Definition of Agency

THIRD DIVISION
EUROTECH INDUSTRIAL TECHNOLOGIES, INC.,
Petitioner,

G.R. No. 167552

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
CHICO-NAZARIO, and
NACHURA, JJ.

- versus -

EDWIN CUIZON and ERWIN CUIZON,

Respondents.

Promulgated:
April 23, 2007

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DECISION

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision[1] of the Court of Appeals dated 10 August 2004 and its Resolution[2] dated 17 March
2005 in CA-G.R. SP No. 71397 entitled, Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez. The assailed Decision and Resolution
affirmed the Order[3] dated 29 January 2002rendered by Judge Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a
party defendant in Civil Case No. CEB-19672.

The generative facts of the case are as follows:

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

From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to ninety-one thousand three hundred thirty-eight
(P91,338.00) pesos.Subsequently, respondents sought to buy from petitioner one unit of sludge pump valued at P250,000.00 with respondents making a
down payment of fifty thousand pesos (P50,000.00).[4] When the sludge pump arrived from the United Kingdom, petitioner refused to deliver the same to
respondents without their having fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general
manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner, the pertinent part of which states:
1.) That ASSIGNOR[5] has an outstanding receivables from Toledo Power Corporation in the amount of THREE
HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment for the purchase of one unit of Selwood Spate 100D
Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the ASSIGNEE [6] the said receivables
from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which
receivables the ASSIGNOR is the lawful recipient;
3.) That the ASSIGNEE does hereby accept this assignment.[7]
Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump as shown by Invoice No. 12034 dated 30 June
1995.[8]

Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment, proceeded to collect from Toledo Power
Company the amount ofP365,135.29 as evidenced by Check Voucher No. 0933[9] prepared by said power company and an official receipt dated 15
August 1995 issued by Impact Systems.[10] Alarmed by this development, petitioner made several demands upon respondents to pay their
obligations. As a result, respondents were able to make partial payments to petitioner. On 7 October 1996, petitioners counsel sent respondents a final
demand letter wherein it was stated that as of 11 June 1996, respondents total obligations stood at P295,000.00 excluding interests and attorneys fees.
[11]

Because of respondents failure to abide by said final demand letter, petitioner instituted a complaint for sum of money, damages, with application for

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

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

On 25 June 1997, respondent EDWIN filed his Answer[14] wherein he admitted petitioners allegations with respect to the sale transactions
entered into by Impact Systems and petitioner between January and April 1995. [15] He, however, disputed the total amount of Impact Systems
indebtedness to petitioner which, according to him, amounted to only P220,000.00.[16]

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in interest in this case. According to him, he
was acting as mere agent of his principal, which was the Impact Systems, in his transaction with petitioner and the latter was very much aware of this
fact. In support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioners Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the proprietor of a single proprietorship
business known as Impact Systems Sales (Impact Systems for brevity), with office located at 46-A del Rosario Street, Cebu City,
where he may be served summons and other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the Sales Manager of Impact
Systems and is sued in this action in such capacity.[17]

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for Summary Judgment. The trial court granted
petitioners motion to declare respondent ERWIN in default for his failure to answer within the prescribed period despite the opportunity granted [18] but it
denied petitioners motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October 2001.[19] However,
the conduct of the pre-trial conference was deferred pending the resolution by the trial court of the special and affirmative defenses raised by respondent
EDWIN.[20]

After the filing of respondent EDWINs Memorandum [21] in support of his special and affirmative defenses and petitioners opposition [22] thereto,
the trial court rendered its assailed Order dated 29 January 2002 dropping respondent EDWIN as a party defendant in this case. According to the trial
court
A study of Annex G to the complaint shows that in the Deed of Assignment, defendant Edwin B. Cuizon acted in behalf of
or represented [Impact] Systems Sales; that [Impact] Systems Sale is a single proprietorship entity and the complaint shows that
defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is represented by its general manager Alberto de Jesus in the
contract which is dated June 28, 1995. A study of Annex H to the complaint reveals that [Impact] Systems Sales which is owned
solely by defendant Erwin H. Cuizon, made a down payment of P50,000.00 that Annex H is dated June 30, 1995 or two days after
the execution of Annex G, thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further show
that plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted the
down payment of P50,000.00. Plaintiff, therefore, cannot say that it was deceived by defendant Edwin B. Cuizon, since in the instant
case the principal has ratified the act of its agent and plaintiff knew about said ratification. Plaintiff could not say that the subject
contract was entered into by Edwin B. Cuizon in excess of his powers since [Impact] Systems Sales made a down payment
of P50,000.00 two days later.
In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party defendant. [23]

Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals which, however, affirmed the 29 January
2002 Order of the court a quo.The dispositive portion of the now assailed Decision of the Court of Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the public respondent in his Order
dated January 29, 2002, it is hereby AFFIRMED.[24]

Petitioners motion for reconsideration was denied by the appellate court in its Resolution promulgated on 17 March 2005. Hence, the present petition
raising, as sole ground for its allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT EDWIN CUIZON, AS
AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED
BEYOND THE SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD. [25]

To support its argument, petitioner points to Article 1897 of the New Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds
himself or exceeds the limits of his authority without giving such party sufficient notice of his powers.

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

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

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

known even to petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the said business
venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly states that he was acting as a representative of Impact Systems
in said transaction.

We do not find merit in the petition.

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

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

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

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

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact Systems. As discussed elsewhere, the
position of manager is unique in that it presupposes the grant of broad powers with which to conduct the business of the principal, thus:
The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such a position
presupposes a degree of confidence reposed and investiture with liberal powers for the exercise of judgment and discretion in
transactions and concerns which are incidental or appurtenant to the business entrusted to his care and management. In the
absence of an agreement to the contrary, a managing agent may enter into any contracts that he deems reasonably necessary or
requisite for the protection of the interests of his principal entrusted to his management. x x x.[35]

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he signed the Deed of Assignment. To
recall, petitioner refused to deliver the one unit of sludge pump unless it received, in full, the payment for Impact Systems indebtedness. [36] We may
very well assume that Impact Systems desperately needed the sludge pump for its business since after it paid the amount of fifty thousand pesos
(P50,000.00) as down payment on 3 March 1995,[37] it still persisted in negotiating with petitioner which culminated in the execution of the Deed of
Assignment of its receivables from Toledo Power Company on 28 June 1995. [38] The significant amount of time spent on the negotiation for the sale of
the sludge pump underscores Impact Systems perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind that
respondent EDWINs participation in the Deed of Assignment was reasonably necessary or was required in order for him to protect the business of his
principal. Had he not acted in the way he did, the business of his principal would have been adversely affected and he would have violated his fiduciary
relation with his principal.

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

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

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

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

SO ORDERED.

Elements of the contract of agency; death of the principal

Republic of the Philippines
SUPREME COURT
Manila
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.

MUOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion Rallos, sold the latter's undivided share in a
parcel of land pursuant to a power of attorney which the principal had executed in favor. The administrator of the estate of the went to court to have the
sale declared uneanforceable and to recover the disposed share. The trial court granted the relief prayed for, but upon appeal the Court of Appeals
uphold the validity of the sale and the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and registered co-owners of a parcel of land known
as Lot No. 5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters
executed a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. On March 3, 1955,
Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix
Go Chan & Sons Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the Registry of Deeds of Cebu, TCT No. 11118 was
cancelled, and a new transfer certificate of Title No. 12989 was issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the
Court of First Instance of Cebu, praying (1) that the sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and
said share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be cancelled and
another title be issued in the names of the corporation and the "Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be
indemnified by way of attorney's fees and payment of costs of suit. Named party defendants were Felix Go Chan & Sons Realty Corporation, Simeon
Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was dropped from the complaint. The complaint was amended twice; defendant
Corporation's Answer contained a crossclaim against its co-defendant, Simon Rallos while the latter filed third-party complaint against his sister,
Gerundia Rallos While the case was pending in the trial court, both Simon and his sister Gerundia died and they were substituted by the respective
administrators of their estates.
After trial the court a quo rendered judgment with the following dispositive portion:
A. On Plaintiffs Complaint
(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-indiviso share of Concepcion
Rallos in the property in question, Lot 5983 of the Cadastral Survey of Cebu is concerned;
(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title No. 12989 covering Lot
5983 and to issue in lieu thereof another in the names of FELIX GO CHAN & SONS REALTY CORPORATION
and the Estate of Concepcion Rallos in the proportion of one-half (1/2) share each pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an undivided one-half (1/2)
share of Lot 5983 to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to plaintiff
in concept of reasonable attorney's fees the sum of P1,000.00; and

(5) Ordering both defendants to pay the costs jointly and severally.
B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to
defendant Felix Co Chan & Sons Realty Corporation the sum of P5,343.45, representing the price of one-half
(1/2) share of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay in concept of
reasonable attorney's fees to Felix Go Chan & Sons Realty Corporation the sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of Simeon Rallos, against Josefina Rallos
special administratrix of the Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to filing either a complaint against the regular administrator of the Estate of
Gerundia Rallos or a claim in the Intestate-Estate of Cerundia Rallos, covering the same subject-matter of the third-party complaint,
at bar. (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the foregoing judgment insofar as it set aside the sale of
the one-half (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of the
appellant corporation sustaining the sale in question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the decision but the same
was denied in a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his principal? Applied more particularly to the instant case, We have the query.
is the sale of the undivided share of Concepcion Rallos in lot 5983 valid although it was executed by the agent after the death of his principal? What is
the law in this jurisdiction as to the effect of the death of the principal on the authority of the agent to act for and in behalf of the latter? Is the fact of
knowledge of the death of the principal a material factor in determining the legal effect of an act performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter tinder consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him. 3 A contract entered into in the name of another by one who has no authority or the legal representation or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting party. 4 Article 1403 (1) of the same Code also provides:
ART. 1403. The following contracts are unenforceable, unless they are justified:
(1) Those entered into in the name of another person by one who hi - been given no authority or legal representation or who has
acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby one party, caged the principal (mandante),
authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons. The essential elements of agency are:
(1) there is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third
person; (3) the agents acts as a representative and not for himself, and (4) the agent acts within the scope of his authority. 5
Agency is basically personal representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his
principal; his act is the act of the principal if done within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts
himself". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause death of the principal Paragraph 3 of Art. 1919 of
the Civil Code which was taken from Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent, agency is extinguished by the death of the principal or the agent. This is
the law in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is found in thejuridical basis of agency which
is representation Them being an in. integration of the personality of the principal integration that of the agent it is not possible for the representation to
continue to exist once the death of either is establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a necessary cause
for its extinction. Laurent says that the juridical tie between the principal and the agent is severed ipso jure upon the death of either without necessity for
the heirs of the fact to notify the agent of the fact of death of the former. 9
The same rule prevails at common law the death of the principal effects instantaneous and absolute revocation of the authority of the agent unless
the Power be coupled with an interest. 10 This is the prevalent rule in American Jurisprudence where it is well-settled that a power without an interest
confer. red upon an agent is dissolved by the principal's death, and any attempted execution of the power afterward is not binding on the heirs or
representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent extinguishes the agency, subject to any exception, and if
so, is the instant case within that exception? That is the determinative point in issue in this litigation. It is the contention of respondent corporation which

was sustained by respondent court that notwithstanding the death of the principal Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in
selling the former's sham in the property is valid and enforceable inasmuch as the corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has been constituted in the
common interest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any other cause which extinguishes the
agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his principal is valid and effective only under two
conditions, viz: (1) that the agent acted without knowledge of the death of the principal and (2) that the third person who contracted with the agent
himself acted in good faith. Good faith here means that the third person was not aware of the death of the principal at the time he contracted with said
agent. These two requisites must concur the absence of one will render the act of the agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at the time he sold the latter's share in Lot
No. 5983 to respondent corporation. The knowledge of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the trial
court. 12 That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of the court a quo 13 and of respondent appellate court
when the latter stated that Simon Rallos 'must have known of the death of his sister, and yet he proceeded with the sale of the lot in the name of both his
sisters Concepcion and Gerundia Rallos without informing appellant (the realty corporation) of the death of the former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion Rallos, Article 1931 of the Civil Code is
inapplicable. The law expressly requires for its application lack of knowledge on the part of the agent of the death of his principal; it is not enough that
the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art. 1931 of the new
Civil Code sustained the validity , of a sale made after the death of the principal because it was not shown that the agent knew of his principal's
demise. 15 To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is no indication in the record,
that the agent Luy Kim Guan was aware of the death of his principal at the time he sold the property. The death 6f the principal does
not render the act of an agent unenforceable, where the latter had no knowledge of such extinguishment of the agency. (1 SCRA
406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that there is no provision in the Code which
provides that whatever is done by an agent having knowledge of the death of his principal is void even with respect to third persons who may have
contracted with him in good faith and without knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the general rule enunciated in Article 1919 that the death of the
principal extinguishes the agency. That being the general rule it follows a fortiorithat any act of an agent after the death of his principal is void ab
initio unless the same fags under the exception provided for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the
general rule, is to be strictly construed, it is not to be given an interpretation or application beyond the clear import of its terms for otherwise the courts
will be involved in a process of legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the power of attorney which was duly registered on
the original certificate of title recorded in the Register of Deeds of the province of Cebu, that no notice of the death was aver annotated on said certificate
of title by the heirs of the principal and accordingly they must suffer the consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of contracting with certain persons, the revocation must be made known to them.
But if the agency is general iii nature, without reference to particular person with whom the agent is to contract, it is sufficient that the
principal exercise due diligence to make the revocation of the agency publicity known.
In case of a general power which does not specify the persons to whom represents' on should be made, it is the general opinion that
all acts, executed with third persons who contracted in good faith, Without knowledge of the revocation, are valid. In such case, the
principal may exercise his right against the agent, who, knowing of the revocation, continued to assume a personality which he no
longer had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a mode of terminating an agency which is to be distinguished from
revocation by operation of law such as death of the principal which obtains in this case. On page six of this Opinion We stressed that by reason of the
very nature of the relationship between principal and agent, agency is extinguished ipso jure upon the death of either principal or agent. Although a
revocation of a power of attorney to be effective must be communicated to the parties concerned, 18 yet a revocation by operation of law, such as by
death of the principal is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded as an execution of
the principal's continuing will. 19 With death, the principal's will ceases or is the of authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What the Code provides in Article 1932 is that, if the
agent die his heirs must notify the principal thereof, and in the meantime adopt such measures as the circumstances may demand in the interest of the
latter. Hence, the fact that no notice of the death of the principal was registered on the certificate of title of the property in the Office of the Register of
Deeds, is not fatal to the cause of the estate of the principal
6. Holding that the good faith of a third person in said with an agent affords the former sufficient protection, respondent court drew a "parallel" between
the instant case and that of an innocent purchaser for value of a land, stating that if a person purchases a registered land from one who acquired it in
bad faith even to the extent of foregoing or falsifying the deed of sale in his favor the registered owner has no recourse against such innocent
purchaser for value but only against the forger. 20

To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from
the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a co-owner of lands with Agustin Nano. The
latter had a power of attorney supposedly executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land titles. The power
was registered in the Office of the Register of Deeds. When the lawyer-husband of Angela Blondeau went to that Office, he found all
in order including the power of attorney. But Vallejo denied having executed the power The lower court sustained Vallejo and the
plaintiff Blondeau appealed. Reversing the decision of the court a quo, the Supreme Court, quoting the ruling in the case of Eliason
v. Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of the defendant- appellee must be overruled. Agustin
Nano had possession of Jose Vallejo's title papers. Without those title papers handed over to Nano with the
acquiescence of Vallejo, a fraud could not have been perpetuated. When Fernando de la Canters, a member of
the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff, searched the registration record,
he found them in due form including the power of attorney of Vallajo in favor of Nano. If this had not been so
and if thereafter the proper notation of the encumbrance could not have been made, Angela Blondeau would
not have sent P12,000.00 to the defendant Vallejo.' An executed transfer of registered lands placed by the
registered owner thereof in the hands of another operates as a representation to a third party that the holder of
the transfer is authorized to deal with the land.
As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who
made it possible by his act of coincidence bear the loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because here We are confronted with one who admittedly was an agent of
his sister and who sold the property of the latter after her death with full knowledge of such death. The situation is expressly covered by a provision of
law on agency the terms of which are clear and unmistakable leaving no room for an interpretation contrary to its tenor, in the same manner that the
ruling in Blondeau and the cases cited therein found a basis in Section 55 of the Land Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any voluntary instrument is presented for registration shall be
conclusive authority from the registered owner to the register of deeds to enter a new certificate or to make a memorandum of
registration in accordance with such instruments, and the new certificate or memorandum Shall be binding upon the registered
owner and upon all persons claiming under him in favor of every purchaser for value and in good faith: Provided however, That in all
cases of registration provided by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud
without prejudice, however, to the right, of any innocent holder for value of a certificate of title. ... (Act No. 496 as amended)
7. One last point raised by respondent corporation in support of the appealed decision is an 1842 ruling of the Supreme Court of Pennsylvania
in Cassiday v. McKenzie wherein payments made to an agent after the death of the principal were held to be "good", "the parties being ignorant of the
death". Let us take note that the Opinion of Justice Rogers was premised on the statement that the parties were ignorant of the death of the
principal. We quote from that decision the following:
... Here the precise point is, whether a payment to an agent when the Parties are ignorant of the death is a good payment. in
addition to the case in Campbell before cited, the same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general question
that a payment after the death of principal is not good. Thus, a payment of sailor's wages to a person having a power of attorney to
receive them, has been held void when the principal was dead at the time of the payment. If, by this case, it is meant merely to
decide the general proposition that by operation of law the death of the principal is a revocation of the powers of the attorney, no
objection can be taken to it. But if it intended to say that his principle applies where there was 110 notice of death, or opportunity of
twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the accident circumstance of the death of the principal, which he did
not know, and which by no possibility could he know? It would be unjust to the agent and unjust to the debtor. In the civil law, the
acts of the agent, done bona fide in ignorance of the death of his principal are held valid and binding upon the heirs of the latter. The
same rule holds in the Scottish law, and I cannot believe the common law is so unreasonable... (39 Am. Dec. 76, 80, 81; emphasis
supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be made that the above represents the minority
view in American jurisprudence. Thus in Clayton v. Merrett, the Court said.
There are several cases which seem to hold that although, as a general principle, death revokes an agency and renders null every
act of the agent thereafter performed, yet that where a payment has been made in ignorance of the death, such payment will be
good. The leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate
opinion, this view ii broadly announced. It is referred to, and seems to have been followed, in the case of Dick v. Page,17 Mo. 234,
57 AmD 267; but in this latter case it appeared that the estate of the deceased principal had received the benefit of the money paid,
and therefore the representative of the estate might well have been held to be estopped from suing for it again. . . . These cases, in
so far, at least, as they announce the doctrine under discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v.
McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite, alone in announcing the principle in its broadest
scope. (52, Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except so far as it related to the particular facts, was a
mere dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial indication of his views on the general subject,
than as the adjudication of the Court upon the point in question. But accordingly all power weight to this opinion, as the judgment of
a of great respectability, it stands alone among common law authorities and is opposed by an array too formidable to permit us to
following it. (15 Cal. 12,17, cited in 2 C.J. 549)

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

Entitlement of Agent to commission

[G.R. No. 76969. June 9, 1997]
INLAND REALTY INVESTMENT SERVICE, INC. and ROMAN M. DE LOS REYES, petitioners, vs. HON. COURT OF APPEALS, GREGORIO
ARANETA, INC. and J. ARMANDO EDUQUE, respondents.
DECISION
HERMOSISIMA, JR., J.:
Herein petitioners Inland Realty Investment Service, Inc. (hereafter, "Inland Realty") and Roman M. de los Reyes seek the reversal of the
Decision[1] of the Intermediate Appellate Court (now Court of Appeals) [2] which affirmed the trial court's dismissal[3] of petitioners' claim for unpaid agent's
commission for brokering the sales transaction involving 9,800 shares of stock in Architects' Bldg., Inc. (hereafter, "Architects'") between private
respondent Gregorio Araneta, Inc. (hereafter, "Araneta, Inc.") as seller and Stanford Microsystems, Inc. (hereafter, "Stanford") as buyer.
Petitioners come to us with a two-fold agenda: (1) to obtain from us a declaration that the trial court and the respondent appellate court gravely
erred when appreciating the facts of the case by disregarding Exhibits "L," a Letter dated October 28, 1976 signed by Gregorio Araneta II, renewing
petitioners' authority to act as sales agent for a period of thirty (30) days from same date, and Exhibit "M," a Letter dated November 16, 1976 signed by
petitioner de los Reyes, naming four (4) other prospective buyers, respectively; and (2) to obtain from us a categorical ruling that a broker is
automatically entitled to the stipulated commission merely upon securing for, and introducing to, the seller the particular buyer who ultimately purchases
from the former the object of the sale, regardless of the expiration of the broker's contract of agency and authority to sell.
Before we proceed to address petitioners' objectives, there is a need to unfold the facts of the case. For that purpose, we quote hereunder the
findings of fact of the Court of Appeals with which petitioners agree, except as to the respondent appellate court's non-inclusion of the aforementioned
Exhibits "L" and "M":
"From the evidence, the following facts appear undisputed: On September 16, 1975, defendant corporation thru its co-defendant Assistant General
Manager J. Armando Eduque, granted to plaintiffs a 30-day authority to sell its x x x 9,800 shares of stock in Architects' Bldg., Inc. as follows:
'September 16, 1975
TO WHOM IT MAY CONCERN:
This is to authorize Mr. R.M. de los Reyes, representing Inland Realty, to sell on a first come first served basis the total holdings of Gregorio Araneta, Inc.
in Architects' [Bldg.], Inc. equivalent to 98% or 9,800 shares of stock at the price of P1,500.00 per share for a period of 30 days.
(SGD.) J. ARMANDO EDUQUE
Asst. General Manager'
Plaintiff Inland Realty Investment Service, Inc. (Inland Realty for short) is a corporation engaged [in], among others x x x the real estate business [and]
brokerages, duly licensed by the Bureau of Domestic Trade x x x. [Inland Realty] planned their sales campaign, sending proposal letters to prospective
buyers. One such prospective buyer to whom a proposal letter was sent to was Stanford Microsystems, Inc. x x x [that] counter-proposed to buy 9,800
shares offered at P1,000.00 per share or for a total of P9,800,000.00, P4,900,000.00 payable in five years at 12% per annum interest until fully paid.
Upon plaintiffs' receipt of the said counter-proposal, it immediately [sic] wrote defendant a letter to register Stanford Microsystems, Inc. as one of its
prospective buyers x x x. Defendant Araneta, Inc., thru its Assistant General Manager J. Armando Eduque, replied that the price offered by Stanford was
too low and suggested that plaintiffs see if the price and terms of payment can be improved upon by Stanford x x x. Other prospective buyers were
submitted to defendants among whom were Atty. Maximo F. Belmonte and Mr. Joselito Hernandez. The authority to sell given to plaintiffs by defendants
was extended several times: the first being on October 2, 1975, for 30 days from said date (Exh. 'J'), the second on October 28, 1975 for 30 days from
said date (Exh. 'L') and on December 2, 1975 for 30 days from said date (Exh. 'K').

Plaintiff Roman de los Reyes, manager of Inland Realty's brokerage division, who by contract with Inland Realty would be entitled to 1/2 of the claim
asserted herein, testified that when his company was initially granted the authority to sell, he asked for an exclusive authority and for a longer period but
Armando Eduque would not give, but according to this witness, the life of the authority could always be extended for the purpose of negotiation that
would be continuing.
On July 8, 1977, plaintiffs finally sold the 9,800 shares of stock [in] Architects' [Bldg.], Inc. to Stanford Microsystems, Inc. for P13,500,000.00 x x x.
On September 6, 1977, plaintiffs demanded formally [from] defendants, through a letter of demand, for payment of their 5% broker['s] commission
at P13,500,000.00 or a total amount of P675,000.00 x x x which was declined by [defendants] on the ground that the claim has no factual or legal
basis."[4]
Ascribing merit to private respondents' defense that, after their authority to sell expired thirty (30) days from December 2, 1975, or on January 1,
1976, petitioners abandoned the sales transaction and were no longer privy to the consummation and documentation thereof, the trial court dismissed
petitioners' complaint for collection of unpaid broker's commission.
Petitioners appealed, but the Court of Appeals was unswayed in the face of evidence of the expiration of petitioners' agency contract and authority
to sell on January 1, 1976 and the consummation of the sale to Stanford on July 8, 1977 or more than one (1) year and five (5) months after petitioners'
agency contract and authority to sell expired. Respondent appellate court dismissed petitioners' appeal in this wise:
" x x x The resolution would seem to hinge on the question of whether plaintiff was instrumental in the final consummation of the sale to Stanford which
was the same name of the company submitted to defendants as a prospective buyer although their price was considered by defendant to be too low and
defendants wrote to plaintiff if the price may be improved upon by Stanford x x x. This was on October 13, 1975. After that, there was an extension for 30
days from October 28, 1975 of the authority (Exh. 'L') and another on December 2, 1975 for another 30 days from the said date x x x. x x x There is
nothing in the record or in the testimonial evidence that the authority extended 30 days from the last date of extension was ever reserved nor extended,
nor has there been any communication made to defendants that the plaintiff was actually negotiating with Stanford a better price than what was
previously offered by it x x x.
In fact there was no longer any agency after the last extension. Certainly, the length of time which had transpired from the date of last extension of
authority to the final consummation of the sale with Stanford of about one (1) year and five (5) months without any communication at all from plaintiffs to
defendants with respect to the suggestion of defendants that Stanford's offer was too low and suggested if plaintiffs may make it better. We have a case
of proposal and counter-proposal which would not constitute a definite closing of the transaction just because it was plaintiff who solely suggested to
defendants the name of Stanford as buyer x x x."[5]
Unable to accept the dismissal of its claim for unpaid broker's commission, petitioners filed the instant petition for review asking us (1) to pass
upon the factual issue of the alleged extension of their agency contract and authority to sell and (2) to rule in favor of a broker's automatic entitlement to
the stipulated commission merely upon securing for, and introducing to, the seller, the particular buyer who ultimately purchases from the former the
object of the sale, regardless of the expiration of the broker's contract of agency and authority to sell.
We find for private respondents.
I
Petitioners take exception to the finding of the respondent Court of Appeals that their contract of agency and authority to sell expired thirty (30)
days from its last renewal on December 2, 1975. They insist that, in the Letter dated October 28, 1976, Gregorio Araneta III, in behalf of Araneta, Inc.,
renewed petitioner Inland Realty's authority to act as agent to sell the former's 9,800 shares in Architects' for another thirty (30) days from same
date. This Letter dated October 28, 1976, petitioners claim, was marked as Exhibit "L" during the trial proceedings before the trial court.
This claim is a blatant lie. In the first place, petitioners have conspicuously failed to attach a certified copy of this Letter dated October 28,
1976. They have, in fact, not attached even a machine copy thereof. All they gave this court is their word that said Letter dated October 28, 1976 does
exist, and on that basis, they expect us to accordingly rule in their favor.
Such naivety, this court will not tolerate. We will not treat lightly petitioners' attempt to mislead this court by claiming that the Letter dated October
28, 1976 was marked as Exhibit "L" by the trial court, when the truth is that the trial court marked as Exhibit "L", and the respondent Court of Appeals
considered as Exhibit "L," private respondent Araneta, Inc.'s Letter dated October 28, 1975, not 1976. Needless to say, this blatant attempt to mislead
this court, is contemptuous conduct that we sternly condemn.
II
The Letter dated November 16, 1976, claimed by petitioners to have been marked as Exhibit "M", has no probative value, considering that its very
existence remains under a heavy cloud of doubt and that hypothetically assuming its existence, its alleged content, namely, a listing of four (4) other
prospective buyers, does not at all prove that the agency contract and authority to sell in favor of petitioners was renewed or revived after it expired on
January 1, 1976. As in the case of the Letter dated October 28, 1976, petitioners have miserably failed to attach any copy of the Letter dated November
16, 1976. A copy thereof would not help petitioners' failing cause, anyway, especially considering that said letter was signed by petitioner De los Reyes
and would therefore take on the nature of a self-serving document that has no evidentiary value insofar as petitioners are concerned.
III
Finally, petitioners asseverate that, regardless of whether or not their agency contract and authority to sell had expired, they are automatically
entitled to their broker's commission merely upon securing for and introducing to private respondent Araneta, Inc. the buyer in the person of Stanford
which ultimately acquired ownership over Araneta, Inc.'s 9,800 shares in Architects'.
Petitioners' asseverations are devoid of merit.
It is understandable, though, why petitioners have resorted to a campaign for an automatic and blanket entitlement to brokerage commission upon
doing nothing but submitting to private respondent Araneta, Inc., the name of Stanford as prospective buyer of the latter's shares in Architects'. Of course
petitioners would advocate as such because precisely petitioners did nothing but submit Stanford's name as prospective buyer. Petitioners did not

succeed in outrightly selling said shares under the predetermined terms and conditions set out by Araneta, Inc., e.g., that the price per share
is P1,500.00. They admit that they could not dissuade Stanford from haggling for the price of P1,000.00 per share with the balance of 50% of the total
purchase price payable in five (5) years at 12% interest per annum. From September 16, 1975 to January 1, 1976, when petitioners' authority to sell was
subsisting, if at all, petitioners had nothing to show that they actively served their principal's interests, pursued to sell the shares in accordance with their
principal's terms and conditions, and performed substantial acts that proximately and causatively led to the consummation of the sale to Stanford of
Araneta, Inc.'s 9,800 shares in Architects'.
The Court of Appeals cannot be faulted for emphasizing the lapse of more than one (1) year and five (5) months between the expiration of
petitioners' authority to sell and the consummation of the sale to Stanford, to be a significant index of petitioners' non-participation in the really critical
events leading to the consummation of said sale, i.e., the negotiations to convince Stanford to sell at Araneta, Inc.'s asking price, the finalization of the
terms and conditions of the sale, the drafting of the deed of sale, the processing of pertinent documents, and the delivery of the shares of stock to
Stanford. Certainly, when the lapse of the period of more than one (1) year and five (5) months between the expiration of petitioners' authority to sell and
the consummation of the sale, is viewed in the context of the utter lack of evidence of petitioners' involvement in the negotiations between Araneta, Inc.
and Stanford during that period and in the subsequent processing of the documents pertinent to said sale, it becomes undeniable that the respondent
Court of Appeals did not at all err in affirming the trial court's dismissal of petitioners' claim for unpaid brokerage commission.
Petitioners were not the efficient procuring cause[6] in bringing about the sale in question on July 8, 1977 and are, therefore, not entitled to the
stipulated broker's commission of "5% on the total price."
WHEREFORE, the instant petition is HEREBY DISMISSED.
Costs against petitioners.
SO ORDERED.

Agency is a preparatory contract

FIRST DIVISION
G.R. No. 149353

June 26, 2006

JOCELYN B. DOLES, Petitioner,

vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning the Decision 1dated April 30, 2001 of the Court of
Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed the Decision dated July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of Manila;
and the CA Resolution2 dated August 6, 2001 which denied petitioners Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific Performance with Damages against Jocelyn B. Doles
(petitioner), docketed as Civil Case No. 97-82716. Respondent alleged that petitioner was indebted to the former in the concept of a personal loan
amounting to P405,430.00 representing the principal amount and interest; that on October 5, 1996, by virtue of a "Deed of Absolute Sale", 3petitioner, as
seller, ceded to respondent, as buyer, a parcel of land, as well as the improvements thereon, with an area of 42 square meters, covered by Transfer
Certificate of Title No. 382532,4 and located at a subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite, in order to satisfy her
personal loan with respondent; that this property was mortgaged to National Home Mortgage Finance Corporation (NHMFC) to secure petitioners loan
in the sum of P337,050.00 with that entity; that as a condition for the foregoing sale, respondent shall assume the undue balance of the mortgage and
pay the monthly amortization of P4,748.11 for the remainder of the 25 years which began on September 3, 1994; that the property was at that time being
occupied by a tenant paying a monthly rent of P3,000.00; that upon verification with the NHMFC, respondent learned that petitioner had incurred
arrearages amounting to P26,744.09, inclusive of penalties and interest; that upon informing the petitioner of her arrears, petitioner denied that she
incurred them and refused to pay the same; that despite repeated demand, petitioner refused to cooperate with respondent to execute the necessary
documents and other formalities required by the NHMFC to effect the transfer of the title over the property; that petitioner collected rent over the property
for the month of January 1997 and refused to remit the proceeds to respondent; and that respondent suffered damages as a result and was forced to
litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint, denied that she borrowed money from respondent, and averred that from
June to September 1995, she referred her friends to respondent whom she knew to be engaged in the business of lending money in exchange for
personal checks through her capitalist Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio, Virginia
Jacob, and Elizabeth Tomelden, borrowed money from respondent and issued personal checks in payment of the loan; that the checks bounced for
insufficiency of funds; that despite her efforts to assist respondent to collect from the borrowers, she could no longer locate them; that, because of this,
respondent became furious and threatened petitioner that if the accounts were not settled, a criminal case will be filed against her; that she was forced
to issue eight checks amounting to P350,000 to answer for the bounced checks of the borrowers she referred; that prior to the issuance of the checks
she informed respondent that they were not sufficiently funded but the latter nonetheless deposited the checks and for which reason they were
subsequently dishonored; that respondent then threatened to initiate a criminal case against her for violation of Batas Pambansa Blg. 22; that she was
forced by respondent to execute an "Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid criminal prosecution; that the said deed had no
valid consideration; that she did not appear before a notary public; that the Community Tax Certificate number on the deed was not hers and for which
respondent may be prosecuted for falsification and perjury; and that she suffered damages and lost rental as a result.

The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid; second; if valid, whether petitioner is obliged to sign and
execute the necessary documents to effect the transfer of her rights over the property to the respondent; and third, whether petitioner is liable for
damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint for insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration:5
Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and further admission that the checks issued by these borrowers in
payment of the loan obligation negates [sic] the cause or consideration of the contract of sale executed by and between plaintiff and defendant.
Moreover, the property is not solely owned by defendant as appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532 (Annex A, Complaint),
thus:
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of Teodorico Doles on the parcel of land described in this
certificate of title by virtue of the special power of attorney to mortgage, executed before the notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration produce no effect whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed her sole assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE DEED OF SALE BETWEEN THE PARTIES HAS NO
CONSIDERATION OR INSUFFICIENCY OF EVIDENCE. 6
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of the lower court dated July 29, 1998 is REVERSED
and SET ASIDE. A new one is entered ordering defendant-appellee to execute all necessary documents to effect transfer of subject property to plaintiffappellant with the arrearages of the formers loan with the NHMFC, at the latters expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount borrowed from the respondent to her friends. Hence, the
Deed of Absolute Sale was supported by a valid consideration, which is the sum of money petitioner owed respondent amounting to P405,430.00,
representing both principal and interest.
The CA took into account the following circumstances in their entirety: the supposed friends of petitioner never presented themselves to respondent and
that all transactions were made by and between petitioner and respondent;7 that the money borrowed was deposited with the bank account of the
petitioner, while payments made for the loan were deposited by the latter to respondents bank account; 8 that petitioner herself admitted in open court
that she was "re-lending" the money loaned from respondent to other individuals for profit;9 and that the documentary evidence shows that the actual
borrowers, the friends of petitioner, consider her as their creditor and not the respondent.10
Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate consent, since the same is considered just or legal if made
to enforce ones claim through competent authority under Article 133511of the Civil Code;12 that with respect to the arrearages of petitioner on her monthly
amortization with the NHMFC in the sum of P26,744.09, the same shall be deemed part of the balance of petitioners loan with the NHMFC which
respondent agreed to assume; and that the amount of P3,000.00 representing the rental for January 1997 supposedly collected by petitioner, as well as
the claim for damages and attorneys fees, is denied for insufficiency of evidence.13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that respondent categorically admitted in open court that she
acted only as agent or representative of Arsenio Pua, the principal financier and, hence, she had no legal capacity to sue petitioner; and that the CA
failed to consider the fact that petitioners father, who co-owned the subject property, was not impleaded as a defendant nor was he indebted to the
respondent and, hence, she cannot be made to sign the documents to effect the transfer of ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001, petitioner filed the present Petition and raised the following
issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD
DIRECTLY COLLECT PAYMENT FROM THE DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14

Although, as a rule, it is not the business of this Court to review the findings of fact made by the lower courts, jurisprudence has recognized several
exceptions, at least three of which are present in the instant case, namely: when the judgment is based on a misapprehension of facts; when the
findings of facts of the courts a quo are conflicting; and when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if
properly considered, could justify a different conclusion. 15 To arrive at a proper judgment, therefore, the Court finds it necessary to re-examine the
evidence presented by the contending parties during the trial of the case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration.
1. Petitioner argues that since she is merely the agent or representative of the alleged debtors, then she is not a party to the loan; and that the Deed of
Sale executed between her and the respondent in their own names, which was predicated on that pre-existing debt, is void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain in money 16 and that this sum indisputably
pertains to the debt in issue. This Court has consistently held that a contract of sale is null and void and produces no effect whatsoever where the same
is without cause or consideration.17 The question that has to be resolved for the moment is whether this debt can be considered as a valid cause or
consideration for the sale.
To restate, the CA cited four instances in the record to support its holding that petitioner "re-lends" the amount borrowed from respondent to her friends:
first, the friends of petitioner never presented themselves to respondent and that all transactions were made by and between petitioner and
respondent;18 second; the money passed through the bank accounts of petitioner and respondent;19 third, petitioner herself admitted that she was "relending" the money loaned to other individuals for profit;20 and fourth, the documentary evidence shows that the actual borrowers, the friends of
petitioner, consider her as their creditor and not the respondent.21
On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant, during her cross-examination: 22
Atty. Diza:
q. You also mentioned that you were not the one indebted to the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are your
friends?
witness:
a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were just referred.
Atty. Diza:
q. And you have transact[ed] with the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. What is that transaction?
witness:
a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.
Atty. Diza:
q. Did the plaintiff personally see the transactions with your friends?
witness:
a. No, sir.
Atty. Diza:
q. Your friends and the plaintiff did not meet personally?
witness:

a. Yes, sir.
Atty. Diza:
q. You are intermediaries?
witness:
a. We are both intermediaries. As evidenced by the checks of the debtors they were deposited to the name of Arsenio Pua because the money
came from Arsenio Pua.
xxxx
Atty. Diza:
q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the one you mentioned [a] while ago?
witness:
a. Yes, she knows the money will go to those persons.
Atty. Diza:
q. You are re-lending the money?
witness:
a. Yes, sir.
Atty. Diza:
q. What profit do you have, do you have commission?
witness:
a. Yes, sir.
Atty. Diza:
q. How much?
witness:
a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends none, sir.
Based on the foregoing, the CA concluded that petitioner is the real borrower, while the respondent, the real lender.
But as correctly noted by the RTC, respondent, then plaintiff, made the following admission during her cross examination: 23
Atty. Villacorta:
q. Who is this Arsenio Pua?
witness:
a. Principal financier, sir.
Atty. Villacorta:
q. So the money came from Arsenio Pua?
witness:
a. Yes, because I am only representing him, sir.
Other portions of the testimony of respondent must likewise be considered:24
Atty. Villacorta:
q. So it is not actually your money but the money of Arsenio Pua?

witness:
a. Yes, sir.
Court:
q. It is not your money?
witness:
a. Yes, Your Honor.
Atty. Villacorta:
q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate somebody, are you aware of that?
witness:
a. I am aware of that.
Atty. Villacorta:
q. More or less she [accommodated] several friends of the defendant?
witness:
a. Yes, sir, I am aware of that.
xxxx
Atty. Villacorta:
q. And these friends of the defendant borrowed money from you with the assurance of the defendant?
witness:
a. They go direct to Jocelyn because I dont know them.
xxxx
Atty. Villacorta:
q. And is it not also a fact Madam witness that everytime that the defendant borrowed money from you her friends who [are] in need of money
issued check[s] to you? There were checks issued to you?
witness:
a. Yes, there were checks issued.
Atty. Villacorta:
q. By the friends of the defendant, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of your assistance, the friends of the defendant who are in need of money were able to obtain loan to [sic] Arsenio Pua
through your assistance?
witness:
a. Yes, sir.
Atty. Villacorta:
q. So that occasion lasted for more than a year?

witness:
a. Yes, sir.
Atty. Villacorta:
q. And some of the checks that were issued by the friends of the defendant bounced, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of that Arsenio Pua got mad with you?
witness:
a. Yes, sir.
Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her disclosed principal. She is also estopped to deny that
petitioner acted as agent for the alleged debtors, the friends whom she (petitioner) referred.
This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is representation.25 The question of whether an agency has been
created is ordinarily a question which may be established in the same way as any other fact, either by direct or circumstantial evidence. The question is
ultimately one of intention.26Agency may even be implied from the words and conduct of the parties and the circumstances of the particular
case.27 Though the fact or extent of authority of the agents may not, as a general rule, be established from the declarations of the agents alone, if one
professes to act as agent for another, she may be estopped to deny her agency both as against the asserted principal and the third persons interested in
the transaction in which he or she is engaged.28
In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that the borrowers are friends of petitioner.
The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the actual borrowers, did not present themselves to
[respondent]" as evidence that negates the agency relationshipit is sufficient that petitioner disclosed to respondent that the former was acting in
behalf of her principals, her friends whom she referred to respondent. For an agency to arise, it is not necessary that the principal personally encounter
the third person with whom the agent interacts. The law in fact contemplates, and to a great degree, impersonal dealings where the principal need not
personally know or meet the third person with whom her agent transacts: precisely, the purpose of agency is to extend the personality of the principal
through the facility of the agent.29
In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they are representing someone else, and so both of
them are estopped to deny the same. It is evident from the record that petitioner merely refers actual borrowers and then collects and disburses the
amounts of the loan upon which she received a commission; and that respondent transacts on behalf of her "principal financier", a certain Arsenio Pua. If
their respective principals do not actually and personally know each other, such ignorance does not affect their juridical standing as agents, especially
since the very purpose of agency is to extend the personality of the principal through the facility of the agent.
With respect to the admission of petitioner that she is "re-lending" the money loaned from respondent to other individuals for profit, it must be stressed
that the manner in which the parties designate the relationship is not controlling. If an act done by one person in behalf of another is in its essential
nature one of agency, the former is the agent of the latter notwithstanding he or she is not so called.30 The question is to be determined by the fact that
one represents and is acting for another, and if relations exist which will constitute an agency, it will be an agency whether the parties understood the
exact nature of the relation or not.31
That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner issued checks in payment of the loan in the name of
Pua. If it is true that petitioner was "re-lending", then the checks should have been drawn in her name and not directly paid to Pua.
With respect to the second point, particularly, the finding of the CA that the disbursements and payments for the loan were made through the bank
accounts of petitioner and respondent,
suffice it to say that in the normal course of commercial dealings and for reasons of convenience and practical utility it can be reasonably expected that
the facilities of the agent, such as a bank account, may be employed, and that a sub-agent be appointed, such as the bank itself, to carry out the task,
especially where there is no stipulation to the contrary.32
In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan between their principals. Since the sale is
predicated on that loan, then the sale is void for lack of consideration.
2. A further scrutiny of the record shows, however, that the sale might have been backed up by another consideration that is separate and distinct from
the debt: respondent averred in her complaint and testified that the parties had agreed that as a condition for the conveyance of the property the
respondent shall assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC. 33 This Court in the recent past has declared
that an assumption of a mortgage debt may constitute a valid consideration for a sale.34
Although the record shows that petitioner admitted at the time of trial that she owned the property described in the TCT,35 the Court must stress that the
Transfer Certificate of Title No. 38253236 on its face shows that the owner of the property which admittedly forms the subject matter of the Deed of
Absolute Sale refers neither to the petitioner nor to her father, Teodorico Doles, the alleged co-owner. Rather, it states that the property is registered in
the name of "Household Development Corporation." Although there is an entry to the effect that the petitioner had been granted a special power of
attorney "covering the shares of Teodorico Doles on the parcel of land described in this certificate,"37 it cannot be inferred from this bare notation, nor
from any other evidence on the record, that the petitioner or her father held any direct interest on the property in question so as to validly constitute a

mortgage thereon38 and, with more reason, to effect the delivery of the object of the sale at the consummation stage.39 What is worse, there is a notation
that the TCT itself has been "cancelled."40
In view of these anomalies, the Court cannot entertain the
possibility that respondent agreed to assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC, especially since the
record is bereft of any factual finding that petitioner was, in the first place, endowed with any ownership rights to validly mortgage and convey the
property. As the complainant who initiated the case, respondent bears the burden of proving the basis of her complaint. Having failed to discharge such
burden, the Court has no choice but to declare the sale void for lack of cause. And since the sale is void, the Court finds it unnecessary to dwell on the
issue of whether duress or intimidation had been foisted upon petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation that the mortgage with the NHMFC was for 25 years
which began September 3, 1994. Respondent filed her Complaint for Specific Performance in 1997. Since the 25 years had not lapsed, the prayer of
respondent to compel petitioner to execute necessary documents to effect the transfer of title is premature.
WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals are REVERSED andSET ASIDE. The complaint of
respondent in Civil Case No. 97-82716 is DISMISSED.
SO ORDERED.

Agency differentiated from management agreement

EN BANC
G.R. No. L-8169

January 29, 1957

THE SHELL COMPANY OF THE PHILIPPINES, LTD., petitioner,

vs.
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY COMMERCIAL CASUALTY INSURANCE CO., SALVADOR SISON, PORFIRIO
DE LA FUENTE and THE COURT OF APPEALS (First Division),respondents.
Ross, Selph, Carrascoso & Janda for petitioner.
J. A. Wolfson and Manuel Y. Macias for respondents.
PADILLA, J.:
Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals which reversed that of the Court of First Instance of Manila and
sentenced ". . . the defendants-appellees to pay, jointly and severally, the plaintiffs-appellants the sum of P1,651.38, with legal interest from December 6,
1947 (Gutierrez vs. Gutierrez, 56 Phil., 177, 180), and the costs in both instances."
The Court of Appeals found the following:
Inasmuch as both the Plaintiffs-Appellants and the Defendant-Appellee, the Shell Company of the Philippine Islands, Ltd. accept the statement
of facts made by the trial court in its decision and appearing on pages 23 to 37 of the Record on Appeal, we quote hereunder such statement:
This is an action for recovery of sum of money, based on alleged negligence of the defendants.
It is a fact that a Plymounth car owned by Salvador R. Sison was brought, on September 3, 1947 to the Shell Gasoline and Service Station,
located at the corner of Marques de Comillas and Isaac Peral Streets, Manila, for washing, greasing and spraying. The operator of the station,
having agreed to do service upon payment of P8.00, the car was placed on a hydraulic lifter under the direction of the personnel of the station.
What happened to the car is recounted by Perlito Sison, as follows:
Q. Will you please describe how they proceeded to do the work?
A. Yes, sir. The first thing that was done, as I saw, was to drive the car over the lifter. Then by the aid of the two grease men they
raised up my car up to six feet high, and then washing was done. After washing, the next step was greasing. Before greasing was
finished, there is a part near the shelf of the right fender, right front fender, of my car to be greased, but the the grease men cannot
reached that part, so the next thing to be done was to loosen the lifter just a few feet lower. Then upon releasing the valve to make
the car lower, a little bit lower . . .
Q. Who released the valve?
A. The greasemen, for the escape of the air. As the escape of the air is too strong for my ear I faced backward. I faced toward Isaac
Peral Street, and covered my ear. After the escaped of the air has been finished, the air coming out from the valve, I turned to face
the car and I saw the car swaying at that time, and just for a few second the car fell., (t.s.n. pp. 22-23.)
The case was immediately reported to the Manila Adjustor Company, the adjustor of the firemen's Insurance Company and the Commercial Casualty
Insurance Company, as the car was insured with these insurance companies. After having been inspected by one Mr. Baylon, representative of the
Manila Adjustor Company, the damaged car was taken to the shops of the Philippine Motors, Incorporated, for repair upon order of the Firemen's
Insurance Company and the Commercial Casualty Company, with the consent of Salvador R. Sison. The car was restored to running condition after

repairs amounting to P1,651.38, and was delivered to Salvador R. Sison, who, in turn made assignments of his rights to recover damages in favor of the
Firemen's Insurance Company and the Commercial Casualty Insurance Company.
On the other hand, the fall of the car from the hydraulic lifter has been explained by Alfonso M. Adriano, a greaseman in the Shell Gasoline
and Service Station, as follows:
Q. Were you able to lift the car on the hydraulic lifter on the occasion, September 3, 1947?
A. Yes, sir.
Q. To what height did you raise more or less?
A. More or less five feet, sir.
Q. After lifting that car that height, what did you do with the car?
A. I also washed it, sir.
Q. And after washing?
A. I greased it.
Q. On that occasion, have you been able to finish greasing and washing the car?
A. There is one point which I could not reach.
Q. And what did you do then?
A. I lowered the lifter in order to reach that point.
Q. After lowering it a little, what did you do then?
A. I pushed and pressed the valve in its gradual pressure.
Q. Were you able to reach the portion which you were not able to reach while it was lower?
A. No more, sir.
Q. Why?
A. Because when I was lowering the lifter I saw that the car was swinging and it fell.
THE COURT. Why did the car swing and fall?
WITNESS: 'That is what I do not know, sir'. (t.s.n., p.67.)
The position of Defendant Porfirio de la Fuente is stated in his counter-statement of facts which is hereunder also reproduced:
In the afternoon of September 3, 1947, an automobile belonging to the plaintiff Salvador Sison was brought by his son, Perlito Sison, to the
gasoline and service station at the corner of Marques de Comillas and Isaac Peral Streets, City of Manila, Philippines, owned by the defendant
The Shell Company of the Philippine Islands, Limited, but operated by the defendant Porfirio de la Fuente, for the purpose of having said car
washed and greased for a consideration of P8.00 (t.s.n., pp. 19-20.) Said car was insured against loss or damage by Firemen's Insurance
Company of Newark, New Jersey, and Commercial Casualty Insurance Company jointly for the sum of P10,000 (Exhibits "A', "B", and "D").
The job of washing and greasing was undertaken by defendant Porfirio de la Fuente through his two employees, Alfonso M. Adriano, as
greaseman and one surnamed de los Reyes, a helper and washer (t.s.n., pp. 65-67). To perform the job the car was carefully and centrally
placed on the platform of the lifter in the gasoline and service station aforementioned before raising up said platform to a height of about 5 feet
and then the servicing job was started. After more than one hour of washing and greasing, the job was about to be completed except for an
ungreased portion underneath the vehicle which could not be reached by the greasemen. So, the lifter was lowered a little by Alfonso M.
Adriano and while doing so, the car for unknown reason accidentally fell and suffered damage to the value of P1, 651.38 (t.s.n., pp. 65-67).
The insurance companies after paying the sum of P1,651.38 for the damage and charging the balance of P100.00 to Salvador Sison in
accordance with the terms of the insurance contract, have filed this action together with said Salvador Sison for the recovery of the total
amount of the damage from the defendants on the ground of negligence (Record on Appeal, pp. 1-6).
The defendant Porfirio de la Fuente denied negligence in the operation of the lifter in his separate answer and contended further that the
accidental fall of the car was caused by unforseen event (Record on Appeal, pp. 17-19).
The owner of the car forthwith notified the insurers who ordered their adjustor, the Manila Adjustor Company, to investigate the incident and after such
investigation the damaged car, upon order of the insures and with the consent of the owner, was brought to the shop of the Philippine Motors, Inc. The
car was restored to running condition after thereon which amounted to P1,651.38 and returned to the owner who assigned his right to collect the
aforesaid amount to the Firemen's Insurance Company and the Commercial Casualty Insurance Company.

On 6 December 1947 the insures and the owner of the car brought an action in the Court of First Instance of Manila against the Shell Company of the
Philippines, Ltd. and Porfirio de la Fuente to recover from them, jointly and severally, the sum of P1,651.38, interest thereon at the legal rate from the
filing of the complaint until fully paid, the costs. After trial the Court dismissed the complaint. The plaintiffs appealed. The Court of Appeals reversed the
judgment and sentenced the defendant to pay the amount sought to be recovered, legal interest and costs, as stated at the beginning of this opinion.
In arriving at the conclusion that on 3 September 1947 when the car was brought to the station for servicing Profirio de la Fuente, the operator of the
gasoline and service station, was an agent of the Shell Company of the Philippines, Ltd., the Court of Appeals found that
. . . De la Fuente owned his position to the Shell Company which could remove him terminate his services at any time from the said Company,
and he undertook to sell the Shell Company's products exculusively at the said Station. For this purpose, De la Fuente was placed in
possession of the gasoline and service station under consideration, and was provided with all the equipments needed to operate it, by the said
Company, such as the tools and articles listed on Exhibit 2 which the hydraulic lifter (hoist) and accessories, from which Sison's automobile fell
on the date in question (Exhibit 1 and 2). These equipments were delivered to De la Fuente on a so-called loan basis. The Shell Company
took charge of its care and maintenance and rendered to the public or its customers at that station for the proper functioning of the equipment.
Witness Antonio Tiongson, who was sales superintendent of the Shell Company, and witness Augusto Sawyer, foreman of the same
Company, supervised the operators and conducted periodic inspection of the Company's gasoline and service station, the service station in
question inclusive. Explaining his duties and responsibilities and the reason for the loan, Tiongson said: "mainly of the supervision of sales or
(of) our dealers and rountinary inspection of the equipment loaned by the Company" (t.s.n., 107); "we merely inquire about how the
equipments are, whether they have complaints, and whether if said equipments are in proper order . . .", (t.s.n., 110); station equipments are
"loaned for the exclusive use of the dealer on condition that all supplies to be sold by said dealer should be exclusively Shell, so as a
concession we loan equipments for their use . . .," "for the proper functioning of the equipments, we answer and see to it that the equipments
are in good running order usable condition . . .," "with respect to the public." (t.s.n., 111-112). De la Fuente, as operator, was given special
prices by the Company for the gasoline products sold therein. Exhibit 1 Shell, which was a receipt by Antonio Tiongson and signed by the
De la Fuente, acknowledging the delivery of equipments of the gasoline and service station in question was subsequently replaced by Exhibit
2 Shell, an official from of the inventory of the equipment which De la Fuente signed above the words: "Agent's signature" And the service
station in question had been marked "SHELL", and all advertisements therein bore the same sign. . . .
. . . De la Fuente was the operator of the station "by grace" of the Defendant Company which could and did remove him as it pleased; that all
the equipments needed to operate the station was owned by the Defendant Company which took charge of their proper care and
maintenance, despite the fact that they were loaned to him; that the Defendant company did not leave the fixing of price for gasoline to De la
Fuente; on the other hand, the Defendant company had complete control thereof; and that Tiongson, the sales representative of the
Defendant Company, had supervision over De la Fuente in the operation of the station, and in the sale of Defendant Company's products
therein. . . .
Taking into consideration the fact that the operator owed his position to the company and the latter could remove him or terminate his services at will;
that the service station belonged to the company and bore its tradename and the operator sold only the products of the company; that the equipment
used by the operator belonged to the company and were just loaned to the operator and the company took charge of their repair and maintenance; that
an employee of the company supervised the operator and conducted periodic inspection of the company's gasoline and service station; that the price of
the products sold by the operator was fixed by the company and not by the operator; and that the receipt signed by the operator indicated that he was a
mere agent, the finding of the Court of Appeals that the operator was an agent of the company and not an independent contractor should not be
disturbed.
To determine the nature of a contract courts do not have or are not bound to rely upon the name or title given it by the contracting parties, should there
be a controversy as to what they really had intended to enter into, but the way the contracting parties do or perform their respective obligation stipulated
or agreed upon may be shown and inquired into, and should such performance conflict with the name or title given the contract by the parties, the former
must prevail over the latter.
It was admitted by the operator of the gasoline and service station that "the car was carefully and centrally placed on the platform of the lifter . . ." and
the Court of Appeals found that
. . . the fall of Appellant Sison's car from the hydraulic lift and the damage caused therefor, were the result of the jerking and swaying of the lift
when the valve was released, and that the jerking was due to some accident and unforeseen shortcoming of the mechanism itself, which
caused its faulty or defective operation or functioning,
. . . the servicing job on Appellant Sison's automobile was accepted by De la Fuente in the normal and ordinary conduct of his business as
operator of his co-appellee's service station, and that the jerking and swaying of the hydraulic lift which caused the fall of the subject car were
due to its defective condition, resulting in its faulty operation. . . .
As the act of the agent or his employees acting within the scope of his authority is the act of the principal, the breach of the undertaking by the agent is
one for which the principal is answerable. Moreover, the company undertook to "answer and see to it that the equipments are in good running order and
usable condition;" and the Court of Appeals found that the Company's mechanic failed to make a thorough check up of the hydraulic lifter and the check
up made by its mechanic was "merely routine" by raising "the lifter once or twice and after observing that the operator was satisfactory, he (the
mechanic) left the place." The latter was negligent and the company must answer for the negligent act of its mechanic which was the cause of the fall of
the car from the hydraulic lifter.
The judgment under review is affirmed, with costs against the petitioner.

Agency differentiated from sale

EN BANC
G.R. No. L-11491

August 23, 1918

ANDRES QUIROGA, plaintiff-appellant,

vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.
AVANCEA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J.
Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN
MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same
price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as
commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the
vessel at the point where the beds are received, shall be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt
payment, and as such a deduction of 2 per cent shall be made from the amount of the invoice.
The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to
his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such
order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby
be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.
ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself
obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the
exclusive agency for any island not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where
there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety
days to the other party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter of this appeal and both substantially
amount to the averment that the defendant violated the following obligations: not to sell the beds at higher prices than those of the invoices; to have an
open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same;
and to order the beds by the dozen and in no other manner. As may be seen, with the exception of the obligation on the part of the defendant to order
the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the
contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of
commercial agency. The whole question, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract hereinbefore
transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was essential, as constituting its cause
and subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the
defendant was to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in
Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at the plaintiff's
request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are
precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the
part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent
received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if
he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was
necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the
beds.
It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that
it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each other. But,
besides, examining the clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a single one of these
clauses necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as stated in the
contract itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only
one that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not
incompatible with the contract of purchase and sale.

The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation and who established and managed the
latter's business in Iloilo. It appears that this witness, prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit
against it, and had even accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A,
and, when questioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a
commission on sales. However, according to the defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared Exhibit
A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in contracting with the plaintiff is of no importance,
inasmuch as the agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and
not one of commercial agency. This only means that Ernesto Vidal was mistaken in his classification of the contract. But it must be understood that a
contract is what the law defines it to be, and not what it is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without previous notice, it forwarded to the
defendant the beds that it wanted; and that the defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But all
this, at the most only shows that, on the part of both of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and
it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties,
subsequent to, and in connection with, the execution of the contract, must be considered for the purpose of interpreting the contract, when such
interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs
to a certain kind and not to another. Furthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid for
them, but was for other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds, which shows
that it was not considered that the defendant had a right, by virtue of the contract, to make this return. As regards the shipment of beds without previous
notice, it is insinuated in the record that these brass beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their
return. And with respect to the so-called commissions, we have said that they merely constituted a discount on the invoice price, and the reason for
applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the
expenses of advertisement of the plaintiff's beds, such sales were to be considered as a result of that advertisement.
In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle
the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right
and cannot complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the
obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So ordered.

Agency differentiated from broker

THIRD DIVISION
G.R. No. 75198 October 18, 1988
SCHMID & OBERLY, INC., petitioner,
vs.
RJL MARTINEZ FISHING CORPORATION, respondent.
Sycip Salazar Hernandez & Gatmaitan Law Office for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for respondent.

CORTES, J.:
Petitioner seeks reversal of the decision and the resolution of the Court of Appeals, ordering Schmid & Oberly Inc. (hereafter to be referred to simply as
"SCHMID") to refund the purchase price paid by RJL Martinez Fishing Corporation (hereafter to be referred to simply as "RJL MARTINEZ") to D. Nagata
Co., Ltd. of Japan (hereafter to be referred to simply as NAGATA CO.") for twelve (12) defective "Nagata"-brand generators, plus consequential
damages, and attorneys fees.
The facts as found by the Court of Appeals, are as follows:
The findings of facts by the trial court (Decision, pp. 21-28, Record on Appeal) shows: that the plaintiff RJL Martinez Fishing
Corporation is engaged in deep-sea fishing, and in the course of its business, needed electrical generators for the operation of its
business; that the defendant sells electrical generators with the brand of "Nagata", a Japanese product; that the supplier is the
manufacturer, the D. Nagata Co. Ltd., of Japan, that the defendant Schmid & Oberly Inc. advertised the 12 Nagata generators for
sale; that the plaintiff purchased 12 brand new Nagata generators, as advertised by herein defendant; that through an irrevocable
line of credit, the D. Nagata Co., Ltd., shipped to the plaintiff 12 electric generators, and the latter paid the amount of the purchase
price; that the 12 generators were found to be factory defective; that the plaintiff informed the defendant herein that it shall return the
12 generators as in fact three of the 12 were actually returned to the defendant; that the plaintiff sued the defendant on the warranty;
asking for rescission of the contract; that the defendant be ordered to accept the generators and be ordered to pay back the
purchase money; and that the plaintiff asked for damages. (Record on Appeal, pp. 27-28) [CA Decision, pp. 34; Rollo, pp. 47-48.]
On the basis thereof, the Court of Appeals affirmed the decision of the trial court ordering petitioner to refund to private respondent the purchase price for
the twelve (12) generators and to accept delivery of the same and to pay s and attorney's fees, with a slight modification as to the amount to be
refunded. In its resolution of the motion for reconsideration, the Court of Appeals further modified the trial courts decision as to the award of
consequential damages.

Ordinarily, the Court will not disturb the findings of fact of the Court of Appeals in petitions to review the latter's decisions under Rule 45 of the Revised
Rules of Court, the scope of the Court's inquiry being limited to a review of the imputed errors of law [Chan v. Court of Appeals, G.R. No. L-27488, June
30, 1970, 33 SCRA 77; Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. 62482, April 28,
1983, 121 SCRA 865; Baniqued v. Court of Appeals, G.R. No.
L-47531, January 30, 1984, 127 SCRA 596.] However, when, as in this case, it is the petitioner's position that the appealed judgment is premised on a
misapprehension of
facts, * the Court is compelled to review the Court of Appeal's factual findings [De la Cruz v. Sosing, 94 Phil. 26 (1953); Castillo v. Court of Appeals, G.R.
No. I,48290, September 29, 1983, 124 SCRA 808.]
Considering the sketchiness of the respondent court's narration of facts, whether or not the Court of Appeals indeed misapprehended the facts could not
be determined without a thorough review of the records.
Thus, after a careful scrutiny of the records, the Court has found the appellate court's narration of facts incomplete. It failed to include certain material
facts.
The facts are actually as follows:
RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ needed electric generators for some of its boats and SCHMIID sold
electric generators of different brands, negotiations between them for the acquisition thereof took place. The parties had two separate transactions over
"Nagata"-brand generators.
The first transaction was the sale of three (3) generators. In this transaction, it is not disputed that SCHMID was the vendor of the generators. The
company supplied the generators from its stockroom; it was also SCHMID which invoiced the sale.
The second transaction, which gave rise to the present controversy, involves twelve (12) "Nagata"-brand generators. 'These are the facts surrounding
this particular transaction:
As RJL MARTINEZ was canvassing for generators, SC gave RJL MARTINEZ its Quotation dated August 19, 1975 [Exhibit 'A"] for twelve (12) "Nagata'brand generators with the following specifications:
"NAGATA" Single phase AC Alternators, 110/220 V, 60 cycles, 1800 rpm, unity power factor, rectifier type and radio suppressor,,
5KVA (5KW) $546.75 @
It was stipulated that payment would be made by confirming an irrevocable letter of credit in favor of NAGATA CO. Furthermore, among the General
Conditions of Sale appearing on the dorsal side of the Quotation is the following:
Buyer will, upon request, promptly open irrevocable Letter of Credit in favor of seller, in the amount stated on the face of this
memorandum, specifying shipment from any Foreign port to Manila or any safe Philippine port, permitting partial shipments and
providing that in the event the shippers are unable to ship within the specified period due to strikes, lack of shipping space or other
circumstances beyond their reasonable control, Buyer agrees to extend the said Letter of Credit for later shipment. The Letter of
Credit shall otherwise be subject to the conditions stated in this memorandum of contract. [Emphasis supplied.]
Agreeing with the terms of the Quotation, RJL MARTINEZ opened a letter of credit in favor of NAGATA CO. Accordingly, on November 20,1975,
SCHMID transmitted to NAGATA CO. an order [Exhibit "4"] for the twelve (12) generators to be shipped directly to RJL MARTINEZ. NAGATA CO.
thereafter sent RJL MARTINEZ the bill of lading and its own invoice (Exhibit "B") and, in accordance with the order, shipped the generators directly to
RJL MARTINEZ. The invoice states that "one (1) case of 'NAGATA' AC Generators" consisting of twelve sets wasbought by order and for account risk
of Messrs. RJL Martinez Fishing Corporation.
For its efforts, SCHMID received from NAGATA CO. a commission of $1,752.00 for the sale of the twelve generators to RJL MARTINEZ. [Exhibits "9", "9A", "9-B" and "9-C".]
All fifteen (15) generators subject of the two transactions burned out after continuous use. RJL MARTINEZ informed SCHMID about this development. In
turn, SCHMID brought the matter to the attention of NAGATA CO. In July 1976, NAGATA CO. sent two technical representatives who made an ocular
inspection and conducted tests on some of the burned out generators, which by then had been delivered to the premises of SCHMID.
The tests revealed that the generators were overrated. As indicated both in the quotation and in the invoice, the capacity of a generator was supposed to
be 5 KVA (kilovolt amperes). However, it turned out that the actual capacity was only 4 KVA.
SCHMID replaced the three (3) generators subject of the first sale with generators of a different brand.
As for the twelve (12) generators subject of the second transaction, the Japanese technicians advised RJL MARTINEZ to ship three (3) generators to
Japan, which the company did. These three (3) generators were repaired by NAGATA CO. itself and thereafter returned to RJL MARTINEZ; the
remaining nine (9) were neither repaired nor replaced. NAGATA CO., however, wrote SCHMID suggesting that the latter check the generators, request
for spare parts for replacement free of charge, and send to NAGATA CO. SCHMID's warranty claim including the labor cost for repairs [Exhibit "I".] In its
reply letter, SCHMID indicated that it was not agreeable to these terms [Exhibit "10".]
As not all of the generators were replaced or repaired, RJL MARTINEZ formally demanded that it be refunded the cost of the generators and paid
damages. SCHMID in its reply maintained that it was not the seller of the twelve (12) generators and thus refused to refund the purchase price therefor.
Hence, on February 14, 1977, RJL MARTINEZ brought suit against SCHMID on the theory that the latter was the vendor of the twelve (12) generators
and, as such vendor, was liable under its warranty against hidden defects.
Both the trial court and the Court of Appeals upheld the contention of RJL MARTINEZ that SCHMID was the vendor in the second transaction and was
liable under its warranty. Accordingly, the courts a quo rendered judgment in favor of RJL MARTINEZ. Hence, the instant recourse to this Court.
In this petition for review, SCHMID seeks reversal on the following grounds:

(i) Schmid was merely the indentor in the sale [of the twelve (12) generators] between Nagata Co., the exporter and RJL Martinez,
the importer;
(ii) as mere indentor, Schmid is not liable for the seller's implied warranty against hidden defects, Schmid not having personally
assumed any such warranty.
(iii) in any event, conformably with Article 1563 of the Civil Code, there was no implied warranty against hidden defects in the sale of
these twelve (12) generators because these were sold under their trade name "Nagata"; and
(iv) Schmid, accordingly, is not liable for the reimbursement claimed by RJL Martinez nor for the latter's unsubstantiated claim of PI
10.33 operational losses a day nor for exemplary damages, attorney's fees and costs. [Petition, p. 6.]
1. As may be expected, the basic issue confronting this Court is whether the second transaction between the parties was a sale or an indent transaction.
SCHMID maintains that it was the latter; RJL MARTINEZ claims that it was a sale.
At the outset, it must be understood that a contract is what the law defines it to be, considering its essential elements, and not what it is caged by the
contracting parties [Quiroga v. Parsons Hardware Co., 38 Phil. 501 (1918).]
The Civil Code defines a contract of sale, thus:
ART. 458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent.
It has been said that the essence of the contract of sale is transfer of title or agreement to transfer it for a price paid or promised [Commissioner of
Internal Revenue v. Constantino, G.R. No. L-25926, February 27, 1970, 31 SCRA 779, 785, citing Salisbury v. Brooks, 94 SE 117,118-19.] "If such
transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely
as an agent who must account for the proceeds of a resale, the transaction is, a sale." [Ibid.]
On the other hand, there is no statutory definition of "indent" in this jurisdiction. However, the Rules and Regulations to Implement Presidential Decree
No. 1789 (the Omnibus Investments Code) lumps "indentors" together with "commercial brokers" and "commission merchants" in this manner:
... A foreign firm which does business through the middlemen acting in their own names, such asindentors, commercial brokers or
commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or
commission merchants shall be the ones deemed to be doing business in the Philippines [Part I, Rule I, Section 1, par. g (1).]
Therefore, an indentor is a middlemen in the same class as commercial brokers and commission merchants. To get an Idea of what an indentor is, a
look at the definition of those in his class may prove helpful.
A broker is generally defined as one who is engaged, for others, on a commission, negotiating contracts relative to property with the
custody of which he has no concern; the negotiator between other parties, never acting in his own name but in the name of those
who employed him; he is strictly a middleman and for some purpose the agent of both parties. (1 9 Cyc 186; Henderson vs. The
State, 50 Ind., 234; Black's Law Dictionary.) A broker is one whose occupation it is to bring parties together to bargain, or to bargain
for them, in matters of trade, commerce or navigation. Mechem on Agency, sec. 13; Wharton on Agency, sec. 695.) Judge Storey, in
his work on Agency, defines a broker as an agent employed to make bargains and contracts between other persons, in matters of
trade, commerce or navigation, for compensation commonly called brokerage. (Storey on Agency, sec. 28.) [Behn Meyer and Co.,
Ltd. v. Nolting and Garcia, 35 Phil. 274, 279-80 (1916).]
A commission merchant is one engaged in the purchase or sale for another of personal property which, for this purpose, is placed in
his possession and at his disposal. He maintains a relation not only with his principal and the purchasers or vendors, but also with
the property which is subject matter of the transaction. [Pacific Commercial Co. v. Yatco, 68 Phil. 398, 401 (1939).]
Thus, the chief feature of a commercial broker and a commercial merchant is that in effecting a sale, they are merely intermediaries or middle-men, and
act in a certain sense as the agent of both parties to the transaction.
Webster defines an indent as "a purchase order for goods especially when sent from a foreign country." [Webster's Ninth New Collegiate Dictionary 612
(1986).] It would appear that there are three parties to an indent transaction, namely, the buyer, the indentor, and the supplier who is usually a nonresident manufacturer residing in the country where the goods are to be bought [Commissioner of Internal Revenue v. Cadwallader Pacific Company,
G.R. No. L-20343, September 29, 1976, 73 SCRA 59.] An indentor may therefore be best described as one who, for compensation, acts as a middleman
in bringing about a purchase and sale of goods between a foreign supplier and a local purchaser.
Coming now to the case at bar, the admissions of the parties and the facts appearing on record more than suffice to warrant the conclusion that
SCHMID was not a vendor, but was merely an indentor, in the second transaction.
In its complaint, RJL MARTINEZ admitted that the generators were purchased "through indent order" [Record on Appeal, p. 6.] In the same vein, it
admitted in its demand letter previously sent to SCHMID that twelve (12) of en (15) Nagata-brand generators "were purchased through your company
(SCHMID), by indent order and three (3) by direct purchase." [Exhibit "D".] The evidence also show that RJL MARTINEZ paid directly NAGATA CO, for
the generators, and that the latter company itself invoiced the sale [Exhibit "B"], and shipped the generators directly to the former. The only participation
of SCHMID was to act as an intermediary or middleman between NAGATA CO. and RJL MARTINEZ, by procuring an order from RJL MARTINEZ and
forwarding the same to NAGATA CO. for which the company received a commission from NAGATA CO. [Exhibits "9", "9-A", "9-B" and "9-C".]
The above transaction is significantly different from the first transaction wherein SCHMID delivered the goods from its own stock (which it had itself
imported from NAGATA CO.), issued its own invoice, and collected payment directly from the purchaser.
These facts notwithstanding, RJL MARTINEZ insists that SCHMID was the vendor of the twelve generators on the following grounds:

First, it is contended that the Quotation and the General Conditions of Sale on the dorsal side thereof do not necessarily lead to the conclusion that
NAGATA CO., and not SCHMID, was the real seller in the case of the twelve (12) generators in that:
(i) the signing of the quotation, which was under SCHMID's letter-head, perfected the contract of sale (impliedly, as between the
signatories theretoi.e., RJL MARTINEZ and SCHMID);
(ii) the qualification that the letter of credit shall be in favor of NAGATA CO. constituted simply the manner of payment requested by
SCHMID (implying that SCHMID, as seller, merely chose to waive direct payment, stipulating delivery of payment instead to
NAGATA CO. as supplier);
Second, it is asserted that the acts of SCHMID after it was informed of the defect in the generators were indicative of its awareness that it was the
vendor and acknowledgment of its liability as such vendor. Attention is called to these facts: When RJL MARTINEZ complained to SCHMID that the
generators were defective, SCHMID immediately asked RJL MARTINEZ to send the defective generators to its shop to determine what was wrong.
SCHMID likewise informed NAGATA CO. about the complaint of RJL MARTINEZ. When the Japanese technicians arrived, SCHMID made available its
technicians, its shop and its testing equipment. After the generators were found to have factory defects, SCHMID facilitated the shipment of three (3)
generators to Japan and, after their repair, back to the Philippines [Memorandum for the Respondent, p. 8.]
Third, it is argued that the contents of the letter from NAGATA CO. to SCHMID regarding the repair of the generators indicated that the latter was "within
the purview of a seller." [Ibid.]
Fourth, it is argued that if SCHMID is considered as a mere agent of NAGATA CO., a foreign corporation not licensed to do business in the Philippines,
then the officers and employees of the former may be penalized for violation of the old Corporation Law which provided:
Sec. 69 ... Any officer or agent of the corporation or any person transacting business for any foreign corporation not having the
license prescribed shall be punished by imprisonment for not less than six months nor more than two years or by a fine 'of not less
than two hundred pesos nor more than one thousand pesos or both such imprisonment and fine, in the discretion of the Court.
The facts do not bear out these contentions.
The first contention disregards the circumstances surrounding the second transaction as distinguished from those surrounding the first transaction, as
noted above.
Neither does the solicitous manner by which SCHMID responded to RJL MARTINEZ's complaint prove that the former was the seller of the generators.
As aptly stated by counsel, no indentor will just fold its hands when a client complains about the goods it has bought upon the indentor's mediation. In its
desire to promote the product of the seller and to retain the goodwill of the buyer, a prudent indentor desirous of maintaining his business would have to
act considerably. towards his clients.
Note that in contrast to its act of replacing the three (3) generators subject of the first transaction, SCHMID did not replace any of the twelve (12)
generators, but merely rendered assistance to both RJL TINES and NAGATA CO. so that the latter could repair the defective generators.
The proposal of NAGATA CO. rejected by SCHMID that the latter undertake the repair of the nine (9) other defective generators, with the former
supplying the replacement parts free of charge and subsequently reimbursing the latter for labor costs [Exhibit "I"], cannot support the conclusion that
SCHMID is vendor of the generators of the second transaction or was acting "within the purview of a seller."
Finally, the afore-quoted penal provision in the Corporation Law finds no application to SCHMID and its officers and employees relative to the
transactions in the instant case. What the law seeks to prevent, through said provision, is the circumvention by foreign corporations of licensing
requirements through the device of employing local representatives. An indentor, acting in his own name, is not, however, covered by the above-quoted
provision. In fact, the provision of the Rules and Regulations implementing the Omnibus Investments Code quoted above, which was copied from the
Rules implementing Republic Act No. 5455, recognizes the distinct role of an indentor, such that when a foreign corporation does business through such
indentor, the foreign corporation is not deemed doing business in the Philippines.
In view of the above considerations, this Court rules that SCHMID was merely acting as an indentor in the purchase and sale of the twelve (12)
generators subject of the second transaction. Not being the vendor, SCHMID cannot be held liable for the implied warranty for hidden defects under the
Civil Code [Art. 1561, et seq.]
2. However, even as SCHMID was merely an indentor, there was nothing to prevent it from voluntarily warranting that twelve (12) generators subject of
the second transaction are free from any hidden defects. In other words, SCHMID may be held answerable for some other contractual obligation, if
indeed it had so bound itself. As stated above, an indentor is to some extent an agent of both the vendor and the vendee. As such agent, therefore, he
may expressly obligate himself to undertake the obligations of his principal (See Art. 1897, Civil Code.)
The Court's inquiry, therefore, shifts to a determination of whether or not SCHMID expressly bound itself to warrant that the twelve (12) generators are
free of any hidden defects.
Again, we consider the facts.
The Quotation (Exhibit A is in writing. It is the repository of the contract between RJL MARTINEZ and SCHMID. Notably, nowhere is it stated therein that
SCHMID did bind itself to answer for the defects of the things sold. There being no allegation nor any proof that the Quotation does not express the true
intent and agreement of the contracting parties, extrinsic parol evidence of warranty will be to no avail [See Rule 123, Sec. 22.]
The trial court, however, relied on the testimony of Patrocinio Balagtas, the head of the Electrical Department of RJL MARTINEZ, to support the finding
that SCHMID did warrant the twelve (12) generators against defects.
Upon careful examination of Balagtas' testimony, what is at once apparent is that Balagtas failed to disclose the nature or terms and conditions of the
warranty allegedly given by SC Was it a warranty that the generators would be fit for the fishing business of the buyer? Was it a warranty that the
generators to be delivered would meet the specifications indicated in the Quotation? Considering the different kinds of warranties that may be

contracted, unless the nature or terms and conditions of the warranty are known, it would not be possible to determine whether there has been a breach
thereof.
Moreover, a closer examination of the statements allegedly made by the representative of SCHMID reveals that they merely constituted an expression of
opinion which cannot by any means be construed as a warranty [See Art. 1546, Civil Code.]
We quote from Balagtas' testimony:
Atty. CATRAL:
Q Did you not say at the start of your cross examination, Mr. Balagtas, that the only participation you had in the
acquisition of those twelve (12) units [of] generators was your having issued a purchase order to your own
company for the purchase of the units?
ATTY. AQUINO:
Misleading, your Honor.
Atty. CATRAL:
I am asking the witness.
COURT:
He has the right to ask that question because he is on cross. Moreover, if I remember, he mentioned something
like that. Witness may answer.
A Yes, sir. Before I submitted that, we negotiated with Schmid and Oberly the beat generators they can
recommend because we are looking for generators. The representative of Schmid and Oberly said that Nagata
is very good. That is why I recommended that to the management. [t.s.n., October 14, 1977, pp. 23-25.]
At any rate, when asked where SCHMID's warranty was contained, Balagtas testified initially that it was in the receipts covering the sale. (At this point, it
may be stated that the invoice [Exhibit "B-l"] was issued by NAGATA CO. and nowhere is it stated therein that SCHMID warranted the generators against
defects.) When confronted with a copy of the invoice issued by NAGATA CO., he changed his assertion and claimed that what he meant was that the
date of the commencement of the period of SCHMID's warranty would be based on the date of the invoice. On further examination, he again changed
his mind and asserted that the warranty was given verbally [TSN, October 14, 1977, pp. 19-22.] But then again, as stated earlier, the witness failed to
disclose the nature or terms and conditions of the warranty allegedly given by SCHMID.
On the other hand, Hernan Adad SCHMID's General Manager, was categorical that the company does not warrant goods bought on indent and that the
company warrants only the goods bought directly from it, like the three generators earlier bought by RJL MARTINEZ itself [TSN, December 19, 1977, pp.
63-64.] It must be recalled that SCHMID readily replaced the three generators from its own stock. In the face of these conflicting testimonies, this Court
is of the view that RJL has failed to prove that SCHMID had given a warranty on the twelve (12) generators subject of the second transaction. Even
assuming that a warranty was given, there is no way to determine whether there has been a breach thereof, considering that its nature or terms and
conditions have not been shown.
3. In view of the foregoing, it becomes unnecessary to pass upon the other issues.
WHEREFORE, finding the Court of Appeals to have committed a reversible error, the petition is GRANTED and the appealed Decision and Resolution of
the Court of Appeals are REVERSED. The complaint of RJL Martinez Fishing Corporation is hereby DISMISSED. No costs.
SO ORDERED.

Agency not presumed to exist

EN BANC
G.R. No. L-19001

November 11, 1922

HARRY E. KEELER ELECTRIC CO., INC., plaintiff-appellant,

vs.
DOMINGO RODRIGUEZ, defendant-appellee.
Hartford Beaumont for appellant.
Ross and Lawrence and Antonio T. Carrascoso, Jr., for appellee.
STATEMENT
The plaintiff is a domestic corporation with its principal office in the city of Manila and engaged in the electrical business, and among other things in the
sale of what is known as the "Matthews" electric plant, and the defendant is a resident of Talisay, Occidental Negros, and A. C. Montelibano was a
resident of Iloilo.

Having this information, Montelibano approached plaintiff at its Manila office, claiming that he was from Iloilo and lived with Governor Yulo; that he could
find purchaser for the "Matthews" plant, and was told by the plaintiff that for any plant that he could sell or any customer that he could find he would be
paid a commission of 10 per cent for his services, if the sale was consummated. Among other persons. Montelibano interviews the defendant, and,
through his efforts, one of the "Matthews" plants was sold by the plaintiff to the defendant, and was shipped from Manila to Iloilo, and later installed on
defendant's premises after which, without the knowledge of the plaintiff, the defendant paid the purchase price to Montelibano. As a result, plaintiff
commenced this action against the defendant, alleging that about August 18, 1920, it sold and delivered to the defendant the electric plant at the agreed
price of P2,513.55 no part of which has been paid, the demands judgment for the amount with interest from October 20, 1920.
For answer, the defendant admits the corporation of the plaintiff, and denies all other material allegations of the complaint, and, as an affirmative
defense, alleges "that on or about the 18th of August, 1920, the plaintiff sold and delivered to the defendant a certain electric plant and that the
defendant paid the plaintiff the value of said electric plant, to wit: P2,513.55."
Upon such issues the testimony was taken, and the lower court rendered judgment for the defendant, from which the plaintiff appeals, claiming that the
court erred in holding that the payment to A. C. Montelibano would discharge the debt of defendant, and in holding that the bill was given to Montelibano
for collection purposes, and that the plaintiff had held out Montelibano to the defendant as an agent authorized to collect, and in rendering judgment for
the defendant, and in not rendering judgment for the plaintiff.

JOHNS, J.:
The testimony is conclusive that the defendant paid the amount of plaintiff's claim to Montelibano, and that no part of the money was ever paid to the
plaintiff. The defendant, having alleged that the plaintiff sold and delivered the plant to him, and that he paid the plaintiff the purchase price, it devolved
upon the defendant to prove the payment to the plaintiff by a preponderance of the evidence.
It appears from the testimony of H. E. Keeler that he was president of the plaintiff and that the plant in question was shipped from Manila to Iloilo and
consigned to the plaintiff itself, and that at the time of the shipment the plaintiff sent Juan Cenar, one of its employees, with the shipment, for the purpose
of installing the plant on defendant's premises. That plaintiff gave Cenar a statement of the account, including some extras and the expenses of the
mechanic, making a total of P2,563,95. That Montelibano had no authority from the plaintiff to receive or receipt for money. That in truth and in fact his
services were limited and confined to the finding of purchasers for the "Matthews" plant to whom the plaintiff would later make and consummate the sale.
That Montelibano was not an electrician, could not install the plant and did not know anything about its mechanism.
Cenar, as a witness for the plaintiff, testified that he went with shipment of the plant from Manila to Iloilo, for the purpose of installing, testing it, and to
see that everything was satisfactory. That he was there about nine days, and that he installed the plant, and that it was tested and approved by the
defendant. He also says that he personally took with him the statement of account of the plaintiff against the defendant, and that after he was there a few
days, the defendant asked to see the statement, and that he gave it to him, and the defendant said, "he was going to keep it." I said that was all right "if
you want." "I made no effort at all to collect the amount from him because Mr. Rodriguez told me he was going to pay for the plant here in Manila." That
after the plant was installed and approved, he delivered it to the defendant and returned to Manila.
The only testimony on the part of the defendant is that of himself in the form of a deposition in which he says that Montelibano sold and delivered the
plant to him, and "was the one who ordered the installation of that electrical plant," and he introduced in evidence as part of his deposition a statement
and receipt which Montelibano signed to whom he paid the money. When asked why he paid the money to Montelibano, the witness says:
Because he was the one who sold, delivered, and installed the electrical plant, and he presented to me the account, Exhibits A and A-I, and he
assured me that he was duly authorized to collect the value of the electrical plant.
The receipt offered in evidence is headed:
STATEMENT

Folio No. 2494

Mr. DOMINGO RODRIGUEZ,

Iloilo, Iloilo, P.I.
In account with
HARRY E. KEELER ELECTRIC COMPANY, INC.
221 Calle Echaque, Quiapo, Manila, P.I.
MANILA, P.I., August 18, 1920.
The answer alleges and the receipt shows upon its face that the plaintiff sold the plant to the defendant, and that he bought it from the plaintiff. The
receipt is signed as follows:
Received payment
HARRY E. KEELER ELECTRIC CO. Inc.,
Recibi
(Sgd.) A. C. MONTELIBANO.
There is nothing on the face of this receipt to show that Montelibano was the agent of, or that he was acting for, the plaintiff. It is his own personal receipt
and his own personal signature. Outside of the fact that Montelibano received the money and signed this receipt, there is no evidence that he had any
authority, real or apparent, to receive or receipt for the money. Neither is there any evidence that the plaintiff ever delivered the statement to
Montelibano, or authorized anyone to deliver it to him, and it is very apparent that the statement in question is the one which was delivered by the
plaintiff to Cenar, and is the one which Cenar delivered to the defendant at the request of the defendant.
The evidence of the defendant that Montelibano was the one who sold him the plant is in direct conflict with his own pleadings and the receipt statement
which he offered in evidence. This statement also shows upon its face that P81.60 of the bill is for:

To Passage round trip, 1st Class @

P40.80 a trip ........................................... P81.60.
Plus Labor @ P5.00 per day
Machine's transportation ................. 9.85.
This claim must be for the expenses of Cenar in going to Iloilo from Manila and return, to install the plant, and is strong evidence that it was Cenar and
not Montelibano who installed the plant. If Montelibano installed the plant, as defendant claims, there would not have been any necessity for Cenar to
make this trip at the expense of the defendant. After Cenar's return to Manila, the plaintiff wrote a letter to the defendant requesting the payment of its
account, in answer to which the defendant on September 24 sent the following telegram:
Electric plant accessories and installation are paid to Montelibano about three weeks Keeler Company did not present bill.
This is in direct conflict with the receipted statement, which the defendant offered in evidence, signed by Montelibano. That shows upon its face that it
was an itemized statement of the account of plaintiff with the defendant. Again, it will be noted that the receipt which Montelibano signed is not dated,
and it does not show when the money was paid: Speaking of Montelibano, the defendant also testified: "and he assured me that he was duly authorized
to collect the value of the electrical plant." This shows upon its face that the question of Montelibano's authority to receive the money must have been
discussed between them, and that, in making the payment, defendant relied upon Montelibano's own statements and representation, as to his authority,
to receipt for the money.
In the final analysis, the plant was sold by the plaintiff to the defendant, and was consigned by the plaintiff to the plaintiff at Iloilo where it was installed by
Cenar, acting for, and representing, the plaintiff, whose expense for the trip is included in, and made a part of, the bill which was receipted by
Montelibano.
There is no evidence that the plaintiff ever delivered any statements to Montelibano, or that he was authorized to receive or receipt for the money, and
defendant's own telegram shows that the plaintiff "did not present bill" to defendant. He now claims that at the very time this telegram was sent, he had
the receipt of Montelibano for the money upon the identical statement of account which it is admitted the plaintiff did render to the defendant.
Article 1162 of the Civil Code provides:
Payment must be made to the persons in whose favor the obligation is constituted, or to another authorized to receive it in his name.
And article 1727 provides:
The principal shall be liable as to matters with respect to which the agent has exceeded his authority only when he ratifies the same expressly
or by implication.
In the case of Ormachea Tin-Conco vs. Trillana (13 Phil., 194), this court held:
The repayment of a debt must be made to the person in whose favor the obligation is constituted, or to another expressly authorized to receive
the payment in his name.
Mechem on Agency, volume I, section 743, says:
In approaching the consideration of the inquiry whether an assumed authority exist in a given case, there are certain fundamental principles
which must not be overlooked. Among these are, as has been seen, (1) that the law indulges in no bare presumptions that an agency exists: it
must be proved or presumed from facts; (2) that the agent cannot establish his own authority, either by his representations or by assuming to
exercise it; (3) that an authority cannot be established by mere rumor or general reputation; (4)that even a general authority is not an unlimited
one; and (5) that every authority must find its ultimate source in some act or omission of the principal. An assumption of authority to act as
agent for another of itself challenges inquiry. Like a railroad crossing, it should be in itself a sign of danger and suggest the duty to "stop, look,
and listen." It is therefore declared to be a fundamental rule, never to be lost sight of and not easily to be overestimated, that 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 the nature and extent of the authority, and in case either is controverted, the burden of proof is
upon them to establish it.
. . . It is, moreover, in any case entirely within the power of the person dealing with the agent to satisfy himself that the agent has the authority
he assumes to exercise, or to decline to enter into relations with him. (Melchem on Agency, vol. I, sec. 746.)
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 state 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. (Mechem on Agency, vol. I, sec 752.)
And not only must the person dealing with the agent ascertain the existence of the conditions, but he must also, as in other cases, be able to
trace the source of his reliance to some word or act of the principal himself if the latter is to be held responsible. As has often been pointed out,
the agent alone cannot enlarge or extend his authority by his own acts or statements, nor can he alone remove limitations or waive conditions
imposed by his principal. To charge the principal in such a case, the principal's consent or concurrence must be shown. (Mechem on Agency,
vol. I, section 757.)
This was a single transaction between the plaintiff and the defendant.lawph!l.net

Applying the above rules, the testimony is conclusive that the plaintiff never authorized Montelibano to receive or receipt for money in its behalf, and that
the defendant had no right to assume by any act or deed of the plaintiff that Montelibano was authorized to receive the money, and that the defendant
made the payment at his own risk and on the sole representations of Montelibano that he was authorized to receipt for the money.
The judgment of the lower court is reversed, and one will be entered here in favor of the plaintiff and against the defendant for the sum of P2,513.55 with
interest at the legal rate from January 10, 1921, with costs in favor of the appellant. So ordered.

Bad Faith of Agent

EN BANC
G.R. No. L-18616

March 31, 1964

VICENTE M. COLEONGCO, plaintiff-appellant,

vs.
EDUARDO L. CLAPAROLS, defendant-appellee.
San Juan, Africa and Benedicto for plaintiff-appellant.
Alberto Jamir for defendant-appellee.
REYES, J.B.L., J.:
Appeal by plaintiff Vicente Coleongco from a decision of the Court of First Instance of Negros Occidental (in its Civil Case No. 4170) dismissing plaintiff's
action for damages, and ordering him to pay defendant Eduardo Claparols the amount of P81,387.27 plus legal interest from the filing of the
counterclaim till payment thereof; P50,000 as moral and compensatory damages suffered by defendant; and costs.
A writ of preliminary attachment for the sum of P100,000 was subsequently issued against plaintiff's properties in spite of opposition thereto.
Plaintiff Coleongco, not being in conformity with the judgment appealed to this Court directly, the claims involved being in excess of P200,000.
The antecedent facts as found by the trial court and shown by the records, are as follows:
Since 1951, defendant-appellee, Eduardo L. Claparols, operated a factory for the manufacture of nails in Talisay, Occidental Negros, under the style of
"Claparols Steel & Nail Plant". The raw material, nail wire, was imported from foreign sources, specially from Belgium; and Claparols had a regular dollar
allocation therefor, granted by the Import Control Commission and the Central Bank. The marketing of the nails was handled by the "ABCD Commercial"
of Bacolod, which was owned by a Chinaman named Kho To.1wph1.t
Losses compelled Claparols in 1953 to look for someone to finance his imports of nail wires. At first, Kho To agreed to do the financing, but on April 25,
1953, the Chinaman introduced his compadre, appellant Vicente Coleongco, to the appellee, recommending said appellant to be the financier in the
stead of Kho To. Claparols agreed, and on April 25 of that year a contract (Exhibit B) was perfected between them whereby Coleongco undertook to
finance and put up the funds required for the importation of the nail wire, which Claparols bound himself to convert into nails at his plant. It was agreed
that Coleongco would have the exclusive distribution of the product, and the "absolute care in the marketing of these nails and the promotion of sales all
over the Philippines", except the Davao Agency; that Coleongco would "share the control of all the cash" from sales or deposited in banks; that he would
have a representative in the management; that all contracts and transactions should be jointly approved by both parties; that proper books would be kept
and annual accounts rendered; and that profits and losses would be shared "on a 50-50 basis". The contract was renewed from one year to year until
1958, and Coleongco's share subsequently increased by 5% of the net profit of the factory (Exhibits D, E, F).
Two days after the execution of the basic agreement, Exhibit "B", on April 27, 1953, Claparols executed in favor of Coleongco, at the latter's behest a
special power of attorney (Exhibit C) to open and negotiate letters of credit, to sign contracts, bills of lading, invoices, and papers covering transactions;
to represent appellee and the nail factory; and to accept payments and cash advances from dealers and distributors. Thereafter, Coleongco also
became the assistant manager of the factory, and took over its business transactions, while Claparols devoted most of his time to the nail manufacture
processes.
Around mid-November of 1956, appellee Claparols was disagreeably surprised by service of an alias writ of execution to enforce a judgment obtained
against him by the Philippine National Bank, despite the fact that on the preceding September he had submitted an amortization plan to settle the
account. Worried and alarmed, Claparols immediately left for Manila to confer with the bank authorities. Upon arrival, he learned to his dismay that the
execution had been procured because of derogatory information against appellee that had reached the bank from his associate, appellant Coleongco.
On July 6, 1956, the latter, without appellee's knowledge, had written to the bank
in connection with the verbal offer for the acquisition by me of the whole interest of Mr. Eduardo L. Claparols in the Claparols Steel & Nail
Plant and the Claparols Hollow Blocks Factory" (Exhibit 36);
and later, on October 29, 1956, Coleongco had written again the bank another letter (Exhibit 35), also behind the back of appellee, wherein Coleongco
charged Claparols with taking machines mortgaged to the bank, and added - .
In my humble personal opinion I presume that Mr. Eduardo L. Claparols is not serious in meeting his obligations with your bank, otherwise he
had not taken these machines and equipments a sign of bad faith since the factory is making a satisfactory profit of my administration.
Fortunately, Claparols managed to arrange matters with the bank and to have the execution levy lifted. Incensed at what he regarded as disloyalty of his
attorney-in-fact, he consulted lawyers. The upshot was that appellee revoked the power of attorney (Exhibit "C"), and informed Coleongco thereof
(Exhibits T, T-1), by registered mail, demanding a full accounting at the same time. Coleongco, as could be expected, protested these acts of Claparols,
but the latter insisted, and on the first of January, 1957 wrote a letter to Coleongco dismissing him as assistant manager of the plant and asked C. Miller
& Company, auditors, to go over the books and records of the business with a view to adjusting the accounts of the associates. These last steps were
taken in view of the revelation made by his machinery superintendent, Romulo Agsam, that in the course of the preceding New Year celebrations

Coleongco had drawn Agsam aside and proposed that the latter should pour acid on the machinery to paralyze the factory. The examination by the
auditors, summarized in Exhibits 80 and 87, found that Coleongco owed the Claparols Nail Factory the amount of P87,387.37, as of June 30, 1957.
In the meantime, Claparols had found in the factory files certain correspondence in February, 1955 between Coleongco and the nail dealer Kho To
whereby the former proposed to Kho that the latter should cut his monthly advances to Claparols from P2,000 to P1,000 a month, because
I think it is time that we do our plan to take advantage of the difficulties of Eddie with the banks for our benefit. If we can squeeze him more. I
am sure that we can extend our contract with him before it ends next year, and perhaps on better terms. If we play well our cards we might yet
own his factory (Exhibit 32);
and conformably to Coleongco's proposal, Kho To had written to Claparols that "due to present business conditions" the latter could only be allowed to
draw P1,000 a month beginning April, 1955 (Exhibit 33).
As the parties could not amicably settle their accounts, Coleongco filed a suit against Claparols charging breach of contract, asking for accounting, and
praying for P528,762.19 as damages, and attorney's fees, to which Claparols answered, denying the charge, and counter-claiming for the rescission of
the agreement with Coleongco for P561,387.99 by way of damages. After trial, the court rendered judgment, as stated at the beginning of this opinion.
In this appeal, it is first contended by the appellant Coleongco that the power of attorney (Exhibit "C") was made to protect his interest under the
financing agreement (Exhibit "B") and was one coupled with an interest that the appellee Claparols had no legal power to revoke. This point can not be
sustained. The financing agreement itself already contained clauses for the protection of appellant's interest, and did not call for the execution of any
power of attorney in favor of Coleongco. But granting appellant's view, it must not be forgotten that a power of attorney can be made irrevocable by
contract only in the sense that the principal may not recall it at his pleasure; but coupled with interest or not, the authority certainly can be revoked for a
just cause, such as when the attorney-in-fact betrays the interest of the principal, as happened in this case. It is not open to serious doubt that the
irrevocability of the power of attorney may not be used to shield the perpetration of acts in bad faith, breach of confidence, or betrayal of trust, by the
agent for that would amount to holding that a power coupled with an interest authorizes the agent to commit frauds against the principal.
Our new Civil Code, in Article 1172, expressly provides the contrary in prescribing that responsibility arising from fraud is demandable in all obligations,
and that any waiver of action for future fraud is void. It is also on this principle that the Civil Code, in its Article 1800, declares that the powers of a
partner, appointed as manager, in the articles of co-partnership are irrevocable without just or lawful cause; and an agent with power coupled with an
interest can not stand on better ground than such a partner in so far as irrevocability of the power is concerned.
That the appellee Coleongco acted in bad faith towards his principal Claparols is, on the record, unquestionable. His letters to the Philippine National
Bank (Exhibits 35 and 36) attempting to undermine the credit of the principal and to acquire the factory of the latter, without the principal's knowledge;
Coleongco's letter to his cousin, Kho To (Exhibit 32), instructing the latter to reduce to one-half the usual monthly advances to Claparols on account of
nail sales in order to squeeze said appellee and compel him to extend the contract entitling Coleongco to share in the profits of the nail factory on better
terms, and ultimately "own his factory", a plan carried out by Kho's letter, Exhibit 33, reducing the advances to Claparols; Coleongco's attempt to, have
Romulo Agsam pour acid on the machinery; his illegal diversion of the profits of the factory to his own benefit; and the surreptitious disposition of the
Yates band resaw machine in favor of his cousin's Hong Shing Lumber Yard, made while Claparols was in Baguio in July and August of 1956, are plain
acts of deliberate sabotage by the agent that fully justified the revocation of the power of attorney (Exhibit "C") by Claparols and his demand for an
accounting from his agent Coleongco.
Appellant attempts to justify his letter to the Philippine National Bank (Exhibits 35 and 36), claiming that Claparols' mal-administration of the business
endangered the security for the advances that he had made under the financing contract (Exhibit "B"). But if that were the case, it is to be expected that
Coleongco would have first protested to Claparols himself, which he never did. Appellant likewise denies the authorship of the letter to Kho (Exhibit 32)
as well as the attempt to induce Agsam to damage the machinery of the factory. Between the testimony of Agsam and Claparols and that of Coleongco,
the court below whose to believe the former, and we see no reason to alter the lower court's conclusion on the value of the evidence before it,
considering that Kho's letter to Claparols (Exhibit 33) plainly corroborates and dovetails with the plan outlined in Coleongco's own letter (Exhibit 32),
signed by him, and that the credibility of Coleongco is affected adversely by his own admission of his having been previously convicted of estafa (t.s.n.,
pp. 139, 276), a crime that implies moral turpitude. Even disregarding Coleongco's letter to his son-in-law (Exhibit 82) that so fully reveals Coleongco's
lack of business scruples, the clear preponderance of evidence is against appellant.
The same remarks apply to the finding of the trial court that it was appellant Coleongco, and not Claparols, who disposed of the band resawing
equipment, since said machine was received in July, 1956 and sold in August of that year to the Hong Shing Lumber Co., managed by appellant's cousin
Vicente Kho. The untruth of Coleongco's charge that Claparols, upon his return from Baguio in September, 1956, admitted having sold the machine
behind his associate's back is further evidenced by (a) Coleongco's letter, Exhibit "V", dated October 29, 1956, inquiring the whereabouts of the resaw
equipment from Claparols (an inquiry incompatible with Claparols' previous admission); (b) by the undenied fact that the appellee was in Baguio and
Coleongco was acting for him during the months of July and August when the machine was received and sold; and (c) the fact that as between the two it
is Coleongco who had a clear interest in selling the sawing machine to his cousin Kho To's lumber yard. If Claparols wished to sell the machine without
Coleongco's knowledge, he would not have picked the latter's cousin for a buyer.
The action of plaintiff-appellant for damages and lost profits due to the discontinuance of the financing agreement, Exhibit "B", may not prosper, because
the record shows that the appellant likewise breached his part of the contract. It will be recalled that paragraph 2 of the contract, Exhibit "B", it was
stipulated:
That the Party of the Second Part (Coleongco) has agreed to finance and put up all the necessary money which may be needed to pay for the
importation of the raw materials needed by such nail factory and allocated by the ICC from time to time, either in cash of with whatever
suitable means which the Party of the Second Part may be able to make by suitable arrangements with any well-known banking institution
recognized by the Central Bank of the Philippines.
Instead of putting up all the necessary money needed to finance the imports of raw material, Coleongco merely advanced 25% in cash on account of the
price and had the balance covered by surety agreements executed by Claparols and others as solidary, (joint and several) guarantors (see Exhibits G,
H, I). The upshot of this arrangement was that Claparols was made to shoulder 3/4 of the payment for the imports, contrary to the financing agreement.
Paragraph 11 of the latter expressly denied Coleongco any power or authority to bind Claparols without previous consultation and authority. When the
balances for the cost of the importations became due, Coleongco, in some instances, paid it with the dealers' advances to the nail factory against future
sales without the knowledge of Claparols (Exhibits "K" to K-11, K-13). Under paragraphs 8 and 11 of the financing agreement, Coleongco was to give
preference to the operating expenses before sharing profits, so that until the operating costs were provided for, Coleongco had no right to apply the
factory's income to pay his own obligations.

Again, the examination of the books by accountant Atienza of C. Miller and Co., showed that from 1954 onwards Coleongco (who had the control of the
factory's cash and bank deposits, under Paragraph 11 of Exhibit "B") never liquidated and paid in full to Claparols his half of the profits, so that by the
end of 1956 there was due to Claparols P38,068.41 on this account (Exhibit 91). For 1957 to 1958 Claparols financed the imports of nail wire without the
help of appellant, and in view of the latter's infringement of his obligations, his acts of disloyalty previously discussed, and his diversions of factory funds
(he even bought two motor vehicles with them), we find no justification for his insistence in sharing in the factory's profit for those years, nor for the
restoration of the revoked power of attorney.
The accountant's reports and testimony (specially Exhibits 80 to 87) prove that as of June 30, 1957, Coleongco owed to Claparols the sum of
P83,466.34 that after some adjustment was reduced to P81,387.37, practically accepted even by appellant's auditor. The alleged discrepancies between
the general ledger and the result thus arrived at was satisfactorily explained by accountant Atienza in his testimony (t.s.n., 1173-1178).
No error was, therefore, committed by the trial court in declaring the financing contract (Exh. B) properly resolved by Claparols or in rendering judgment
against appellant in favor of appellee for the said amount of P81,387.37. The basic rule of contracts requires parties to act loyally toward each other in
the pursuit of the common end, and appellant clearly violated the rule of good faith prescribed by Art. 1315 of the new Civil Code.
The lower court also allowed Claparols P50,000 for damages, material, moral, and exemplary, caused by the appellant Coleongco's acts in maliciously
undermining appellee's credit that led the Philippine National Bank to secure a writ of execution against Claparols. Undeniably, the attempts of
Coleongco to discredit and "squeeze" Claparols out of his own factory and business could not but cause the latter mental anguish and serious anxiety,
as found by the court below, for which he is entitled to compensation; and the malevolence that lay behind appellee's actions justified also the imposition
of exemplary or deterrent damages (Civ. Code, Art. 2232). While the award could have been made larger without violating the canons of justice, the
discretion in fixing such damages primarily lay in the trial court, and we feel that the same should be respected.
IN VIEW OF THE FOREGOING, the decision appealed from is affirmed. Costs against appellant Vicente Coleongco.

Commission Agent
EN BANC
G.R. No. L-12396

January 31, 1962

KER and COMPANY, LTD., petitioner,

vs.
THE COURT OF TAX APPEALS and THE COLLECTOR OF INTERNAL REVENUE, respondents.
Jose Leido for petitioner.
Office of the Solicitor General for respondents.
PAREDES, J.:
An appeal from a resolution of the Court of Tax Appeals sustaining a Motion to Dismiss of the Collector of Internal Revenue, on the ground that said
Court is without jurisdiction to take cognizance of the case.
On the basis of its income tax returns filed for the years 1947, 1948, 1949 and 1950, the petitioner was assessed by the Collector in the respective sums
of P42,342.30, P18,651.87, P139.67 and P12,813.00 (Exhibits 1-9). Upon failure of petitioner to pay the said assessments, the Collector sent a demand
letter dated February 16, 1953, (Exh. 10). In a letter dated May 24, 1953 (Exh. 12), counsel for petitioner sought the reconsideration of the demand
letter. A revision of the previous assessments was made by the Collector in his letter of January 5, 1954 (Exh. 13), reducing the tax liabilities of petitioner
for 1947 from P42,342.30 to P27,026.28 and for 1950 from P12,813.00 to P8,542.00; the assessments for 1948 to 1949 in the sum of P18,651.87 and
P139.67 remained the same.
The letter of January 5, 1954 (Exh. 13), has remained unaltered and unrevised up to this date, in spite of the repeated requests for reconsideration by
petitioner, as evidenced by its letter dated February 12, 1954 (Exh. 14) and May 22, 1954 (Exh. 17). In fact, the Collector reiterated the demand
contained in said letter of January 5, 1954, as shown by his letters dated July 28, 1954 and December 9, 1954 (Exhs. 18 and 19, respectively). The
petitioner denied having received the said letter (Exh. 18), although it was mailed to petitioner in the ordinary course of business. The record shows that
it had received all the letters of the Collector except, allegedly, said Exh. 18. Although petitioner did not know when it received the communication dated
December 9, 1954 (Exh. 19), it is a fact that said petitioner replied to this letter (Exh. 19), in its letter dated August 1, 1955, which was wholly denied in
the Collector's letter dated January 23, 1956 (Exh. 20). Exhibit 20 was the last letter of the Collector reiterating the assessment of January 5, 1954. On
February 9, 1956, the Collector issued a warrant of distraint and levy against the petitioner.
The petitioner filed a petition for review with preliminary injunction on March 1, 1956. After issues were joined, the Tax Court heard the incident of
preliminary injunction. Before the incident was resolved, however, the Tax Courtmotu proprio issued an order setting the case again for hearing for the
purpose of determining whether or not, the court had jurisdiction to entertain the petition filed by petitioner on March 1, 1956.
On October 3, 1956, the Collector filed his motion to dismiss on the ground of lack of jurisdiction, and over the opposition of the petitioner, on January 5,
1957, the Tax Court dismissed the petition. Petitioner's motion for reconsideration was denied on May 9, 1957.
In the instant appeal, petitioner-appellant submits the following issues: .
1. Whether the ruling of the Collector which is appealable was his letter of January 5, 1954 (Exh. 13), or his letter of January 23, 1956 (Exh.
20).
2. Whether or not the 30-day period provided by section 11 of R.A. 1125 should commence to run only on February 1, 1956, the date on which
the petitioner received the respondent's letter of January 23, 1956 (Exh. 20).

3. Whether or not the 30-day period is a jurisdiction requirement.

4. Whether respondent Collector was barred from filing a motion to dismiss based on said section 11, after he had filed his answer to the
petition below, which did not contain such a defense; and .
5. Whether the Tax Court erred in not holding that the Collector's order to collect by warrant of distraint and levy had been timely appealed by
the petitioner.
While the right to appeal a decision of the Collector to the Tax Court is merely a statutory remedy, nevertheless the requirement that it must be brought
within thirty days after receipt of the Collector's decision, or ruling is jurisdiction. "If a statutory remedy provides as a condition precedent that the action
to enforce it must be commenced within a prescribed time, such requirement is jurisdictional and failure to comply therewith may be raised in a motion to
dismiss" (Callahan vs. Chespeake & Ohio, 407 Supp. 323, mentioned on p. 175, Moran's Rules of Court, Vol. 1, 1952 Ed.). The right to appeal from a
decision of the Secretary of Agriculture and Natural Resources is a statutory right, but it can be invoked only in accordance with the manner in which the
legislature has provided for the purpose (The Secretary of Agriculture, etc. vs. Judge CFI, G. R. No. L-7752, May 27, 1955). The right to appeal from the
decision of the Collector being a statutory right, the same can be invoked only in accordance with the requisites provided by law (Wee Poco v. Posadas,
64 Phil. 648). And this should be so because in cases involving a tax, there is an imperious need for its prompt collection. Appealed cases decided by
the Tax Court shall have preference over all civil proceeding except habeas corpus, workmen's compensation and election cases (sec. 18, par. 4, Rep.
Act 1125), and the appeal therefrom is directly taken to the Supreme Court (Ibid, par. 3). It is the interest of the Government to know promptly those
assessments which are acquiesced in and those disputed by the tax payers. Such knowledge is essential in formulating the Government's estimate of
expected revenues and expenditures.
Petitioner-appellant questions the right of the lower court to raise the question of jurisdiction motu proprio. It should be recalled, however, that the Tax
Court is a court of special jurisdiction. As such, it can only take cognizance of such matters as are clearly within its jurisdiction. To obviate the possibility
that its decision may be rendered void, it can, by its own initiative, raise the question of jurisdiction, although not raised by the parties.
Section 11 of Republic Act No. 1125 partly provides:
SEC. 11. Who may appeal; effect of appeal. Any person, association or corporation adversely affected by a decision ruling of the Collector
of Internal Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax
Appeals within thirty days after the receipt of such decision or ruling. ...." .
It is argued that the decision or ruling of the Collector which should be appealed to the Tax Court is the former's letter dated January 23, 1956 (Exh. 20)
and not the letter dated January 5, 1954 (Exh. 13), and that the 30-period provided in section 11, commenced to run only on February 1, 1956, the date
on which the petitioner-appellant received the Collector's letter dated January 23, 1956. This contention is without merit. The Collector's letter dated
January 23, 1956, partly reads as follows: .
With reference to your letter dated August 1, 1955, concerning the deficiency income tax liabilities of Ker & Co., Ltd., Manila, for 1947, 1948,
1949 and 1950, I regret to have to inform you that, notwithstanding your allegations therein, this Office still finds no justification to alter, reverse
or modify the assessments issued against your client for said years.1wph1.t
As elucidated in our letter to you of January 5, 1954, the alleged home-leave liabilities which your client claimed as deduction were disallowed
as such because the same were not actually incurred but were mere reserve accounts for contingent purposes. No evidence were presented
by you showing that the said expenses were actually incurred in the years of their deductions or in the subsequent years...
It is thus noted that the allegation in the above quoted letter is simply a reiteration of the previous demand as contained in the Collector's letter of
January 5, 1954 (Exh. 13). Again the Collector sent to the petitioner-appellant the demand letter dated July 28, 1954 (Exh. 18), which
merely reiterated the demand dated January 5, 1954. Although petitioner denied having received said letter, yet it is significant to mention that when it
was presented to the lower court as Exhibit 18 for the Collector, the petitioner had not objected to it. This is the first time they attack its receipt. It is finally
to be observed that the ruling of the Collector contained in his letter of January 5, 1954, remained unaltered and unmodified. As the Court a quo has
correctly commented
Under the facts stated above, we find that the decision of respondent which is appealable to this Court under Sections 7 and 11 of Republic
Act No. 1125 is the one contained in his letter of January 5, 1954, the same having remained unaltered and unmodified up to the date the
appeal was filed (See Angel Saraos v. CIR, CTA Case No. 229, March 5, 1956; Merced Drug Store v. CIR, CTA Case No. 180, May 21,
1956. ....
Moreover, since a letter of demand or assessment was sent by the Collector of Internal Revenue to a taxpayer contains a determination of the
tax liability of the latter, such letter or assessment must be considered as the 'decision' appealable to this Court. The Supreme Court appears
to recognize the same view when it held that the 'assessment made by the Collector of Internal Revenue is the substantive and dispositive
part of his decision' (Ventanilla v. BTA, G.R. No. L-7384, prom. Dec. 19, 1955). Under circumstances comparable with our law, the United
States Supreme Court in the case of Gull v. U.S. (1935, 295 U.S. 247; 79 L. ed., 1941) sustained the same theory that the assessment is the
action of an administrative agency equivalent to a decision and is therefore given the force of a judgment.
This being the case, it logically follows that the decision which was appealed was that of January 5, 1954 and that the 30-day period should have started
from the receipt of the said letter on January 25, 1954 (Exh. 14). No appeal having been taken from this decision, the same became final, conclusive
and executory (Roxas v. Sayoc, G. R. No. L-8502, Nov. 29, 1956).
Petitioner contends that the Collector waived the defense based on said section 11, when he failed to file a motion to dismiss within the reglementary
period and did not set it up as a defense in the answer filed by him. Suffice it to state, however, that a motion to dismiss may be allowed after the answer
is filed or even after the hearing had been commenced (Bugayong v. Ginez, G. R. No. L-10033, Dec. 28, 1956; 53 O.G. No. 4, p. 1050). Moreover, the
present case involves jurisdiction over subject-matter, which can not be waived, and which can be raised at any stage of the proceeding, even if no such
defense is made in the answer (Juanillo v. De la Rama, II Off. Gaz. 304 [1943]; I Francisco Trial Technique and Practice Court pp. 128-129).
Petitioner-appellant also claims that inasmuch as the disputed assessment was made prior to the creation and actual organization of the Tax Court (The
Court of Tax Appeals was established upon the enactment of R.A. No. 1125, although the act took effect only on July 21, 1954 with the appointment of
two judges and the Court Personnel and with the adoption by it in the interim of the Rules and Regulations of the defunct Board of Tax Appeals [See Sta.
Clara Lumber Co. v. Coll of Int. Rev. CTA Case No. 91, Res. dated Sept. 20, 1955]), there was, legally speaking, no 30-day period to compute or

determine in relation to the appeals from the decisions of the Collector. However, in admitting that the disputed assessment was issued prior to the
organization of the Tax Court, the petitioner-appellant, if it really wanted to protect itself, should have paid the taxes due and then filed a suit for their
refund under section 306 of the Tax Code with the proper Court of First Instance. The petitioner-appellant failed to take this step. With the actual
organization of the Tax Court on July 21, 1954, the petitioner-appellant could have filed a petition for review with the said court within 30 days after July
21, 1954 (Sta. Clara Lumber Co. vs. Court of Int. Rev., supra; Ipekdian Merchandising Co. Inc. vs. C.I. Revenue, CTA Case No. 107). In these two CTA
cases, the petitioner-taxpayer appealed the decisions of the Collector to the defunct Board of Tax Appeals which found for the respondent-appellee.
Later, they appealed to this Court which dismissed their cases without prejudice. When they brought these cases to the Tax Court, the latter dismissed
them for having been filed outside the 30-day period after July 21, 1954. In the case at bar, after receipt of the Collector's demand letter dated January 5,
1954, petitioner not only did not pay the taxes due and sue for their refund but also failed to file its petition for review within 30 days after July 21, 1954.
A taxpayer should display more alertness in the protection of his rights (Koppel [Phil.], Inc. vs. Coll. Int. Rev., G.R. No. L-10550, Sept. 19, 1961).
Petitioner-appellant argues that the Tax Court acted erroneously in not holding that insofar as the Collector's order to collect (by warrant of distraint and
levy) is concerned, it has the power to hear and determine the legality thereof, because the appeal from said order had been timely made to said court
by petitioner-appellant. This argument is unmeritorious once it is considered, as we do, that what has been appealed in this case is the decision of the
Tax Court dated January 5, 1957, in which decision, the incident regarding the legality or illegality of the Collector's issuance of the warrant of distraint
and levy had not at all been brought out or ventilated.
IN VIEW HEREOF, the resolution appealed from being in accordance with law, hereby is affirmed en toto, with costs against the petitioner-appellant.

Agency by Estoppel

FIRST DIVISION

EDUARDO V. LINTONJUA, JR. G.R. No. 144805

and ANTONIO K. LITONJUA,
Petitioners,
Present:
PANGANIBAN, C.J., Chairperson,
- versus - YNARES-SANTIAGO,*
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.
ETERNIT CORPORATION
(now ETERTON MULTIRESOURCES CORPORATION),
ETEROUTREMER, S.A. and Promulgated:
FAR EAST BANK & TRUST
COMPANY, June 8, 2006
Respondents.

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

DECISION

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 51022, which affirmed the Decision of
the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution [2] of the CA denying the motion for
reconsideration thereof.

The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since 1950, it had been engaged in the manufacture
of roofing materials and pipe products. Its manufacturing operations were conducted on eight parcels of land with a total area of 47,233 square meters.
The properties, located in Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121,
451122, 451124 and 451125 under the name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were
owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the laws of Belgium.[3] Jack Glanville, an Australian
citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their
offices in Belgium.

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

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

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

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted the counterproposal of Delsaux.
Marquez conferred with Glanville, and in a Letter dated February 26, 1987, confirmed that the Litonjua siblings had accepted the counter-proposal of
Delsaux. He also stated that the Litonjua siblings would confirm full payment within 90 days after execution and preparation of all documents of sale,
together with the necessary governmental clearances.[6]
The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company, Ermita Branch, and drafted an
Escrow Agreement to expedite the sale.[7]

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be implemented. In a telex dated April 22, 1987,
Glanville informed Delsaux that he had met with the buyer, which had given him the impression that he is prepared to press for a satisfactory conclusion
to the sale.[8] He also emphasized to Delsaux that the buyers were concerned because they would incur expenses in bank commitment fees as a
consequence of prolonged period of inaction.[9]

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

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

May 22, 1987

Mr. L.G. Marquez
L.G. Marquez, Inc.

334 Makati Stock Exchange Bldg.

6767 Ayala Avenue
Makati, Metro Manila
Philippines

Dear Sir:

Re: Land of Eternit Corporation

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

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

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

xxx

Yours sincerely,
(Sgd.)
C.F. DELSAUX

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

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

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

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

On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended complaint. [12] The fallo of the decision
reads:

WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer,
S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said defendants.

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

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

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

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

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

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

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

In the instant petition for review, petitioners aver that

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

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A WRITTEN
AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.

III

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

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels of land and the improvements thereon for
US$1,000,000.00 plusP2,500,000.00 to cover obligations prior to final liquidation. Petitioners insist that they had accepted the counter-offer of
respondent EC and that before the counter-offer was withdrawn by respondents, the acceptance was made known to them through real estate broker
Marquez.

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

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

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

1. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager of Eternit, to
sell the properties of said corporation to any interested party, which authority, as hereinabove discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS, from 1986 to
1987;

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

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

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

6. Glanvilles telex to Delsaux inquiring WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY AND SELL;

7. More importantly, Exhibits G and H of the Respondents, which evidenced the fact that Petitioners offer was
allegedly REJECTED by both Glanville and Delsaux.[18]

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners offer and thereafter reject such offer
unless they were authorized to do so by respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the properties in his letter to
Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

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

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

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

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX[19]

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

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

Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed to the written authority of
Marquez to sell the properties. The authority of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux
negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in
respondent EC at the time of the transaction, and the fact that respondent ESAC owns 90% of the shares of stock of respondent EC, a formal
resolution of the Board of Directors would be a mere ceremonial formality. What is important, petitioners maintain, is that Marquez was able to

communicate the offer of respondent EC and the petitioners acceptance thereof. There was no time that they acted without the knowledge of
respondents. In fact, respondent EC never repudiated the acts of Glanville, Marquez and Delsaux.

The petition has no merit.

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

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

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

We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case falls under any of the foregoing exceptions.
Indeed, the assailed decision of the Court of Appeals is supported by the evidence on record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had empowered Adams, Glanville
and Delsaux or Marquez to offer the properties for sale to prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove that
their counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It must be stressed that when specific performance is sought of
a contract made with an agent, the agency must be established by clear, certain and specific proof.[24]

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

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

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

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

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

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

xxxx

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

The property of a corporation, however, is not the property of the stockholders or members, and as such, may not be sold without express authority from
the board of directors.[27] Physical acts, like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer of prospective
buyers of such properties and the execution of the deed of sale covering such property, can be performed by the corporation only by officers or agents
duly authorized for the purpose by corporate by-laws or by specific acts of the board of directors. [28] Absent such valid delegation/authorization, the rule
is

that

the

declarations

of

an

individual

director

relating

to

the

affairs

of

the

corporation,

connected with, the performance of authorized duties of such director, are not binding on the corporation.

but

not

in

the

course

of,

or

[29]

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

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

An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his failure to repudiate the agency knowing
that another person is acting on his behalf without authority. Acceptance by the agent may be expressed, or implied from his acts which carry out the
agency, or from his silence or inaction according to the circumstances. [34] Agency may be oral unless the law requires a specific form. [35] However, to
create or convey real rights over immovable property, a special power of attorney is necessary. [36] Thus, when a sale of a piece of land or any portion
thereof is through an agent, the authority of the latter shall be in writing, otherwise, the sale shall be void.[37]

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of Directors of respondent EC empowering
Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned by respondent EC
including the improvements thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent
ESAC, on June 1, 1997, cannot be used as basis for petitioners claim that he had likewise been authorized by respondent EC to sell the parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux, who, in turn, acted on the authority of
respondent ESAC, through its Committee for Asia,[38] the Board of Directors of respondent ESAC,[39] and the Belgian/Swiss component of the
management of respondent ESAC.[40] As such, Adams and Glanville engaged the services of Marquez to offer to sell the properties to prospective
buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for sale the property for P27,000,000.00 and the
other terms of the sale subject to negotiations. When petitioners offered to purchase the property for P20,000,000.00, through Marquez, the latter
relayed petitioners offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to petitioners offer.However, as

admitted by petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait for
confirmation from respondent ESAC. [41] When Delsaux finally responded to Glanville on February 12, 1987, he made it clear that, based on the
Belgian/Swiss decision the final offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final
liquidation.[42] The offer of Delsaux emanated only from the Belgian/Swiss decision, and not the entire management or Board of Directors of respondent
ESAC. While it is true that petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a party to the transaction between them;
hence, EC was not bound by such acceptance.

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

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

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

It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As gleaned from the letter of Marquez to Glanville,
on February 26, 1987, he confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell the land and the improvements
thereon. However, we agree with the ruling of the appellate court that Marquez had no authority to bind respondent EC to sell the subject properties. A
real estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser who is willing to buy the
land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real
property does not include an authority to sell.[47]
Equally barren of merit is petitioners contention that respondent EC is estopped to deny the existence of a principal-agency relationship
between it and Glanville or Delsaux. For an agency by estoppel to exist, the following must be established: (1) the principal manifested a representation
of

the

agents

authority

or

knowlingly

allowed

the

agent

to

assume

such

authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon such representation, such third person has changed his
position to his detriment.[48]An agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the representations predated the action taken in reliance. [49] Such proof is lacking in this case. In their
communications to the petitioners, Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent
ESAC.

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

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

SO ORDERED.

THIRD DIVISION
[G.R. NO. 171460 : July 24, 2007]
LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR., represented by their Attorney-In-Fact, ALFREDO M.
PEREZ, Petitioners, v. ALLIED BANKING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by petitioners Lillian N. Mercado, Cynthia M.
Fekaris and Julian Mercado, Jr., represented by their Attorney-In-Fact, Alfredo M. Perez, seeking to reverse and set aside the Decision 1 of the Court of
Appeals dated 12 October 2005, and its Resolution2 dated 15 February 2006 in CA-G.R. CV No. 82636. The Court of Appeals, in its assailed Decision
and Resolution, reversed the Decision3 of the Regional Trial Court (RTC) of Quezon City, Branch 220 dated 23 September 2003, declaring the deeds of
real estate mortgage constituted on TCT No. RT-18206 (106338) null and void. The dispositive portion of the assailed Court of Appeals Decision thus
reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new judgment is hereby entered dismissing the [petitioners] complaint. 4
Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned several pieces of real property situated in different provinces of the
Philippines.
Respondent, on the other hand, is a banking institution duly authorized as such under the Philippine laws.
On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her husband, Julian D. Mercado (Julian) over several pieces of real
property registered under her name, authorizing the latter to perform the following acts:
1. To act in my behalf, to sell, alienate, mortgage, lease and deal otherwise over the different parcels of land described hereinafter, to wit:
a) Calapan, Oriental Mindoro Properties covered by Transfer Certificates of Title Nos. T-53618 - 3,522 Square Meters, T-46810 - 3,953 Square Meters,
T-53140 - 177 Square Meters, T-21403 - 263 square Meters, T - 46807 - 39 Square Meters of the Registry of Deeds of Oriental Mindoro;
b) Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos. T-108954 - 600 Square Meters and RT-106338 - 805 Square Meters of the
Registry of Deeds of Pasig (now Makati);
c) Personal property - 1983 Car with Vehicle Registration No. R-16381; Model 1983; Make - Toyota; Engine No. T - 2464
2. To sign for and in my behalf any act of strict dominion or ownership any sale, disposition, mortgage, lease or any other transactions including quitclaims, waiver and relinquishment of rights in and over the parcels of land situated in General Trias, Cavite, covered by Transfer Certificates of Title Nos.
T-112254 and T-112255 of the Registry of Deeds of Cavite, in conjunction with his co-owner and in the person ATTY. AUGUSTO F. DEL ROSARIO;
3. To exercise any or all acts of strict dominion or ownership over the above-mentioned properties, rights and interest therein. (Emphasis supplied.)
On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a loan from the respondent in the amount of P3,000,000.00, secured by
real estate mortgage constituted on TCT No. RT-18206 (106338) which covers a parcel of land with an area of 805 square meters, registered with the
Registry of Deeds of Quezon City (subject property).5
Still using the subject property as security, Julian obtained an additional loan from the respondent in the sum of P5,000,000.00, evidenced by a
Promissory Note6 he executed on 5 February 1997 as another real estate mortgage (REM).
It appears, however, that there was no property identified in the SPA as TCT No. RT - 18206 (106338) and registered with the Registry of Deeds of
Quezon City. What was identified in the SPA instead was the property covered by TCT No. RT-106338 registered with the Registry of Deeds of Pasig.
Subsequently, Julian defaulted on the payment of his loan obligations. Thus, respondent initiated extra-judicial foreclosure proceedings over the subject
property which was subsequently sold at public auction wherein the respondent was declared as the highest bidder as shown in the Sheriff's Certificate
of Sale dated 15 January 1998.7
On 23 March 1999, petitioners initiated with the RTC an action for the annulment of REM constituted over the subject property on the ground that the
same was not covered by the SPA and that the said SPA, at the time the loan obligations were contracted, no longer had force and effect since it was
previously revoked by Perla on 10 March 1993, as evidenced by the Revocation of SPA signed by the latter.8
Petitioners likewise alleged that together with the copy of the Revocation of SPA, Perla, in a Letter dated 23 January 1996, notified the Registry of Deeds
of Quezon City that any attempt to mortgage or sell the subject property must be with her full consent documented in the form of an SPA duly
authenticated before the Philippine Consulate General in New York.9

In the absence of authority to do so, the REM constituted by Julian over the subject property was null and void; thus, petitioners likewise prayed that the
subsequent extra-judicial foreclosure proceedings and the auction sale of the subject property be also nullified.
In its Answer with Compulsory Counterclaim,10 respondent averred that, contrary to petitioner's allegations, the SPA in favor of Julian included the
subject property, covered by one of the titles specified in paragraph 1(b) thereof, TCT No. RT - 106338 registered with the Registry of Deeds of Pasig
(now Makati). The subject property was purportedly registered previously under TCT No. T-106338, and was only subsequently reconstituted as TCT
RT-18206 (106338). Moreover, TCT No. T-106338 was actually registered with the Registry of Deeds of Quezon City and not before the Registry of
Deeds of Pasig (now Makati). Respondent explained that the discrepancy in the designation of the Registry of Deeds in the SPA was merely an error
that must not prevail over the clear intention of Perla to include the subject property in the said SPA. In sum, the property referred to in the SPA Perla
executed in favor of Julian as covered by TCT No. 106338 of the Registry of Deeds of Pasig (now Makati) and the subject property in the case at bar,
covered by RT - 18206 (106338) of the Registry of Deeds of Quezon City, are one and the same.
On 23 September 2003, the RTC rendered a Decision declaring the REM constituted over the subject property null and void, for Julian was not
authorized by the terms of the SPA to mortgage the same. The court a quo likewise ordered that the foreclosure proceedings and the auction sale
conducted pursuant to the void REM, be nullified. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the [herein petitioners] and against the [herein respondent] Bank:
1. Declaring the Real Estate Mortgages constituted and registered under Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT No. RT18206 (106338) of the Registry of Deeds of Quezon City as NULL and VOID;
2. Declaring the Sheriff's Sale and Certificate of Sale under FRE No. 2217 dated January 15, 1998 over the property covered by TCT No. RT-18206
(106338) of the Registry of Deeds of Quezon City as NULL and VOID;
3. Ordering the defendant Registry of Deeds of Quezon City to cancel the annotation of Real Estate Mortgages appearing on Entry Nos. PE-4543/RT18206 and 2012/RT-18206 on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City;
4. Ordering the [respondent] Bank to deliver/return to the [petitioners] represented by their attorney-in-fact Alfredo M. Perez, the original Owner's
Duplicate Copy of TCT No. RT-18206 (106338) free from the encumbrances referred to above; andcralawlibrary
5. Ordering the [respondent] Bank to pay the [petitioners] the amount ofP100,000.00 as for attorney's fees plus cost of the suit.
The other claim for damages and counterclaim are hereby DENIED for lack of merit. 11
Aggrieved, respondent appealed the adverse Decision before the Court of Appeals.
In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC Decision and upheld the validity of the REM constituted over the subject
property on the strength of the SPA. The appellate court declared that Perla intended the subject property to be included in the SPA she executed in
favor of Julian, and that her subsequent revocation of the said SPA, not being contained in a public instrument, cannot bind third persons.
The Motion for Reconsideration interposed by the petitioners was denied by the Court of Appeals in its Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision and Resolution rendered by the Court of Appeals raising several issues, which are summarized as
follows:
I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER SUBJECT PROPERTY.
II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.
III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN - GOOD FAITH.
For a mortgage to be valid, Article 2085 of the Civil Code enumerates the following essential requisites:
Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property.
In the case at bar, it was Julian who obtained the loan obligations from respondent which he secured with the mortgage of the subject property. The
property mortgaged was owned by his wife, Perla, considered a third party to the loan obligations between Julian and respondent. It was, thus, a
situation recognized by the last paragraph of Article 2085 of the Civil Code afore-quoted. However, since it was not Perla who personally mortgaged her
own property to secure Julian's loan obligations with respondent, we proceed to determining if she duly authorized Julian to do so on her behalf.
Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases where real rights over immovable property are created or
conveyed.12 In the SPA executed by Perla in favor of Julian on 28 May 1992, the latter was conferred with the authority to "sell, alienate, mortgage,
lease and deal otherwise" the different pieces of real and personal property registered in Perla's name. The SPA likewise authorized Julian "[t]o exercise
any or all acts of strict dominion or ownership" over the identified properties, and rights and interest therein. The existence and due execution of this
SPA by Perla was not denied or challenged by petitioners.

There is no question therefore that Julian was vested with the power to mortgage the pieces of property identified in the SPA. However, as to whether
the subject property was among those identified in the SPA, so as to render Julian's mortgage of the same valid, is a question we still must resolve.
Petitioners insist that the subject property was not included in the SPA, considering that it contained an exclusive enumeration of the pieces of property
over which Julian had authority, and these include only: (1) TCT No. T-53618, with an area of 3,522 square meters, located at Calapan, Oriental
Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (2) TCT No. T-46810, with an area of 3,953 square meters, located at Calapan,
Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140, with an area of 177 square meters, located at
Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403, with an area of 263 square meters,
located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (5) TCT No. T - 46807, with an area of 39 square
meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No. T-108954, with an area of 690
square meters and located at Susana Heights, Muntinlupa; (7) RT-106338 - 805 Square Meters registered with the Registry of Deeds of Pasig (now
Makati); and (8) Personal Property consisting of a 1983 Car with Vehicle Registration No. R-16381, Model - 1983, Make - Toyota, and Engine No. T 2464. Nowhere is it stated in the SPA that Julian's authority extends to the subject property covered by TCT No. RT - 18206 (106338) registered with the
Registry of Deeds of Quezon City. Consequently, the act of Julian of constituting a mortgage over the subject property is unenforceable for having been
done without authority.
Respondent, on the other hand, mainly hinges its argument on the declarations made by the Court of Appeals that there was no property covered by
TCT No. 106338 registered with the Registry of Deeds of Pasig (now Makati); but there exists a property, the subject property herein, covered by TCT
No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. Further verification would reveal that TCT No. RT-18206 is merely a
reconstitution of TCT No. 106338, and the property covered by both certificates of title is actually situated in Quezon City and not Pasig. From the
foregoing circumstances, respondent argues that Perla intended to include the subject property in the SPA, and the failure of the instrument to reflect the
recent TCT Number or the exact designation of the Registry of Deeds, should not defeat Perla's clear intention.
After an examination of the literal terms of the SPA, we find that the subject property was not among those enumerated therein. There is no obvious
reference to the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City.
There was also nothing in the language of the SPA from which we could deduce the intention of Perla to include the subject property therein. We cannot
attribute such alleged intention to Perla who executed the SPA when the language of the instrument is bare of any indication suggestive of such
intention. Contrariwise, to adopt the intent theory advanced by the respondent, in the absence of clear and convincing evidence to that effect, would run
afoul of the express tenor of the SPA and thus defeat Perla's true intention.
In cases where the terms of the contract are clear as to leave no room for interpretation, resort to circumstantial evidence to ascertain the true intent of
the parties, is not countenanced. As aptly stated in the case of JMA House, Incorporated v. Sta. Monica Industrial and Development Corporation, 13 thus:
[T]he law is that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation
shall control. When the language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it [in] any
other intention that would contradict its main import. The clear terms of the contract should never be the subject matter of interpretation. Neither abstract
justice nor the rule on liberal interpretation justifies the creation of a contract for the parties which they did not make themselves or the imposition upon
one party to a contract or obligation not assumed simply or merely to avoid seeming hardships. The true meaning must be enforced, as it is to be
presumed that the contracting parties know their scope and effects.14
Equally relevant is the rule that a power of attorney must be strictly construed and pursued. The instrument will be held to grant only those powers which
are specified therein, and the agent may neither go beyond nor deviate from the power of attorney.15Where powers and duties are specified and defined
in an instrument, all such powers and duties are limited and are confined to those which are specified and defined, and all other powers and duties are
excluded.16 This is but in accord with the disinclination of courts to enlarge the authority granted beyond the powers expressly given and those which
incidentally flow or derive therefrom as being usual and reasonably necessary and proper for the performance of such express powers. 17
Even the commentaries of renowned Civilist Manresa18 supports a strict and limited construction of the terms of a power of attorney:
The law, which must look after the interests of all, cannot permit a man to express himself in a vague and general way with reference to the right he
confers upon another for the purpose of alienation or hypothecation, whereby he might be despoiled of all he possessed and be brought to ruin, such
excessive authority must be set down in the most formal and explicit terms, and when this is not done, the law reasonably presumes that the principal
did not mean to confer it.
In this case, we are not convinced that the property covered by TCT No. 106338 registered with the Registry of Deeds of Pasig (now Makati) is the same
as the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. The records of the case are
stripped of supporting proofs to verify the respondent's claim that the two titles cover the same property. It failed to present any certification from the
Registries of Deeds concerned to support its assertion. Neither did respondent take the effort of submitting and making part of the records of this case
copies of TCTs No. RT-106338 of the Registry of Deeds of Pasig (now Makati) and RT-18206 (106338) of the Registry of Deeds of Quezon City, and
closely comparing the technical descriptions of the properties covered by the said TCTs. The bare and sweeping statement of respondent that the
properties covered by the two certificates of title are one and the same contains nothing but empty imputation of a fact that could hardly be given any
evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not conferred by Perla with the authority to mortgage the subject property under the terms of the SPA,
the real estate mortgages Julian executed over the said property are therefore unenforceable.
Assuming arguendo that the subject property was indeed included in the SPA executed by Perla in favor of Julian, the said SPA was revoked by virtue of
a public instrument executed by Perla on 10 March 1993. To address respondent's assertion that the said revocation was unenforceable against it as a
third party to the SPA and as one who relied on the same in good faith, we quote with approval the following ruling of the RTC on this matter:
Moreover, an agency is extinguished, among others, by its revocation (Article 1999, New Civil Code of the Philippines). The principal may revoke the
agency at will, and compel the agent to return the document evidencing the agency. Such revocation may be express or implied (Article 1920, supra).
In this case, the revocation of the agency or Special Power of Attorney is expressed and by a public document executed on March 10, 1993.

The Register of Deeds of Quezon City was even notified that any attempt to mortgage or sell the property covered by TCT No. [RT-18206] 106338
located at No. 21 Hillside Drive, Blue Ridge, Quezon City must have the full consent documented in the form of a special power of attorney duly
authenticated at the Philippine Consulate General, New York City, N.Y., U.S.A.
The non-annotation of the revocation of the Special Power of Attorney on TCT No. RT-18206 is of no consequence as far as the revocation's existence
and legal effect is concerned since actual notice is always superior to constructive notice. The actual notice of the revocation relayed to defendant
Registry of Deeds of Quezon City is not denied by either the Registry of Deeds of Quezon City or the defendant Bank. In which case, there appears no
reason why Section 52 of the Property Registration Decree (P.D. No. 1529) should not apply to the situation. Said Section 52 of P.D. No. 1529 provides:
"Section 52. Constructive notice upon registration. - Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting
registered land shall, if registered, filed or entered in the Office of the Register of Deeds for the province or city where the land to which it relates lies, be
constructive notice to all persons from the time of such registering, filing or entering. (Pres. Decree No. 1529, Section 53) (emphasis ours)
It thus developed that at the time the first loan transaction with defendant Bank was effected on December 12, 1996, there was on record at the Office of
the Register of Deeds of Quezon City that the special power of attorney granted Julian, Sr. by Perla had been revoked. That notice, works as
constructive notice to third parties of its being filed, effectively rendering Julian, Sr. without authority to act for and in behalf of Perla as of the date the
revocation letter was received by the Register of Deeds of Quezon City on February 7, 1996.19
Given that Perla revoked the SPA as early as 10 March 1993, and that she informed the Registry of Deeds of Quezon City of such revocation in a letter
dated 23 January 1996 and received by the latter on 7 February 1996, then third parties to the SPA are constructively notified that the same had been
revoked and Julian no longer had any authority to mortgage the subject property. Although the revocation may not be annotated on TCT No. RT-18206
(106338), as the RTC pointed out, neither the Registry of Deeds of Quezon City nor respondent denied that Perla's 23 January 1996 letter was received
by and filed with the Registry of Deeds of Quezon City. Respondent would have undoubtedly come across said letter if it indeed diligently investigated
the subject property and the circumstances surrounding its mortgage.
The final issue to be threshed out by this Court is whether the respondent is a mortgagee-in-good faith. Respondent fervently asserts that it exercised
reasonable diligence required of a prudent man in dealing with the subject property.
Elaborating, respondent claims to have carefully verified Julian's authority over the subject property which was validly contained in the SPA. It stresses
that the SPA was annotated at the back of the TCT of the subject property. Finally, after conducting an investigation, it found that the property covered by
TCT No. 106338, registered with the Registry of Deeds of Pasig (now Makati) referred to in the SPA, and the subject property, covered by TCT No.
18206 (106338) registered with the Registry of Deeds of Quezon City, are one and the same property. From the foregoing, respondent concluded that
Julian was indeed authorized to constitute a mortgage over the subject property.
We are unconvinced. The property listed in the real estate mortgages Julian executed in favor of PNB is the one covered by "TCT#RT-18206(106338)."
On the other hand, the Special Power of Attorney referred to TCT No. "RT-106338 - 805 Square Meters of the Registry of Deeds of Pasig now Makati."
The palpable difference between the TCT numbers referred to in the real estate mortgages and Julian's SPA, coupled with the fact that the said TCTs
are registered in the Registries of Deeds of different cities, should have put respondent on guard. Respondent's claim of prudence is debunked by the
fact that it had conveniently or otherwise overlooked the inconsistent details appearing on the face of the documents, which it was relying on for its rights
as mortgagee, and which significantly affected the identification of the property being mortgaged. In Arrofo v. Quio,20 we have elucidated that:
[Settled is the rule that] a person dealing with registered lands [is not required] to inquire further than what the Torrens title on its face indicates. This
rule, however, is not absolute but admits of exceptions. Thus, while its is true, x x x that a person dealing with registered lands need not go
beyond the certificate of title, it is likewise a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a
reasonable man on his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or
mortgagor. His mere refusal to face up the fact that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in
the vendor's or mortgagor's title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it
appears that he had such notice of the defect as would have led to its discovery had he acted with the measure of precaution which may be required of
a prudent man in a like situation.
By putting blinders on its eyes, and by refusing to see the patent defect in the scope of Julian's authority, easily discernable from the plain terms of the
SPA, respondent cannot now claim to be an innocent mortgagee.
Further, in the case of Abad v. Guimba,21 we laid down the principle that where the mortgagee does not directly deal with the registered owner of real
property, the law requires that a higher degree of prudence be exercised by the mortgagee, thus:
While [the] one who buys from the registered owner does not need to look behind the certificate of title, one who buys from [the] one who is not [the]
registered owner is expected to examine not only the certificate of title but all factual circumstances necessary for [one] to determine if there are any
flaws in the title of the transferor, or in [the] capacity to transfer the land. Although the instant case does not involve a sale but only a mortgage, the same
rule applies inasmuch as the law itself includes a mortgagee in the term "purchaser."22
This principle is applied more strenuously when the mortgagee is a bank or a banking institution. Thus, in the case of Cruz v. Bancom
Finance Corporation,23 we ruled:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is expected to exercise greater care
and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a
mortgage contract. The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable
part of its operations.24
Hence, considering that the property being mortgaged by Julian was not his, and there are additional doubts or suspicions as to the real identity of the
same, the respondent bank should have proceeded with its transactions with Julian only with utmost caution. As a bank, respondent must subject all its
transactions to the most rigid scrutiny, since its business is impressed with public interest and its fiduciary character requires high standards of integrity
and performance.25 Where respondent acted in undue haste in granting the mortgage loans in favor of Julian and disregarding the apparent defects in
the latter's authority as agent, it failed to discharge the degree of diligence required of it as a banking corporation.rbl rl l lbrr
Thus, even granting for the sake of argument that the subject property and the one identified in the SPA are one and the same, it would not elevate
respondent's status to that of an innocent mortgagee. As a banking institution, jurisprudence stringently requires that respondent should take more

precautions than an ordinary prudent man should, to ascertain the status and condition of the properties offered as collateral and to verify the scope of
the authority of the agents dealing with these. Had respondent acted with the required degree of diligence, it could have acquired knowledge of the letter
dated 23 January 1996 sent by Perla to the Registry of Deeds of Quezon City which recorded the same. The failure of the respondent to investigate into
the circumstances surrounding the mortgage of the subject property belies its contention of good faith.
On a last note, we find that the real estate mortgages constituted over the subject property are unenforceable and not null and void, as ruled by the RTC.
It is best to reiterate that the said mortgage was entered into by Julian on behalf of Perla without the latter's authority and consequently, unenforceable
under Article 1403(1) of the Civil Code. Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they are ratified,
because either they are entered into without or in excess of authority or they do not comply with the statute of frauds or both of the contracting parties do
not possess the required legal capacity.26 An unenforceable contract may be ratified, expressly or impliedly, by the person in whose behalf it has been
executed, before it is revoked by the other contracting party.27 Without Perla's ratification of the same, the real estate mortgages constituted by Julian
over the subject property cannot be enforced by any action in court against Perla and/or her successors in interest.
In sum, we rule that the contracts of real estate mortgage constituted over the subject property covered by TCT No. RT - 18206 (106338) registered with
the Registry of Deeds of Quezon City are unenforceable. Consequently, the foreclosure proceedings and the auction sale of the subject property
conducted in pursuance of these unenforceable contracts are null and void. This, however, is without prejudice to the right of the respondent to proceed
against Julian, in his personal capacity, for the amount of the loans.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The Decision dated 12 October 2005 and its Resolution dated 15
February 2006 rendered by the Court of Appeals in CA-G.R. CV No. 82636, are hereby REVERSED. The Decision dated 23 September 2003 of the
Regional Trial Court of Quezon City, Branch 220, in Civil Case No. Q-99-37145, is hereby REINSTATED and AFFIRMED with modification that the real
estate mortgages constituted over TCT No. RT - 18206 (106338) are not null and void but UNENFORCEABLE. No costs.
SO ORDERED.

Irrevocable Agency

SECOND DIVISION
G.R. Nos. 148404-05

April 11, 2002

NELITA M. BACALING, represented by her attorney-in-fact JOSE JUAN TONG, and JOSE JUAN TONG, in his personal capacity, petitioners,
vs.
FELOMINO MUYA, CRISPIN AMOR, WILFREDO JEREZA, RODOLFO LAZARTE and NEMESIO TONOCANTE,respondents.
DE LEON, JR., J.:
Before us is a Petition for Review of the consolidated Decision1 dated January 31, 2001 of the Court of Appeals2in CA-G.R. SP No. 54413,3 and in CAG.R. SP No. 54414,4 and of its Resolution5 dated June 5, 2001 reversing the Decision6 dated May 22, 1998 and Resolution July 22, 1999 of the Office of
the President.
The facts of the case are as follows:
Petitioner Nelita M. Bacaling and her spouse Ramon Bacaling were the owners of three (3) parcels of land, with a total area of 9.9631 hectares, located
in Barangay Cubay, Jaro, Iloilo City, and designated as Lot No. 2103-A (Psd-24069), Lot No. 2103-B-12 (Psd 26685) and Lot No. 2295. These lots were
duly covered by Transfer Certificates of Title Nos. T-5801, T-5833 and T-5834, respectively. In 1955 the landholding was subdivided into one hundred ten
(110) sub-lots covered by TCT Nos. T-10664 to T-10773, inclusive of the Registry of Deeds of the City of Iloilo. On May 16, 1955, the landholding was
processed and approved as "residential" or "subdivision" by the National Urban Planning Commission (NUPC). 7 On May 24, 1955 the Bureau of Lands
approved the corresponding subdivision plan for purposes of developing the said property into a low-cost residential community which the spouses
referred to as the Bacaling-Moreno Subdivision.8
In 1957, a real estate loan of Six Hundred Thousand Pesos (P600,000.00) was granted to the spouses Nelita and Ramon Bacaling by the Government
Service Insurance System (GSIS) for the development of the subdivision. 9To secure the repayment of the loan, the Bacalings executed in favor of the
GSIS a real estate mortgage over their parcels of land including the one hundred ten (110) sub-lots.10 Out of the approved loan of Six Hundred Thousand
Pesos (P600,000.00), only Two Hundred Forty Thousand Pesos (P240,000.00) was released to them.11 The Bacalings failed to pay the
amortizations on the loan and consequently the mortgage constituted on the one hundred ten (110) sub-lots was foreclosed by the GSIS.12 After a
court case that reached all the way to this Court,13 Nelita Bacaling (by then a widow) in 1989 was eventually able to restore to herself ownership of the
one hundred ten (110) sub-lots.14
According to the findings of the Office of the President, in 1972 and thereafter, respondents Felomino Muya, Crispin Amor, Wilfredo Jereza, Rodolfo
Lazarte and Nemesio Tonocante clandestinely entered and occupied the entire one hundred ten (110) sub-lots (formerly known as Lot No. 2103-A, Lot
No. 2103-B-12 and Lot No. 2295) and grabbed exclusively for themselves the said 9.9631 hectare landholding.15 Apparently, respondents took
advantage of the problematic peace and order situation at the onset of martial law and the foreclosure of the lots by GSIS. 16 They sowed the lots as if the
same were their own, and altered the roads, drainage, boundaries and monuments established thereon.17
Respondents, on the other hand, claim that in 1964 they were legally instituted by Bacaling's administrator/overseer as tenant-tillers of the subject
parcels of land on sharing basis with two and a half (2) hectares each for respondents Muya, Amor, Tonocante and Lazarte, and one and a half (1)
hectares for respondent Jereza. In 1974, their relationship with the landowner was changed to one of leasehold. They religiously delivered their rental

payments to Bacaling as agricultural lessor. In 1980, they secured certificates of land transfer in their names for the one hundred ten (110) sub-lots. They
have made various payments to the Land Bank of the Philippines as amortizing owners-cultivators of their respective tillage.
In 1977, however, the City Council of Iloilo enacted Zoning Ordinance No. 212 declaring the one hundred ten (110) sub-lots as "residential" and "nonagricultural," which was consistent with the conversion effected in 1955 by the NUPC and the Bureau of Lands. In 1978, Nelita Bacaling was able to
register the subject property as the Bacaling-Moreno Subdivision with the National Housing Authority and to obtain therefrom a license to sell the subject
one hundred ten (110) sub-lots comprising the said subdivision to consummate the original and abiding design to develop a low-cost residential
community.
In August 21, 1990, petitioner Jose Juan Tong, together with Vicente Juan and Victoria Siady, bought from Nelita Bacaling the subject one hundred ten
(110) sub-lots for One Million Seven Hundred Thousand Pesos (P1,700,000.00).18 The said sale was effected after Bacaling has repurchased the subject
property from the Government Service Insurance System. To secure performance of the contract of absolute sale and facilitate the transfer of title of the
lots to Jose Juan Tong, Bacaling appointed him in 1992 as her attorney-in-fact, under an irrevocable special power of attorney with the following
mandate1. To file, defend and prosecute any case/cases involving lots nos. 1 to 110 covered by TCT Nos. T-10664 to T-10773 of the Register of Deeds
of the City of Iloilo;
2. To assume full control, prosecute, terminate and enter into an amicable settlement and compromise agreement of all cases now pending
before the DARAB, Region VI, Iloilo City, which involved portion of Lots 1 to 110, covered by TCT Nos. T-10664 to T-10773 of the Register of
Deeds of Iloilo City, which were purchased by Jose Juan Tong, Vicente Juan Tong and Victoria Siady;
3. To hire a lawyer/counsel which he may deem fit and necessary to effect and attain the foregoing acts and deeds; handle and prosecute the
aforesaid cases;
4. To negotiate, cause and effect a settlement of occupation and tenants on the aforesaid lots;
5. To cause and effect the transfer of the aforesaid lots in the name of the VENDEES;
6. To execute and deliver document/s or instrument of whatever nature necessary to accomplish the foregoing acts and deeds. 19
It is significant to note that ten (10) years after the perfection and execution of the sale, or on April 26, 2000, Bacaling filed a complaint to nullify the
contract of sale. The suit was, however, dismissed with prejudice and the dismissal has long become final and executory.20
Following the sale of the one hundred ten (110) sub-lots and using the irrevocable special power of attorney executed in his favor, petitioner Tong
(together with Bacaling) filed a petition for cancellation of the certificates of land transfer against respondents and a certain Jaime Ruel with the
Department of Agrarian Reform (DAR) Region VI Office in Iloilo City.21 The DAR, however, dismissed the petition on the ground that there had been no
legitimate conversion of the classification of the 110 sub-lots from agricultural to residential prior to October 21, 1972 when Operation Land Transfer
under P.D. No. 72 took effect.22 Bacaling and Tong appealed to the DAR Central Office but their appeal was similarly rejected. 23 The motion for
reconsideration failed to overturn the ruling of the Central Office Order.24
On September 19, 1997, Bacaling and Tong appealed the adverse DAR Orders to the Office of the President which reversed them in toto in a
Decision25 dated May 22, 1998 (OP Decision, for brevity), the dispositive portion of which reads:
WHEREFORE, premises [considered], the assailed order of the Regional Director, DAR Region VI, dated April 3, 1996, as well as the orders
of the DAR Secretary dated December 12, 1996 and September 4, 1997, are hereby REVERSED AND SET ASIDE and subject landholdings
declared exempt from coverage of the CARL. The Certificates of Land Transfer (CLTs) issued to the appellees are hereby cancelled and the
Department of Agrarian Reform directed to implement the voluntary offer made by appellant with respect to the payment of disturbance
compensation and relocation of the affected parties. 1wphi1.nt
SO ORDERED.26
The OP Decision found that the one hundred ten (110) parcels of land had been completely converted from agricultural to residential lots as a result of
the declarations of the NUPC and the Bureau of Lands and the factual circumstances, i.e., the GSIS loan with real estate mortgage, the division of the
original three (3) parcels of land into one hundred ten (110) sub-lots under individual certificates of title, and the establishment of residential communities
adjacent to the subject property, which indubitably proved the intention of Nelita and Ramon Bacaling to develop a residential subdivision thereon.
The OP Decision also categorically acknowledged the competence of the NUPC and the Bureau of Lands to classify the one hundred ten (110) sub-lots
into residential areas. On July 22, 1999, separate motions for reconsideration thereof were denied.27
Respondents elevated the OP Decision to the Court of Appeals on a petition for review under Rule 43 of the Rules of Civil Procedure. 28 Before the
petition was resolved, or on December 2, 1999, Nelita Bacaling manifested to the appellate court that she was revoking the irrevocable power of attorney
in favor of Jose Juan Tong and that she was admitting the status of respondents as her tenants of the one hundred ten (110) sub-lots which allegedly
were agricultural in character. The manifestation was however characterized by an obvious streak of ambivalence when her prayer therein urged the
Court of Appeals to decide the case, curiously, "on the basis of the clear intent of Private Respondent" and "in accordance with the perception of this
Honorable Court."29
On January 31, 2001 the Court of Appeals reversed the OP Decision and validated the certificates of land transfers in favor of respondents without
however promulgating a ruling on petitioner Tong's supposedly ensuing lack of material interest in the controversy as a result of the manifestation. 30 The
dispositive portion of the decision reads:
WHEREFORE, premises considered, petition is GRANTED; and the May 22, 1998 Decision of the Office of the President is hereby
REVERSED and SET ASIDE. The April 3, 1996 Order of the Regional Director, DARAB, Region VI, is REINSTATED. 31
The appellate court refused to recognize the 1955 NUPC and Bureau of Lands classification of the subject lots as residential subdivision. Tong moved
for reconsideration of the CA Decision which Bacaling did not oppose despite her manifestation. On June 5, 2001, again without a single reference to

Bacaling's alleged repudiation of Tong's actions, the Court of Appeals denied reconsideration of its decision, 32 Hence, this petition for review on certiorari
based on the following assignment of errors:
I
SUBJECT LANDHOLDINGS ARE EXEMPT FROM THE COVERAGE OF P.D. 27 AND OPERATION LAND TRANSFER (1972, AS WELL (sic)
THE COMPREHENSIVE AGRARIAN REFORM LAW (1988) AS THEY WERE CLASSIFIED AS RESIDENTIAL WAY BACK IN 1955 BY THE
THEN NATIONAL PLANNING COMMISSION AND THE SUBDIVSION PLAN WAS APPROVED BY THE BUREAU OF LANDS. AS A
CONSEQUENCE, THE CLTs ISSUED TO PRIVATE RESPONENTS IN OCTOBER, 1980 ARE INVALID AS HAVING BEEN ISSUED
WITHOUT JURISDICTION.
II
PRIVATE RESPONDENTS ARE NOT BONA FIDE TENANTS OF THE LANDS INVOLVED. PUBLIC REPSONDENT'S RULING THAT THE
LATTER ARE SUCH IS CONTRARY TO LAW AS IT IGNORED THE FACT THAT THE LANDHOLDINGS ARE RESIDENTIAL AND NO
COMPETENT PROOF OF CONSENT OF THE OWNER WAS EVER PRESENTED BY PRIVATE RESPONDENTS.
III
APPROVAL OF THE SECRETARY OF AGRARIAN REFORM IS NOT NECESSARY FOR THE VALID CLASSIFICATION OF THE LANDS
INVOLVED INTO RESIDENTIAL BECAUSE THE CARL, AS ALSO THE RELATED AGRARIAN LAWS, HAVE NO RETROACTIVE
APPLICATION.33
Long after issues were joined in the instant proceedings, or on October 8, 2001, petitioner Nelita Bacaling resurrected her manifestation with the Court of
Appeals and moved to withdraw/dismiss the present petition on the ground that the irrevocable power of attorney in favor of petitioner Jose Juan Tong
had been nullified by her and that Tong consequently lacked the authority to appear before this Court.34 She also manifested that, contrary to the
arguments of petitioner Tong, respondents were bona fide tenants of the one hundred ten (110) sub-lots which were allegedly agricultural and not
residential pieces of realty.35 Accordingly, petitioner Tong was left all alone to pursue the instant case.
The issues in this case can be summarized as follows: (1) Does petitioner Tong have the requisite interest to litigate this petition for review on certiorari?;
(2) Are the respondents agricultural lessees?; and (3) Are the one hundred ten (110) sub-lots admittedly classified for residential use by the National
Urban Planning Commission and the Bureau of Lands prior to October 21, 197236 covered by the Operation Land Transfer under P.D. No. 72?
We hold that petitioner Jose Juan Tong possesses adequate and legitimate interest to file the instant petition. Under our rules of
procedure, interest means material interest, that is, an interest in issue and to be affected by the judgment,37 while a real party in interest is the party who
would be benefited or injured by the judgment or the party entitled to the avails of the suit. 38 There should be no doubt that as transferee of the one
hundred ten (110) sub-lots through a contract of sale and as the attorney-in-fact of Nelita Bacaling, former owner of the subject lots, under an irrevocable
special power of attorney, petitioner Tong stands to be benefited or injured by the judgment in the instant case as well as the orders and decisions in the
proceedings a quo. The deed of sale categorically states that petitioner Tong and his co-sellers have fully paid for the subject parcels of land. The said
payment has been duly received by Bacaling. Hence, it stands to reason that he has adequate and material interest to pursue the present petition to
finality.
Respondents put too much weight on the motion to dismiss/withdraw filed by Nelita Bacaling. Under the facts obtaining in this case, the motion should
be treated cautiously, and more properly, even skeptically. It is a matter of law that when a party adopts a certain theory in the court below, he will not be
permitted to change his theory on appeal, for to permit him to do so would not only be unfair to the other party but it would also be offensive to the basic
rules of fair play, justice and due process.39 Bacaling's motion to dismiss the instant petition comes at the heels of her admission that she had immensely
benefited from selling the said one hundred ten (110) sub-lots to petitioner Tong and of the dismissal with prejudice of the civil case which she had earlier
filed to nullify the sale.40 It appears that the motion to dismiss is a crude and belated attempt long after the dismissal of the civil case to divest Tong of his
indubitable right of ownership over the one hundred ten (110) sub-lots through the pretext of revoking the irrevocable special power of attorney which
Bacaling had executed in his favor hoping that in the process that her act would cause the assailed orders of the DAR to become final and executory.
The records also bear out the fact that Bacaling's design to dispossess petitioner Tong of material interest in the subject matter of the instant petition
appears to be subtly coordinated with respondents' legal maneuvers when it began as a side pleading (a mere Manifestation) in the proceedings before
the Court of Appeals (CA-G.R. SP No. 54413 and CA-G.R. SP No. 54414) but which was never pursued to its ultimate conclusion until it again surfaced
before this Court long after respondents' voluminous comment to the instant petition had been filed. Under these circumstances, we certainly cannot
place our trust upon such an unsolicited motion having dubious roots, character and purpose.
Substantively, we rule that Bacaling cannot revoke at her whim and pleasure the irrevocable special power of attorney which she had duly executed in
favor of petitioner Jose Juan Tong and duly acknowledged before a notary public. The agency, to stress, is one coupled with interest which is explicitly
irrevocable since the deed of agency was prepared and signed and/or accepted by petitioner Tong and Bacaling with a view to completing the
performance of the contract of sale of the one hundred ten (110) sub-lots. It is for this reason that the mandate of the agency constituted Tong as the real
party in interest to remove all clouds on the title of Bacaling and that, after all these cases are resolved, to use the irrevocable special power of attorney
to ultimately "cause and effect the transfer of the aforesaid lots in the name of the vendees [Tong with two (2) other buyers] and execute and deliver
document/s or instrument of whatever nature necessary to accomplish the foregoing acts and deeds." 41 The fiduciary relationship inherent in ordinary
contracts of agency is replaced by material consideration which in the type of agency herein established bars the removal or dismissal of petitioner Tong
as Bacaling's attorney-in-fact on the ground of alleged loss of trust and confidence.
While Bacaling alleges fraud in the performance of the contract of agency to justify its revocation, it is significant to note that allegations are not proof,
and that proof requires the intervention of the courts where both petitioners Tong and Bacaling are heard. Stated otherwise, Bacaling cannot vest in
herself just like in ordinary contracts the unilateral authority of determining the existence and gravity of grounds to justify the rescission of the irrevocable
special power of attorney. In Sevilla v. Court of Appeals42 we thus heldBut unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties, cannot be
revoked at will. The reason is that it is one coupled with an interest, the agency having been created for the mutual interest of the agent and
the principal xxx [Petitioner's] interest, obviously, is not limited to the commissions she earned as a result of her business transactions, but one
that extends to the very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at
the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner x x x to damages.

The requirement of a judicial process all the more assumes significance in light of the dismissal with prejudice, hence, res judicata, of Bacaling's
complaint to annul the contract of sale which in turn gave rise to the irrevocable special power of attorney. It is clear that prima facie there are more than
sufficient reasons to deny the revocation of the said special power of attorney which is coupled with interest. Inasmuch as no judgment has set aside the
agency relationship between Bacaling and Tong, we rule that petitioner Tong maintains material interest to prosecute the instant petition with or without
the desired cooperation of Bacaling.
On the issue of whether the private respondents are agricultural tenants and entitled to the benefits accorded by our agrarian laws, we rule in the
negative. The requisites in order to have a valid agricultural leasehold relationship are: (1) The parties are the landowner and the tenant or agricultural
lessee; (2) The subject matter of the relationship is agricultural land; (3) There is consent between the parties to the relationship; (4) the purpose of the
relationship is to bring about agricultural production; (5) There is personal cultivation on the part of the tenant or agricultural lessee; and (6) The harvest
is shared between the landowner and the tenant or agricultural lessee.
We find that the first, third and sixth requisites are lacking in the case at bar. One legal conclusion adduced from the facts in Government Service
Insurance System v. Court of Appeals43 provides that GSIS, not Bacaling, was the owner of the subject properties from 1961 up to 1989 as a result of the
foreclosure and confirmation of the sale of the subject properties. Although the confirmation only came in 1975, the ownership is deemed to have been
vested to GSIS way back in 1961, the year of the sale of the foreclosed properties. This is due to the fact that the date of confirmation by the trial court of
the foreclosure sale retroacts to the date of the actual sale itself.44
Thus, the respondents cannot validly claim that they are legitimate and recognized tenants of the subject parcels of land for the reason that their
agreement to till the land was not with GSIS, the real landowner. There is no showing that GSIS consented to such tenancy relationship nor is there
proof that GSIS received a share in the harvest of the tenants. Consequently, the respondents cannot claim security of tenure and other rights accorded
by our agrarian laws considering that they have not been validly instituted as agricultural lessees of the subject parcels of land. And from the time
Bacaling recovered the subject properties from GSIS up to the time the former changed her legal position in the instant case, Bacaling has consistently
disclaimed respondents as her alleged tenants. Bacaling's current legal posture cannot also overturn our finding since, as earlier mentioned, the said
change of mind of Bacaling has little or no evidentiary weight under the circumstances.
The respondents argue that GSIS cannot be considered as the owner of the said properties from 1961 up to 1989 inasmuch as the foreclosure
proceedings that started in 1957 only attained finality during its promulgation by this Court in 1989. Respondents contend that GSIS was the owner of
the said parcels of land only from 1989.
We disagree. The pendency of the GSIS case cannot be construed as a maintenance of status quo with Bacaling as the owner from 1957 up to 1989 for
the reason that what was appealed to this Court was only the issue of redemption, and not the validity of the foreclosure proceedings including the public
auction sale, the confirmation of the public auction sale and the confirmation and transfer of ownership of the foreclosed parcels of land to GSIS. The
ownership of GSIS over the subject parcels of land was not disputed. It was the existence of the right to redeem in a judicial foreclosure that was the
subject of the controversy. We ruled that there was no longer any right of redemption in a judicial foreclosure proceeding after the confirmation of the
public auction. Only foreclosures of mortgages in favor of banking institutions and those made extrajudicially are subject to legal redemption. Since GSIS
is not a banking institution and the procedure of the foreclosure is not extrajudicial in nature, no right of redemption exists after the judicial confirmation
of the public auction sale of the said lots.
With respect to the third issue, we find that the one hundred ten (110) sub-lots are indeed residential. In Tiongson v. Court of Appeals45 we held that if the
lot in question is not an agricultural land then the rules on agrarian reform do not apply since the "key factor in ascertaining whether there is a
landowner-tenant relationship xxx is the nature of the disputed property."46 We reiterated this rule in Natalia Realty, Inc. v. Department of Agrarian
Reform47 where we excluded lands not devoted to agricultural activity, i.e., lands previously converted to non-agricultural or residential uses prior to the
effectivity of the 1988 agrarian reform law (R.A. No. 6657) by agencies other than the DAR, from the coverage of agrarian reform. The statement of the
rule is buttressed by P.D. No. 27 which by its terms applies only to "tenant-farmers of private agricultural lands primarily devoted to rice and corn under a
system of shared-crop or lease tenancy, whether classified as landed estate or not." 48
In the case at bar, the indubitable conclusion from established facts is that the one hundred ten (110) sub-lots, originally three (3) parcels of land, have
been officially classified as residential since 1955. The classification began when the NUPC and the Bureau of Lands approved the subdivision of the
original three (3) parcels of land into one hundred ten (110) sub-lots each covered with transfer certificates of title. To build the subdivision project, Nelita
Bacaling then obtained a real estate mortgage loan from the GSIS which she used to fund the project but he was unfortunately unable to complete it due
to the immensity of the project cost. Bacaling undertook to complete the sale of the subdivision when in 1978 she obtained the registration thereof with
the National Housing Authority as well as a license to sell individually the one hundred ten (110) sub-lots. Earlier, in 1977, the City Council of Iloilo also
recognized the residential classification of the same one hundred ten (110) sub-lots when it passed the Land Use Plan and Zoning Ordinance. In 1990,
Bacaling sold the same parcels of land to petitioner Tong who obviously wanted to pursue the development of the subdivision project. It is clear that Tong
bought the property for residential and not agricultural purposes upon the strong assurance of Bacaling that the one hundred ten (110) sub-lots were
legally available for such prospect. To be sure, the subject lots were valuable in the buyer's market only for residential use as shown by the example of
adjacent lots which had long been utilized for building subdivisions and the implausibility of believing that Tong would buy the lands only to lose them at
a bargain to agrarian reform.49
Clearly, both intention and overt actions show the classification of the one hundred ten (110) sub-lots for residential use. There can be no other
conclusion from the facts obtaining in the instant case. Indeed, one cannot imagine Nelita Bacaling borrowing the substantial amount of Six Hundred
Thousand Pesos (P600,000.00) from the GSIS and spending Two Hundred Fifty Thousand Pesos (P250,000.00) for the purpose of developing and
subdividing the original three (3) parcels of land into one hundred ten (110) homelots, with individual transfer certificates of title ready and available for
sale, if her purported desire were to keep the landholding for agricultural purposes. It also makes no sense that petitioner Tong would invest so much
money, time and effort in these sub-lots for planting and cultivating agricultural crops when all the mechanisms are already in place for building a
residential community. One cannot likewise deny the consistent official government action which decreed the said one hundred ten (110) sub-lots as
most appropriate for human settlements considering that for several times beginning in 1955 and in accordance with relevant laws and regulations, the
said landholding was categorically reserved as a residential subdivision.
It is also grave error to gloss over the NUPC action since its declarations have long been recognized in similar cases as the present one as clear and
convincing evidence of residential classification. In Magno-Adamos v. Bagasao50 we found the endorsements of the NUPC approving albeit tentatively a
subdivision plan to be a very strong evidence of conversion of the disputed parcels of land into a residential subdivision which would contradict the
alleged tenancy relationship. We found nothing objectionable in the trial court's ruling in Santos v. de Guzman51 ejecting an alleged tenant from the
landholding "because the same was included in a homesite subdivision duly approved by the National Planning Commission." 52 In Republic v.
Castellvi53 we gave great weight to the certification of the NUPC that the subject parcels of land were classified as residential areas and ordered their
appraisal as residential and not agricultural lands -

The lower court found, and declared, that the lands of Castellvi and Toledo-Gozun are residential lands. The finding of the lower court is in
consonance with the unanimous opinion of the three commissioners who, in their report to the court, declared that the lands are residential
lands. The Republic assails the finding that the lands are residential, contending that the plans of the appellees to convert the lands into
subdivision for residential purposes were only on paper, there being no overt acts on the part of the appellees which indicated that the
subdivision project had been commenced xxx. We find evidence showing that the lands in question had ceased to be devoted to the
production of agricultural crops, that they had become adaptable for residential purposes, and that the appellees had actually taken steps to
convert their lands into residential subdivisions xxx. The evidence shows that Castellvi broached the idea of subdividing her land into
residential lots as early as July 11, 1956 in her letter to the Chief of Staff of the Armed Forces of the Philippines xxx. As a matter of fact, the
layout of the subdivision plan was tentatively approved by the National Planning Commission on September 7, 1956 xxx. The land of Castellvi
had not been devoted to agriculture since 1947 when it was leased to the Philippine Army. In 1957 said land was classified as residential, and
taxes based on its classification as residential had been paid since then xxx. The location of the Castellvi land justifies its suitability for a
residential subdivision.
The NUPC was created under EO 98, s. of 194654 to "prepare general plans, zoning ordinances, and subdivision regulations, to guide and accomplish a
coordinated, adjusted, harmonious reconstruction and future development of urban areas which will in accordance with present and future needs, best
promote health, safety, morals, order, convenience, prosperity, and general welfare, as well as efficiency and economy in the process of development;
including among other things adequate provisions for traffic, the promotion of safety from fire and other dangers, adequate provision for light and air, the
promotion of healthful and convenient distribution of populations xxx."55Under the express terms of its mandate, the NUPC was therefore duty-bound to
act only upon realty projects which would be used for human settlements and not for agricultural purposes. It is in this light that we must take stock of the
1955 NUPC conversion of the one hundred ten (110) sub-lots from agricultural to residential classification.
To bolster the exclusive role of the NUPC over developmental projects for residential and industrial purposes, the term "subdivision" (which NUPC was
mandated to review and if properly executed to approve) was defined in EO 98 as "the division of a tract or parcel of land into two (2) or more lots, sites
or other divisions for the purpose, whether immediate or future, of sale or building development, and includes resubdivision, and when appropriate to the
context, relates to the process of subdividing or to the land or area subdivided."56 The Subdivision Regulations57 (which the NUPC adopted pursuant
to EO 98) decreed as mandatory the NUPC approval of all subdivisions of land in the Philippines intended for residential, commercial and industrial
purposes, before lots comprising the subdivision could be legally sold or building development therein could validly commence Any owner of land wishing to subdivide land shall submit to the Director of Planning [who was the head of NUPC] a plat of the subdivision
which shall conform to the requirements set forth in these Regulations. No subdivider shall proceed with the sale of lots of a subdivision and
no plat of a subdivision shall be filed with the Director of Lands for approval or recorded in the Office of the Register of Deeds until such plat
shall have been approved by the Director of Planning. Applications for plat approval submitted to the District or City Engineer of a town or city
in the Philippines shall be forwarded to the Director of Planning together with the District or City Engineer's recommendations (underscoring
supplied).
We are convinced that the 1955 approval by the NUPC of the subdivision of the subject three (3) parcels of land owned by Nelita Bacaling and her
spouse into one hundred ten (110) sub-lots caused the conversion, if not outright classification, of the entire landholding into a residential community for
sale to interested buyers. This is an official classification of the sub-lots as residential units and constitutes the only objective and effectual means of
obtaining in 1955 the classification and reservation of private land for non-agricultural use, i.e. residential, industrial or commercial, since neither P.D. No.
27 nor R.A. No. 665758 (together with the specified formal mechanisms stipulated therein for converting a piece of agricultural land into a residential lot)
were then binding and effective. The assignment or conversion of the one hundred ten (110) sub-lots for residential purposes was not abrogated by P.D.
No. 27 under which respondents invalidly secured their certificates of land transfer since the decree was only prospectively effective 59 and its coverage
was limited only to agricultural lands which clearly do not include the residential sub-lots in question. 60
By virtue of the official classification made by NUPC and the other circumstances convincingly proved herein, the only fair and legally acceptable
decision in the instant case would be to declare, as we now indeed rule, that the one hundred ten (110) sub-lots are truly residential in character as well
as in purpose and are thus excluded from the coverage of P.D. No. 27.
Verily, the Certificates of Land Transfer (CLT) issued in respondents' names are not valid and do not change our ruling. The respondents cannot rely on
said CLTS as proof of security of tenure. It is well settled that the certificates of land transfer are not absolute evidence of ownership of the subject
lots61 and consequently do not bar the finding that their issuance is void from inception since they cover residential lands contrary to the mandate of P.D.
No. 27. It follows from the fact of nullity of the certificates of land transfer in respondents' names that the respondents are not entitled to occupy and
possess the one hundred ten (110) sub-lots or portions thereof without the consent of the owner, herein petitioner Tong.1wphi1.nt
While not raised as issues in the instant petition, we nevertheless rule now (conformably with Gayos v. Gayos62that it is a cherished rule of procedure
that a court should always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation) that
respondents cannot claim disturbance compensation for the reason that the sub-lots are not and have never been available for agrarian reform. In the
same vein, respondents also have no right to be reimbursed by petitioner Jose Juan Tong for the value of or expenses for improvements which they
might have introduced on the one hundred ten (110) sub-lots since they did not allege nor prove the existence of such improvements and their right to
compensation thereto, if any.63
WHEREFORE, the Petition for Review is GRANTED. It is further ordered and adjudged that:
1. The certificates of land transfer over the one hundred ten (110) sub-lots located in Barangay Cubay, Jaro, Iloilo City, in the name of respondents
and/or their successors in interest are hereby DECLARED VOID AB INITIO. The said one hundred ten (110) sub-lots, covered by TCT Nos. T-10664 to
T-10773 of the Registry of Deeds of the City of Iloilo, are declared outside the coverage and operation of P.D. No. 27 and other land reform laws.
2. The consolidated Decision of the Court of Appeals in CA-G.R. SP No. 54413 ("Felomino Muya and Crispin Amor v. Nelita Bacaling, represented by
her attorney-in-fact, Jose Juan Tong, and the Executive Secretary, Office of the President") and in CA-G.R. SP No. 54414, ("Wilfredo Jereza, Rodolfo
Lazarte and Nemesio Tonocante v. Hon. Executive Secretary, Office of the President and Nelita Bacaling") and its Resolution dated June 5, 2001
denying petitioners' Motion for Reconsideration are REVERSED AND SET ASIDE.
3. The Decision dated May 22, 1998 and the Resolution dated July 22, 1999 of the Office of the President in OP Case No. 98-K-8180
are REINSTATED with the modification in that the respondents are not entitled to disturbance compensation; and
4. Respondents Felomino Muya, Crispin Amor, Wilfredo Jereza, Rodolfo Lazarte and Nemesio Tonocante together with their assigns and successors in
interest are ordered to vacate and surrender peacefully the possession of the one hundred ten (110) sub-lots, covered by TCT Nos. T-10664 to T-10773Iloilo City, to petitioner Jose Juan Tong within thirty (30) days from notice of this Decision.

No pronouncement as to costs.
SO ORDERED.