not have been expressly conferred upon her, the same may have been derived impliedly by habit or custom, which may have been an accepted practice in the company for a long period of time. [21] Thus, the Court of Appeals noted, innocent third persons such as Atty. Linsangan should not be prejudiced where the principal failed to adopt the needed measures to prevent misrepresentation. Furthermore, if an agent misrepresents to a purchaser and the principal accepts the benefits of such misrepresentation, he cannot at the same time deny responsibility for such misrepresentation.[22] Finally, the Court of Appeals declared: There being absolutely nothing on the record that would show that the court a quo overlooked, disregarded, or misinterpreted facts of weight and significance, its factual findings and conclusions must be given great weight and should not be disturbed by this Court on appeal. WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed decision in Civil Case No. 88-1253 of the Regional Trial Court, National Capital Judicial Region, Branch 57 of Makati, is hereby AFFIRMED in toto. SO ORDERED.[23] MMPCI filed its Motion for Reconsideration,[24] but the same was denied for lack of merit.[25] In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in disregarding the plain terms of the written contract and Atty. Linsangans failure to abide by the terms thereof, which justified its cancellation. In addition, even assuming that Baluyot was an agent of MMPCI, she clearly exceeded her authority and Atty. Linsangan knew or should have known about this considering his status as a long-practicing lawyer. MMPCI likewise claims that the Court of Appeals erred in failing to consider that the facts and the applicable law do not support a judgment against Baluyot only up to the extent of costs.[26] Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in fact faithfully performed his contractual obligations and complied with them in good faith for at least two years.[27] He claims that contrary to MMPCIs position, his profession as a lawyer is immaterial to the validity of the subject contract and the case at bar. [28] According to him, MMPCI had practically admitted in its Petition that Baluyot was its agent, and thus, the only issue left to be resolved is whether MMPCI allowed Baluyot to act as though she had full powers to be held solidarily liable with the latter.[29] We find for the petitioner MMPCI. The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court is limited to reviewing only errors of law, not fact, unless the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts. [30] In BPI Investment Corporation v. D.G. Carreon Commercial Corporation,[31] this Court ruled: There are instances when the findings of fact of the trial court and/or Court of Appeals may be reviewed by the Supreme Court, such as (1) when the conclusion is a finding grounded entirely on speculation,

surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a 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 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 facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondents; and (10) the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record.[32] In the case at bar, the Court of Appeals committed several errors in the apprehension of the facts of the case, as well as made conclusions devoid of evidentiary support, hence we review its findings of fact. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. [33] Thus, the elements of agency are (i) consent, express or implied, of the parties to establish the relationship; (ii) the object is the execution of a juridical act in relation to a third person; (iii) the agent acts as a representative and not for himself; and (iv) the agent acts within the scope of his authority.[34] In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency Manager Agreement; an agency manager such as Baluyot is considered an independent contractor and not an agent.[35] However, in the same contract, Baluyot as agency manager was authorized to solicit and remit to MMPCI offers to purchase interment spaces belonging to and sold by the latter. [36] Notwithstanding the claim of MMPCI that Baluyot was an independent contractor, the fact remains that she was authorized to solicit solely for and in behalf of MMPCI. As properly found both by the trial court and the Court of Appeals, Baluyot was an agent of MMPCI, having represented the interest of the latter, and having been allowed by MMPCI to represent it in her dealings with its clients/prospective buyers. Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the contract procured by Atty. Linsangan and solicited by Baluyot. Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained on forms provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such forms and, when signed by the buyer and an authorized officer of MMPCI, becomes binding on both parties. The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI showed a total list price of P132,250.00. Likewise, it was clearly stated therein that Purchaser agrees that he has read or has had read to him this agreement, that he understands its terms and conditions, and that there are no covenants, conditions, warranties or representations other than those contained herein.[37] By signing the Offer to Purchase, Atty. Linsangan signified that he understood its contents. That he and Baluyot had an agreement different from that contained in the Offer to Purchase is of no moment, and should not affect MMPCI, as it was obviously made outside Baluyots authority. To repeat, Baluyots authority was limited only to soliciting purchasers. She had no authority to alter the terms of the written contract provided by MMPCI. The document/letter confirming the agreement that Atty. Linsangan would have to pay the old price was executed by Baluyot alone. Nowhere is there any indication that the same came from MMPCI or any of its officers. It is a settled rule that persons dealing with an agent are bound at their peril, 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 establish it. [38] The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.[39] If he does not make such an inquiry, he is chargeable with knowledge of the agents authority and his ignorance of that authority will not be any excuse.[40] As noted by one author, the ignorance of a person dealing with an agent as to the scope of the latters authority is no excuse to such person and the fault cannot be thrown upon the principal. [41] A person dealing with an agent assumes the risk of lack of authority in the agent. He cannot charge the principal by relying upon the agents assumption of authority that proves to be unfounded. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency.
[42]

In the instant case, it has not been established that Atty. Linsangan even bothered to inquire whether Baluyot was authorized to agree to terms contrary to those indicated in the written contract, much less bind MMPCI by her commitment with respect to such agreements. Even if Baluyot was Atty. Linsangans friend and known to be an agent of MMPCI, her declarations and actions alone are not

sufficient to establish the fact or extent of her authority. [43] Atty. Linsangan as a practicing lawyer for a relatively long period of time when he signed the contract should have been put on guard when their agreement was not reflected in the contract. More importantly, Atty. Linsangan should have been alerted by the fact that Baluyot failed to effect the transfer of rights earlier promised, and was unable to make good her written commitment, nor convince MMPCI to assent thereto, as evidenced by several attempts to induce him to enter into other contracts for a higher consideration. As properly pointed out by MMPCI, as a lawyer, a greater degree of caution should be expected of Atty. Linsangan especially in dealings involving legal documents. He did not even bother to ask for official receipts of his payments, nor inquire from MMPCI directly to ascertain the real status of the contract, blindly relying on the representations of Baluyot. A lawyer by profession, he knew what he was doing when he signed the written contract, knew the meaning and value of every word or phrase used in the contract, and more importantly, knew the legal effects which said document produced. He is bound to accept responsibility for his negligence. The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial court, MMPCIs acts of accepting and encashing the checks issued by Atty. Linsangan as well as allowing Baluyot to receive checks drawn in the name of MMPCI confirm and ratify the contract of agency. On the other hand, the Court of Appeals faulted MMPCI in failing to adopt measures to prevent misrepresentation, and declared that in view of MMPCIs acceptance of the benefits of Baluyots misrepresentation, it can no longer deny responsibility therefor. The Court does not agree. Pertinent to this case are the following provisions of the Civil Code: Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principals ratification. Art. 1910. The principal must comply with all the obligations that the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. 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. Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own unauthorized acts. Moreover, the principal must have knowledge of the acts he is to ratify.[44] Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in concealing such facts and regardless of the parties between whom the question of ratification may arise. [45] Nevertheless, this principle does not apply if the principals ignorance of the material facts and circumstances was willful, or that the principal chooses to act in ignorance of the facts. [46] However, in the absence of circumstances putting a reasonably prudent man on inquiry, ratification cannot be implied as against the principal who is ignorant of the facts.[47] No ratification can be implied in the instant case. A perusal of Baluyots Answer[48] reveals that the real arrangement between her and Atty. Linsangan was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the counterpart amount of P1,455.00 to meet the P3,255.00 monthly installments as indicated in the contract. Thus, every time an installment falls due, payment was to be made through a check from Atty. Linsangan for P1,800.00 and a cash component of P1,455.00 from Baluyot.[49] However, it appears that while Atty. Linsangan issued the post-dated checks, Baluyot failed to come up with her part of the bargain. This was supported by Baluyots statements in her letter [50] to Mr. Clyde Williams, Jr., Sales Manager of MMPCI, two days after she received the copy of the Complaint. In the letter, she admitted that she was remiss in her duties when she consented to Atty. Linsangans proposal that he will pay the old price while the difference will be shouldered by her. She likewise admitted that the contract suffered arrearages because while Atty. Linsangan issued the agreed checks, she was unable to give her share

of P1,455.00 due to her own financial difficulties. Baluyot even asked for compassion from MMPCI for the error she committed. Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is concerned, the contract price wasP132,250.00, as stated in the Offer to Purchase signed by Atty. Linsangan and MMPCIs authorized officer. The down payment of P19,838.00 given by Atty. Linsangan was in accordance with the contract as well. Payments of P3,235.00 for at least two installments were likewise in accord with the contract, albeit made through a check and partly in cash. In view of Baluyots failure to give her share in the payment, MMPCI received only P1,800.00 checks, which were clearly insufficient payment. In fact, Atty. Linsangan would have incurred arrearages that could have caused the earlier cancellation of the contract, if not for MMPCIs application of some of the checks to his account. However, the checks alone were not sufficient to cover his obligations. If MMPCI was aware of the arrangement, it would have refused the latters check payments for being insufficient. It would not have applied to his account the P1,800.00 checks. Moreover, the fact that Baluyot had to practically explain to MMPCIs Sales Manager the details of her arrangement with Atty. Linsangan and admit to having made an error in entering such arrangement confirm that MMCPI had no knowledge of the said agreement. It was only when Baluyot filed her Answer that she claimed that MMCPI was fully aware of the agreement. Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct of a party amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (ii) intent, or at least expectation, that this conduct shall be acted upon by, or at least influence, the other party; and (iii) knowledge, actual or constructive, of the real facts.[51] While there is no more question as to the agency relationship between Baluyot and MMPCI, there is no indication that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had the authority to alter the standard contracts of the company. Neither is there any showing that prior to signing Contract No. 28660, MMPCI had any knowledge of Baluyots commitment to Atty. Linsangan. One who claims the benefit of an estoppel on the ground that he has been misled by the representations of another must not have been misled through his own want of reasonable care and circumspection.[52] Even assuming that Atty. Linsangan was misled by MMPCIs actuations, he still cannot invoke the principle of estoppel, as he was clearly negligent in his dealings with Baluyot, and could have easily determined, had he only been cautious and prudent, whether said agent was clothed with the authority to change the terms of the principals written contract. Estoppel must be intentional and unequivocal, for when misapplied, it can easily become a most convenient and effective means of injustice.[53] In view of the lack of sufficient proof showing estoppel, we refuse to hold MMPCI liable on this score. Likewise, this Court does not find favor in the Court of Appeals findings that the authority of defendant Baluyot may not have been expressly conferred upon her; however, the same may have been derived impliedly by habit or custom which may have been an accepted practice in their company in a long period of time. A perusal of the records of the case fails to show any indication that there was such a habit or custom in MMPCI that allows its agents to enter into agreements for lower prices of its interment spaces, nor to assume a portion of the purchase price of the interment spaces sold at such lower price. No evidence was ever presented to this effect. As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660 between MMPCI and by Atty. Linsangan for the purchase of an interment space in the formers cemetery. The other is the agreement between Baluyot and Atty. Linsangan for the former to shoulder the amount P1,455.00, or the difference between P95,000.00, the original price, and P132,250.00, the actual contract price. To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless the latter ratifies the same. It also bears emphasis that when the third person knows that the agent was acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third person was aware of such limits of authority, he is to blame and is not entitled to recover damages from the agent, unless the latter undertook to secure the principals ratification.[54] This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty. Linsangan. By affixing his signature in the contract, Atty. Linsangan assented to the terms and conditions thereof. When Atty. Linsangan incurred delinquencies in payment, MMCPI merely enforced its rights under the said contract by canceling the same. Being aware of the limits of Baluyots authority, Atty. Linsangan cannot insist on what he claims to be the terms of Contract No. 28660. The agreement, insofar as the P95,000.00 contract price is concerned, is void and cannot be enforced as against MMPCI. Neither can he hold Baluyot liable for damages under the same contract, since there is no evidence showing that Baluyot undertook to secure MMPCIs ratification. At best, the agreement between Baluyot and Atty. Linsangan bound only the two of them. As far as MMPCI is concerned, it

bound itself to sell its interment space to Atty. Linsangan for P132,250.00 under Contract No. 28660, and had in fact received several payments in accordance with the same contract. If the contract was cancelled due to arrearages, Atty. Linsangans recourse should only be against Baluyot who personally undertook to pay the difference between the true contract price of P132,250.00 and the original proposed price of P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she promised to shoulder the said difference would be to conclude that MMPCI undertook to pay itself the difference, a conclusion that is very illogical, if not antithetical to its business interests. However, this does not preclude Atty. Linsangan from instituting a separate action to recover damages from Baluyot, not as an agent of MMPCI, but in view of the latters breach of their separate agreement. To review, Baluyot obligated herself to pay P1,455.00 in addition to Atty. LinsangansP1,800.00 to complete the monthly installment payment under the contract, which, by her own admission, she was unable to do due to personal financial difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed upon, and were it not for Baluyots failure to provide the balance, Contract No. 28660 would not have been cancelled. Thus, Atty. Linsangan has a cause of action against Baluyot, which he can pursue in another case. WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated 22 June 2001 and its Resolution dated 12 December 2001 in CA- G.R. CV No. 49802, as well as the Decision in Civil Case No. 88-1253 of the Regional Trial Court, Makati City Branch 57, are hereby REVERSED and SET ASIDE. The Complaint in Civil Case No. 88-1253 is DISMISSED for lack of cause of action. No pronouncement as to costs. G.R. No. 114091 June 29, 1995 BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners, vs. HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents. Petitioners seek the reversal of the decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180, 1 entitled "San Miguel Corporation vs. Bacaltos Coal Mines, German A. Bacaltos and Rene R. Savellon," which affirmed the decision of 19 August 1991 of the Regional Trial Court (RTC) of Cebu, Branch 9, in Civil Case No. CEB-8187 2 holding petitioners Bacaltos Coal Mines and German A. Bacaltos and their co-defendant Rene R. Savellon jointly and severally liable to private respondent San Miguel Corporation under a Trip Charter Party. The paramount issue raised is whether Savellon was duly authorized by the petitioners to enter into the Trip Charter Party (Exhibit "A") 3 under and by virtue of an Authorization (Exhibit "C" and Exhibit "1"), 4 dated 1 March 1988, the pertinent portions of which read as follows: I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing at second street, Espina Village, Cebu City, province of Cebu, Philippines, do hereby authorize RENE R. SAVELLON, of legal age, Filipino and residing at 376-R Osmea Blvd., Cebu City, Province of Cebu, Philippines, to use the coal operating contract of BACALTOS COAL MINES of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by way of limitation, as follows: (1) To acquire purchase orders for and in behalf of BACALTOS COAL MINES; (2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON; (3) To collect all receivables due or in arrears from people or companies having dealings under BACALTOS COAL MINES/RENE SAVELLON; (4) To extend to any person or company by substitution the same extent of authority that is granted to Rene Savellon; (5) In connection with the preceeding paragraphs to execute and sign documents, contracts, and other pertinent papers.

Further, I hereby give and grant to RENE SAVELLON full authority to do and perform all and every lawful act requisite or necessary to carry into effect the foregoing stipulations as fully to all intents and purposes as I might or would lawfully do if personally present, with full power of substitution and revocation. The Trip Charter Party was executed on 19 October 1988 "by and between BACALTOS COAL MINES, represented by its Chief Operating Officer, RENE ROSEL SAVELLON" and private respondent San Miguel Corporation (hereinafter SMC), represented by Francisco B. Manzon, Jr., its "SAVP and Director, Plant Operations-Mandaue" Thereunder, Savellon claims that Bacaltos Coal Mines is the owner of the vessel M/V Premship II and that for P650,000.00 to be paid within seven days after the execution of the contract, it "lets, demises" the vessel to charterer SMC "for three round trips to Davao." As payment of the aforesaid consideration, SMC issued a check (Exhibit "B") 5 payable to "RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES" for which Savellon issued a receipt under the heading of BACALTOS COAL MINES with the address at No 376-R Osmea Blvd., Cebu City (Exhibit "B-1"). 6 The vessel was able to make only one trip. Its demands to comply with the contract having been unheeded, SMC filed against the petitioners and Rene Savellon the complaint in Civil Case No. CEB8187 for specific performance and damages. In their Answer, 7 the petitioners alleged that Savellon was not their Chief Operating Officer and that the powers granted to him are only those clearly expressed in the Authorization which do not include the power to enter into any contract with SMC. They further claimed that if it is true that SMC entered into a contract with them, it should have issued the check in their favor. They setup counterclaims for moral and exemplary damages and attorney's fees. Savellon did not file his Answer and was declared in default on 17 July 1990. 8 At the pre-trial conference on 1 February 1991, the petitioners and SMC agreed to submit the following issues for resolution: Plaintiff 1. Whether or not defendants are jointly liable to plaintiff for damages on account of breach of contract; 2. Whether or not the defendants acted in good faith in its representations to the plaintiff; 3. Whether or not defendant Bacaltos was duly enriched on the payment made by the plaintiff for the use of the vessel; 4. Whether or not defendant Bacaltos is estopped to deny the authorization given to defendant Savellon; Defendants 1. Whether or not the plaintiff should have first investigated the ownership of vessel M/V PREM [SHIP] II before entering into any contract with defendant Savellon; 2. Whether or not defendant Savellon was authorized to enter into a shipping contract with the [plaintiff] corporation; 3. Whether or not the plaintiff was correct and not mistaken in issuing the checks in payment of the contract in the name of defendant Savellon and not in the name of defendant Bacaltos Coal Mines; 4. Whether or not the plaintiff is liable on defendants' counterclaim. 9 After trial, the lower court rendered the assailed decision in favor of SMC and against the petitioners and Savellon as follows:

WHEREFORE, by preponderance of evidence, the Court hereby renders judgment in favor of plaintiff and against defendants, ordering defendants Rene Savellon, Bacaltos Coal Mines and German A. Bacaltos, jointly and severally, to pay to plaintiff: 1. The amount of P433,000.00 by way of reimbursement of the consideration paid by plaintiff, plus 12% interest to start from date of written demand, which is June 14, 1989; 2. The amount of P20,000.00 by way of exemplary damages; 3. The amount of P20,000.00 as attorney's fees and P5,000.00 as Litigation expenses. Plus costs. 10 It ruled that the Authorization given by German Bacaltos to Savellon necessarily included the power to enter into the Trip Charter Party. It did not give credence to the petitioners' claim that the authorization refers only to coal or coal mining and not to shipping because, according to it, "the business of coal mining may also involve the shipping of products" and "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." It further reasoned out that even assuming that the petitioners did not intend to authorize Savellon to enter into the Trip Charter Party, they are still liable because: (a) SMC appears to be an innocent party which has no knowledge of the real intent of the parties to the Authorization and has reason to rely on the written Authorization submitted by Savellon pursuant to Articles 1900 and 1902 of the Civil Code; (b) Savellon issued an official receipt of Bacaltos Coal Mines (Exhibit "B-1") for the consideration of the Trip Charter Party, and the petitioners denial that they caused the printing of such official receipt is "lame" because they submitted only a cash voucher and not their official receipt; (c) the "Notice of Readiness" (Exhibit "A-1") is written on a paper with the letterhead "Bacaltos Coal Mines" and the logo therein is the same as that appearing in their voucher; (d) the petitioners were benefited by the payment because the real payee in the check is actually Bacaltos Coal Mines and since in the Authorization they authorized Savellon to collect receivables due or in arrears, the check was then properly delivered to Savellon; and, (e) if indeed Savellon had not been authorized or if indeed he exceeded his authority or if the Trip Charter Party was personal to him and the petitioners have nothing to do with it, then Savellon should have "bother[ed] to answer" the complaint and the petitioners should have filed "a cross-claim" against him. In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the petitioners asserted that the trial court erred in: (a) not holding that SMC was negligent in (1) not verifying the credentials of Savellon and the ownership of the vessel, (2) issuing the check in the name of Savellon in trust for Bacaltos Coal Mines thereby allowing Savellon to encash the check, and, (3) making full payment of P650,000.00 after the vessel made only one trip and before it completed three trips as required in the Trip Charter Party; (b) holding that under the authority given to him Savellon was authorized to enter into the Trip Charter Party; and, (c) holding German Bacaltos jointly and severally liable with Savellon and Bacaltos Coal Mines. 11 As stated at the beginning, the Court of Appeals affirmed in toto the judgment of the trial court. It held that: (a) the credentials of Savellon is not an issue since the petitioners impliedly admitted the agency while the ownership of the vessel was warranted on the face of the Trip Charter Party; (b) SMC was not negligent when it issued the check in the name of Savellon in trust for Bacaltos Coal Mines since the Authorization clearly provides that collectibles of the petitioners can be coursed through Savellon as the agent; (c) the Authorization includes the power to enter into the Trip Charter Party because the "five prerogatives" enumerated in the former is prefaced by the phrase "but not by way of limitation"; (d) the petitioners' statement that the check should have been issued in the name of Bacaltos Coal Mines is another implicit admission that the Trip Charter Party is part and parcel of the petitioners' business notwithstanding German Bacaltos's contrary interpretation when he testified, and in any event, the construction of obscure words should not favor him since he prepared the Authorization in favor of Savellon; and, (e) German Bacaltos admitted in the Answer that he is the proprietor of Bacaltos Coal Mines and he likewise represented himself to be so in the Authorization itself, hence he should not now be permitted to disavow what he initially stated to be true and to interpose the defense that Bacaltos Coal Mines has a distinct legal personality. Their motion for a reconsideration of the above decision having been denied, the petitioners filed the instant petition wherein they raise the following errors: I. THE RESPONDENT COURT ERRED IN HOLDING THAT RENE SAVELLON WAS AUTHORIZED TO ENTER INTO A TRIP CHARTER PARTY CONTRACT WITH PRIVATE RESPONDENT

INSPITE OF ITS FINDING THAT SUCH AUTHORITY CANNOT BE FOUND IN THE FOUR CORNERS OF THE AUTHORIZATION; II. THE RESPONDENT COURT ERRED IN NOT HOLDING THAT BY ISSUING THE CHECK IN THE NAME OF RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES, THE PRIVATE RESPONDENT WAS THE AUTHOR OF ITS OWN DAMAGE; AND III. THE RESPONDENT COURT ERRED IN HOLDING PETITIONER GERMAN BACALTOS JOINTLY AND SEVERALLY LIABLE WITH RENE SAVELLON AND CO-PETITIONER BACALTOS COAL MINES IN SPITE OF THE FINDING OF THE COURT A QUO THAT PETITIONER BACALTOS COAL MINES AND PETITIONER BACALTOS ARE TWO DISTINCT AND SEPARATE LEGAL PERSONALITIES. 12 After due deliberations on the allegations, issues raised, and arguments adduced in the petition, and the comment thereto and reply to the comment, the Court resolved to give due course to the petition. Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Persons dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it. 13 American jurisprudence 14 summarizes the rule in dealing with an agent as follows: A third person dealing with a known agent may not act negligently with regard to the extent of the agent's authority or blindly trust the agent's statements in such respect. Rather, he must use reasonable diligence and prudence to ascertain whether the agent is acting and dealing with him within the scope of his powers. The mere opinion of an agent as to the extent of his powers, or his mere assumption of authority without foundation, will not bind the principal; and a third person dealing with a known agent must bear the burden of determining for himself, by the exercise of reasonable diligence and prudence, the existence or nonexistence of the agent's authority to act in the premises. In other words, whether the agency is general or special, the third person is bound to ascertain not only the fact of agency, but the nature and extent of the authority. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency. Or, as stated in Harry E. Keller Electric Co. vs. Rodriguez, 15 quoting Mechem on Agency: The person dealing with the agent must also act with ordinary prudence and reasonable diligence. Obviously, if he knows or has good reason to believe that the agent is exceeding his authority, he cannot claim protection. So if the suggestions of probable limitations be of such a clear and reasonable quality, or if the character assumed by the agent is of such a suspicious or unreasonable nature, or if the authority which he seeks to exercise is of such an unusual or improbable character, as would suffice to put an ordinarily prudent man upon his guard, the party dealing with him may not shut his eyes to the real estate of the case, but should either refuse to deal with the agent at all, or should ascertain from the principal the true condition of affairs. [emphasis supplied]. In the instant case, since the agency of Savellon is based on a written document, the Authorization of 1 March 1988 (Exhibits "C" and "1"), the extent and scope of his powers must be determined on the basis thereof. The language of the Authorization is clear. It pertinently states as follows: I. GERMAN A. BACALTOS do hereby authorize RENE R. SAVELLON . . . to use the coal operating contract of BACALTOS COAL MINES, of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by way of limitation, as follows . . . [emphasis supplied].

There is only one express power granted to Savellon, viz., to use the coal operating contract for anylegitimate purpose it may serve. The enumerated "five prerogatives" to employ the term used by the Court of Appeals are nothing but the specific prerogatives subsumed under or classified as part of or as examples of the power to use the coal operating contract. The clause "but not by way of limitation" which precedes the enumeration could only refer to or contemplate other prerogatives which must exclusively pertain or relate or be germane to the power to use the coal operating contract. The conclusion then of the Court of Appeals that the Authorization includes the power to enter into the Trip Chapter Party because the "five prerogatives" are prefaced by such clause, is seriously flawed. It fails to note that the broadest scope of Savellon's authority is limited to the use of the coal operating contract and the clause cannot contemplate any other power not included in the enumeration or which are unrelated either to the power to use the coal operating contract or to those already enumerated. In short, while the clause allows some room for flexibility, it can comprehend only additional prerogatives falling within the primary power and within the same class as those enumerated. The trial court, however, went further by hastily making a sweeping conclusion that "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." 16 But what the trial court failed to consider was that there is no evidence at all that Bacaltos Coal Mines as a coal mining company owns and operates vessels, and even if it owned any such vessels, that it was allowed to charter or lease them. The trial court also failed to note that the Authorization is not a general power of attorney. It is a special power of attorney for it refers to a clear mandate specifically authorizing the performance of a specific power and of express acts subsumed therein. 17 In short, both courts below unreasonably expanded the express terms of or otherwise gave unrestricted meaning to a clause which was precisely intended to prevent unwarranted and unlimited expansion of the powers entrusted to Savellon. The suggestion of the Court of Appeals that there is obscurity in the Authorization which must be construed against German Bacaltos because he prepared the Authorization has no leg to stand on inasmuch as there is no obscurity or ambiguity in the instrument. If any obscurity or ambiguity indeed existed, then there will be more reason to place SMC on guard and for it to exercise due diligence in seeking clarification or enlightenment thereon, for that was part of its duty to discover upon its peril the nature and extent of Savellon's written agency. Unfortunately, it did not. Howsoever viewed, the foregoing conclusions of the Court of Appeals and the trial court are tenuous and farfetched, bringing to unreasonable limits the clear parameters of the powers granted in the Authorization. Furthermore, had SMC exercised due diligence and prudence, it should have known in no time that there is absolutely nothing on the face of the Authorization that confers upon Savellon the authority to enter into any Trip Charter Party. Its conclusion to the contrary is based solely on the second prerogative under the Authorization, to wit: (2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON; unmindful that such is but a part of the primary authority to use the coal operating contract which it did not even require Savellon to produce. Its principal witness, Mr. Valdescona, expressly so admitted on cross-examination, thus: Atty. Zosa (to witness ON CROSS) Q You said that in your office Mr. Rene Savellon presented to you this authorization marked Exhibit "C" and Exhibit "1" for the defendant? A Yes, sir. Q Did you read in the first part[y] of this authorization Mr. Valdescona that Mr. Rene Savellon was authorized as the coal operating contract of Bacaltos Coal Mines? A Yes, sir.

Q Did it not occur to you that you should have examined further the authorization of Mr. Rene Savellon, whether or not this coal operating contract allows Mr. Savellon to enter into a trip charter party? A Yes, sir. We discussed about the extent of his authorization and he referred us to the number 2 provision of this authorization which is to engage in trading under the style of Bacaltos Coal Mines/Rene Savellon, which we followed up to the check preparation because it is part of the authority. Q In other words, you examined this and you found out that Mr. Savellon is authorized to use the coal operating contract of Bacaltos Coal Mines? A Yes, sir. Q You doubted his authority but you found out in paragraph 2 that he is authorized that's why you agreed and entered into that trip charter party? A We did not doubt his authority but we were questioning as to the extent of his operating contract. Q Did you not require Mr. Savellon to produce that coal operating contract of Bacaltos Coal Mines? A No sir. We did not. 18 Since the principal subject of the Authorization is the coal operating contract, SMC should have required its presentation to determine what it is and how it may be used by Savellon. Such a determination is indispensable to an inquiry into the extent or scope of his authority. For this reason, we now deem it necessary to examine the nature of a coal operating contract. A coal operating contract is governed by P.D. No. 972 (The Coal Development Act of 1976), as amended by P.D. No. 1174. It is one of the authorized ways of active exploration, development, and production of coal resources 19in a specified contract area. 20 Section 9 of the decree prescribes the obligation of the contractor, thus: Sec. 9. Obligations of Operator in Coal Operating Contract. The operator under a coal operating contract shall undertake, manage and execute the coal operations which shall include: (a) The examination and investigation of lands supposed to contain coal, by detailed surface geologic mapping, core drilling, trenching, test pitting and other appropriate means, for the purpose of probing the presence of coal deposits and the extent thereof; (b) Steps necessary to reach the coal deposit so that it can be mined, including but not limited to shaft sinking and tunneling; and (c) The extraction and utilization of coal deposits. The Government shall oversee the management of the operation contemplated in a coal operating contract and in this connection, shall require the operator to: (a) Provide all the necessary service and technology; (b) Provide the requisite financing;

(c) Perform the work obligations and program prescribed in the coal operating contract which shall not be less than those prescribed in this Decree; (d) Operate the area on behalf of the Government in accordance with good coal mining practices using modern methods appropriate for the geological conditions of the area to enable maximum economic production of coal, avoiding hazards to life, health and property, avoiding pollution of air, lands and waters, and pursuant to an efficient and economic program of operation; (e) Furnish the Energy Development Board promptly with all information, data and reports which it may require;. (f) Maintain detailed technical records and account of its expenditures; (g) Conform to regulations regarding, among others, safety demarcation of agreement acreage and work areas, non-interference with the rights of the other petroleum, mineral and natural resources operators; (h) Maintain all necessary equipment in good order and allow access to these as well as to the exploration, development and production sites and operations to inspectors authorized by the Energy Development Board; (i) Allow representatives authorized by the Energy Development Board full access to their accounts, books and records for tax and other fiscal purposes. Section 11 thereof provides for the minimum terms and conditions of a coal operating contract. From the foregoing, it is obvious that a scrutiny of the coal operating contract of Bacaltos Coal Mines would have provided SMC knowledge of the activities which are germane, related, or incident to the power to use it. But it did not even require Savellon to produce the same. SMC's negligence was further compounded by its failure to verify if Bacaltos Coal Mines owned a vessel. A party desiring to charter a vessel must satisfy itself that the other party is the owner of the vessel or is at least entitled to its possession with power to lease or charter the vessel. In the instant case, SMC made no such attempt. It merely satisfied itself with the claim of Savellon that the vessel it was leasing is owned by Bacaltos Coal Mines and relied on the presentation of the Authorization as well as its test on the sea worthiness of the vessel. Valdescona thus declared on direct examination as follows: A In October, a certain Rene Savellon called our office offering us shipping services. So I told him to give us a formal proposal and also for him to come to our office so that we can go over his proposal and formally discuss his offer. Q Did Mr. Rene Savellon go to your office? A Few days later he came to our office and gave us his proposal verbally offering a vessel for us to use for our cargo. Q Did he mention the owner of that vessel? A Yes, sir. That it is Bacaltos. Q Did he present a document to you? A Yes, sir. He presented to us the authorization. Q When Mr. Rene Savellon presented to you the authorization what did you do?. A On the strength of that authorization we initially asked him for us to check the vessel to see its sea worthiness, and we assigned our in-house surveyor to check the sea worthiness of the vessel which was on dry dock that time in Danao. Q What was the result of your inspection? A We found out the vessel's sea worthiness to be our cargo carrier. Q After that what did you do? A After that we were discussing the condition of the contract. Q Were you able to execute that contract? A Yes, sir . 21 He further declared as follows: Q When you entered into a trip charter contract did you check the ownership of M/V Premship?

A The representation made by Mr. Rene Savellon was that Bacaltos Coal Mines operates the vessel and on the strength of the authorization he showed us we were made to believe that it was Bacaltos Coal Mines that owned it. COURT: (to witness) Q In other words, you just believed Rene Savellon? A Yes, sir. COURT: (to witness) Q You did not check with Bacaltos Coal Mines? A That is the representation he made. Q Did he show you document regarding this M/V Premship II? A No document shown. 22 The Authorization itself does not state that Bacaltos Coal Mines owns any vessel, and since it is clear therefrom that it is not engaged in shipping but in coal mining or in coal business, SMC should have required the presentation of pertinent documentary proof of ownership of the vessel to be chartered. Its in-house surveyor who saw the vessel while drydocked in Danao and thereafter conducted a sea worthiness test could not have failed to ascertain the registered owner of the vessel. The petitioners themselves declared in open court that they have not leased any vessel for they do not need it in their coal operations 23 thereby implying that they do not even own one. The Court of Appeals' asseveration that there was no need to verify the ownership of the vessel because such ownership is warranted on the face of the trip charter party begs the question since Savellon's authority to enter into that contract is the very heart of the controversy. We are not prepared to accept SMC's contention that the petitioners' claim that they are not engaged in shipping and do not own any ship is belied by the fact that they maintained a pre-printed business form known as a "Notice of Readiness" (Exhibit "A-1"). 24 This paper is only a photocopy and, despite its reservation to present the original for purposes of comparison at the next hearing, 25 SMC failed to produce the latter. This "Notice of Readiness" is not, therefore, the best evidence, hence inadmissible under Section 3, Rule 130 of the Rules of Court. It is true that when SMC made a formal offer of its exhibits, the petitioners did not object to the admission of Exhibit "A-1," the "Notice of Readiness," under the best evidence rule but on the ground that Savellon was not authorized to enter into the Trip Charter Party and that the party who signed it, one Elmer Baliquig, is not the petitioners' employee but of Premier Shipping Lines, the owner of the vessel in question. 26 The petitioners raised the issue of inadmissibility under the best evidence rule only belatedly in this petition. But although Exhibit "A-1" remains admissible for not having been timely objected to, it has no probative value as to the ownership of the vessel. There is likewise no proof that the petitioners received the consideration of the Trip Charter Party. The petitioners denied having received it. 27 The evidence for SMC established beyond doubt that it was Savellon who requested in writing on 19 October 1988 that the check in payment therefor be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON (Exhibit "B-3") and that SMC drew the check in favor of RENE SAVELLON IN TRUST FOR BACALTOS COALMINES (Exhibit "B") and delivered it to Savellon who there upon issued a receipt (Exhibit "B-1"). We agree with the petitioners that SMC committed negligence in drawing the check in the manner aforestated. It even disregarded the request of Savellon that it be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that the transaction was permitted in the Authorization, the check should still have been drawn in favor of the principal. SMC then made possible the wrong done. There is an equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss. 28 For this rule to apply, the condition precedent is that both parties must be innocent. In the present case, however, SMC is guilty of not ascertaining the extent and limits of the authority of Savellon. In not doing so, SMC dealt with Savellon at its own peril. Having thus found that SMC was the author of its own damage and that the petitioners are, therefore, free from any liability, it has become unnecessary to discuss the issue of whether Bacaltos Coal Mines is a corporation with a personality distinct and separate from German Bacaltos. WHEREFORE, the instant petition is GRANTED and the challenged decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180 is hereby REVERSED and SET ASIDE and another judgment is hereby rendered MODIFYING the judgment of the Regional Trial Court of Cebu, Branch 9, in Civil Case No. CEB-8187 by setting aside the declaration of solidary liability, holding defendant RENE R. SAVELLON solely liable for the amounts adjudged, and ordering the dismissal of the case as against herein petitioners.

SO ORDERED. Bellosillo, Quiason, and Kapunan, JJ., concur.

EN BANC G.R. No. L-28050 March 13, 1928

FEDERICO VALERA, plaintiff-appellant, vs. MIGUEL VELASCO, defendant-appellee. This is an appeal taken by Federico Valera from the judgment of the Court of First Instance of Manila dismissing his complaint against Miguel Velasco, on the ground that he has not satisfactorily proven his right of action. In support of his appeal, the appellant assigns the following alleged as committed by the trial court in its judgment, to wit: (1) The lower court erred in holding that one of the ways of terminating an agency is by the express or tacit renunciation of the agent; (2) the lower court erred in holding that the institution of a civil action and the execution of the judgment obtained by the agent against his principal is but renunciation of the powers conferred on the agent; (3) the lower erred in holding that, even if the sale by Eduardo Hernandez to the plaintiff Federico Valera be declared void, such a declaration could not prevail over the rights of the defendant Miguel Velasco inasmuch as the right redemption was exercised by neither Eduardo Hernandez nor the plaintiff Federico Valera; (4) the lower court erred in not finding that the defendant Miguel Velasco was, and at present is, an authorized representative of the plaintiff Federico Valera; (5) the lower court erred in not annulling the sale made by the sheriff at public auction to defendant Miguel Velasco, Exhibit K; (6) the lower court erred in failing to annul the sale executed by Eduardo Hernandez to the plaintiff Federico Valera, Exhibit C; (7) the lower court erred in not annulling Exhibit L, that is, the sale at public auction of the right to repurchase the land in question to Salvador Vallejo; (8) the lower court erred in not declaring Exhibit M null and void, which is the sale by Salvador Vallejo to defendant Miguel Velasco; (9) the lower court erred in not ordering the defendant Miguel Velasco to liquidate his accounts as agent of the plaintiff Federico Valera; (10) the lower court erred in not awarding plaintiff the P5,000 damages prayed for. The pertinent facts necessary for the solution of the questions raised by the above quoted assignments of error are contained in the decision appealed from and are as follows: By virtue of the powers of attorney, Exhibits X and Z, executed by the plaintiff on April 11, 1919, and on August 8, 1922, the defendant was appointed attorney-in-fact of the said plaintiff with authority to manage his property in the Philippines, consisting of the usufruct of a real property located of Echague Street, City of Manila. The defendant accepted both powers of attorney, managed plaintiff's property, reported his operations, and rendered accounts of his administration; and on March 31, 1923 presented

exhibit F to plaintiff, which is the final account of his administration for said month, wherein it appears that there is a balance of P3,058.33 in favor of the plaintiff. The liquidation of accounts revealed that the plaintiff owed the defendant P1,100, and as misunderstanding arose between them, the defendant brought suit against the plaintiff, civil case No. 23447 of this court. Judgment was rendered in his favor on March 28, 1923, and after the writ of execution was issued, the sheriff levied upon the plaintiff's right of usufruct, sold it at public auction and adjudicated it to the defendant in payment of all of his claim. Subsequently, on May 11, 1923, the plaintiff sold his right of redemption to one Eduardo Hernandez, for the sum of P200 (Exhibit A). On September 4, 1923, this purchaser conveyed the same right of redemption, for the sum of P200, to the plaintiff himself, Federico Valera (Exhibit C). After the plaintiff had recovered his right of redemption, one Salvador Vallejo, who had an execution upon a judgment against the plaintiff rendered in a civil case against the latter, levied upon said right of redemption, which was sold by the sheriff at public auction to Salvador Vallejo for P250 and was definitely adjudicated to him. Later, he transferred said right of redemption to the defendant Velasco. This is how the title to the right of usufruct to the aforementioned property later came to vest the said defendant. As the first two assignments of error are very closely related to each other, we will consider them jointly. Article 1732 of the Civil Code reads as follows: Art. 1732. Agency is terminated: 1. By revocation; 2. By the withdrawal of the agent; 3. By the death, interdiction, bankruptcy, or insolvency of the principal or of the agent. And article 1736 of the same Code provides that: Art. 1736. An agent may withdraw from the agency by giving notice to the principal. Should the latter suffer any damage through the withdrawal, the agent must indemnify him therefore, unless the agent's reason for his withdrawal should be the impossibility of continuing to act as such without serious detriment to himself. In the case of De la Pea vs. Hidalgo (16 Phil., 450), this court said laid down the following rule: 1. AGENCY; ADMINISTRATION OF PROPERTY; IMPLIED AGENCY. When the agent and administrator of property informs his principal by letter that for reasons of health and medical treatment he is about to depart from the place where he is executing his trust and wherein the said property is situated, and abandons the property, turns it over to a third party, renders accounts of its revenues up to the date on which he ceases to hold his position and transmits to his principal statement which summarizes and embraces all the balances of his accounts since he began the administration to the date of the termination of his trust, and, without stating when he may return to take charge of the administration of the said property, asks his principal to execute a power of attorney in due form in favor of a transmit the same to another person who took charge of the administration of the said property, it is but reasonable and just to conclude that the said agent had expressly and definitely renounced his agency and that such agency duly terminated, in accordance with the provisions of article 1732 of the Civil Code, and, although the agent in his aforementioned letter did not use the words "renouncing the agency," yet such words, were undoubtedly so understood and accepted by the principal, because of the lapse of nearly nine years up to the time of the latter's death, without his having interrogated either the renouncing agent, disapproving what he had done, or the person who substituted the latter. The misunderstanding between the plaintiff and the defendant over the payment of the balance of P1,000 due the latter, as a result of the liquidation of the accounts between them arising from the

collections by virtue of the former's usufructuary right, who was the principal, made by the latter as his agent, and the fact that the said defendant brought suit against the said principal on March 28, 1928 for the payment of said balance, more than prove the breach of the juridical relation between them; for, although the agent has not expressly told his principal that he renounced the agency, yet neither dignity nor decorum permits the latter to continue representing a person who has adopted such an antagonistic attitude towards him. When the agent filed a complaint against his principal for recovery of a sum of money arising from the liquidation of the accounts between them in connection with the agency, Federico Valera could not have understood otherwise than that Miguel Velasco renounced the agency; because his act was more expressive than words and could not have caused any doubt. (2 C. J., 543.) In order to terminate their relations by virtue of the agency the defendant, as agent, rendered his final account on March 31, 1923 to the plaintiff, as principal. Briefly, then, the fact that an agent institutes an action against his principal for the recovery of the balance in his favor resulting from the liquidation of the accounts between them arising from the agency, and renders and final account of his operations, is equivalent to an express renunciation of the agency, and terminates the juridical relation between them. If, as we have found, the defendant-appellee Miguel Velasco, in adopting a hostile attitude towards his principal, suing him for the collection of the balance in his favor, resulting from the liquidation of the agency accounts, ceased ipso facto to be the agent of the plaintiff-appellant, said agent's purchase of the aforesaid principal's right of usufruct at public auction held by virtue of an execution issued upon the judgment rendered in favor of the former and against the latter, is valid and legal, and the lower court did not commit the fourth and fifth assignments of error attributed to it by the plaintiff-appellant. In regard to the third assignment of error, it is deemed unnecessary to discuss the validity of the sale made by Federico Valera to Eduardo Hernandez of his right of redemption in the sale of his usufructuary right made by the sheriff by virtue of the execution of the judgment in favor of Miguel Velasco and against the said Federico Valera; and the same thing is true as to the validity of the resale of the same right of redemption made by Eduardo Hernandez to Federico Valera; inasmuch as Miguel Velasco's purchase at public auction held by virtue of an execution of Federico Valera's usufructuary right is valid and legal, and as neither the latter nor Eduardo Hernandez exercised his right of redemption within the legal period, the purchaser's title became absolute. Moreover, the defendant-appellee, Miguel Velasco, having acquired Federico Valera's right of redemption from Salvador Vallejo, who had acquired it at public auction by virtue of a writ of execution issued upon the judgment obtained by the said Vallejo against the said Valera, the latter lost all right to said usufruct. And even supposing that Eduardo Hernandez had been tricked by Miguel Velasco into selling Federico Valera's right of repurchase to the latter so that Salvador Vallejo might levy an execution on it, and even supposing that said resale was null for lack of consideration, yet, inasmuch as Eduardo Hernandez did not present a third party claim when the right was levied upon for the execution of the judgment obtained by Vallejo against Federico Vallera, nor did he file a complaint to recover said right before the period of redemption expired, said Eduardo Hernandez, and much less Federico Valera, cannot now contest the validity of said resale, for the reason that the one-year period of redemption has already elapsed. Neither did the trial court err in not ordering Miguel Velasco to render a liquidation of accounts from March 31, 1923, inasmuch as he had acquired the rights of the plaintiff by purchase at the execution sale, and as purchaser, he was entitled to receive the rents from the date of the sale until the date of the repurchase, considering them as part of the redemption price; but not having exercised the right repurchase during the legal period, and the title of the repurchaser having become absolute, the latter did not have to account for said rents. Summarizing, the conclusion is reached that the disagreements between an agent and his principal with respect to the agency, and the filing of a civil action by the former against the latter for the collection of the balance in favor of the agent, resulting from a liquidation of the agency accounts, are facts showing a rupture of relations, and the complaint is equivalent to an express renunciation of the agency, and is more expressive than if the agent had merely said, "I renounce the agency." By virtue of the foregoing, and finding no error in the judgment appealed from, the same is hereby affirmed in all its parts, with costs against the appellant. So ordered. Johnson, Malcolm, Villamor, Ostrand and Johns, JJ., concur.

G.R. No. L-2870

September 19, 1950

CHUA NGO, plaintiff-appellee, vs. UNIVERSAL TRADING CO., INC., defendant-appellant. Chua Ngo delivered, in Manila, to the Universal Trading Company, Inc., a local corporation, the price 300 boxes of Sunkist oranges to be gotten from the United States. The latter ordered the said boxes from Gabuardi Company of San Francisco, and in due course, the goods were shipped from that port to Manila "F. O. B. San Francisco." One hundred eighty boxes were lost in transit, and were never delivered to Chua Ngo. This suit by Chua Ngo is to recover the corresponding price he had paid in advance. Universal Trading Company refused to pay, alleging it merely acted as agent of Chua Ngo in purchasing the oranges. Chua Ngo maintains he bought the oranges from Universal Trading Company, and, therefore, is entitled to the return of the price corresponding to the undelivered fruit. From a judgment for plaintiff, the defendant appealed. It appears that on January 14, 1946, the herein litigants signed the document Exhibit 1, which reads as follows: UNIVERSAL TRADING COMPANY, INC. Far Eastern Division R-236-238 Ayala Building Juan Luna, Manila CONTRACT NO. 632 14 January 1946 Agreement is hereby made between Messrs. Chua Ngo of 753 Folgueras, Manila, and the Universal Trading Company, Inc., Manila, for order as follows and under the following terms: Quantity Merchandise and description Unit Unit price Amount 300 Sunkist oranges, wrapped Grade No. 1 .................... .......... ................ .................

Navel, 220 to case ............ Case $6.30 $1,890.00 300 Onions, Australian Browns, 90 lbs. to case Case $6.82 $2,046.00 We are advised by the supplier that the charges to bring these goods to Manila are:

Oranges.........................................................

$3.06 per case

Onions .......................................................... .

$1.83 per case.

Deposit of 40% of the contract price plus the above charges to be payable immediately upon receipt of telegraphic confirmation. Balance payable upon arrival of goods in Manila. If balance is not paid within 48 hours of notification merchandise may be resold by Universal Trading Co., Inc. and the deposit forfeited. NOTE: Onions canceled by supplier. (Initialed) R. E. H. Total amount of order .................................................................................. $3,936 Agreed and accepted: (Sgd.) CHUA NGO Confirmed and approved: (Sgd.) RALPH E. HOLMES Sales manager Universal Trading Company, Inc. (See terms of agreement on reverse side.) On the same date, the defendant forwarded and order to Gabuardi Company of San Francisco, U. S. A., which in part says: ORDER NO. 707 TO GABUARDI COMPANY OF CALIFORNIA 258 Market Street San Francisco, California Please send for our account, subject to conditions on the back of this order, the following merchandise enumerated below: Shipping instructions Via San Francisco, California Terms: F. O. B. San Francisco

Quantity Articles Unit Unit price Total price 300 Sunkist oranges wrapped Grade No 1 ............... ............ .......... Navel, 220 to case ...... Case $6.00 $1,800.00. x x

xxx

xxx

Approved: Universal Trading Company, Inc. (Sgd.) RALPH R. HOLMES Sales Manager x x x xxx

xxx

On January 16 and January 19, 1946, the Universal Trading Co., Inc., wrote Chua Ngo two letters informing him that the contract for oranges (and onions) had been confirmed by the supplier i. e., could be fulfilled and asking for deposit of 65% of the price and certain additional charges. On January 21, 1946, Chua Ngo deposited with the defendant, on account of the Sunkist oranges, the amount of P3,650, and later (March 9, 1946), delivered the additional sum of P2,822.43 to complete the price, as follows:

300 cases of oranges at $9.36..................................

P6,616.00

Bank charges ................................................................

196.56

Custom charges, etc. ..................................................

270.00

Delivery charges ..........................................................

171.00

3 percent sales tax ...................................................

218.00

P6,253.56

Less deposit R. No. 1062 ................

3,650.00

P2,822,43 ========= The 300 cases of oranges ordered by the defendant from Gabuardi Company were loaded in good condition on board the S/S Silversandal in the port of San Francisco, together with other oranges (totaling 6,380 cases) for other customers. They were all marked "UTC Manila" and were consigned to defendant. The Silversandal arrived at the port of Manila on March 7, 1946. And out of the 6,380 boxes of oranges, 607 cases were short short landed for causes beyond defendant's control. Consequently, defendant failed to deliver to Chua Ngo 180 cases of the 300 cases contracted for. The total cost of such 180 cases (received by defendant) is admittedly P3,882.60. The above are the main facts according to the stipulation of the parties. Uncontradicted additional evidence was introduced that the mark "UTC Manila" written on all the boxes means "Universal Trading Company, Manila"; that the defendant paid in its own name to Gabuardi Company the shipment of oranges, and made claims for the lost oranges to the steamship company that insured the shipment company and the insurance company that insured the shipment; and finally, that in the transaction between plaintiff and defendant, the latter received no commission. The crucial question is: Did Universal Trading Company merely agree to buy for and on behalf of Chua Ngo the 300 boxes of oranges, or did it agree to sell and sold the oranges to Chua Ngo? If the first, the judgment m ust be reversed; if the latter, it should be affirmed.

In our opinion, the circumstances of record sufficiently indicate a sale. First, no commission was paid. Second, Exhibit 1 says that "if balance is not paid within 48 hours of notification, merchandise may be resold by the Universal Trading Company and the deposit forfeited." "Resold" implies the goods had been sold to Chua Ngo. And forfeiture of the deposit is incompatible with a contract of agency. Third, immediately after executing Exhibit 1 wherein oranges were quoted at $6.30 per box, Universal Trading placed an order for purchase of the same with Gabuardi Company at $6 per box. If Universal Trading Gabuardi Company was agent of Chua Ngo, it could not properly do that. Inasmuch as good faith is to be presumed, we must hold that Universal Trading acted thus because it was not acting as agent of Chua Ngo, but as independent purchaser from Gabuardi Company. Fourth, the defendant charged the plaintiff the sum of P218.87 for 3 percent sales tax, thereby implying that their transaction was a sale. Fifth, if the purchase of the oranges had been made on behalf of Chua Ngo, all claims for losses thereof against the insurance company and against the shipping company should have been assigned to Chua Ngo. Instead, the defendant has been pressing such claims for itself. In our opinion, the arrangement between the parties was this: Chua Ngo purchased from Universal Trading Company, 300 boxes of oranges at $6.30 plus. In turn, the latter purchased from Gabuardi Company at $6 plus, sufficient fruit to comply with its contract with Chua Ngo. Unfortunately, however, part of the orange consignment from San Francisco was lost in transit. Who is to suffer that loss? Naturally, whoever was the owner of the oranges at the time of such loss. It could not be Chua Ngo because the fruit had not been delivered to him. As between Gabuardi and the Universal Trading, inasmuch as the goods had been sold "F. O. B. San Francisco", the loss must be borne by the latter, because under the law, said goods had been delivered to the purchaser at San Francisco on board the vessel Silversandal.1 That is why the Universal has been trying to recover the loss from both the steamship company and the insurer. Now, as Chua Ngo has paid for 300 boxes and has received 120 boxes only, the price of 180 boxes undelivered must be paid back to him. It appears that whereas in the lower court defendant sustained the theory that it acted as agent of plaintiff, in this Court the additional theory is advanced that it acted as agent of Gabuardi Company. This obviously has no merit. As to the contention that defendant incurred no liability because it is admitted that the oranges were lost due to causes beyond the control of the defendant, and the oranges were shipped "F. O. B. San Francisco, the answer is that such contention is based on the assumption which we reject that defendant merely acted as agent of plaintiff in the purchase of the oranges from Gabuardi. In view of the foregoing, the appealed judgment for plaintiff in the sum of P3,882.60 is affirmed with costs. G.R. No. L-21616 December 11, 1967

GERTRUDES F. CUAYCONG, ET AL., plaintiffs-appellants, vs. LUIS D. CUAYCONG, ET AL., defendants-appellees. Eduardo Cuaycong, married to Clotilde de Leon, died on June 21, 1936 without issue but with three brothers and a sister surviving him: Lino, Justo, Meliton and Basilisa. Upon his death, his properties were distributed to his heirs as he willed except two haciendas in Victorias, Negros Occidental, devoted to sugar and other crops the Haciendas Sta. Cruz and Pusod both known as Hacienda Bacayan. Hacienda Bacayan is comprised of eight (8) lots No. 28, covered by T.C.T. No. T-22130; Nos. 8, 17, 18 & 135, covered by T.C.T. No. T-22131; Nos. 21, 22, 23, covered by T.C.T. No. 22132 all of which are titled in the name of Luis D. Cuaycong, son of Justo Cuaycong. Lino Cuaycong died on May 4, 1937 and was survived by his children Paz, Carolina, Gertrudes, Carmen, Virgilio, Benjamin, Praxedes and Anastacio. Praxedes Cuaycong, married to Jose Betia, is already deceased and is survived by her children Jose Jr., Jesus, Mildred, Nenita and Nilo, all surnamed Betia. Anastacio Cuaycong, also deceased, is survived by his children Ester, Armando, Lourdes, Luis T., Eva and Aida, all surnamed Cuaycong. Meliton and Basilisa died without any issue.

On October 3, 1961, the surviving children of Lino Cuaycong: Gertrudes, Carmen, Paz, Carolina, Virgilio; the surviving children of Anastacio: Ester, Armando, Lourdes, Luis T., Eva and Aida; as well as Jose, Jr., Jesus, Mildred, Nenita, Nilo, all surnamed Betia, children of deceased Praxedes Cuaycong Betia, filed as pauper litigants, a suit against Justo, Luis and Benjamin Cuaycong1 for conveyance of inheritance and accounting, before the Court of First Instance of Negros Occidental (Civil Case No. 6314), alleging among others that: 1. Eduardo Cuaycong had on several occasions, made known to his brothers and sisters that he and his wife Clotilde de Leon (died in 1940) had an understanding and made arrangements with Luis Cuaycong and his father Justo Cuaycong, that it was their desire to divide Haciendas Sta. Cruz and Pusod among his brothers and sister and his wife Clotilde. 2. With the consent of his wife, Eduardo had asked his brothers and sister to pay his wife P75,000 (the haciendas were worth P150,000) and then divide equally the remaining one-half share of Eduardo. 3. The brothers and sister failed to pay the 1/2 share of Clotilde over the two haciendas which were later acquired by Luis Cuaycong thru clever strategy, fraud, misrepresentation and in disregard of Eduardo's wishes by causing the issuance in his name of certificates of title covering said properties. 4. As the two haciendas were the subject of transactions between the spouses and Justo and Luis Cuaycong, Eduardo told Justo and Luis, and the two agreed, to hold in trust what might belong to his brothers and sister as a result of the arrangements and deliver to them their share when the proper time comes. 5. That as far back as 1936 Lino demanded from Justo and Luis his share and especially after Eduardo's and Clotilde's death, the plaintiffs demanded their shares. 6. That their demands had been refused and in 1960 during the estate proceedings of Praxedes Escalon, deceased wife of Luis D. Cuaycong, the latter fraudulently made it appear that the plaintiffs had nothing to do with the land; that Luis Cuaycong had possessed the lands since June 21, 1936 from which time he should be made to account for the plaintiffs' share; and that P1,500 attorney's fees should be paid in their favor. Luis D. Cuaycong on October 20, 1961 moved to dismiss the complaint on the grounds of unenforceability of the claim under the statute of frauds, no cause of action (Rule 8, Sec. 1 [f] of the Rules of Court), and bar of causes of action by the statute of limitations (Rule 8, Sec. 1[e]). Subsequently, opposition thereto, answer and reply were filed; the plaintiffs also sought to have Benjamin Cuaycong declared in default for his failure to answer. On December 16, 1961, the Court of First Instance ruled that the trust alleged, particularly in paragraph 8 of the complaint, refers to an immovable which under Article 1443 of the Civil Code may not be proved by parole evidence. Plaintiffs were given 10 days to file an amended complaint mentioning or alleging therein the written evidence of the alleged trust, otherwise the case would be dismissed. Later, on December 23, 1961, the court decreed that since there was no amended complaint filed, thus, no enforceable claim, it was useless to declare Benjamin Cuaycong in default. Plaintiff thereafter manifested that the claim is based on an implied trust as shown by paragraph 8 of the complaint. They added that there being no written instrument of trust, they could not amend the complaint to include such instrument. On January 13, 1962, the court dismissed the case for failure to amend the complaint; it further refused to reconsider its order denying the motion to declare Benjamin Cuaycong in default, stating that such a default declaration would be of no purpose. Failing in their efforts to have the dismissal reconsidered, plaintiffs appealed to Us. The resolution of the appeal hinges on whether the trust is express or implied. Paragraph 8 of the complaint state: That as the said two haciendas were then the subject of certain transactions between the spouses Eduardo Cuaycong and Clotilde de Leon on one hand, and Justo and Luis D. Cuaycong on the other, Eduardo Cuaycong told his brother Justo and his nephew, defendant Luis D. Cuaycong, to hold in trust what might belong to his brothers and sister as a result of the

arrangements and to deliver to them their shares when the proper time comes, to which Justo and Luis D. Cuaycong agreed. The plaintiffs claim that an inplied trust is referred to in the complaint which, under Article 1457 of the Civil Code, may be proved by parole evidence. Our Civil Code defines an express trust as one created by the intention of the trustor or of the parties, and an implied trust as one that comes into being by operation of law.2 Express trusts are those created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust. On the other hand, implied trusts are those which, without being expressed, are deducible from the nature of the transaction by operation of law as matters of equity, in dependently of the particular intention of the parties.3Thus, if the intention to establish a trust is clear, the trust is express; if the intent to establish a trust is to be taken from circumstances or other matters indicative of such intent, then the trust is implied. From these and from the provisions of paragraph 8 of the complaint itself, We find it clear that the plaintiffs alleged an express trust over an immovable, especially since it is alleged that the trustor expressly told the defendants of his intention to establish the trust.lawphil Such a situation definitely falls under Article 1443 of the Civil Code. Appellants point out that not only paragraph 8 should be considered but the whole complaint, in which case they argue that an implied trust should be construed to exist. Article 1453, one of the cases of implied trust, is also cited: "When property is conveyed to a person in reliance upon his declared intentions to hold it for or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated." Said arguments are untenable, even considering the whole complaint. The intention of the trustor to establish the alleged trust may be seen in paragraphs 5 and 6.4 Article 1453 would apply if the person conveying the property did not expressly state that he was establishing the trust, unlike the case at bar where he was alleged to have expressed such intent. Consequently, the lower court did not err in dismissing the complaint. Besides, even assuming the alleged trust to be an implied one, the right alleged by plaintiffs Would have already prescribed since starting in 1936 When the trustor died, plaintiffs had already been allegedly refused by the aforesaid defendants in their demands over the land, and the complaint was filed only in 1961 more than the 10-year period of prescription for the enforcement of such rights under the trust.lawphil It is settled that the right to enforce an implied trust in one's favor prescribes in ten (10) years.5 And even under the Code of Civil Procedure, action to recover real property such as lands prescribes in ten years (Sec. 40, Act 190). And for the above reasons, We agree that it was pointless to declare Benjamin Cuaycong in default, considering that without a written instrument as evidence of the alleged trust, the case for the plaintiffs must be dismissed. WHEREFORE, the order of dismissal of the lower court appealed from is hereby affirmed, without costs. So ordered. G.R. No. L-44100 April 28, 1983 SPECIAL SERVICES CORPORATION, petitioner, vs. CENTRO LA PAZ (SAMAHANG ESPIRITISTA SA LUNDUYANG LA PAZ), A CHAPTER OF UNION ESPIRITISTA CRISTIANA DE FILIPINAS, INC., respondents.

MELENCIO-HERRERA, J.: This is a Petition for Review on certiorari of the Decision promulgated on May 11, 1976 by respondent Court of Appeals 1 in CA-G.R. No. 56582-R, entitled "Centro La Paz (Samahang Espiritista sa Lunduyang La Paz) a Chapter of Union Espiritista Cristiana de Filipinas, Inc. vs. The Sheriff of Manila and the Special Services Corporation." The Union Espiritista Cristiana de Filipinas, Inc., is a semireligious and charitable organization. 2 The antecedental facts follow:

On October 10, 1972, judgment was rendered in favor of petitioner Special Services Corporation by the Court of First Instance, Branch IV, Manila, against one Alejandro Estudillo in the amount of P94,727.52, more or less, in an action for Replevin with Sum of Money (Civil Case No. 85819). A writ of execution was thereafter issued but which has remained unsatisfied. By virtue of an alias writ of execution issued on December 15, 1972, the Sheriff of Manila caused the annotation of a notice of levy on Transfer Certificate of Title No. 51837, in respect of the rights, interest and participation of said Alejandro Estudillo, one of the registered owners indicated in said title. That title covers two parcels of land situated in Sampaloc, Manila, consisting of three hundred forty eight (348) square meters and registered in the names of Alejandro Estudillo, married to Primitiva Victoria; Joaquina de la Rosa, widow; Pedro Paguio, married to Amor Jose and Maximo Victoria, married to Juliana Roberto, all Chapter members. The public auction sale of Estudillo's rights and interests in said properties was scheduled on July 23, 1973. On June 27, 1973, Alejandro Estudillo filed a "Motion to Dissolve and/or Cancel the Notice of Levy" alleging that he and the other registered owners indicated on the title merely held in trust the properties and improvements thereon in favor of respondent Centro La Paz (Samahang Espiritista Sa Lunduyang La Paz) a Chapter of Union Espiritista Cristiana de Filipinas, Inc. (hereinafter referred to as CENTRO, for brevity), as evidenced by "Acknowledgments" executed by them on October 20, 1961 and October 2, 1971. Estudillo further alleged that CENTRO's ownership was also evidenced by letters dated February 15, 1963, November 29, 1963 and August 8, 1966 sent to the City Assessor by him and Crispulo Romero, President of CENTRO, long before the filing of the replevin case on December 28, 1971 praying for the revocation of tax assessments on said properties as the same, were used for religious purposes. 3 On July 21, 1973, CENTRO submitted a third party claim to the Sheriff of Manila likewise averring exclusive ownership of the properties in question . 4 On July 23, 1973, "Centro La Paz (Samahang Espiritista sa Lunduyang La Paz) a Chapter of Union Espiritista Cristiana de Filipinas, Inc.," as plaintiff, instituted Civil Case No. 91412 for Damages and Preliminary Injunction against herein petitioner and the Sheriff of Manila with the Court of First Instance, Branch IV, Manila, the same Court which rendered judgment in the replevin case. CENTRO reiterated ownership of the properties in question and emphasized that the registered owners thereof had publicly acknowledged their possession of said properties in the concept of trustees. 5 In its "Opposition to Petition for Preliminary Injunction and Answer," petitioner averred that a Torrens Title issued in favor of an owner is conclusive of all matters stated therein and that the "Acknowledgments" of the registered owners not being annotated on Transfer Certificates of Title No. 51837 could not bind anyone. 6 On August 27, 1973, a writ of preliminary injunction was issued by the lower Court enjoining the public auction sale of Estudillo's interest in the properties in question, 7 conditioned upon CENTRO's posting a bond of P30,000.00. In a judgment rendered on August 30, 1974, the Court a quo decreed in the dispositive portion: IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered in favor of the plaintiff, against the defendants, enjoining the latter from proceeding with the public auction sale of the real property, pursuant to the notice of sale on execution of real property, with costs against the defendant. The writ of preliminary injunction issued in connection with this case is, as it is hereby made permanent. Defendant's counterclaim is, as it is hereby ordered dismissed for lack of merit. SO ORDERED. 8

The lower Court held that by a preponderance of evidence CENTRO had established that it was "really and true and lawful owner of the property in dispute, and that the persons registered therein as its owners are merely trustees of the plaintiff," thus: The evidence on hand clearly preponderates in favor of the plaintiff. The series of documents executed even as early as 1957, long before the issue of whether Alejandro Estudillo really has an interest and/or participation in the property in dispute, attest to plaintiff's ownership of the property in question. The Deed of Donation dated March 13, 1957 (Exh. A), Deed of Absolute Sale (Exh. E) executed by Joaquina dela Rosa in favor of Alejandro Estudillo, Pedro Paguio and Maximo Victoria of the same property covered by the Deed of Donation, Exhibit A; Deed of Sale (Exh. F) of two parcels in dispute described under T.C.T. No. 51837 executed by Sta. Mesa Realty, Inc. in favor of Alejandro Estudillo, Joaquina dela Rosa, Pedro Q. Paguio and Maximo Victoria, Deed of Acknowledgment dated October 30, 1961 (Exh. G) also executed by the same Estudillo de la Rosa and Victoria acknowledging that the property described under the aforementioned T.C.T. No. 51837, together with the improvements thereon are being possessed by them only as trustees; another Deed of Acknowledgment executed on October 22, 1971, jointly by Amor Jose, widow of Paguio and the latter's daughters, Sumilang Paguio and Filipina Paguio (co-registered owner of Estudillo) likewise declaring that their possession of the said property is merely that of trustees and not as owners; the petitions for revocation of tax assessments Nos. 3187 and 3188 (Exhs. I and J); the petition to exempt said parcels from taxation, being owned by a religious organization (Exh. K) and the follow-up letters addressed to the City Assessor of Manila, dated February 15, 1963 (Exh. L), December 29,1963 (Exh. M) and May 29, 1962 (Exh N) respectively, plus the Deed of Sale (Exh. 0) executed by Estudillo, heirs of dela Rosa and Paguio of the two parcels in favor of Centro La Paz, indubitably point to one and inescapable conclusion that the plaintiff is really the true and lawful owner of the property in dispute and that persons registered therein as its owners, are merely trustees of the plaintiff. While it may be true that the declaration of Estudillo subsequent to the levy upon his interest in the aforesaid property may be self-serving, which could be for the purpose of avoiding liability, his declaration and that of his co-owners, however, taking place years before the instant controversy, could hardly be said to have been motivated by a similar purpose (to evade responsibility) since at that time, none as yet exist in favor of the defendant nor anybody elm against the Estudillo. (Record on Appeal, pp. 5455) 9 Faced with that adverse judgment, petitioner appealed to respondent Appellate Court, which affirmed the Court a quo's Decision on May 11, 1976, and subsequently denied reconsideration. Petitioner then availed of the instant Petition, raising the following issues: l) Whether or not Centro La Paz which is merely a Chapter of Union Espiritista de Filipinas, Inc. has a juridical personality of its own in accordance with the provisions of our laws; 2) Whether or not Centro La Paz, as claimed by it and the respondent Court of Appeals, can validly be conferred upon ownership of Transfer Certificate of Title No. 51837 by virtue of documents executed allegedly in its favor. We affirm the judgment appealed from. For one thing, the issues now raised were not directly litigated in the Court below. For another, it is evident from the Complaint that the plaintiff was the mother organization, thus: Centro La Paz (Samahang Espiritista sa Lunduyang La Paz), A Chapter of Union Espiritista Cristiana de Filipinas, Inc., Plaintiff. Paragraph 1 of the Complaint likewise reads:

1. That the plaintiff is a juridical person duly organized and existing under and by virtue of the laws of the Republic of the Philippines, a semi-religious and charitable organization, with a right to sue and be sued, ... In the Offer of Evidence filed before the Trial Court, the purpose of presenting Exhibit "A", the Deed of Donation dated March 13, 1957, was "to establish or prove the following": (a) That the plaintiff "CENTRO LA PAZ" as a chapter of the association of spiritista commonly known as 'UNION ESPIRITISTA CRISTIANA DE FILIPINAS, INC., 'which is a duly registered corporation or entity with the Office of the Securities and Exchange Commission, is a Juridical Person with the right to sue and be sued; xxx xxx xxx 10 In the Memorandum of CENTRO before the Trial Court, the following allegation also appears: That the plaintiff is a Chapter of the UNION ESPIRITISTA CRISTIANA DE FlLIPINAS, INC., a semi-religious and charitable organization duly registered with the Securities and Exchange Commission as per Certificate of Registration No. 15147, dated March 19, 1959, ... 11 And in the Decision of the Trial Court, it found: The evidence for the plaintiff disclosed that it is a chapter of the Union Espiritista Christiana de Filipinas, Inc., a semi-religious and charitable organization duly registered with the Securities and Exchange Commission per Certificate of Registration No. 15147 dated March 19, 1959. xxx xxx xxx 12 Evident from all the foregoing is that although it was CENTRO that was actively prosecuting the case, in substance, it was representing the mother organization, the Union Espiritista Cristiana de Filipinas, Inc., which is the real party in interest and is itself named in the Complaint. It is an organization that is duly registered with the Securities and Exchange Commission, and thus possessed of a juridical personality to sue and be sued. 13 As found by both the Trial Court and respondent Appellate Court, the evidence sufficiently establishes that the registered owners of the parcels of land covered by TCT 51837, all of whom are members of CENTRO, hold the properties in trust for CENTRO by virtue of the indubitable documents executed even before the institution of suit. In the same manner that the real property, registered solely in the name of a husband, can be proven to be conjugal property with his wife, the fact of registration in the name of Alejandro Estudillo and others does not bar evidence to show that the registered owners hold the properties in trust for CENTRO. 14 Admittedly, the trust was not registered in accordance with section 65 of Act 496 (the former Land Registration Law). The absence of said registration, however, cannot be taken against CENTRO inasmuch as, if the public auction sale had actually been held, with petitioner as the successful buyer, petitioner could not have been considered a purchaser for value and in good faith at said sale since it had knowledge of CENTRO's claim, particularly when the latter had filed a third-party-claim with the Sheriff of Manila before the scheduled auction sale, which knowledge was equivalent to registration of the several "Acknowledgments" in the Registry of Deeds.15 The conclusion follows that inasmuch as Estudillo has no interest in the properties in question, there is nothing that petitioner can levy upon. The power of a Court in the execution of its judgment extends only over properties unquestionably belonging to the judgment debtor. 16 WHEREFORE, the judgment of respondent Court of Appeals (now Intermediate Appellate Court) affirming that of the Trial Court, which enjoined petitioner "from proceeding with the public auction sale of the properties in question, pursuant to the notice of sale on execution of real property" and made the writ of preliminary injunction permanent, is hereby affirmed. SO ORDERED.

G.R. No. 74449 August 20, 1993

IMELDA A. NAKPIL, petitioner vs. INTERMEDIATE APPELLATE COURT, CARLOS J.

VALDES and CAVAL REALTY CORPORATION, respondents. PULONG MAULAP, a summer residence in Baguio City along historic Moran Street, is the subject of this bitter and protracted legal battle for ownership between two families earlier associated for years in close, kinship-like relations. Pinggoy and Charlie were the best of friends, their closeness dating back to their high school days in La Salle, and later, at the Philippine Law School. Treating each other more than just brothers, Charlie easily became Pinggoy's confidant, and later, his lawyer, accountant, auditor, and on some occasions, a business and financial consultant. Their relationship extended to their families. Pinggoy became the godfather of Charlie's second son, while Charlie became the godfather of Pinggoy's youngest. But the close relationship had to end. On 8 July 1973, tragedy struck. While the two families were vacationing at the beach house of the Valdeses in Bagac, Bataan, Pinggoy drowned. As expected,

Charlie went to the succor of Pinggoy's distressed wife Nena. He acted as the legal counsel and accountant of Nena, who became the administratrix of her husband's estate. However, since then things have changed. In fact, towards the end of 1978, the question arose as to who between the Nakpils and the Valdeses should own Pulong Maulap. On 21 March 1979, petitioner instituted an action for reconveyance with damages for breach of trust before the Regional Trial Court of Baguio City against respondents Carlos "Charlie" Valdes and Caval Realty Corporation. She alleged in her complaint that her husband Jose "Pinggoy" Nakpil prior to his death had requested Valdes to purchase Pulong Maulap and thereafter register the sale and hold the title thereto in trust for him (Pinggoy Nakpil), which respondent Valdes did. But after her husband's death, Valdes concealed and suppressed all information regarding the trust agreement; instead, he transferred Pulong Maulap in the name of respondent Caval Realty Corporation, which is 99.7% owned by him, in exchange for 1,500 shares of stock. Respondent Valdes, on the other hand, denied the existence of any trust agreement over Pulong Maulap. He averred that he bought the summer residence for himself with his own funds and without any participation of the late Nakpil; neither was it bought in trust for the latter. Valdes claims that he only informed Pinggoy Nakpil of the acquisition of Pulong Maulap, and Pinggoy merely showed interest in buying the property if he could have the money. Meanwhile, considering their avowed friendship, he (Valdes) offered the usufruct of the property to the Nakpils who in turn agreed to shoulder its maintenance expenses, real estate taxes, fire insurance premiums and servicing of interest on the mortgage obligation constituted on the property. From the records it appears that the Valdeses bought Pulong Maulap for P150,000.00 with respondent Valdes giving a downpayment of P50,000.00 and assuming the vendors' mortgage obligation of P100,000.00 with the Philippine National Bank (PNB), which he reduced to P75,000.00 by paying P25,000.00. On 12 July 1965, a deed of sale was executed and Transfer Certificate of Title No. 10247 was thereafter issued in the name of Valdes. As agreed, in the early part of May 1965, even before the execution of the deed of sale in favor of the Valdeses, the Nakpils moved in and stayed a Pulong Maulap even until after Pinggoy's death. Meanwhile, in order to facilitate the servicing of the mortgage obligation over Pulong Maulap, the loan was transferred to the First United Bank (FUB) where Pinggoy Nakpil was then a vice-president. Valdes borrowed P75,000.00 from FUB with which he paid PNB, and at the same time constituted in favor of FUB a mortgage overPulong Maulap. He also borrowed P65,000.00 from FUB to finance the repair and renovation of Pulong Maulap. Petitioner submits that respondent Valdes had recognized her late husband's ownership of Pulong Maulap on the basis among others of the following documents: (a) "Exh. "H," a letter dated 28 March 1969 sent by Carlos J. Valdes & Co., an accounting firm owned by respondent Valdes, to the City Treasurer of Baguio remitting to the latter, "[o]n behalf of (our) their clients, Mr. Jose Nakpil . . . the following FUB checks for the payment of their 1969 real estate taxes" on Pulong Maulap; (b) Exh. "J," letter of Valdes to petitioner dated 24 August 1973 with the latter's handwritten conforme, date and signature Dear Nena, At the First United Bank, there are two loans in my name: PN # ERB-893/73 for P65,000.00 PN # 644/72 for P75,000.00 In addition, there fell due on note #ERB 893/73, P3,976.00 representing interest as of July 22, 1973. On the loan of P75,000.00, there is an interest payable of, P750.00 a month. Both of these loans, while in my name, were obtained by Pinggoy for his person. . . . As we agreed, I will take over the total loan of P140,000.00 and pay all of the interests due on the notes. It is likewise understood between us that you will continue occupying the premises at Moran St., free of any encumbrance or payment, for 5 years starting August 1, 1973.

It is likewise understood that real property taxes will be paid by us but maintenance expenses shall be shouldered by you. As I said, this letter is purely for the record. Sincerely, (SGD.) CHARLIE JV, and, (c) Exh. "L," another letter of Valdes to petitioner dated 17 September 1974 Dear Comadre, Our records show that the P75,000.00 initially advanced for the Moran property still remains unpaid. Under these circumstances, you could add to the present purchase price, P75,000.00 plus interest therein at 12% for 5 years or: Present Purchase Price: P255,056.64; Add: Unpaid accountP75,000.00; Interest for 5 years at 12% P45,000.00 = P120,000.00; Total P375,056.64. Sincerely, (SGD.) CHARLIE JV. The records likewise show that on 13 February 1978, Valdes assigned Pulong Maulap to Caval Realty Corporation, for which Transfer Certificate of Title No. T-28484 was issued on 23 March 1978. Later, after petitioner allegedly received a P2,000,000.00 offer for Pulong Maulap from Pasay City Mayor Pablo Cuneta, she wrote Valdes demanding a reconveyance to enable her to effect the sale and reimburse the latter from the proceeds thereof for the advances he made. On 30 December 1978, Valdes allegedly told petitioner that he could not execute the deed of conveyance because Pulong Maulap was his and he had no intention of selling it. On 7 July 1983, the Regional Trial Court 1 rendered a decision holding that a trust relationship existed 2 From the two letters of Valdes, Exhibits "J" and "L", it would appear that while the downpayment of P50,000.00 and the further sum of P25,000.00 paid to PNB were paid but of his personal funds, the same was considered by him as a loan to Nakpil; and while the remaining P75,000.00, representing the balance of the mortgage indebtedness of the Garcias to the PNB, was liquidated with the proceeds of a loan from FUB, the said loan, although in the name of Valdes, was actually Nakpil's. In other words, the property was acquired with funds partly loaned by Valdes to Nakpil and partly borrowed by Nakpil from FUB albeit in Valdes' name. To the mind of the Court, Exhibit's "J" and "L" are confirmatory of a pre-existing express trust relationship between Valdes and the late Nakpil over the property in dispute, conformity with the theory of the plaintiff, whereunder Valdes is the trustee and Nakpil, the trustor and, at the same time, beneficiary. . . . Assuming that Exhibits "J" and "L" could no stand as proof of an express trust, still the Court believes that they could, as they indeed are, proof of an implied trust under Article 1450 of the Civil Code. . . . Nevertheless, the trial court dismissed the petition for reconveyance on the ground that petitioner, by conforming to Exh. "J" and acquiescing with Exh. "L," the very documents she presented to prove the existence of a trust relationship, has waived her right over Pulong Maulap 3 . . . the Court is inclined to believe that the real agreement between the plaintiff and the defendant Valdes under Exhibits "J" or "5" and "L" is that Valdes was to take over the two FUB loans of the plaintiff's late husband in consideration of the plaintiff giving up her claim to the disputed property, but with a right to continued occupancy for a period of five years, free from any encumbrance or payment, except maintenance expenses, and under an option yet in favor of the latter to purchase back the property within the stipulated five years upon the payment of the said FUB loans, including

interests, plus the further sum of P75,000.00 initially advanced by Valdes on the property, also with interests, or the total amount of P375,056.64. Under the agreement, the Court is of the view that the plaintiff has waived whatever right she may have over the property, and she would be in estoppel to revive or assert he same unless she could prove that she has complied with the terms and the conditions she agreed on. To hold otherwise would be tantamount to placing Valdes in a very disadvantegious position. . . . Furthermore, petitioner's letter dated 31 July 1978, the last day of the five-year period stipulated in Exh. "J," sent to respondent Valdes and his wife, which states Dear Aida and Charlie, I hope that when this letter reaches you it finds you and your family in the best of health and happiness. My children and I are enjoying these too, thank god. We have also managed to adapt contentedly through all the various pressures and strains we have been subjected to since Pinggoy's death. It is amazing how we humans can endure so much of these when met with acceptance and humility. Honestly, I cannot claim credit to the latter virtue. Many times in the past, during my darkest moments, believe me, humility was farthest from my thoughts. With regard to our Moran property, a thought occured to me that if I may be able to raise the amount necessary to pay back your advances for "Pulong Maulap" (this is the name I gave the property, remember?), would you be willing to reconvey the property to us as soon as I reimburse your advances? Of course, as I said this is just an idea because at present, although we are in the final stages of winding-up the estate, the results are still hazy and uncertain. I understand from Linda Asuncion that so much will depend on the generosity of my in-laws; hence, so be it! Thank you again for the help you have given me and my children. For you and your family, I offer to god all the "Purgatory" He gives me here on earth. Sincerely, (SGD.) Nena A. Nakpil, was construed by the trial court as "more an expression of her (petitioner's) resignation to her having lost the property than a demand for reconveyance. 4 Not satisfied with the decision of the trial court, both parties appealed to respondent Intermediate Appellate Court which on 17 December 1985 5 reversed the trial court and ruled that "[f]rom the foregoing facts, it is quite evident there was no trust at all. . . . 6 On 21 April 1986, the motion of herein petitioner to reconsider the decision of respondent appellate court was denied for "absolute lack of merit." Petitioner, in this petition for review, argues that respondent Intermediate Appelate Court did not only err in holding that the documents she presented were insufficient to prove the existence of a trust relationship but it also failed to rule that the trial court's interpretation of petitioner's conformity to Exh. "J" as a waiver was, in essence, apactum commissorium, and therefore null and void. Respondent Valdes, on the other hand, maintains that no direct proof has been presented to sustain that he was merely instructed by petitioner's late husband to purchase the disputed property, and thereafter register and hold title thereto in trust for the latter; neither could there have been an implied trust pursuant to Art. 1450 of the Civil Code 7since this provision refers only to instances where the purchase price of the property sold is paid by the lender for the benefit of the borrower or buyer of the property. Here, Valdes bought the disputed property using his own funds. The late Nakpil came into the picture only after the sale to Valdes was consummated, and only as an offeror to buy the property, not from the former owners, but from Valdes. Furthermore, Valdes contends the Exhs. "J" and "L" cannot amount to pactum commissorium since the elements thereof, i.e., existence of a creditor-debtor relationship; the obligation is secured by pledge or mortgage of certain properties over which the debtor

has title; and, ownership of the property passes to the creditor by mere default of debtor, are not present. Thus, the issues before us are: whether Art. 1450 of the Civil Code applies; and, if it so applies, whether petitioner can still compel reconveyance of Pulong Maulap from respondent Valdes. Implied trusts, which may either be resulting or constructive, are those which, without being express, are deducible from the nature of the transaction as matters of intent, or which are superinduced on the transaction by operation of law as matter of equity, independently of the particular intention of the parties. 8 Article 1450, which petitioner invokes in the case at bar, is an illustration of an implied trust which is constructive. 9 Article 1450 presupposes a situation where a person, using his own funds, purchases a certain piece of land in behalf of another who, in the meantime, may not have sufficient funds to purchase the land. The property is then transferred in the name of the trustee, the person who paid for the land, until he is reimbursed by the beneficiary, the person for whom the land is purchased. It is only after the beneficiary reimburses the trustee of the purchase price that the former can compel conveyance of the purchased property from the latter. From the evidence adduced, it may be concluded that respondent Valdes, using his own funds, purchased Pulong Maulap in behalf of the late Nakpil. This is based on the letters to petitioner of Valdes where he categorically admitted that "[b]oth of these loans, while in my (respondent Valdes) name, were obtained by Pinggoy (the late Nakpil) for his person, 10 and that the "P75,000.00 initially advanced for the Moran property still remains unpaid.11 It is evident from these letters that while the balance of P75,000.00 on the mortgage of the vendors with PNB was liquidated from the proceeds of a loan respondent obtained from FUB, such loan was actually secured by the late Nakpil by merely using Valdes' name. Such is also the case with respect to another FUB loan amounting to P65,000.00, the proceeds of which were used to finance the repair and renovation of Pulong Maulap. And, while the downpayment of P50,000.00 and the partial payment of P25,000.00 to PNB came from the personal funds of Valdes, he considered them as advances to the late Nakpil. Otherwise, Valdes would never have deemed the amount as "unpaid" in his letter to petitioner of 17 September 1974. The letter of Valdes to the City Treasurer of Baguio made while remitting payment of real estate taxes is also enlightening. It provided therein that the payment being tendered was "[o]n behalf" of the Nakpil's, 12 which is an express recognition of the implied trust. Consequently, respondent Valdes is estopped from claiming that he bought Pulong Maulap for himself, and not merely in trust for the late Nakpil, as this contention is belied by the facts. Hence, we rule that constructive trust under Art. 1450 of the New Civil Code existed between the parties. However, petitioner cannot as yet redeem and compel conveyance of the property. For, Valdes must still be reimbursed for the advances he made on the disputed property, such reimbursement being a conditio sine qua non for compelling conveyance under Art. 1450. The period within which to compel conveyance of Pulong Maulap is not imprescriptible. The rule is wellsettled that an action for reconveyance based on an implied or constructive trust prescibes in ten (10) years. 13 But, in the case before us, petitioner could still compel conveyance of the disputed property from respondent provided the former reimburses the latter for all his expenses. After all, Valdes never repudiated the constructive trust during the lifetime of the late Jose Nakpil. On the contrary, he expressly recognized it. The prescriptive period therefore did not begin to run until after he repudiated the trust. 14 And such repudiation came when Valdes excludedPulong Maulap from the list of properties of the late Jose Nakpil submitted to the intestate court 15 in 1973. Even then, the present action for conveyance was filed in 1979 or well within the ten-years period. At first blush, it may seem that after the death of Jose Nakpil on 8 July 1973, petitioner ceded ownership of Pulong Maulap to Valdes by way of dacion en pago 16as shown by her acquiescence to Exh. "J". A careful examination of said Exh. "J" does not show however that petitioner, as administratrix of the estate of the late Jose Nakpil, released or surrendered the latter's interest over Pulong Maulap to respondent. Thus, there can be no dacion en pago to speak of since ownership of the thing delivered was never transferred of the creditor. The trust relations between the parties was therefore never

extinguished. Besides, petitioner could not have waived the interest of her children with the late Jose M. Nakpil who are her co-heirs to the Nakpil estate. The fact that there was no transfer of ownership intended by the parties under their arrangement during the five-year period to pay can further be bolstered by Exh. "I-2", 18an annex to the claim filed against the estate proceedings of the late Jose Nakpil by his brother, Angel Nakpil, which was prepared by Carlos J. Valdes & Co., the accounting firm of herein respondent. Exhibit "I-2", which is a list of the application of the proceeds of various FUB loans contracted as of 31 December 1973 by the late Jose Nakpil, whether in his name or that of others, contains the two (2) loans contracted in the name of respondent. If ownership of Pulong Maulap was already transferred or ceded to Valdes, these loans should not have been included in the list. Indeed, as we view it, what the parties merely agreed to under the arrangement outlined in Exh. "J" was that respondent Valdes would undertake to "take over the total loan of P140,000.00 and pay all of the interests due on the notes" while the heirs of the late Jose Nakpil would continue to live in the disputed property for five (5) years without any remuneration save for regular maintenance expenses. 19This does not mean, however, that if at the end of the five-year period petitioner failed to reimburse Valdes for his advances, which respondent computed to be P375,056.64 as of 31 July 1978 per his letter to petitioner of 17 September 1974, Valdes could already automatically assume ownership of Pulong Maulap. Instead, the remedy of respondents Carlos J. Valdes and Caval Realty Corporation was to proceed against the estate of the late Jose M. Nakpil and/or the property itself. The arrangement entered into between the parties, whereby Pulong Maulap was to be "considered sold to him (respondent) . . . 20 in case petitioner fails to reimburse Valdes, must then be construed as tantamount to apactum commissorium 21 which is expressly prohibited by Art. 2088 of the Civil Code. 22For, there was to be automatic appropriation of the property by Valdes in the event of failure of petitioner to pay the value of the advances. Thus, contrary to respondent's manifestations, all the elements of a pactum commissorium were present: there was a creditor-debtor relationship between the parties; the property was used as security for the loan; and, there was automatic appropriation by respondent of Pulong Maulap in case of default of petitioner. In fine, we conclude that there was a constructive trust between the parties under Art. 1450 of the New Civil Code. Consequently, petitioner may redeem and compel conveyance of the disputed property but only after reimbursing respondent the sum of P375,056.64, with legal interest from 31 July 1978, the amount advanced by Valdes for the purchase of the Pulong Maulap. WHEREFORE, the petition is GRANTED. The assailed decision of the then Intermediate Appellate Court which affirmed that of the Regional Trial Court is SET ASIDE. Private respondents Carlos J. Valdes and Caval Realty Corporation are ordered jointly and severally toRECONVEY Pulong Maulap to petitioner Imelda A. Nakpil and the heirs of the late Jose M. Nakpil upon reimbursement by the latter of the advances of private respondent Carlos J. Valdes amounting to P375.056.64, with legal interest from 31 July 1978 until fully paid. Private respondents are further ordered to pay the costs of suit. SO ORDERED. Imelda Nakpil vs IAC, Carlos Valdes on July 10, 2011 Secured Transactions Pactum Commissorium Carlos Valdes acquired title over a Baguio Summer residence named Pulong Maulap but this was actually in behalf of Jose Nakpil who arranged that while he does not have the money to pay Valdes the title remains under Valdes name, thereby creating a trust. The property cost P150k, P75k of which was paid by Valdes. Valdes borrowed P75k from First United Bank to pay off the remainder of the balance and another P65k for the residences maintenance. After Nakpil died, Valdes denied the existence of a trust relationship and he claims that the property is his. Imelda assailed this. Valdes however agreed

that Imelda and her co-heirs can stay in the property under a usufruct free from any encumbrance for 5 years. And in a letter sent to Imelda, should they fail to reimburse Valdes for his advances, the property is considered sold to him. Valdes denied that there is a pactum commissorium existing because he said there is no creditor-debtor relationship between him and Imelda. And that there is no trust relationship between him and the dead Nakpil. ISSUE: Whether or not there is a pactum commissorium existing. HELD: Yes. The SC ruled that as per the letters send by Valdes to Imelda, he acknowledged that he took out loans in favor of the late Nakpil so that Pulong Maulap may be acquired, and that Nakpil will reimburse him later. Therefore, a trust relationship really exists. As per the letters as well, there exists a debtor-creditor relationship between Valdes and Imelda hence the provision which states that non reimbursement constitutes the selling of the land to Valdes is void. Imelda can still have the property be reconveyed to her but only after she has reimbursed Valdes advances to the property (within 10 years).

G.R. No. L-75342 March 15, 1990 SPOUSES CELEDONIO MANZANILLA and DOLORES FUERTE, and INES CARPIO, petitioners, vs. HON. COURT OF APPEALS and JUSTINA CAMPO, respondents. This is a petition for review on certiorari of the decision (pp. 111-118, Rollo) of the Intermediate Appellate Court, now Court of Appeals, in AC-G.R. CV No. 00925 entitled "Justina Campo, PlaintiffAppellee, versus Sps. Celedonio Manzanilla and Dolores Fuerte, and Ines Carpio, DefendantsAppellants", which affirmed the decision (pp. 55-56,Rollo) of the Court of First Instance of Rizal, Branch IX, Quezon City, now Regional Trial Court of Quezon City, in Civil Case No. Q-28061. The facts of the case are not disputed.

In 1963, spouses Celedonio and Dolores Manzanilla (spouses Manzanilla) sold on installment an undivided one-half portion of their residential house and lot covered by TCT No. 59223 and located at No. 12, Casiana St., Santol, Quezon City. At the time of the sale, the said property was mortgaged to the Government Service Insurance System (GSIS), which fact was known to the vendees, spouses Magdaleno and Justina Campo. The Campo spouses took possession of the premises upon payment of the first installment on April 17, 1963 and up to the present. Some payments (Exhibits "A" to "A-1") were made to petitioners while some were made directly to GSIS (Exhibits "A-10" to "A-29"). On May 17, 1965, the GSIS filed its application to foreclose the mortgage on the property for failure of the Manzanilla spouses to pay their monthly amortizations. On October 11, 1965, the property was sold at public auction where GSIS was the highest bidder. Two months before the expiration of the period to redeem or on August 31, 1966, the Manzanilla spouses executed a Deed of Absolute Sale (Exhibit "D") of the undivided one half portion of their property in favor of the Campo spouses. Upon the expiration of the period to redeem without the Manzanilla spouses exercising their right of redemption, title to the property was consolidated in favor of the GSIS and a new title (TCT No. 135031) issued in its name. In January 1969, the Manzanilla spouses made representations and succeeded in re-acquiring the property from the GSIS. Upon full payment of the purchase price, an Absolute Deed of Sale was executed by GSIS in favor of the Manzanilla spouses. Upon registration thereof on March 19, 1973, a new certificate of title (TCT No. 188293) in the name of the Manzanilla spouses was issued by the Register of Deeds of Quezon City. On May 14, 1973, the Manzanilla spouses mortgaged the property to the Bian Rural Bank. On September 7, 1973, petitioner Ines Carpio purchased the property from the Manzanilla spouses and agreed to assume the mortgage in favor of Bian Rural Bank. On November 12, 1973, private respondent Justina Campo registered her adverse claim over TCT No. 188293 with the Register of Deeds of Quezon City. On October 3, 1977, petitioner Ines Carpio filed an ejectment case against private respondent Justina Campo in Civil Case No. 31350, with the City Court of Quezon City. On July 31, 1979, private respondent Justina Campo (already a widow) filed a complaint (pp. 2630, Rollo) for quieting of title against the Manzanilla spouses and Ines Carpio with the Court of First Instance of Rizal, Branch IX, Quezon City, now the Regional Trial Court of Quezon City and docketed as Civil Case No. Q-28061, praying among others, for the issuance to her of a certificate of title over the undivided one-half portion of the property in question. Civil Case No. Q-28061 is the subject of this appeal. After trial, a decision promulgated on September 30, 1982 was rendered in favor of the herein private respondent, Justina Campo. The dispositive portion of the decision reads: WHEREFORE, premises considered, judgment is rendered in favor of the plaintiff Justina C. Campo and the defendants and/or all persons claiming rights under them are ordered to desist from exercising rights or ownerships over the half-portion of the plaintiff. The mortgage of the property to the Bian Rural Bank is hereby cancelled in so far as the half- portion is concerned and accordingly, the sale of defendant Ines Carpio regarding the half portion of the plaintiff is hereby considered null and void. The defendants, spouses Celedonio and Dolores Manzanilla are ordered to surrender their owner's duplicate copy of TCT No. 188293 to the Register of Deeds of Quezon City for its cancellation in order that a new certificate of title could be issued in favor of the plaintiff Justina C. Campo with regards to her half-portion and to execute such document as is necessary to effect said transfer. SO ORDERED. (p. 56, Rollo)

The decision was appealed by petitioners, spouses Manzanilla and Ines Carpio, to the Intermediate Appellate Court, now Court of Appeals, which affirmed the said decision of the trial court. Petitioners' Motion For Reconsideration filed with the Court of Appeals was denied on July 16, 1986. Hence, this petition for review under Rule 45 of the Rules of Court on the following issues: 1. WHETHER OR NOT A BUYER OF ONE-HALF PORTION OF A MORTGAGED PROPERTY WITH FULL KNOWLEDGE OF SAID MORTGAGE, MAY DEMAND RECONVEYANCE FROM THE SELLER/MORTGAGOR WHO WAS ABLE TO BUY SAID PROPERTY FROM THE MORTGAGEE AFTER IT WAS LEGALLY FORECLOSED AND OWNERSHIP DULY CONSOLIDATED IN THE NAME OF THE MORTGAGEE, UNDER THE DOCTRINE OF IMPLIED TRUST. 2. WHETHER OR NOT A PURCHASER OF REAL PROPERTY IS BOUND TO GO BEYOND THE TITLE THEREOF IN DETERMINING THE REAL STATUS OF SAID PROPERTY TO BE CONSIDERED A BUYER IN GOOD FAITH. 3. WHETHER OR NOT PRIVATE RESPONDENT IS GUILTY OF LACHES (p. 12, Rollo). The main issue to be resolved in this case is whether, under the facts stated, petitioners Manzanillas are under any legal duty to reconvey the undivided one-half portion of the property to private respondent Justina Campo. It is petitioners' contention that a buyer of one-half portion of a mortgaged property who, at the time of the sale had full knowledge of the existence of the mortgage, has no legal right to demand reconveyance from the seller/mortgagor who was able to buy said property from the mortgagee after it was legally foreclosed and ownership duly consolidated in the name of the latter. Private respondent, on the other hand contends that petitioners committed fraud upon them (Campo spouses) by deliberately allowing the loan to lapse, the mortgage to be foreclosed and the subsequent reacquisition of the same after the expiration of the period of redemption without exercising their right of redemption. Upon the re-acquisition by the Manzanillas of the whole property from GSIS, they are considered trustees of an implied trust in favor of private respondent Campo. Both the court a quo and respondent appellate court share the view of private respondent. Both courts believe that petitioners exercised fraud upon the Campo spouses when they bought back the whole property believing that as the GSIS acquired absolute ownership and title to the property private respondent can no longer be entitled to the same. The petition is impressed with merit. There is no sufficient basis for the trial court to conclude that herein petitioners acted in bad faith in their dealings with the Campo spouses. The latter had full knowledge of the existing mortgage of the whole property in favor of GSIS prior to the sale of the one-half portion to them. There is also no showing that as one of the considerations of the sale, herein petitioners undertook to release the property from the mortgage at all costs. With this condition of the property at the time of the sale, private respondents were forewarned of the consequences of their transaction with the petitioners. There is also no basis to conclude that petitioners deliberately allowed the loan to lapse and the mortgage to be foreclosed. No specific act or series of acts were presented and proven from which it could be safely concluded that the failure of petitioners to pay off their loan was deliberate. They explained that their financial condition prevented them from dutifully complying with their obligations to the GSIS. In a display of their good faith and fair dealing after the property was foreclosed, the petitioners, realizing the imminent loss of the said property, even granted the private respondent the right to redeem it from the GSIS. This right was granted in the Deed of Absolute Sale executed by petitioners in favor of the Campo spouses. Moreover, it was also stipulated that private respondent recognized the superior lien of GSIS on the property and agreed to be bound by the terms and conditions of the mortgage. These stipulations were all contained in the Deed, as follows: . . . the VENDORS do hereby covenant and agree with the VENDEES that they are lawfully seized in fee of said premises and that they have a perfect right to convey the same and that they will warrant and forever defend the same unto the said vendees, their heirs and assigns against the lawful claim of all persons whomsoever, subject to

the mortgage lien in favor of the Government Service Insurance System aforementioned. That the VENDEES recognize the superior lien of the Government Service Insurance System (GSIS) and agree to be bound by the terms and conditions thereof, . . . That the VENDORS likewise agree that in the event the mortgagee, Government Service Insurance System should foreclose the mortgage on the said property, the herein VENDEES, Spouses Magdaleno Campo and Justina Cabuag, their heirs or assigns, shall have the right to redeem or otherwise deal with the Government Service Insurance System (GSIS) in connection with this property. Vendees agree that vendors may repurchase the property within the time provided by law. (pp. 7475, Rollo) In view of the failure of either the Manzanilla spouses or the Campo spouses to redeem the property from GSIS, title to the property was consolidated in the name of GSIS. The new title cancelled the old title in the name of the Manzanilla spouses. GSIS at this point had a clean title free from any lien in favor of any person including that of the Campo spouses. If it were true that petitioners deliberately allowed the loan to lapse and the mortgage to be foreclosed, We do not see how these circumstances can be utilized by them to their advantage. There was no guarantee that petitioners would be able to redeem the property in the event the mortgage thereon was foreclosed as in fact they failed to redeem because they had no money. On the other hand, had they opted to eventually exercise their right of redemption after foreclosure, they would be under a legal duty to convey one-half portion thereof sold to the Campo spouses because by then, title to the property would still be in their name. Either way, petitioners were bound to lose either the entire property in case of failure to redeem or the one-half portion thereof sold to private respondent in the case of redemption. Further, should petitioners let the period of redemption lapse without exercising the right of redemption, as what happened in this case, there was no guarantee that the same could be re-acquired by them from GSIS nor would GSIS be under any legal duty to resell the property to them. There may be a moral duty on the part of petitioners to convey the one-half portion of the property previously sold to private respondents. However, they are under no legal obligation to do so. Hence, the action to quiet title filed by private respondent must fail. Justice is done according to law. As a rule, equity follows the law. There may be a moral obligation, often regarded as an equitable consideration (meaning compassion), but if there is no enforceable legal duty, the action must fail although the disadvantaged party deserves commiseration or sympathy. The choice between what is legally just and what is morally just, when these two options do not coincide, is explained by Justice Moreland in Vales vs. Villa, 35 Phil. 769, 788 where he said: Courts operate not because one person has been defeated or overcome by another, but because he has been defeated or overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable judgment, and lose money by them indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be in addition, a violation of law, the commission of what the law knows as an actionable wrong before the courts are authorized to lay hold of the situation and remedy it. (Rural Bank of Paranaque, Inc. vs. Remolado, 62051, March 18, 1985) (135 SCRA 409, 412) In the questioned decision, respondent appellate court ruled that an implied trust exists in favor of private respondents. We do not agree. Article 1456 of the New Civil Code on implied trust has no application in the case at bar. Article 1456 provides: Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. There was no mistake nor fraud on the part of petitioners when the subject property was re-acquired from the GSIS. The fact that they previously sold one-half portion thereof has no more significance in

this re-acquisition. Private respondent's right over the one-half portion was obliterated when absolute ownership and title passed on to the GSIS after the foreclosure sale. The property as held by GSIS had a clean title. The property that was passed on to petitioners retained that quality of title. As regards the rights of private respondent Ines Carpio, she is a buyer in good faith and for value. There was no showing that at the time of the sale to her of the subject property, she knew of any lien on the property except the mortgage in favor of the Bian Rural Bank. No other lien was annotated on the certificate of title. She is also not required by law to go beyond what appears on the face of the title. When there is nothing on the certificate of title to indicate any cloud or vice in the ownership of the property or any encumbrances thereon, the purchaser is not to explore further than what the Torrens Title upon its face indicates in quest for any hidden defect or inchoate right thereof (NGA v. IAC, G.R. No. 68741, January 28, 1988). ACCORDINGLY, the petition is GRANTED. The appealed decision of the Court of Appeals is hereby REVERSED. Civil Case No. Q-28061 for quieting of title is hereby DISMISSED. SO ORDERED.

FIRST DIVISION

[G.R. No. 119714. May 29, 1997]

SALVADOR S. ESQUIVIAS and ALICIA DOMALAON-ESQUIVIAS, petitioners, vs. COURT OF APPEALS, JOSE G. DOMALAON, ELENA G. DOMALAON and REGISTER OF DEEDS OF SORSOGON, respondents.

DECISION BELLOSILLO, J.: A 6,270-SQUARE METER PARCEL OF LAND in the poblacion of Gubat, Sorsogon,[1] is the subject of this action for reconveyance and damages. Julia Galpo de Domalaon was the owner of a piece of land with an area of 1,260 square meters and the two-storey house standing thereon. In 1950 she extrajudicially constituted this property into a family home. Alicia Domalaon-Esquivias, Elena G. Domalaon and Jose G. Domalaon, among other children, were named beneficiaries thereof.[2] On 11 March 1974 a Deed of Absolute Sale was executed by Julia Galpo de Domalaon in favor of her son-in-law, Atty. Salvador Esquivias, husband of Alicia Domalaon. Subject matter of the deed was the property constituting the family home the two-storey house and the residential lot on which it stood, more particularly described in the deed as "x x x containing an area corresponding to the ground floor area of the house (136 sq. m.) plus and including its outside surrounding area of land measuring three (3) meters from the outside walls on all sides of said house, and including the whole width and length of the driveway leading from the house to Manook Street. This is likewise part and parcel of the family home declared in the name of Julia Galpo de Domalaon under Tax Declaration No. 9021 containing an original area of 1,260 square meters, more or less, and assessed at P1,070."[3] On 30 March 1977 the family home was dissolved by Julia Galpo de Domalaon with the conformity of all her children. Afterwards, another deed of sale was executed by her dated 12 April 1977 transferring to Jose G. Domalaon the house and lot which once constituted the family home. The deed indicated that the property being sold was the entire 1,260 square meters. [4] However, in the Affidavit of Confirmatory Waiver of Rights,[5] the area was increased to 2,456 square meters. Prior to the sale of the property to him, or on 21 October 1976, Jose already filed two (2) applications for Free Patent in his name covering the entire property. When his first application was approved, a certificate of title[6] was issued on 11 February 1981. His rights over the other application covering the rest of the property were relinquished by him in favor of his sister Elena. [7] It turned out later that Elena G. Domalaon also succeeded in her application for Free Patent and a certificate of title was issued in her name on 18 March 1985.[8] Alleging that it was only in 1981 that she came to know that the document she signed in favor of Atty. Salvador S. Esquivias in 1974 was actually a deed of sale, Julia Galpo de Domalaon filed a disbarment case against Atty. Esquivias. According to her, being a son-in-law and lawyer of the Domalaons, Atty. Esquivias took advantage of her trust and confidence and poor eyesight by representing that the document was a sale of her land in favor of all her children. But the Solicitor General, who investigated the case, recommended its dismissal for lack of merit thus xxxx The claim of the complainant that respondent took advantage of her trust and confidence and presented to her for signature a prepared document which he represented as a distribution of her lands to her children is not credible x x x x It is inconceivable that from March 1974 up to January 1981, complainant had never informed her children that she had already signed a document transferring her ricelands to them x x x x And what is more, it is too much of a coincidence that Elena Domalaon discovered the document at the Office of the Register of Deeds of Sorsogon in January 1981 x x x x The only reasonable conclusion is that Elena knew all along about the existence of said document, which is a genuine deed of sale in favor of respondent, and she and her mother (complainant herself) only concocted the alleged misrepresentation committed by respondent just to get even with him x x x x The settled rule is that the serious consequences of disbarment or suspension should follow only where there is a clear preponderance of evidence against the respondent. The presumption is that the attorney is innocent of the charges proffered and has performed his duty as a lawyer in accordance with his oath. Complainant's evidence is obviously insufficient to prove dishonesty on the part of respondent. Complainant's version is not credible, and respondent has adduced sufficient evidence to prove motive for the filing of the instant complaint x x x x [9] This Court adopted the above Recommendation and dismissed the case.[10]

Upon discovering that the subject lands were already titled in the names of Jose and Elena, Atty. Esquivias and his wife filed an action for reconveyance and damages before the Regional Trial Court of Sorsogon. In their complaint they claimed the entire 6,270 square meters and not just the house and lot they acquired by purchase from Julia. According to them, when Silvestre Domalaon, husband of Julia, was still alive he promised to transfer the entire property in their names as payment of his accumulated debts to them. Thus, they declared the property in their names and paid the taxes thereon. After trial, the court ruled in favor of plaintiffs thus WHEREFORE, premises considered, this Court hereby orders: 1. That plaintiff Salvador Esquivias and Alicia Domalaon-Esquivias be declared the owners of the house and the portion of the land it is standing on, with an area of 136 sq.m., plus and including its outside surrounding area of land measuring three (3) meters from the outside walls on all sides of the house, and including the whole width and length of the driveway leading from the house to Manook Street; 2. That Jose Domalaon should reconvey to the plaintiffs that property mentioned above; and for the purpose, a licensed surveyor be commissioned to set off that particular portion of the property. The fee of such surveyor should be paid by defendant Jose Domalaon; 3. That the property identified as Lot No. 453 be partitioned by the heirs of Julia G. Domalaon, and as a consequence, the Register of Deeds of Sorsogon is ordered to cancel OCT No. P-22729 in the name of Elena Domalaon and issue the corresponding titles to the portions owned by each heir; 4. That defendants Jose Domalaon and Elena Domalaon should pay to the plaintiffs, jointly and severally, the sum of P5,000 as moral damages, and P5,000 as attorney's fees; 5. That defendants, likewise, jointly and severally, should pay the costs of this suit.

Not satisfied with the decision, respondents Jose G. Domalaon and Elena G. Domalaon elevated the case to the Court of Appeals which reversed the decision of the trial court and dismissed the case on the basis of its finding that there was no compliance with the mandatory requirements of Art. 222 of the New Civil Code; hence, the instant petition. Three (3) issues need to be resolved: (a) Was the appellate court correct in holding that no earnest effort towards a compromise between members of the same family was made, in contravention of Art. 222 of the Civil Code? (b) Did the Report/Recommendation of the Solicitor General in the disbarment case, which was adopted by the Supreme Court, rule on the validity of the sale executed by Julia Domalaon? (c) Who has a better right over the subject property, the Esquiviases or the Domalaons? Petitioners contend that Atty. Esquivias is only a brother-in-law of Jose and Elena Domalaon. Atty. Esquivias is not a member of the family of his wife and is outside the scope and coverage of the law requiring that the same members of a family should exert efforts to bring about a compromise before the commencement of a litigation. We agree with petitioners. Article 222 of the Civil Code provides that no suit shall be filed or maintained between members of the same family unless it should appear that earnest efforts towards a compromise have been made but the same have failed. The reason for the law is that a lawsuit between family members generates deeper bitterness than one between strangers. Hence, it is necessary that every effort should be made towards a compromise before a litigation is allowed to breed hate and passion in the family.[11] But this requirement in Art. 222 of the Civil Code applies only to suits between or among members of the same family. The phrase "between members of the same family" should be construed in the light of Art. 217 of the Civil Code [12] under which "family relations" include only those (a) between husband and wife, (b) between parent and child, (c) among other ascendants and their descendants, and (d) among brothers and sisters. As correctly pointed out by petitioners, Atty. Salvador S. Esquivias is not included in the enumeration of who are members of the same family, as he is only a brother-in-law of respondents Jose and Elena by virtue of his marriage to their sister Alicia. His relationship with respondents is based on affinity and not on consanguinity. Consequently, insofar as he is concerned, he is a stranger with respect to the family of his wife and, as such, the mandatory requirement of "earnest effort toward a compromise" does not apply to him. In Magbaleta v. Gonong[13] we ruled that "efforts to compromise" are not a jurisdictional prerequisite for the maintenance of an action whenever a stranger to the family is

a party thereto, whether as necessary or indispensable one. An alien to the family may not be willing to suffer the inconvenience of, much less relish, the delay and the complications that wranglings between and among relatives more often than not entail. Besides, it is neither practical nor fair that the rights of a family be made to depend on a stranger who just happens to have innocently acquired some interest in a property by virtue of his affinity to the parties. Contrary to the ruling of the Court of Appeals, we find no reason to give Art. 222 a broader scope than its literal import. On the second issue, petitioner Salvador S. Esquivias postulates that the validity of the deed of sale in his favor had already been sustained in the disbarment proceedings against him. As a consequence, the facts established therein have become the law of the case and can no longer be disturbed by the Court of Appeals. The argument is flawed. In the case of In re Almacen[14] we ruled x x x x Disciplinary proceedings against lawyers are sui generis. Neither purely civil nor purely criminal, they do not involve a trial of an action or a suit, but are rather investigations by the Court into the conduct of one of its officers. Not being intended to inflict punishment, it is in no sense a criminal prosecution. Accordingly, there is neither a plaintiff nor a prosecutor therein. It may be initiated by the Court motu proprio. Public interest is its primary objective, and the real question for determination is whether or not the attorney is still a fit person to be allowed the privileges as such. Hence, in the exercise of its disciplinary powers, the Court merely calls upon a member of the Bar to account for his actuations as an officer of the Court with the end in view of preserving the purity of the legal profession and the proper and honest administration of justice by purging the profession of members who by their misconduct have proved themselves no longer worthy to be entrusted with the duties and responsibilities pertaining to the office of an attorney. In such posture, there can thus be no occasion to speak of a complainant or a prosecutor. For this reason, whatever has been decided in the disbarment case cannot be a source of right that may be enforced in another action, like this case before us. Moreover, what was decided in the disbarment proceedings was the issue of whether Atty. Esquivias violated his oath by defrauding and deceiving the complainant into conveying to him the properties in question, and not the issue of the validity of the deed of sale. When the Solicitor General made a declaration that the deed was valid, it was only because the same was incidentally necessary for the prompt resolution of the case. Indeed, in matters involving questions of genuineness and due execution of documents purporting to convey properties of considerable value, no less than an action instituted for that purpose before a court of competent jurisdiction is necessary, rather than a mere administrative proceeding, like a disbarment case, where the procedure followed is, more often than not, summary, and where the question on validity of the instrument is merely a collateral and not the main issue. Consequently, the judgment on the disbarment proceedings, which incidentally touched on the issue of the validity of the deed of sale, cannot be considered conclusive in another action where the validity of the same deed of sale is merely one of the main issues. At best, such judgment may only be given weight when introduced as evidence, but in no case does it bind the court in the second action. We are convinced, however, that the sale in favor of Atty. Esquivias was made by Julia with full knowledge of the facts and there appears nothing on record to warrant a declaration of nullity of the deed from the standpoint of fraud. It must be emphasized that the bare existence of confidential relation between grantor and grantee does not, standing alone, raise the presumption of fraud. A deed will not be set aside merely because the grantor and grantee sustained a confidential relationship where the evidence shows no fraud or abuse of confidence.[15] Besides, if Julia really had a cause of action against Atty. Esquivias, why did she file only a disbarment case instead of the more appropriate action for annulment of contract? As regards the third issue, this Court notes the glaring irregularities that attended the transfer of the land in question to Jose G. Domalaon and Elena G. Domalaon: First, the land was sold by Julia to Jose on 12 April 1977.[16] But even prior to that date, or on 21 October 1976, Jose already applied for Free Patent in his name covering the land; [17] Second, during the disbarment proceedings against Atty. Esquivias, Elena admitted on cross-examination that she went to the Register of Deeds of Sorsogon to register another deed of sale one executed by her mother in favor of her brother Jose over the same house and lot ahead of the deed of sale executed in favor of Atty. Esquivias. She succeeded in doing so by using the tax receipt paid by Atty. Esquivias himself;[18] Third, in the deed of sale of Jose, what was sold to him was 1,260 square meters. However, in the Affidavit of Confirmatory Waiver of Rights the area was increased to 2,456 square meters; Fourth, Jose relinquished to Elena Lot No. 453 with an area of 3,814 square meters. Surprisingly, the records contain no deed or evidence showing that Julia likewise sold to Jose Lot No. 453. What was sold was 1,260 square meters if we go by the

deed of sale, or 2,456 square meters if we base it on the Affidavit of Confirmatory Waiver of Rights. As aptly observed by the trial court, how could Jose relinquish to Elena something which he did not own? Fifth, Julia executed an affidavit[19] dated 17 July 1986 wherein she ceded her rights and interests over Lot No. 453 in favor of Jose. But it will be observed that such affidavit was not sufficient to transfer ownership of the subject lot. Even if it did, it was executed only after more than four (4) years from the date Jose relinquished to Elena his alleged rights over Lot No. 453. These circumstances confirm the belief that there indeed was collusion among the Domalaons to defeat the valid and legitimate claim of the Esquiviases by consolidating the ownership of the entire property in the names of Jose G. Domalaon and Elena G. Domalaon. They likewise belie the Domalaons' profession of ignorance with respect to the existence of the first sale. Logically, while the deed of sale in favor of Jose G. Domalaon was registered earlier, the same cannot prevail over the deed of sale in favor of Atty. Esquivias because private respondent knew of the prior sale to petitioners, and such knowledge tainted his registration with bad faith. [20] To merit protection under Art. 1544, second par.,[21] the second buyer must act in good faith in registering his deed. While we are sustaining petitioners' rights over the house and lot subject of the 11 March 1974 deed of sale, we cannot find any justification to likewise award to them the rest of the property. They presented no evidence other than their self-serving assertion that the entire property was promised to them by the late Silvestre Domalaon. The fact that such promise was not contradicted by private respondents does not prove that their claim over the entire property is valid and subsisting. Furthermore, although the entire property was declared by petitioners in their names for taxation purposes, it does not by itself constitute conclusive evidence of ownership.[22] Finally, while the certificates of title in the names of Jose G. Domalaon and Elena G. Domalaon are indefeasible, unassailable and binding against the whole world, including the government itself, they do not create or vest title. They merely confirm or record title already existing and vested. They cannot be used to protect a usurper from the true owner, nor can they be used as a shield for the commission of fraud; neither does they permit one to enrich himself at the expense of others.[23] Although a review of the decree of registration is no longer available on account of the expiration of the one-year period from entry thereof, an equitable remedy is still available to the Esquiviases who were wrongfully deprived of their property, i.e., to compel Jose G. Domalaon in whose name the house and lot in question had been wrongfully registered, to reconvey the property to the Esquiviases, provided that the same has not yet been transferred to innocent persons for value.[24] The registered property is deemed to be held in trust for the real owners by the person in whose name it has been registered. In this action for reconveyance, the decree of registration is respected as incontrovertible. What is sought instead is the transfer of the property, in this case, the title thereof, which has been wrongfully or erroneously registered in another person's name, to its rightful and legal owners.[25] WHEREFORE, the Decision of respondent Court of Appeals reversing that of the Regional Trial Court, Branch 54, Gubat, Sorsogon, is REVERSED and SET ASIDE, and the Decision of the latter court in favor of petitioners as quoted in pages four (4) and five (5) hereof is REINSTATED and AFFIRMED. Costs against private respondents. SO ORDERED.

THIRD DIVISION MARIA TUAZON, ALEJANDRO G.R. No. 156262 P. TUAZON, MELECIO P. TUAZON, Spouses ANASTACIO and Present: MARY T. BUENAVENTURA, Petitioners - versus Carpio Morales, and Promulgated: HEIRS OF BARTOLOME RAMOS, Respondents. July 14, 2005 x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --- -- -- -- -- x

DECISION PANGANIBAN, J.: S tripped of nonessentials, the present case involves the collection of a sum of money. Specifically, this case arose from the failure of petitioners to pay respondents predecessorin-interest. This fact was shown by the non-encashment of checks issued by a third person, but indorsed by herein Petitioner Maria Tuazon in favor of the said predecessor. Under these circumstances, to enable respondents to collect on the indebtedness, the check drawer need not be impleaded in the Complaint. Thus, the suit is directed, not against the drawer, but against the debtor who indorsed the checks in payment of the obligation. The Case Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the July 31, 2002 Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 46535. The decretal portion of the assailed Decision reads: WHEREFORE, the appeal is DISMISSED and the appealed decision is AFFIRMED. On the other hand, the affirmed Decision[3] of Branch 34 of the Regional Trial Court (RTC) of Gapan, Nueva Ecija, disposed as follows: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, ordering the defendants spouses Leonilo Tuazon and Maria Tuazon to pay the plaintiffs, as follows: 1. The sum of P1,750,050.00, with interests from the filing of the second amended complaint; 2. The sum of P50,000.00, as attorneys fees; 3. The sum of P20,000.00, as moral damages 4. And to pay the costs of suit. xxx xxx x x x[4]

The Facts The facts are narrated by the CA as follows: [Respondents] alleged that between the period of May 2, 1988 and June 5, 1988, spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from [the deceased Bartolome] Ramos [predecessor-in-interest of respondents]. That of this [quantity,] x x x only 4,437 cavans [have been paid for so far], leaving unpaid 3,889 cavans valued atP1,211,919.00. In payment therefor, the spouses Tuazon issued x x x [several] Traders Royal Bank checks. xxx xxx xxx

[B]ut when these [checks] were encashed, all of the checks bounced due to insufficiency of funds. [Respondents] advanced that before issuing said checks[,] spouses Tuazon already knew that they had no available fund to support the checks, and they failed to provide for the payment of these despite repeated demands made on them. [Respondents] averred that because spouses Tuazon anticipated that they would be sued, they conspired with the other [defendants] to defraud them as creditors by executing x x x fictitious sales of their properties. They executed x x x simulated sale[s] [of three lots] in favor of the x x x spouses Buenaventura x x x[,] as well as their residential lot and the house thereon[,] all located at Nueva Ecija, and another simulated deed of sale dated July 12, 1988 of a Stake Toyota registered with

the Land Transportation Office of Cabanatuan City on September 7, 1988. [Copetitioner] Melecio Tuazon, a son of spouses Tuazon, registered a fictitious Deed of Sale on July 19, 1988 x x x over a residential lot located at Nueva Ecija. Another simulated sale of a Toyota Willys was executed on January 25, 1988 in favor of their other son, [co-petitioner] Alejandro Tuazon x x x. As a result of the said sales, the titles of these properties issued in the names of spouses Tuazon were cancelled and new ones were issued in favor of the [co-]defendants spouses Buenaventura, Alejandro Tuazon and Melecio Tuazon. Resultantly, by the said ante-dated and simulated sales and the corresponding transfers there was no more property left registered in the names of spouses Tuazon answerable to creditors, to the damage and prejudice of [respondents]. For their part, defendants denied having purchased x x x rice from [Bartolome] Ramos. They alleged that it was Magdalena Ramos, wife of said deceased, who owned and traded the merchandise and Maria Tuazon was merely her agent. They argued that it was Evangeline Santos who was the buyer of the rice and issued the checks to Maria Tuazon as payments therefor. In good faith[,] the checks were received [by petitioner] from Evangeline Santos and turned over to Ramos without knowing that these were not funded. And it is for this reason that [petitioners] have been insisting on the inclusion of Evangeline Santos as an indispensable party, and her non-inclusion was a fatal error. Refuting that the sale of several properties were fictitious or simulated, spouses Tuazon contended that these were sold because they were then meeting financial difficulties but the disposals were made for value and in good faith and done before the filing of the instant suit. To dispute the contention of plaintiffs that they were the buyers of the rice, they argued that there was no sales invoice, official receipts or like evidence to prove this. They assert that they were merely agents and should not be held answerable.[5]

The corresponding civil and criminal cases were filed by respondents against Spouses Tuazon. Those cases were later consolidated and amended to include Spouses Anastacio and Mary Buenaventura, with Alejandro Tuazon and Melecio Tuazon as additional defendants. Having passed away before the pretrial, Bartolome Ramos was substituted by his heirs, herein respondents. Contending that Evangeline Santos was an indispensable party in the case, petitioners moved to file a third-party complaint against her. Allegedly, she was primarily liable to respondents, because she was the one who had purchased the merchandise from their predecessor, as evidenced by the fact that the checks had been drawn in her name. The RTC, however, denied petitioners Motion. Since the trial court acquitted petitioners in all three of the consolidated criminal cases, they appealed only its decision finding them civilly liable to respondents. Ruling of the Court of Appeals Sustaining the RTC, the CA held that petitioners had failed to prove the existence of an agency between respondents and Spouses Tuazon. The appellate court disbelieved petitioners contention that Evangeline Santos should have been impleaded as an indispensable party. Inasmuch as all the checks had been indorsed by Maria Tuazon, who thereby became liable to subsequent holders for the amounts stated in those checks, there was no need to implead Santos. Hence, this Petition.[6] Issues Petitioners raise the following issues for our consideration: 1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners are not agents of the respondents. 2. Whether or not the Honorable Court of Appeals erred in rendering judgment against the petitioners despite x x x the failure of the respondents to include in their action Evangeline Santos, an indispensable party to the suit.[7] The Courts Ruling

The Petition is unmeritorious. First Issue: Agency

Well-entrenched is the rule that the Supreme Courts role in a petition under Rule 45 is limited to reviewing errors of law allegedly committed by the Court of Appeals. Factual findings of the trial court, especially when affirmed by the CA, are conclusive on the parties and this Court. [8] Petitioners have not given us sufficient reasons to deviate from this rule. In a contract of agency, one binds oneself to render some service or to do something in representation or on behalf of another, with the latters consent or authority.[9] The following are the elements of agency: (1) the parties consent, express or implied, to establish the relationship; (2) the object, which is the execution of a juridical act in relation to a third person; (3) therepresentation, by which the one who acts as an agent does so, not for oneself, but as a representative; (4) the limitation that the agent acts within the scope of his or her authority. [10] As the basis of agency is representation, there must be, on the part of the principal, an actual intention to appoint, an intention naturally inferable from the principals words or actions. In the same manner, there must be an intention on the part of the agent to accept the appointment and act upon it. Absent such mutual intent, there is generally no agency.[11] This Court finds no reversible error in the findings of the courts a quo that petitioners were the rice buyers themselves; they were not mere agents of respondents in their rice dealership. The question of whether a contract is one of sale or of agency depends on the intention of the parties.[12] The declarations of agents alone are generally insufficient to establish the fact or extent of their authority.[13] The law makes no presumption of agency; proving its existence, nature and extent is incumbent upon the person alleging it.[14] In the present case, petitioners raise the fact of agency as an affirmative defense, yet fail to prove its existence. The Court notes that petitioners, on their own behalf, sued Evangeline Santos for collection of the amounts represented by the bounced checks, in a separate civil case that they sought to be consolidated with the current one. If, as they claim, they were mere agents of respondents, petitioners should have brought the suit against Santos for and on behalf of their alleged principal, in accordance with Section 2 of Rule 3 of the Rules on Civil Procedure. [15] Their filing a suit against her in their own names negates their claim that they acted as mere agents in selling the rice obtained from Bartolome Ramos.

Second Issue: Indispensable Party Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be impleaded as an indispensable party. They insist that respondents Complaint against them is based on the bouncing checks she issued; hence, they point to her as the person primarily liable for the obligation. We hold that respondents cause of action is clearly founded on petitioners failure to pay the purchase price of the rice. The trial court held that Petitioner Maria Tuazon had indorsed the questioned checks in favor of respondents, in accordance with Sections 31 and 63 of the Negotiable Instruments Law.[16] That Santos was the drawer of the checks is thus immaterial to the respondents cause of action. As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks were to be accepted or paid, or both, according to their tenor; and that in case they were dishonored, she would pay the corresponding amount.[17] After an instrument is dishonored by nonpayment, indorsers cease to be merely secondarily liable; they become principal debtors whose liability becomes identical to that of the original obligor. The holder of a negotiable instrument need not even proceed against the maker before suing the indorser.[18] Clearly, Evangeline Santos -- as the drawer of the checks -- is not an indispensable party in an action against Maria Tuazon, the indorser of the checks. Indispensable parties are defined as parties in interest without whom no final determination can be had.[19] The instant case was originally one for the collection of the purchase price of the rice bought by Maria Tuazon from respondents predecessor. In this case, it is clear that there is no privity of contract between respondents and Santos. Hence, a final determination of the rights and interest of the parties may be made without any need to implead her. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioners. SO ORDERED.