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.

MUÑOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his

principal, Concepcion Rallos, sold the latter's undivided share in a parcel of land

pursuant to a power of attorney which the principal had executed in favor. The

administrator of the estate of the went to court to have the sale declared

uneanforceable and to recover the disposed share. The trial court granted the relief

prayed for, but upon appeal the Court of Appeals uphold the validity of the sale and

the complaint.

Hence, this Petition for Review on certiorari.

The following facts are not disputed. Concepcion and Gerundia both surnamed

Rallos were sisters and registered co-owners of a parcel of land known as Lot No.

5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title No.

11116 of the Registry of Cebu. On April 21, 1954, the sisters executed a special

power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for

and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On

September 12, 1955, Simeon Rallos sold the undivided shares of his sisters

Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation for

the sum of P10,686.90. The deed of sale was registered in the Registry of Deeds of

Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of Title No. 12989

was issued in the named of the vendee.

On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of

Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court

of First Instance of Cebu, praying (1) that the sale of the undivided share of the

deceased Concepcion Rallos in lot 5983 be d unenforceable, and said share be

reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix

Go Chan & Sons Realty Corporation be cancelled and another title be issued in the

names of the corporation and the "Intestate estate of Concepcion Rallos" in equal

undivided and (3) that plaintiff be indemnified by way of attorney's fees and

payment of costs of suit. Named party defendants were Felix Go Chan & Sons Realty

Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but subsequently,

the latter was dropped from the complaint. The complaint was amended twice;

defendant Corporation's Answer contained a crossclaim against its co-defendant,

Simon Rallos while the latter filed third-party complaint against his sister, Gerundia

Rallos While the case was pending in the trial court, both Simon and his sister

Gerundia died and they were substituted by the respective administrators of their

estates.

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

A. On Plaintiffs Complaint —

(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-

indiviso share of Concepcion Rallos in the property in question, — Lot 5983 of the

Cadastral Survey of Cebu — is concerned;

(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title

No. 12989 covering Lot 5983 and to issue in lieu thereof another in the names of

FELIX GO CHAN & SONS REALTY CORPORATION and the Estate of Concepcion Rallos

in the proportion of one-half (1/2) share each pro-indiviso;

(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an

undivided one-half (1/2) share of Lot 5983 to the herein plaintiff;

(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of

Simeon Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of

P1,000.00; and

(5) Ordering both defendants to pay the costs jointly and severally.

B. On GO CHANTS Cross-Claim:

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

Simeon Rallos, to pay to defendant Felix Co Chan & Sons Realty Corporation the sum

of P5,343.45, representing the price of one-half (1/2) share of lot 5983;

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

Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons

Realty Corporation the sum of P500.00.

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

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

Gerundia Rallos:

(1) Dismissing the third-party complaint without prejudice to filing either a

complaint against the regular administrator of the Estate of Gerundia Rallos or a

claim in the Intestate-Estate of Cerundia Rallos, covering the same subject-matter of

the third-party complaint, at bar. (pp. 98-100, Record on Appeal)

Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of

Appeals from the foregoing judgment insofar as it set aside the sale of the one-half

(1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to earlier,

resolved the appeal on November 20, 1964 in favor of the appellant corporation

sustaining the sale in question. 1 The appellee administrator, Ramon Rallos, moved

for a reconsider of the decision but the same was denied in a resolution of March 4,

1965. 2

What is the legal effect of an act performed by an agent after the death of his

principal? Applied more particularly to the instant case, We have the query. is the

sale of the undivided share of Concepcion Rallos in lot 5983 valid although it was

executed by the agent after the death of his principal? What is the law in this

jurisdiction as to the effect of the death of the principal on the authority of the

agent to act for and in behalf of the latter? Is the fact of knowledge of the death of

the principal a material factor in determining the legal effect of an act performed

after such death?

Before proceedings to the issues, We shall briefly restate certain principles of law

relevant to the matter tinder consideration.

1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract

in the name of another without being authorized by the latter, or unless he has by

law a right to represent him. 3 A contract entered into in the name of another by

one who has no authority or the legal representation or who has acted beyond his

powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the

person on whose behalf it has been executed, before it is revoked by the other

contracting party. 4 Article 1403 (1) of the same Code also provides:

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

(1) Those entered into in the name of another person by one who hi - been given no

authority or legal representation or who has acted beyond his powers; ...

Out of the above given principles, sprung the creation and acceptance of the

relationship of agency whereby one party, caged the principal (mandante),

authorizes another, called the agent (mandatario), to act for and in his behalf in

transactions with third persons. The essential elements of agency are: (1) there is

consent, express or implied of the parties to establish the relationship; (2) the object

is the execution of a juridical act in relation to a third person; (3) the agents acts as a

representative and not for himself, and (4) the agent acts within the scope of his

authority. 5

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

of the agent to act emanates from the powers granted to him by his principal; his

act is the act of the principal if done within the scope of the authority. Qui facit per

alium facit se. "He who acts through another acts himself". 6

2. There are various ways of extinguishing agency, 7 but her We are concerned only

with one cause — death of the principal Paragraph 3 of Art. 1919 of the Civil Code

which was taken from Art. 1709 of the Spanish Civil Code provides:

ART. 1919. Agency is extinguished.

xxx xxx xxx

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

agent; ... (Emphasis supplied)

By reason of the very nature of the relationship between Principal and agent,

agency is extinguished by the death of the principal or the agent. This is the law in

this jurisdiction. 8

Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the

rationale for the law is found in the juridical basis of agency which is representation

Them being an in. integration of the personality of the principal integration that of

the agent it is not possible for the representation to continue to exist once the

death of either is establish. Pothier agrees with Manresa that by reason of the

nature of agency, death is a necessary cause for its extinction. Laurent says that the

juridical tie between the principal and the agent is severed ipso jure upon the death

of either without necessity for the heirs of the fact to notify the agent of the fact of

death of the former. 9

The same rule prevails at common law — the death of the principal effects

instantaneous and absolute revocation of the authority of the agent unless the

Power be coupled with an interest. 10 This is the prevalent rule in American

Jurisprudence where it is well-settled that a power without an interest confer. red

upon an agent is dissolved by the principal's death, and any attempted execution of

the power afterward is not binding on the heirs or representatives of the deceased.

11

3. Is the general rule provided for in Article 1919 that the death of the principal or of

the agent extinguishes the agency, subject to any exception, and if so, is the instant

case within that exception? That is the determinative point in issue in this litigation.

It is the contention of respondent corporation which was sustained by respondent

court that notwithstanding the death of the principal Concepcion Rallos the act of

the attorney-in-fact, Simeon Rallos in selling the former's sham in the property is

valid and enforceable inasmuch as the corporation acted in good faith in buying the

property in question.

Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule

afore-mentioned.

ART. 1930. The agency shall remain in full force and effect even after the death of

the principal, if it has been constituted in the common interest of the latter and of

the agent, or in the interest of a third person who has accepted the stipulation in his

favor.

ART. 1931. Anything done by the agent, without knowledge of the death of the

principal or of any other cause which extinguishes the agency, is valid and shall be

fully effective with respect to third persons who may have contracted with him in

good. faith.

Article 1930 is not involved because admittedly the special power of attorney

executed in favor of Simeon Rallos was not coupled with an interest.

Article 1931 is the applicable law. Under this provision, an act done by the agent

after the death of his principal is valid and effective only under two conditions, viz:

(1) that the agent acted without knowledge of the death of the principal and (2) that

the third person who contracted with the agent himself acted in good faith. Good

faith here means that the third person was not aware of the death of the principal

at the time he contracted with said agent. These two requisites must concur the

absence of one will render the act of the agent invalid and unenforceable.

In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of

the death of his principal at the time he sold the latter's share in Lot No. 5983 to

respondent corporation. The knowledge of the death is clearly to be inferred from

the pleadings filed by Simon Rallos before the trial court. 12 That Simeon Rallos

knew of the death of his sister Concepcion is also a finding of fact of the court a quo

13 and of respondent appellate court when the latter stated that Simon Rallos 'must

have known of the death of his sister, and yet he proceeded with the sale of the lot

in the name of both his sisters Concepcion and Gerundia Rallos without informing

appellant (the realty corporation) of the death of the former. 14

On the basis of the established knowledge of Simon Rallos concerning the death of

his principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law

expressly requires for its application lack of knowledge on the part of the agent of

the death of his principal; it is not enough that the third person acted in good faith.

Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil

rode now Art. 1931 of the new Civil Code sustained the validity , of a sale made after

the death of the principal because it was not shown that the agent knew of his

principal's demise. 15 To the same effect is the case of Herrera, et al., v. Luy Kim

Guan, et al., 1961, where in the words of Justice Jesus Barrera the Court stated:

... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented

no proof and there is no indication in the record, that the agent Luy Kim Guan was

aware of the death of his principal at the time he sold the property. The death 6f the

principal does not render the act of an agent unenforceable, where the latter had

no knowledge of such extinguishment of the agency. (1 SCRA 406, 412)

4. In sustaining the validity of the sale to respondent consideration the Court of

Appeals reasoned out that there is no provision in the Code which provides that

whatever is done by an agent having knowledge of the death of his principal is void

even with respect to third persons who may have contracted with him in good faith

and without knowledge of the death of the principal. 16

We cannot see the merits of the foregoing argument as it ignores the existence of

the general rule enunciated in Article 1919 that the death of the principal

extinguishes the agency. That being the general rule it follows a fortiori that any act

of an agent after the death of his principal is void ab initio unless the same fags

under the exception provided for in the aforementioned Articles 1930 and 1931.

Article 1931, being an exception to the general rule, is to be strictly construed, it is

not to be given an interpretation or application beyond the clear import of its terms

for otherwise the courts will be involved in a process of legislation outside of their

judicial function.

5. Another argument advanced by respondent court is that the vendee acting in

good faith relied on the power of attorney which was duly registered on the original

certificate of title recorded in the Register of Deeds of the province of Cebu, that no

notice of the death was aver annotated on said certificate of title by the heirs of the

principal and accordingly they must suffer the consequences of such omission. 17

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

Commentaries which We quote:

If the agency has been granted for the purpose of contracting with certain persons,

the revocation must be made known to them. But if the agency is general iii nature,

without reference to particular person with whom the agent is to contract, it is

sufficient that the principal exercise due diligence to make the revocation of the

agency publicity known.

In case of a general power which does not specify the persons to whom represents'

on should be made, it is the general opinion that all acts, executed with third

persons who contracted in good faith, Without knowledge of the revocation, are

valid. In such case, the principal may exercise his right against the agent, who,

knowing of the revocation, continued to assume a personality which he no longer

had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)

The above discourse however, treats of revocation by an act of the principal as a

mode of terminating an agency which is to be distinguished from revocation by

operation of law such as death of the principal which obtains in this case. On page

six of this Opinion We stressed that by reason of the very nature of the relationship

between principal and agent, agency is extinguished ipso jure upon the death of

either principal or agent. Although a revocation of a power of attorney to be

effective must be communicated to the parties concerned, 18 yet a revocation by

operation of law, such as by death of the principal is, as a rule, instantaneously

effective inasmuch as "by legal fiction the agent's exercise of authority is regarded

as an execution of the principal's continuing will. 19 With death, the principal's will

ceases or is the of authority is extinguished.

The Civil Code does not impose a duty on the heirs to notify the agent of the death

of the principal What the Code provides in Article 1932 is that, if the agent die his

heirs must notify the principal thereof, and in the meantime adopt such measures

as the circumstances may demand in the interest of the latter. Hence, the fact that

no notice of the death of the principal was registered on the certificate of title of the

property in the Office of the Register of Deeds, is not fatal to the cause of the estate

of the principal

6. Holding that the good faith of a third person in said with an agent affords the

former sufficient protection, respondent court drew a "parallel" between the

instant case and that of an innocent purchaser for value of a land, stating that if a

person purchases a registered land from one who acquired it in bad faith — even to

the extent of foregoing or falsifying the deed of sale in his favor — the registered

owner has no recourse against such innocent purchaser for value but only against

the forger. 20

To support the correctness of this respondent corporation, in its brief, cites the case

of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:

In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo

was a co-owner of lands with Agustin Nano. The latter had a power of attorney

supposedly executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land

titles. The power was registered in the Office of the Register of Deeds. When the

lawyer-husband of Angela Blondeau went to that Office, he found all in order

including the power of attorney. But Vallejo denied having executed the power The

lower court sustained Vallejo and the plaintiff Blondeau appealed. Reversing the

decision of the court a quo, the Supreme Court, quoting the ruling in the case of

Eliason v. Wilborn, 261 U.S. 457, held:

But there is a narrower ground on which the defenses of the defendant- appellee

must be overruled. Agustin Nano had possession of Jose Vallejo's title papers.

Without those title papers handed over to Nano with the acquiescence of Vallejo, a

fraud could not have been perpetuated. When Fernando de la Canters, a member of

the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff,

searched the registration record, he found them in due form including the power of

attorney of Vallajo in favor of Nano. If this had not been so and if thereafter the

proper notation of the encumbrance could not have been made, Angela Blondeau

would not have sent P12,000.00 to the defendant Vallejo.' An executed transfer of

registered lands placed by the registered owner thereof in the hands of another

operates as a representation to a third party that the holder of the transfer is

authorized to deal with the land.

As between two innocent persons, one of whom must suffer the consequence of a

breach of trust, the one who made it possible by his act of coincidence bear the loss.

(pp. 19-21)

The Blondeau decision, however, is not on all fours with the case before Us because

here We are confronted with one who admittedly was an agent of his sister and

who sold the property of the latter after her death with full knowledge of such

death. The situation is expressly covered by a provision of law on agency the terms

of which are clear and unmistakable leaving no room for an interpretation contrary

to its tenor, in the same manner that the ruling in Blondeau and the cases cited

therein found a basis in Section 55 of the Land Registration Law which in part

provides:

xxx xxx xxx

The production of the owner's duplicate certificate whenever any voluntary

instrument is presented for registration shall be conclusive authority from the

registered owner to the register of deeds to enter a new certificate or to make a

memorandum of registration in accordance with such instruments, and the new

certificate or memorandum Shall be binding upon the registered owner and upon all

persons claiming under him in favor of every purchaser for value and in good faith:

Provided however, That in all cases of registration provided by fraud, the owner

may pursue all his legal and equitable remedies against the parties to such fraud

without prejudice, however, to the right, of any innocent holder for value of a

certificate of title. ... (Act No. 496 as amended)

7. One last point raised by respondent corporation in support of the appealed

decision is an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v.

McKenzie wherein payments made to an agent after the death of the principal were

held to be "good", "the parties being ignorant of the death". Let us take note that

the Opinion of Justice Rogers was premised on the statement that the parties were

ignorant of the death of the principal. We quote from that decision the following:

... Here the precise point is, whether a payment to an agent when the Parties are

ignorant of the death is a good payment. in addition to the case in Campbell before

cited, the same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general

question that a payment after the death of principal is not good. Thus, a payment of

sailor's wages to a person having a power of attorney to receive them, has been

held void when the principal was dead at the time of the payment. If, by this case, it

is meant merely to decide the general proposition that by operation of law the

death of the principal is a revocation of the powers of the attorney, no objection can

be taken to it. But if it intended to say that his principle applies where there was 110

notice of death, or opportunity of twice I must be permitted to dissent from it.

... That a payment may be good today, or bad tomorrow, from the accident

circumstance of the death of the principal, which he did not know, and which by no

possibility could he know? It would be unjust to the agent and unjust to the debtor.

In the civil law, the acts of the agent, done bona fide in ignorance of the death of his

principal are held valid and binding upon the heirs of the latter. The same rule holds

in the Scottish law, and I cannot believe the common law is so unreasonable... (39

Am. Dec. 76, 80, 81; emphasis supplied)

To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may

evoke, mention may be made that the above represents the minority view in

American jurisprudence. Thus in Clayton v. Merrett, the Court said.—

There are several cases which seem to hold that although, as a general principle,

death revokes an agency and renders null every act of the agent thereafter

performed, yet that where a payment has been made in ignorance of the death,

such payment will be good. The leading case so holding is that of Cassiday v.

McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this

view ii broadly announced. It is referred to, and seems to have been followed, in the

case of Dick v. Page, 17 Mo. 234, 57 AmD 267; but in this latter case it appeared that

the estate of the deceased principal had received the benefit of the money paid,

and therefore the representative of the estate might well have been held to be

estopped from suing for it again. . . . These cases, in so far, at least, as they

announce the doctrine under discussion, are exceptional. The Pennsylvania Case,

supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand

almost, if not quite, alone in announcing the principle in its broadest scope. (52,

Misc. 353, 357, cited in 2 C.J. 549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that

the opinion, except so far as it related to the particular facts, was a mere dictum,

Baldwin J. said:

The opinion, therefore, of the learned Judge may be regarded more as an

extrajudicial indication of his views on the general subject, than as the adjudication

of the Court upon the point in question. But accordingly all power weight to this

opinion, as the judgment of a of great respectability, it stands alone among common

law authorities and is opposed by an array too formidable to permit us to following

it. (15 Cal. 12,17, cited in 2 C.J. 549)

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

American jurisprudence, no such conflict exists in our own for the simple reason

that our statute, the Civil Code, expressly provides for two exceptions to the general

rule that death of the principal revokes ipso jure the agency, to wit: (1) that the

agency is coupled with an interest (Art 1930), and (2) that the act of the agent was

executed without knowledge of the death of the principal and the third person who

contracted with the agent acted also in good faith (Art. 1931). Exception No. 2 is the

doctrine followed in Cassiday, and again We stress the indispensable requirement

that the agent acted without knowledge or notice of the death of the principal In

the case before Us the agent Ramon Rallos executed the sale notwithstanding

notice of the death of his principal Accordingly, the agent's act is unenforceable

against the estate of his principal.

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

court, and We affirm en toto the judgment rendered by then Hon. Amador E.

Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3 of this

Opinion, with costs against respondent realty corporation at all instances.

So Ordered.

G.R. No. 76931 May 29, 1991

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,

vs.

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

G.R. No. 76933 May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.

COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,

INCORPORATED, respondents.

Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel

Representatives, Inc.

Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:

This case is a consolidation of two (2) petitions for review on certiorari of a decision

1 of the Court of Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc.

vs. Orient Air Services and Hotel Representatives, Inc." which affirmed, with

modification, the decision 2 of the Regional Trial Court of Manila, Branch IV, which

dismissed the complaint and granted therein defendant's counterclaim for agent's

overriding commission and damages.

The antecedent facts are as follows:

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

Air), an air carrier offering passenger and air cargo transportation in the Philippines,

and Orient Air Services and Hotel Representatives (hereinafter referred to as Orient

Air), entered into a General Sales Agency Agreement (hereinafter referred to as the

Agreement), whereby the former authorized the latter to act as its exclusive general

sales agent within the Philippines for the sale of air passenger transportation.

Pertinent provisions of the agreement are reproduced, to wit:

WITNESSETH

In consideration of the mutual convenants herein contained, the parties hereto

agree as follows:

1. Representation of American by Orient Air Services

Orient Air Services will act on American's behalf as its exclusive General Sales Agent

within the Philippines, including any United States military installation therein which

are not serviced by an Air Carrier Representation Office (ACRO), for the sale of air

passenger transportation. The services to be performed by Orient Air Services shall

include:

(a) soliciting and promoting passenger traffic for the services of American and, if

necessary, employing staff competent and sufficient to do so;

(b) providing and maintaining a suitable area in its place of business to be used

exclusively for the transaction of the business of American;

(c) arranging for distribution of American's timetables, tariffs and promotional

material to sales agents and the general public in the assigned territory;

(d) servicing and supervising of sales agents (including such sub-agents as may be

appointed by Orient Air Services with the prior written consent of American) in the

assigned territory including if required by American the control of remittances and

commissions retained; and

(e) holding out a passenger reservation facility to sales agents and the general public

in the assigned territory.

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

the United States, neither Orient Air Services nor its sub-agents will perform

services for any other air carrier similar to those to be performed hereunder for

American without the prior written consent of American. Subject to periodic

instructions and continued consent from American, Orient Air Services may sell air

passenger transportation to be performed within the United States by other

scheduled air carriers provided American does not provide substantially equivalent

schedules between the points involved.

x x x x x x x x x

4. Remittances

Orient Air Services shall remit in United States dollars to American the ticket stock

or exchange orders, less commissions to which Orient Air Services is entitled

hereunder, not less frequently than semi-monthly, on the 15th and last days of each

month for sales made during the preceding half month.

All monies collected by Orient Air Services for transportation sold hereunder on

American's ticket stock or on exchange orders, less applicable commissions to which

Orient Air Services is entitled hereunder, are the property of American and shall be

held in trust by Orient Air Services until satisfactorily accounted for to American.

5. Commissions

American will pay Orient Air Services commission on transportation sold hereunder

by Orient Air Services or its sub-agents as follows:

(a) Sales agency commission

American will pay Orient Air Services a sales agency commission for all sales of

transportation by Orient Air Services or its sub-agents over American's services and

any connecting through air transportation, when made on American's ticket stock,

equal to the following percentages of the tariff fares and charges:

(i) For transportation solely between points within the United States and between

such points and Canada: 7% or such other rate(s) as may be prescribed by the Air

Traffic Conference of America.

(ii) For transportation included in a through ticket covering transportation between

points other than those described above: 8% or such other rate(s) as may be

prescribed by the International Air Transport Association.

(b) Overriding commission

In addition to the above commission American will pay Orient Air Services an

overriding commission of 3% of the tariff fares and charges for all sales of

transportation over American's service by Orient Air Service or its sub-agents.

x x x x x x x x x

10. Default

If Orient Air Services shall at any time default in observing or performing any of the

provisions of this Agreement or shall become bankrupt or make any assignment for

the benefit of or enter into any agreement or promise with its creditors or go into

liquidation, or suffer any of its goods to be taken in execution, or if it ceases to be in

business, this Agreement may, at the option of American, be terminated forthwith

and American may, without prejudice to any of its rights under this Agreement, take

possession of any ticket forms, exchange orders, traffic material or other property

or funds belonging to American.

11. IATA and ATC Rules

The provisions of this Agreement are subject to any applicable rules or resolutions

of the International Air Transport Association and the Air Traffic Conference of

America, and such rules or resolutions shall control in the event of any conflict with

the provisions hereof.

x x x x x x x x x

13. Termination

American may terminate the Agreement on two days' notice in the event Orient Air

Services is unable to transfer to the United States the funds payable by Orient Air

Services to American under this Agreement. Either party may terminate the

Agreement without cause by giving the other 30 days' notice by letter, telegram or

cable.

x x x x x x x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the

Agreement by failing to promptly remit the net proceeds of sales for the months of

January to March 1981 in the amount of US $254,400.40, American Air by itself

undertook the collection of the proceeds of tickets sold originally by Orient Air and

terminated forthwith the Agreement in accordance with Paragraph 13 thereof

(Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit

against Orient Air with the Court of First Instance of Manila, Branch 24, for

Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and

Restraining Order 4 averring the aforesaid basis for the termination of the

Agreement as well as therein defendant's previous record of failures "to promptly

settle past outstanding refunds of which there were available funds in the

possession of the defendant, . . . to the damage and prejudice of plaintiff." 5

In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient Air denied

the material allegations of the complaint with respect to plaintiff's entitlement to

alleged unremitted amounts, contending that after application thereof to the

commissions due it under the Agreement, plaintiff in fact still owed Orient Air a

balance in unpaid overriding commissions. Further, the defendant contended that

the actions taken by American Air in the course of terminating the Agreement as

well as the termination itself were untenable, Orient Air claiming that American Air's

precipitous conduct had occasioned prejudice to its business interests.

Finding that the record and the evidence substantiated the allegations of the

defendant, the trial court ruled in its favor, rendering a decision dated 16 July 1984,

the dispositive portion of which reads:

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

favor of defendant and against plaintiff dismissing the complaint and holding the

termination made by the latter as affecting the GSA agreement illegal and improper

and order the plaintiff to reinstate defendant as its general sales agent for

passenger tranportation in the Philippines in accordance with said GSA agreement;

plaintiff is ordered to pay defendant the balance of the overriding commission on

total flown revenue covering the period from March 16, 1977 to December 31, 1980

in the amount of US$84,821.31 plus the additional amount of US$8,000.00 by way

of proper 3% overriding commission per month commencing from January 1, 1981

until such reinstatement or said amounts in its Philippine peso equivalent legally

prevailing at the time of payment plus legal interest to commence from the filing of

the counterclaim up to the time of payment. Further, plaintiff is directed to pay

defendant the amount of One Million Five Hundred Thousand (Pl,500,000.00) pesos

as and for exemplary damages; and the amount of Three Hundred Thousand

(P300,000.00) pesos as and by way of attorney's fees.

Costs against plaintiff. 7

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

promulgated on 27 January 1986, affirmed the findings of the court a quo on their

material points but with some modifications with respect to the monetary awards

granted. The dispositive portion of the appellate court's decision is as follows:

WHEREFORE, with the following modifications —

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

balance of the latter's overriding commission covering the period March 16, 1977 to

December 31, 1980, or its Philippine peso equivalent in accordance with the official

rate of exchange legally prevailing on July 10, 1981, the date the counterclaim was

filed;

2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's

overriding commission per month starting January 1, 1981 until date of termination,

May 9, 1981 or its Philippine peso equivalent in accordance with the official rate of

exchange legally prevailing on July 10, 1981, the date the counterclaim was filed

3) American is ordered to pay interest of 12% on said amounts from July 10, 1981

the date the answer with counterclaim was filed, until full payment;

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

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

the rest of the appealed decision is affirmed.

Costs against American.8

American Air moved for reconsideration of the aforementioned decision, assailing

the substance thereof and arguing for its reversal. The appellate court's decision

was also the subject of a Motion for Partial Reconsideration by Orient Air which

prayed for the restoration of the trial court's ruling with respect to the monetary

awards. The Court of Appeals, by resolution promulgated on 17 December 1986,

denied American Air's motion and with respect to that of Orient Air, ruled thus:

Orient's motion for partial reconsideration is denied insofar as it prays for

affirmance of the trial court's award of exemplary damages and attorney's fees, but

granted insofar as the rate of exchange is concerned. The decision of January 27,

1986 is modified in paragraphs (1) and (2) of the dispositive part so that the

payment of the sums mentioned therein shall be at their Philippine peso equivalent

in accordance with the official rate of exchange legally prevailing on the date of

actual payment. 9

Both parties appealed the aforesaid resolution and decision of the respondent

court, Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner in

G.R. No. 76933. By resolution 10 of this Court dated 25 March 1987 both petitions

were consolidated, hence, the case at bar.

The principal issue for resolution by the Court is the extent of Orient Air's right to

the 3% overriding commission. It is the stand of American Air that such commission

is based only on sales of its services actually negotiated or transacted by Orient Air,

otherwise referred to as "ticketed sales." As basis thereof, primary reliance is placed

upon paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows:

5. Commissions

a) . . .

b) Overriding Commission

In addition to the above commission, American will pay Orient Air Services an

overriding commission of 3% of the tariff fees and charges for all sales of

transportation over American's services by Orient Air Services or its sub-agents.

(Emphasis supplied)

Since Orient Air was allowed to carry only the ticket stocks of American Air, and the

former not having opted to appoint any sub-agents, it is American Air's contention

that Orient Air can claim entitlement to the disputed overriding commission based

only on ticketed sales. This is supposed to be the clear meaning of the underscored

portion of the above provision. Thus, to be entitled to the 3% overriding

commission, the sale must be made by Orient Air and the sale must be done with

the use of American Air's ticket stocks.

On the other hand, Orient Air contends that the contractual stipulation of a 3%

overriding commission covers the total revenue of American Air and not merely that

derived from ticketed sales undertaken by Orient Air. The latter, in justification of its

submission, invokes its designation as the exclusive General Sales Agent of American

Air, with the corresponding obligations arising from such agency, such as, the

promotion and solicitation for the services of its principal. In effect, by virtue of such

exclusivity, "all sales of transportation over American Air's services are necessarily

by Orient Air." 11

It is a well settled legal principle that in the interpretation of a contract, the entirety

thereof must be taken into consideration to ascertain the meaning of its provisions.

12 The various stipulations in the contract must be read together to give effect to

all. 13 After a careful examination of the records, the Court finds merit in the

contention of Orient Air that the Agreement, when interpreted in accordance with

the foregoing principles, entitles it to the 3% overriding commission based on total

revenue, or as referred to by the parties, "total flown revenue."

As the designated exclusive General Sales Agent of American Air, Orient Air was

responsible for the promotion and marketing of American Air's services for air

passenger transportation, and the solicitation of sales therefor. In return for such

efforts and services, Orient Air was to be paid commissions of two (2) kinds: first, a

sales agency commission, ranging from 7-8% of tariff fares and charges from sales

by Orient Air when made on American Air ticket stock; and second, an overriding

commission of 3% of tariff fares and charges for all sales of passenger transportation

over American Air services. It is immediately observed that the precondition

attached to the first type of commission does not obtain for the second type of

commissions. The latter type of commissions would accrue for sales of American Air

services made not on its ticket stock but on the ticket stock of other air carriers sold

by such carriers or other authorized ticketing facilities or travel agents. To rule

otherwise, i.e., to limit the basis of such overriding commissions to sales from

American Air ticket stock would erase any distinction between the two (2) types of

commissions and would lead to the absurd conclusion that the parties had entered

into a contract with meaningless provisions. Such an interpretation must at all times

be avoided with every effort exerted to harmonize the entire Agreement.

An additional point before finally disposing of this issue. It is clear from the records

that American Air was the party responsible for the preparation of the Agreement.

Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra

proferentem", i.e., construed against the party who caused the ambiguity and could

have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil

Code provides that the interpretation of obscure words or stipulations in a contract

shall not favor the party who caused the obscurity. 14 To put it differently, when

several interpretations of a provision are otherwise equally proper, that

interpretation or construction is to be adopted which is most favorable to the party

in whose favor the provision was made and who did not cause the ambiguity. 15 We

therefore agree with the respondent appellate court's declaration that:

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

interpretations, must be read against the party who drafted it. 16

We now turn to the propriety of American Air's termination of the Agreement. The

respondent appellate court, on this issue, ruled thus:

It is not denied that Orient withheld remittances but such action finds justification

from paragraph 4 of the Agreement, Exh. F, which provides for remittances to

American less commissions to which Orient is entitled, and from paragraph 5(d)

which specifically allows Orient to retain the full amount of its commissions. Since,

as stated ante, Orient is entitled to the 3% override. American's premise, therefore,

for the cancellation of the Agreement did not exist. . . ."

We agree with the findings of the respondent appellate court. As earlier established,

Orient Air was entitled to an overriding commission based on total flown revenue.

American Air's perception that Orient Air was remiss or in default of its obligations

under the Agreement was, in fact, a situation where the latter acted in accordance

with the Agreement—that of retaining from the sales proceeds its accrued

commissions before remitting the balance to American Air. Since the latter was still

obligated to Orient Air by way of such commissions. Orient Air was clearly justified

in retaining and refusing to remit the sums claimed by American Air. The latter's

termination of the Agreement was, therefore, without cause and basis, for which it

should be held liable to Orient Air.

On the matter of damages, the respondent appellate court modified by reduction

the trial court's award of exemplary damages and attorney's fees. This Court sees no

error in such modification and, thus, affirms the same.

It is believed, however, that respondent appellate court erred in affirming the rest

of the decision of the trial court.1âwphi1 We refer particularly to the lower court's

decision ordering American Air to "reinstate defendant as its general sales agent for

passenger transportation in the Philippines in accordance with said GSA

Agreement."

By affirming this ruling of the trial court, respondent appellate court, in effect,

compels American Air to extend its personality to Orient Air. Such would be violative

of the principles and essence of agency, defined by law as a contract whereby "a

person binds himself to render some service or to do something in representation

or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE LATTER . 17

(emphasis supplied) In an agent-principal relationship, the personality of the

principal is extended through the facility of the agent. In so doing, the agent, by

legal fiction, becomes the principal, authorized to perform all acts which the latter

would have him do. Such a relationship can only be effected with the consent of the

principal, which must not, in any way, be compelled by law or by any court. The

Agreement itself between the parties states that "either party may terminate the

Agreement without cause by giving the other 30 days' notice by letter, telegram or

cable." (emphasis supplied) We, therefore, set aside the portion of the ruling of the

respondent appellate court reinstating Orient Air as general sales agent of American

Air.

WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and

resolution of the respondent Court of Appeals, dated 27 January 1986 and 17

December 1986, respectively. Costs against petitioner American Air.

SO ORDERED.

G.R. No. 167552 April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,

vs.

EDWIN CUIZON and ERWIN CUIZON, Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision1 of the Court of

Appeals dated 10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R.

SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio T.

Echavez." The assailed Decision and Resolution affirmed the Order3 dated 29

January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of

respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-

19672.

The generative facts of the case are as follows:

Petitioner is engaged in the business of importation and distribution of various

European industrial equipment for customers here in the Philippines. It has as one

of its customers Impact Systems Sales ("Impact Systems") which is a sole

proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is

the sales manager of Impact Systems and was impleaded in the court a quo in said

capacity.

From January to April 1995, petitioner sold to Impact Systems various products

allegedly amounting to ninety-one thousand three hundred thirty-eight

(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 ASSIGNOR5 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

ASSIGNEE6 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

of P365,135.29 as evidenced by Check Voucher No. 09339 prepared by said power

company and an official receipt dated 15 August 1995 issued by Impact Systems.10

Alarmed by this development, petitioner made several demands upon respondents

to pay their obligations. As a result, respondents were able to make partial

payments to petitioner. On 7 October 1996, petitioner’s counsel sent respondents a

final demand letter wherein it was stated that as of 11 June 1996, respondents’ total

obligations stood at P295,000.00 excluding interests and attorney’s fees.11 Because

of respondents’ failure to abide by said final demand letter, petitioner instituted a

complaint for sum of money, damages, with application for preliminary attachment

against herein respondents before the Regional Trial Court of Cebu City.12

On 8 January 1997, the trial court granted petitioner’s prayer for the issuance of

writ of preliminary attachment.13

On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted

petitioner’s allegations with respect to the sale transactions entered into by Impact

Systems and petitioner between January and April 1995.15 He, however, disputed

the total amount of Impact Systems’ indebtedness to petitioner which, according to

him, amounted to only 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 petitioner’s Complaint stating –

1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He

is the proprietor of a single proprietorship business known as Impact Systems Sales

("Impact Systems" for brevity), with office located at 46-A del Rosario Street, Cebu

City, where he may be served summons and other processes of the Honorable

Court.

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu

City. He is the Sales Manager of Impact Systems and is sued in this action in such

capacity.17

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default

with Motion for Summary Judgment. The trial court granted petitioner’s motion to

declare respondent ERWIN in default "for his failure to answer within the prescribed

period despite the opportunity granted"18 but it denied petitioner’s motion for

summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of the

case on 16 October 2001.19 However, the conduct of the pre-trial conference was

deferred pending the resolution by the trial court of the special and affirmative

defenses raised by respondent EDWIN.20

After the filing of respondent EDWIN’s Memorandum21 in support of his special and

affirmative defenses and petitioner’s opposition22 thereto, the trial court rendered

its assailed Order dated 29 January 2002 dropping respondent EDWIN as a party

defendant in this case. According to the trial court –

A study of Annex "G" to the complaint shows that in the Deed of Assignment,

defendant Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales;

that [Impact] Systems Sale is a single proprietorship entity and the complaint shows

that defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is

represented by its general manager Alberto de Jesus in the contract which is dated

June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact] Systems

Sales which is owned solely by defendant Erwin H. Cuizon, made a down payment of

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

Petitioner’s motion for reconsideration was denied by the appellate court in its

Resolution promulgated on 17 March 2005. Hence, the present petition raising, as

sole ground for its allowance, the following:

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

RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN

CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND

THE SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A

FRAUD.25

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

which states:

Art. 1897. The agent who acts as such is not personally liable to the party with

whom he contracts, unless he expressly binds himself or exceeds the limits of his

authority without giving such party sufficient notice of his powers.

Petitioner contends that the Court of Appeals failed to appreciate the effect of

ERWIN’s act of collecting the receivables from the Toledo Power Corporation

notwithstanding the existence of the Deed of Assignment signed by EDWIN on

behalf of Impact Systems. While said collection did not revoke the agency relations

of respondents, petitioner insists that ERWIN’s action repudiated EDWIN’s power to

sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of

his powers as an agent, petitioner claims that he should be made personally liable

for the obligations of his principal.26

Petitioner also contends that it fell victim to the fraudulent scheme of respondents

who induced it into selling the one unit of sludge pump to Impact Systems and

signing the Deed of Assignment. Petitioner directs the attention of this Court to the

fact that respondents are bound not only by their principal and agent relationship

but are in fact full-blooded brothers whose successive contravening acts bore the

obvious signs of conspiracy to defraud petitioner.27

In his Comment,28 respondent EDWIN again posits the argument that he is not a

real party in interest in this case and it was proper for the trial court to have him

dropped as a defendant. He insists that he was a mere agent of Impact Systems

which is owned by ERWIN and that his status as such is known even to petitioner as

it is alleged in the Complaint that he is being sued in his capacity as the sales

manager of the said business venture. Likewise, respondent EDWIN points to the

Deed of Assignment which clearly states that he was acting as a representative of

Impact Systems in said transaction.

We do not find merit in the petition.

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

something in representation or on behalf of another with the latter’s consent.29

The underlying principle of the contract of agency is to accomplish results by using

the services of others – to do a great variety of things like selling, buying,

manufacturing, and transporting.30 Its purpose is to extend the personality of the

principal or the party for whom another acts and from whom he or she derives the

authority to act.31 It is said that the basis of agency is representation, that is, the

agent acts for and on behalf of the principal on matters within the scope of his

authority and said acts have the same legal effect as if they were personally

executed by the principal.32 By this legal fiction, the actual or real absence of the

principal is converted into his legal or juridical presence – qui facit per alium facit

per se.33

The elements of the contract of agency are: (1) consent, express or implied, of the

parties to establish the relationship; (2) the object is the execution of a juridical act

in relation to a third person; (3) the agent acts as a representative and not for

himself; (4) the agent acts within the scope of his authority.34

In this case, the parties do not dispute the existence of the agency relationship

between respondents ERWIN as principal and EDWIN as agent. The only cause of

the present dispute is whether respondent EDWIN exceeded his authority when he

signed the Deed of Assignment thereby binding himself personally to pay the

obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted

beyond the authority granted by his principal and he should therefore bear the

effect of his deed pursuant to Article 1897 of the New Civil Code.

We disagree.

Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not

personally liable to the party with whom he contracts. The same provision,

however, presents two instances when an agent becomes personally liable to a third

person. The first is when he expressly binds himself to the obligation and the second

is when he exceeds his authority. In the last instance, the agent can be held liable if

he does not give the third party sufficient notice of his powers. We hold that

respondent EDWIN does not fall within any of the exceptions contained in this

provision.

The Deed of Assignment clearly states that respondent EDWIN signed thereon as

the sales manager of Impact Systems. As discussed elsewhere, the position of

manager is unique in that it presupposes the grant of broad powers with which to

conduct the business of the principal, thus:

The powers of an agent are particularly broad in the case of one acting as a general

agent or manager; such a position presupposes a degree of confidence reposed and

investiture with liberal powers for the exercise of judgment and discretion in

transactions and concerns which are incidental or appurtenant to the business

entrusted to his care and management. In the absence of an agreement to the

contrary, a managing agent may enter into any contracts that he deems reasonably

necessary or requisite for the protection of the interests of his principal entrusted to

his management. x x x.35

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-

within his authority when he signed the Deed of Assignment. To recall, petitioner

refused to deliver the one unit of sludge pump unless it received, in full, the

payment for Impact Systems’ indebtedness.36 We may very well assume that

Impact Systems desperately needed the sludge pump for its business since after it

paid the amount of fifty thousand pesos (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

EDWIN’s participation in the Deed of Assignment was "reasonably necessary" or was

required in order for him to protect the business of his principal. Had he not acted in

the way he did, the business of his principal would have been adversely affected and

he would have violated his fiduciary relation with his principal.

We likewise take note of the fact that in this case, petitioner is seeking to recover

both from respondents ERWIN, the principal, and EDWIN, the agent. It is well to

state here that Article 1897 of the New Civil Code upon which petitioner anchors its

claim against respondent EDWIN "does not hold that in case of excess of authority,

both the agent and the principal are liable to the other contracting party."39 To

reiterate, the first part of Article 1897 declares that the principal is liable in cases

when the agent acted within the bounds of his authority. Under this, the agent is

completely absolved of any liability. The second part of the said provision presents

the situations when the agent himself becomes liable to a third party when he

expressly binds himself or he exceeds the limits of his authority without giving

notice of his powers to the third person. However, it must be pointed out that in

case of excess of authority by the agent, like what petitioner claims exists here, the

law does not say that a third person can recover from both the principal and the

agent.40

As we declare that respondent EDWIN acted within his authority as an agent, who

did not acquire any right nor incur any liability arising from the Deed of Assignment,

it follows that he is not a real party in interest who should be impleaded in this case.

A real party in interest is one who "stands to be benefited or injured by the

judgment in the suit, or the party entitled to the avails of the suit."41 In this respect,

we sustain his exclusion as a defendant in the suit before the court a quo.

WHEREFORE, premises considered, the present petition is DENIED and the Decision

dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals

in CA-G.R. SP No. 71397, affirming the Order dated 29 January 2002 of the Regional

Trial Court, Branch 8, Cebu City, is AFFIRMED.

Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu

City, for the continuation of the proceedings against respondent Erwin Cuizon.

SO ORDERED.

[G.R. No. 130148. December 15, 1997]

JOSE BORDADOR and LYDIA BORDADOR, petitioners, vs. BRIGIDA D. LUZ, ERNESTO

M. LUZ and NARCISO DEGANOS, respondents.

D E C I S I O N

REGALADO, J.:

In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in

CA-G.R. CV No. 49175 affirming the adjudication of the Regional Trial Court of

Malolos, Bulacan which found private respondent Narciso Deganos liable to

petitioners for actual damages, but absolved respondent spouses Brigida D. Luz and

Ernesto M. Luz of liability. Petitioners likewise belabor the subsequent resolution of

the Court of Appeals which denied their motion for reconsideration of its challenged

decision.

Petitioners were engaged in the business of purchase and sale of jewelry and

respondent Brigida D. Luz, also known as Aida D. Luz, was their regular customer.

On several occasions during the period from April 27, 1987 to September 4, 1987,

respondent Narciso Deganos, the brother of Brigida D. Luz, received several pieces

of gold and jewelry from petitioners amounting to P382,816.00. i[1] These items

and their prices were indicated in seventeen receipts covering the same. Eleven of

the receipts stated that they were received for a certain Evelyn Aquino, a niece of

Deganos, and the remaining six indicated that they were received for Brigida D. Luz.

ii[2]

Deganos was supposed to sell the items at a profit and thereafter remit the

proceeds and return the unsold items to petitioners. Deganos remitted only the sum

of P53,207.00. He neither paid the balance of the sales proceeds, nor did he return

any unsold item to petitioners. By January 1990, the total of his unpaid account to

petitioners, including interest, reached the sum of P725,463.98. iii[3] Petitioners

eventually filed a complaint in the barangay court against Deganos to recover said

amount.

In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case,

appeared as a witness for Deganos and ultimately, she and her husband, together

with Deganos, signed a compromise agreement with petitioners. In that

compromise agreement, Deganos obligated himself to pay petitioners, on

installment basis, the balance of his account plus interest thereon. However, he

failed to comply with his aforestated undertakings.

On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial

Court of Malolos, Bulacan against Deganos and Brigida D. Luz for recovery of a sum

of money and damages, with an application for preliminary attachment.iv[4]

Ernesto Luz was impleaded therein as the spouse of Brigida.

Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged

with estafav[5] in the Regional Trial Court of Malolos, Bulacan, which was docketed

as Criminal Case No. 785-M-94. That criminal case appears to be still pending in said

trial court.

During the trial of the civil case, petitioners claimed that Deganos acted as the agent

of Brigida D. Luz when he received the subject items of jewelry and, because he

failed to pay for the same, Brigida, as principal, and her spouse are solidarily liable

with him therefor.

On the other hand, while Deganos admitted that he had an unpaid obligation to

petitioners, he claimed that the same was only in the sum of P382,816.00 and not

P725,463.98. He further asserted that it was he alone who was involved in the

transaction with the petitioners; that he neither acted as agent for nor was he

authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that six of

the receipts indicated that the items were received by him for the latter. He further

claimed that he never delivered any of the items he received from petitioners to

Brigida.

Brigida, on her part, denied that she had anything to do with the transactions

between petitioners and Deganos. She claimed that she never authorized Deganos

to receive any item of jewelry in her behalf and, for that matter, neither did she

actually receive any of the articles in question.

After trial, the court below found that only Deganos was liable to petitioners for the

amount and damages claimed. It held that while Brigida D. Luz did have transactions

with petitioners in the past, the items involved were already paid for and all that

Brigida owed petitioners was the sum of P21,483.00 representing interest on the

principal account which she had previously paid for.vi[6]

The trial court also found that it was petitioner Lydia Bordador who indicated in the

receipts that the items were received by Deganos for Evelyn Aquino and Brigida D.

Luz. vii[7] Said court was persuaded that Brigida D. Luz was behind Deganos, but

because there was no memorandum to this effect, the agreement between the

parties was unenforceable under the Statute of Frauds. viii[8] Absent the required

memorandum or any written document connecting the respondent Luz spouses

with the subject receipts, or authorizing Deganos to act on their behalf, the alleged

agreement between petitioners and Brigida D. Luz was unenforceable.

Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal

interest thereon from June 25, 1990, and attorneys fees. Brigida D. Luz was ordered

to pay P21,483.00 representing the interest on her own personal loan. She and her

co-defendant spouse were absolved from any other or further liability. ix[9]

As stated at the outset, petitioners appealed the judgment of the court a quo to the

Court of Appeals which affirmed said judgment. x[10] The motion for

reconsideration filed by petitioners was subsequently dismissed, xi[11] hence the

present recourse to this Court.

The primary issue in the instant petition is whether or not herein respondent

spouses are liable to petitioners for the latters claim for money and damages in the

sum of P725,463.98, plus interests and attorneys fees, despite the fact that the

evidence does not show that they signed any of the subject receipts or authorized

Deganos to receive the items of jewelry on their behalf.

Petitioners argue that the Court of Appeals erred in adopting the findings of the

court a quo that respondent spouses are not liable to them, as said conclusion of

the trial court is contradicted by the finding of fact of the appellate court that

(Deganos) acted as agent of his sister (Brigida Luz). xii[12] In support of this

contention, petitioners quoted several letters sent to them by Brigida D. Luz

wherein the latter acknowledged her obligation to petitioners and requested for

more time to fulfill the same. They likewise aver that Brigida testified in the trial

court that Deganos took some gold articles from petitioners and delivered the same

to her.

Both the Court of Appeals and the trial court, however, found as a fact that the

aforementioned letters concerned the previous obligations of Brigida to petitioners,

and had nothing to do with the money sought to be recovered in the instant case.

Such concurrent factual findings are entitled to great weight, hence, petitioners

cannot plausibly claim in this appellate review that the letters were in the nature of

acknowledgments by Brigida that she was the principal of Deganos in the subject

transactions.

On the other hand, with regard to the testimony of Brigida admitting delivery of the

gold to her, there is no showing whatsoever that her statement referred to the

items which are the subject matter of this case. It cannot, therefore, be validly said

that she admitted her liability regarding the same.

Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed

him with apparent authority as her agent and held him out to the public as such,

hence Brigida can not be permitted to deny said authority to innocent third parties

who dealt with Deganos under such belief. xiii[13] Petitioners further represent that

the Court of Appeals recognized in its decision that Deganos was an agent of

Brigida.xiv[14]

The evidence does not support the theory of petitioners that Deganos was an agent

of Brigida D. Luz and that the latter should consequently be held solidarily liable

with Deganos in his obligation to petitioners. While the quoted statement in the

findings of fact of the assailed appellate decision mentioned that Deganos

ostensibly acted as an agent of Brigida, the actual conclusion and ruling of the Court

of Appeals categorically stated that, (Brigida Luz) never authorized her brother

(Deganos) to act for and in her behalf in any transaction with Petitioners x x x. xv[15]

It is clear, therefore, that even assuming arguendo that Deganos acted as an agent

of Brigida, the latter never authorized him to act on her behalf with regard to the

transactions subject of this case.

The Civil Code provides:

Art. 1868. By the contract of agency a person binds himself to render some service

or to do something in representation or on behalf of another, with the consent or

authority of the latter.

The basis for agency is representation. Here, there is no showing that Brigida

consented to the acts of Deganos or authorized him to act on her behalf, much less

with respect to the particular transactions involved. Petitioners attempt to foist

liability on respondent spouses through the supposed agency relation with Deganos

is groundless and ill-advised.

Besides, it was grossly and inexcusably negligent of petitioners to entrust to

Deganos, not once or twice but on at least six occasions as evidenced by six receipts,

several pieces of jewelry of substantial value without requiring a written

authorization from his alleged principal. A person dealing with an agent is put upon

inquiry and must discover upon his peril the authority of the agent. xvi[16]

The records show that neither an express nor an implied agency was proven to have

existed between Deganos and Brigida D. Luz. Evidently, petitioners, who were

negligent in their transactions with Deganos, cannot seek relief from the effects of

their negligence by conjuring a supposed agency relation between the two

respondents where no evidence supports such claim.

Petitioners next allege that the Court of Appeals erred in ignoring the fact that the

decision of the court below, which it affirmed, is null and void as it contradicted its

ruling in CA-G.R. SP No. 39445 holding that there is sufficient evidence/proof against

Brigida D. Luz and Deganos for estafa in the pending criminal case. They further aver

that said appellate court erred in ruling against them in this civil action since the

same would result in an inevitable conflict of decisions should the trial court convict

the accused in the criminal case.

By way of backdrop for this argument of petitioners, herein respondents Brigida D.

Luz and Deganos had filed a demurrer to evidence and a motion for reconsideration

in the aforestated criminal case, both of which were denied by the trial court. They

then filed a petition for certiorari in the Court of Appeals to set aside the denial of

their demurrer and motion for reconsideration but, as just stated, their petition

therefor was dismissed.xvii[17]

Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the

petition in CA-G.R. SP No. 39445 with respect to the criminal case is equivalent to a

finding that there is sufficient evidence in the estafa case against Brigida D. Luz and

Deganos. Hence, as already stated, petitioners theorize that the decision and

resolution of the Court of Appeals now being impugned in the case at bar would

result in a possible conflict with the prospective decision in the criminal case.

Instead of promulgating the present decision and resolution under review, so they

suggest, the Court of Appeals should have awaited the decision in the criminal case,

so as not to render academic or preempt the same or, worse, create two conflicting

rulings. xviii[18]

Petitioners have apparently lost sight of Article 33 of the Civil Code which provides

that in cases involving alleged fraudulent acts, a civil action for damages, entirely

separate and distinct from the criminal action, may be brought by the injured party.

Such civil action shall proceed independently of the criminal prosecution and shall

require only a preponderance of evidence.

It is worth noting that this civil case was instituted four years before the criminal

case for estafa was filed, and that although there was a move to consolidate both

cases, the same was denied by the trial court. Consequently, it was the duty of the

two branches of the Regional Trial Court concerned to independently proceed with

the civil and criminal cases. It will also be observed that a final judgment rendered in

a civil action absolving the defendant from civil liability is no bar to a criminal action.

xix[19]

It is clear, therefore, that this civil case may proceed independently of the criminal

case xx[20] especially because while both cases are based on the same facts, the

quantum of proof required for holding the parties liable therein differ. Thus, it is

improvident of petitioners to claim that the decision and resolution of the Court of

Appeals in the present case would be preemptive of the outcome of the criminal

case. Their fancied fear of possible conflict between the disposition of this civil case

and the outcome of the pending criminal case is illusory.

Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction

to issue the denial resolution dated August 18, 1997, as the same was tainted with

irregularities and badges of fraud perpetrated by its court officers. xxi[21] They

charge that said appellate court, through conspiracy and fraud on the part of its

officers, gravely abused its discretion in issuing that resolution denying their motion

for reconsideration. They claim that said resolution was drafted by the ponente,

then signed and issued by the members of the Eleventh Division of said court within

one and a half days from the elevation thereof by the division clerk of court to the

office of the ponente.

It is the thesis of petitioners that there was undue haste in issuing the resolution as

the same was made without waiting for the lapse of the ten-day period for

respondents to file their comment and for petitioners to file their reply. It was

allegedly impossible for the Court of Appeals to resolve the issue in just one and a

half days, especially because its ponente, the late Justice Maximiano C. Asuncion,

was then recuperating from surgery and, that, additionally, hundreds of more

important cases were pending. xxii[22]

These lamentable allegation of irregularities in the Court of Appeals and in the

conduct of its officers strikes us as a desperate attempt of petitioners to induce this

Court to give credence to their arguments which, as already found by both the trial

and intermediate appellate courts, are devoid of factual and legal substance. The

regrettably irresponsible attempt to tarnish the image of the intermediate appellate

tribunal and its judicial officers through ad hominem imputations could well be

contumacious, but we are inclined to let that pass with a strict admonition that

petitioners refrain from indulging in such conduct in litigations.

On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the

trial courts decision. xxiii[23] Petitioners moved for reconsideration and the Court of

Appeals ordered respondents to file a comment. Respondents filed the same on

August 5, 1997 xxiv[24] and petitioners filed their reply to said comment on August

15, 1997. xxv[25] The Eleventh Division of said court issued the questioned

resolution denying petitioners motion for reconsideration on August 18,

1997.xxvi[26]

It is ironic that while some litigants malign the judiciary for being supposedly

slothful in disposing of cases, petitioners are making a show of calling out for justice

because the Court of Appeals issued a resolution disposing of a case sooner than

expected of it. They would even deny the exercise of discretion by the appellate

court to prioritize its action on cases in line with the procedure it has adopted in

disposing thereof and in declogging its dockets. It is definitely not for the parties to

determine and dictate when and how a tribunal should act upon those cases since

they are not even aware of the status of the dockets and the internal rules and

policies for acting thereon.

The fact that a resolution was issued by said court within a relatively short period of

time after the records of the case were elevated to the office of the ponente

cannot, by itself, be deemed irregular. There is no showing whatsoever that the

resolution was issued without considering the reply filed by petitioners. In fact, that

brief pleading filed by petitioners does not exhibit any esoteric or ponderous

argument which could not be analyzed within an hour. It is a legal presumption,

born of wisdom and experience, that official duty has been regularly performed;

xxvii[27] that the proceedings of a judicial tribunal are regular and valid, and that

judicial acts and duties have been and will be duly and properly performed.

xxviii[28] The burden of proving irregularity in official conduct is on the part of

petitioners and they have utterly failed to do so. It is thus reprehensible for them to

cast aspersions on a court of law on the bases of conjectures or surmises, especially

since one of the petitioners appears to be a member of the Philippine Bar.

Lastly, petitioners fault the trial courts holding that whatever contract of agency was

established between Brigida D. Luz and Narciso Deganos is unenforceable under the

Statute of Frauds as that aspect of this case allegedly is not covered thereby.

xxix[29] They proceed on the premise that the Statute of Frauds applies only to

executory contracts and not to executed or to partially executed ones. From there,

they move on to claim that the contract involved in this case was an executed

contract as the items had already been delivered by petitioners to Brigida D. Luz,

hence, such delivery resulted in the execution of the contract and removed the

same from the coverage of the Statute of Frauds.

Petitioners claim is speciously unmeritorious. It should be emphasized that neither

the trial court nor the appellate court categorically stated that there was such a

contractual relation between these two respondents. The trial court merely said

that if there was such an agency existing between them, the same is unenforceable

as the contract would fall under the Statute of Frauds which requires the

presentation of a note or memorandum thereof in order to be enforceable in court.

That was merely a preparatory statement of a principle of law. What was finally

proven as a matter of fact is that there was no such contract between Brigida D. Luz

and Narciso Deganos, executed or partially executed, and no delivery of any of the

items subject of this case was ever made to the former.

WHEREFORE, no error having been committed by the Court of Appeals in affirming

the judgment of the court a quo, its challenged decision and resolution are hereby

AFFIRMED and the instant petition is DENIED, with double costs against petitioners

SO ORDERED.

FIRST DIVISION

[G.R. No. 122544. January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER

ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON,

GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs. COURT OF

APPEALS and OVERLAND EXPRESS LINES, INC., respondents.

[G.R. No. 124741. January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER

ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON,

GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs. COURT OF

APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND EXPRESS

LINES, INC., respondents.

D E C I S I O N

MARTINEZ, J.:

Two consolidated petitions were filed before us seeking to set aside

and annul the decisions and resolutions of respondent Court of

Appeals. What seemed to be a simple ejectment suit was juxtaposed

with procedural intricacies which finally found its way to this Court. G. R. NO. 122544:

On May 23, 1974, private respondent Overland Express Lines, Inc.

(lessee) entered into a Contract of Lease with Option to Buy with

petitionersi[1] (lessors) involving a 1,755.80 square meter parcel of land

situated at corner MacArthur Highway and South "H" Street, Diliman,

Quezon City. The term of the lease was for one (1) year commencing

from May 16, 1974 up to May 15, 1975. During this period, private

respondent was granted an option to purchase for the amount of

P3,000.00 per square meter. Thereafter, the lease shall be on a per

month basis with a monthly rental of P3,000.00.

For failure of private respondent to pay the increased rental of

P8,000.00 per month effective June 1976, petitioners filed an action for

ejectment (Civil Case No. VIII-29155) on November 10, 1976 before the

then City Court (now Metropolitan Trial Court) of Quezon City, Branch

VIII. On November 22, 1982, the City Court rendered judgmenti[2]

ordering private respondent to vacate the leased premises and to pay

the sum of P624,000.00 representing rentals in arrears and/or as

damages in the form of reasonable compensation for the use and

occupation of the premises during the period of illegal detainer from

June 1976 to November 1982 at the monthly rental of P8,000.00, less

payments made, plus 12% interest per annum from November 18,

1976, the date of filing of the complaint, until fully paid, the sum of

P8,000.00 a month starting December 1982, until private respondent

fully vacates the premises, and to pay P20,000.00 as and by way of

attorney's fees.

Private respondent filed a certiorari petition praying for the issuance of

a restraining order enjoining the enforcement of said judgment and

dismissal of the case for lack of jurisdiction of the City Court.

On September 26, 1984, the then Intermediate Appellate Courti[3]

(now Court of Appeals) rendered a decisioni[4] stating that:

"x x x, the alleged question of whether petitioner was

granted an extension of the option to buy the property;

whether such option, if any, extended the lease or whether

petitioner actually paid the alleged P300,000.00 to Fidela Dizon,

as representative of private respondents in consideration of the

option and, whether petitioner thereafter offered to pay the

balance of the supposed purchase price, are all merely

incidental and do not remove the unlawful detainer case from

the jurisdiction of respondent court. In consonance with the

ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above

matters may be raised and decided in the unlawful detainer

suit as, to rule otherwise, would be a violation of the principle

prohibiting multiplicity of suits. (Original Records, pp. 38-39)."

The motion for reconsideration was denied. On review, this Court

dismissed the petition in a resolution dated June 19, 1985 and likewise

denied private respondent's subsequent motion for reconsideration in

a resolution dated September 9, 1985.i[5]

On October 7, 1985, private respondent filed before the Regional Trial

Court (RTC) of Quezon City (Civil Case No. Q-45541) an action for

Specific Performance and Fixing of Period for Obligation with prayer

for the issuance of a restraining order pending hearing on the prayer

for a writ of preliminary injunction. It sought to compel the execution of

a deed of sale pursuant to the option to purchase and the receipt of

the partial payment, and to fix the period to pay the balance. In an

Order dated October 25, 1985, the trial court denied the issuance of a

writ of preliminary injunction on the ground that the decision of the

then City Court for the ejectment of the private respondent, having

been affirmed by the then Intermediate Appellate Court and the

Supreme Court, has become final and executory.

Unable to secure an injunction, private respondent also filed before

the RTC of Quezon City, Branch 102 (Civil Case No. Q-46487) on

November 15, 1985 a complaint for Annulment of and Relief from

Judgment with injunction and damages. In its decisioni[6] dated May

12, 1986, the trial court dismissed the complaint for annulment on the

ground of res judicata, and the writ of preliminary injunction previously

issued was dissolved. It also ordered private respondent to pay

P3,000.00 as attorney's fees. As a consequence of private respondent's

motion for reconsideration, the preliminary injunction was reinstated,

thereby restraining the execution of the City Court's judgment on the

ejectment case.

The two cases were thereafter consolidated before the RTC of Quezon

City, Branch 77. On April 28, 1989, a decisioni[7] was rendered

dismissing private respondent's complaint in Civil Case No. Q-45541

(specific performance case) and denying its motion for

reconsideration in Civil Case No. 46487 (annulment of the ejectment

case). The motion for reconsideration of said decision was likewise

denied.

On appeal,i[8] respondent Court of Appeals rendered a decisioni[9]

upholding the jurisdiction of the City Court of Quezon City in the

ejectment case. It also concluded that there was a perfected

contract of sale between the parties on the leased premises and that

pursuant to the option to buy agreement, private respondent had

acquired the rights of a vendee in a contract of sale. It opined that

the payment by private respondent of P300,000.00 on June 20, 1975 as

partial payment for the leased property, which petitioners accepted

(through Alice A. Dizon) and for which an official receipt was issued,

was the operative act that gave rise to a perfected contract of sale,

and that for failure of petitioners to deny receipt thereof, private

respondent can therefore assume that Alice A. Dizon, acting as agent

of petitioners, was authorized by them to receive the money in their

behalf. The Court of Appeals went further by stating that in fact, what

was entered into was a "conditional contract of sale" wherein

ownership over the leased property shall not pass to the private

respondent until it has fully paid the purchase price. Since private

respondent did not consign to the court the balance of the purchase

price and continued to occupy the subject premises, it had the

obligation to pay the amount of P1,700.00 in monthly rentals until full

payment of the purchase price. The dispositive portion of said decision

reads:

"WHEREFORE, the appealed decision in Case No. 46487 is

AFFIRMED. The appealed decision in Case No. 45541 is, on the

other hand, ANNULLED and SET ASIDE. The defendants-

appellees are ordered to execute the deed of absolute sale of

the property in question, free from any lien or encumbrance

whatsoever, in favor of the plaintiff-appellant, and to deliver to

the latter the said deed of sale, as well as the owner's duplicate

of the certificate of title to said property upon payment of the

balance of the purchase price by the plaintiff-appellant. The

plaintiff-appellant is ordered to pay P1,700.00 per month from

June 1976, plus 6% interest per annum, until payment of the

balance of the purchase price, as previously agreed upon by

the parties.

SO ORDERED."

Upon denial of the motion for partial reconsideration (Civil Case No. Q-

45541) by respondent Court of Appeals,i[10] petitioners elevated the

case via petition for certiorari questioning the authority of Alice A.

Dizon as agent of petitioners in receiving private respondent's partial

payment amounting to P300,000.00 pursuant to the Contract of Lease

with Option to Buy. Petitioners also assail the propriety of private

respondent's exercise of the option when it tendered the said amount

on June 20, 1975 which purportedly resulted in a perfected contract of

sale. G. R. NO. 124741:

Petitioners filed with respondent Court of Appeals a motion to remand

the records of Civil Case No. 38-29155 (ejectment case) to the

Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch

38, for execution of the judgmenti[11] dated November 22, 1982 which

was granted in a resolution dated June 29, 1992. Private respondent

filed a motion to reconsider said resolution which was denied.

Aggrieved, private respondent filed a petition for certiorari, prohibition

with preliminary injunction and/or restraining order with this Court (G.R.

Nos. 106750-51) which was dismissed in a resolution dated September

16, 1992 on the ground that the same was a refiled case previously

dismissed for lack of merit. On November 26, 1992, entry of judgment

was issued by this Court.

On July 14, 1993, petitioners filed an urgent ex-parte motion for

execution of the decision in Civil Case No. 38-29155 with the MTC of

Quezon City, Branch 38. On September 13, 1993, the trial court

ordered the issuance of a third alias writ of execution. In denying

private respondent's motion for reconsideration, it ordered the

immediate implementation of the third writ of execution without delay.

On December 22, 1993, private respondent filed with the Regional Trial

Court (RTC) of Quezon City, Branch 104 a petition for certiorari and

prohibition with preliminary injunction/restraining order (SP. PROC. No.

93-18722) challenging the enforceability and validity of the MTC

judgment as well as the order for its execution.

On January 11, 1994, RTC of Quezon City, Branch 104 issued an

orderi[12] granting the issuance of a writ of preliminary injunction upon

private respondent's posting of an injunction bond of P50,000.00.

Assailing the aforequoted order after denial of their motion for partial

reconsideration, petitioners filed a petitioni[13] for certiorari and

prohibition with a prayer for a temporary restraining order and/or

preliminary injunction with the Court of Appeals. In its decision,i[14] the

Court of Appeals dismissed the petition and ruled that:

"The avowed purpose of this petition is to enjoin the

public respondent from restraining the ejectment of the

private respondent. To grant the petition would be to allow

the ejectment of the private respondent. We cannot do that

now in view of the decision of this Court in CA-G.R. CV Nos.

25153-54. Petitioners' alleged right to eject private

respondent has been demonstrated to be without basis in

the said civil case. The petitioners have been shown, after

all, to have no right to eject private respondents.

WHEREFORE, the petition is DENIED due course and is

accordingly DISMISSED.

SO ORDERED."i[15]

Petitioners' motion for reconsideration was denied in a resolutioni[16]

by the Court of Appeals stating that:

"This court in its decision in CA-G.R. CV Nos. 25153-54

declared that the plaintiff-appellant (private respondent herein)

acquired the rights of a vendee in a contract of sale, in effect,

recognizing the right of the private respondent to possess the

subject premises. Considering said decision, we should not allow

ejectment; to do so would disturb the status quo of the parties

since the petitioners are not in possession of the subject

property. It would be unfair and unjust to deprive the private

respondent of its possession of the subject property after its

rights have been established in a subsequent ruling.

WHEREFORE, the motion for reconsideration is DENIED for

lack of merit.

SO ORDERED."i[17]

Hence, this instant petition.

We find both petitions impressed with merit.

First. Petitioners have established a right to evict private respondent

from the subject premises for non-payment of rentals. The term of the

Contract of Lease with Option to Buy was for a period of one (1) year

(May 16, 1974 to May 15, 1975) during which the private respondent

was given an option to purchase said property at P3,000.00 per square

meter. After the expiration thereof, the lease was for P3,000.00 per

month.

Admittedly, no definite period beyond the one-year term of lease was

agreed upon by petitioners and private respondent. However, since

the rent was paid on a monthly basis, the period of lease is considered

to be from month to month in accordance with Article 1687 of the

New Civil Code.i[18] Where the rentals are paid monthly, the lease,

even if verbal may be deemed to be on a monthly basis, expiring at

the end of every month pursuant to Article 1687, in relation to Article

1673 of the Civil Code.i[19] In such case, a demand to vacate is not

even necessary for judicial action after the expiration of every

month.i[20]

When private respondent failed to pay the increased rental of

P8,000.00 per month in June 1976, the petitioners had a cause of

action to institute an ejectment suit against the former with the then

City Court. In this regard, the City Court (now MTC) had exclusive

jurisdiction over the ejectment suit. The filing by private respondent of

a suit with the Regional Trial Court for specific performance to enforce

the option to purchase did not divest the then City Court of its

jurisdiction to take cognizance over the ejectment case. Of note is the

fact that the decision of the City Court was affirmed by both the

Intermediate Appellate Court and this Court.

Second. Having failed to exercise the option within the stipulated one-

year period, private respondent cannot enforce its option to purchase

anymore. Moreover, even assuming arguendo that the right to

exercise the option still subsists at the time private respondent

tendered the amount on June 20, 1975, the suit for specific

performance to enforce the option to purchase was filed only on

October 7, 1985 or more than ten (10) years after accrual of the cause

of action as provided under Article 1144 of the New Civil Code.i[21]

In this case, there was a contract of lease for one (1) year with option

to purchase. The contract of lease expired without the private

respondent, as lessee, purchasing the property but remained in

possession thereof. Hence, there was an implicit renewal of the

contract of lease on a monthly basis. The other terms of the original

contract of lease which are revived in the implied new lease under

Article 1670 of the New Civil Codei[22] are only those terms which are

germane to the lessees right of continued enjoyment of the property

leased.i[23] Therefore, an implied new lease does not ipso facto carry

with it any implied revival of private respondent's option to purchase

(as lessee thereof) the leased premises. The provision entitling the

lessee the option to purchase the leased premises is not deemed

incorporated in the impliedly renewed contract because it is alien to

the possession of the lessee. Private respondents right to exercise the

option to purchase expired with the termination of the original

contract of lease for one year. The rationale of this Court is that:

This is a reasonable construction of the provision, which is based on the

presumption that when the lessor allows the lessee to continue

enjoying possession of the property for fifteen days after the expiration

of the contract he is willing that such enjoyment shall be for the entire

period corresponding to the rent which is customarily paid in this case

up to the end of the month because the rent was paid monthly.

Necessarily, if the presumed will of the parties refers to the enjoyment

of possession the presumption covers the other terms of the contract

related to such possession, such as the amount of rental, the date

when it must be paid, the care of the property, the responsibility for

repairs, etc. But no such presumption may be indulged in with respect

to special agreements which by nature are foreign to the right of

occupancy or enjoyment inherent in a contract of lease.i[24]

Third. There was no perfected contract of sale between petitioners

and private respondent. Private respondent argued that it delivered

the check of P300,000.00 to Alice A. Dizon who acted as agent of

petitioners pursuant to the supposed authority given by petitioner

Fidela Dizon, the payee thereof. Private respondent further contended

that petitioners filing of the ejectment case against it based on the

contract of lease with option to buy holds petitioners in estoppel to

question the authority of petitioner Fidela Dizon. It insisted that the

payment of P300,000.00 as partial payment of the purchase price

constituted a valid exercise of the option to buy.

Under Article 1475 of the New Civil Code, the contract of sale is

perfected at the moment there is a meeting of minds upon the thing

which is the object of the contract and upon the price. From that

moment, the parties may reciprocally demand performance, subject

to the provisions of the law governing the form of contracts. Thus, the

elements of a contract of sale are consent, object, and price in

money or its equivalent. It bears stressing that the absence of any of

these essential elements negates the existence of a perfected

contract of sale. Sale is a consensual contract and he who alleges it

must show its existence by competent proof.i[25]

In an attempt to resurrect the lapsed option, private respondent gave

P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous

presumption that the said amount tendered would constitute a

perfected contract of sale pursuant to the contract of lease with

option to buy. There was no valid consent by the petitioners (as co-

owners of the leased premises) on the supposed sale entered into by

Alice A. Dizon, as petitioners alleged agent, and private respondent.

The basis for agency is representation and a person dealing with an

agent is put upon inquiry and must discover upon his peril the authority

of the agent.i[26] As provided in Article 1868 of the New Civil

Code,i[27] there was no showing that petitioners consented to the act

of Alice A. Dizon nor authorized her to act on their behalf with regard

to her transaction with private respondent. The most prudent thing

private respondent should have done was to ascertain the extent of

the authority of Alice A. Dizon. Being negligent in this regard, private

respondent cannot seek relief on the basis of a supposed agency.

In Bacaltos Coal Mines vs. Court of Appeals,i[28] we explained the rule

in dealing with an agent:

Every person dealing with an agent is put upon inquiry and must

discover upon his peril the authority of the agent. If he does not make

such inquiry, he is chargeable with knowledge of the agents authority,

and his ignorance of that authority will not be any excuse. Persons

dealing with an assumed agent, whether the assumed agency be a

general or special one, are bound at their peril, if they would hold the

principal, to ascertain not only the fact of the agency but also the

nature and extent of the authority, and in case either is controverted,

the burden of proof is upon them to establish it.

For the long years that private respondent was able to thwart the

execution of the ejectment suit rendered in favor of petitioners, we

now write finis to this controversy and shun further delay so as to ensure

that this case would really attain finality.

WHEREFORE, in view of the foregoing, both petitions are GRANTED. The

decision dated March 29, 1994 and the resolution dated October 19,

1995 in CA-G.R. CV No. 25153-54, as well as the decision dated

December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R.

SP No. 33113 of the Court of Appeals are hereby REVERSED and SET

ASIDE.

Let the records of this case be remanded to the trial court for

immediate execution of the judgment dated November 22, 1982 in

Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial

Court) of Quezon City, Branch VIII as affirmed in the decision dated

September 26, 1984 of the then Intermediate Appellate Court (now

Court of Appeals) and in the resolution dated June 19, 1985 of this

Court.

However, petitioners are ordered to REFUND to private respondent the

amount of P300,000.00 which they received through Alice A. Dizon on

June 20, 1975.

SO ORDERED.

SECOND DIVISION

[G.R. No. 117356. June 19, 2000]

VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS

and CONSOLIDATED SUGAR CORPORATION, respondents.

D E C I S I O N

QUISUMBING, J.:

Before us is a petition for review on certiorari under Rule 45 of

the Rules of Court assailing the decision of the Court of Appeals

dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the

respondent court's resolution of September 30, 1994 modifying

said decision. Both decision and resolution amended the

judgment dated February 13, 1991, of the Regional Trial Court of

Makati City, Branch 147, in Civil Case No. 90-118.

The facts of this case as found by both the trial and appellate

courts are as follows:

St. Therese Merchandising (hereafter STM) regularly bought

sugar from petitioner Victorias Milling Co., Inc., (VMC). In the

course of their dealings, petitioner issued several Shipping

List/Delivery Receipts (SLDRs) to STM as proof of purchases.

Among these was SLDR No. 1214M, which gave rise to the

instant case. Dated October 16, 1989, SLDR No. 1214M covers

25,000 bags of sugar. Each bag contained 50 kilograms and

priced at P638.00 per bag as "per sales order VMC Marketing

No. 042 dated October 16, 1989."i[1] The transaction it covered

was a "direct sale."i[2] The SLDR also contains an additional note

which reads: "subject for (sic) availability of a (sic) stock at

NAWACO (warehouse)."i[3]

On October 25, 1989, STM sold to private respondent

Consolidated Sugar Corporation (CSC) its rights in SLDR No.

1214M for P 14,750,000.00. CSC issued one check dated

October 25, 1989 and three checks postdated November 13,

1989 in payment. That same day, CSC wrote petitioner that it

had been authorized by STM to withdraw the sugar covered by

SLDR No. 1214M. Enclosed in the letter were a copy of SLDR No.

1214M and a letter of authority from STM authorizing CSC "to

withdraw for and in our behalf the refined sugar covered by

Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214

dated October 16, 1989 in the total quantity of 25,000 bags."i[4]

On October 27, 1989, STM issued 16 checks in the total amount

of P31,900,000.00 with petitioner as payee. The latter, in turn,

issued Official Receipt No. 33743 dated October 27, 1989

acknowledging receipt of the said checks in payment of 50,000

bags. Aside from SLDR No. 1214M, said checks also covered

SLDR No. 1213.

Private respondent CSC surrendered SLDR No. 1214M to the

petitioner's NAWACO warehouse and was allowed to withdraw

sugar. However, after 2,000 bags had been released, petitioner

refused to allow further withdrawals of sugar against SLDR No.

1214M. CSC then sent petitioner a letter dated January 23, 1990

informing it that SLDR No. 1214M had been "sold and endorsed"

to it but that it had been refused further withdrawals of sugar

from petitioner's warehouse despite the fact that only 2,000

bags had been withdrawn.i[5] CSC thus inquired when it would

be allowed to withdraw the remaining 23,000 bags.

On January 31, 1990, petitioner replied that it could not allow

any further withdrawals of sugar against SLDR No. 1214M

because STM had already dwithdrawn all the sugar covered by

the cleared checks.i[6]

On March 2, 1990, CSC sent petitioner a letter demanding the

release of the balance of 23,000 bags.

Seven days later, petitioner reiterated that all the sugar

corresponding to the amount of STM's cleared checks had

been fully withdrawn and hence, there would be no more

deliveries of the commodity to STM's account. Petitioner also

noted that CSC had represented itself to be STM's agent as it

had withdrawn the 2,000 bags against SLDR No. 1214M "for and

in behalf" of STM.

On April 27, 1990, CSC filed a complaint for specific

performance, docketed as Civil Case No. 90-1118. Defendants

were Teresita Ng Sy (doing business under the name of St.

Therese Merchandising) and herein petitioner. Since the former

could not be served with summons, the case proceeded only

against the latter. During the trial, it was discovered that Teresita

Ng Go who testified for CSC was the same Teresita Ng Sy who

could not be reached through summons.i[7] CSC, however, did

not bother to pursue its case against her, but instead used her

as its witness.

CSC's complaint alleged that STM had fully paid petitioner for

the sugar covered by SLDR No. 1214M. Therefore, the latter had

no justification for refusing delivery of the sugar. CSC prayed

that petitioner be ordered to deliver the 23,000 bags covered

by SLDR No. 1214M and sought the award of P1,104,000.00 in

unrealized profits, P3,000,000.00 as exemplary damages,

P2,200,000.00 as attorney's fees and litigation expenses.

Petitioner's primary defense a quo was that it was an unpaid

seller for the 23,000 bags.i[8] Since STM had already drawn in full

all the sugar corresponding to the amount of its cleared checks,

it could no longer authorize further delivery of sugar to CSC.

Petitioner also contended that it had no privity of contract with

CSC.

Petitioner explained that the SLDRs, which it had issued, were

not documents of title, but mere delivery receipts issued

pursuant to a series of transactions entered into between it and

STM. The SLDRs prescribed delivery of the sugar to the party

specified therein and did not authorize the transfer of said

party's rights and interests.

Petitioner also alleged that CSC did not pay for the SLDR and

was actually STM's co-conspirator to defraud it through a

misrepresentation that CSC was an innocent purchaser for

value and in good faith. Petitioner then prayed that CSC be

ordered to pay it the following sums: P10,000,000.00 as moral

damages; P10,000,000.00 as exemplary damages; and

P1,500,000.00 as attorney's fees. Petitioner also prayed that

cross-defendant STM be ordered to pay it P10,000,000.00 in

exemplary damages, and P1,500,000.00 as attorney's fees.

Since no settlement was reached at pre-trial, the trial court

heard the case on the merits.

As earlier stated, the trial court rendered its judgment favoring

private respondent CSC, as follows:

"WHEREFORE, in view of the foregoing, the Court hereby

renders judgment in favor of the plaintiff and against

defendant Victorias Milling Company:

"1) Ordering defendant Victorias Milling Company to

deliver to the plaintiff 23,000 bags of refined sugar due

under SLDR No. 1214;

"2) Ordering defendant Victorias Milling Company to pay

the amount of P920,000.00 as unrealized profits, the

amount of P800,000.00 as exemplary damages and the

amount of P1,357,000.00, which is 10% of the acquisition

value of the undelivered bags of refined sugar in the

amount of P13,570,000.00, as attorney's fees, plus the

costs.

"SO ORDERED."i[9]

It made the following observations:

"[T]he testimony of plaintiff's witness Teresita Ng Go, that

she had fully paid the purchase price of P15,950,000.00 of

the 25,000 bags of sugar bought by her covered by SLDR

No. 1214 as well as the purchase price of P15,950,000.00

for the 25,000 bags of sugar bought by her covered by

SLDR No. 1213 on the same date, October 16, 1989 (date

of the two SLDRs) is duly supported by Exhibits C to C-15

inclusive which are post-dated checks dated October

27, 1989 issued by St. Therese Merchandising in favor of

Victorias Milling Company at the time it purchased the

50,000 bags of sugar covered by SLDR No. 1213 and

1214. Said checks appear to have been honored and

duly credited to the account of Victorias Milling

Company because on October 27, 1989 Victorias Milling

Company issued official receipt no. 34734 in favor of St.

Therese Merchandising for the amount of P31,900,000.00

(Exhibits B and B-1). The testimony of Teresita Ng Go is

further supported by Exhibit F, which is a computer

printout of defendant Victorias Milling Company showing

the quantity and value of the purchases made by St.

Therese Merchandising, the SLDR no. issued to cover the

purchase, the official reciept no. and the status of

payment. It is clear in Exhibit 'F' that with respect to the

sugar covered by SLDR No. 1214 the same has been fully

paid as indicated by the word 'cleared' appearing under

the column of 'status of payment.'

"On the other hand, the claim of defendant Victorias

Milling Company that the purchase price of the 25,000

bags of sugar purchased by St. Therese Merchandising

covered by SLDR No. 1214 has not been fully paid is

supported only by the testimony of Arnulfo Caintic,

witness for defendant Victorias Milling Company. The

Court notes that the testimony of Arnulfo Caintic is

merely a sweeping barren assertion that the purchase

price has not been fully paid and is not corroborated by

any positive evidence. There is an insinuation by Arnulfo

Caintic in his testimony that the postdated checks issued

by the buyer in payment of the purchased price were

dishonored. However, said witness failed to present in

Court any dishonored check or any replacement check.

Said witness likewise failed to present any bank record

showing that the checks issued by the buyer, Teresita Ng

Go, in payment of the purchase price of the sugar

covered by SLDR No. 1214 were dishonored."i[10]

Petitioner appealed the trial courts decision to the Court of

Appeals.

On appeal, petitioner averred that the dealings between it and

STM were part of a series of transactions involving only one

account or one general contract of sale. Pursuant to this

contract, STM or any of its authorized agents could withdraw

bags of sugar only against cleared checks of STM. SLDR No.

21214M was only one of 22 SLDRs issued to STM and since the

latter had already withdrawn its full quota of sugar under the

said SLDR, CSC was already precluded from seeking delivery of

the 23,000 bags of sugar.

Private respondent CSC countered that the sugar purchases

involving SLDR No. 1214M were separate and independent

transactions and that the details of the series of purchases were

contained in a single statement with a consolidated summary

of cleared check payments and sugar stock withdrawals

because this a more convenient system than issuing separate

statements for each purchase.

The appellate court considered the following issues: (a) Whether

or not the transaction between petitioner and STM involving

SLDR No. 1214M was a separate, independent, and single

transaction; (b) Whether or not CSC had the capacity to sue on

its own on SLDR No. 1214M; and (c) Whether or not CSC as

buyer from STM of the rights to 25,000 bags of sugar covered by

SLDR No. 1214M could compel petitioner to deliver 23,000 bags

allegedly unwithdrawn.

On February 24, 1994, the Court of Appeals rendered its

decision modifying the trial court's judgment, to wit:

"WHEREFORE, the Court hereby MODIFIES the assailed

judgment and orders defendant-appellant to:

"1) Deliver to plaintiff-appellee 12,586 bags of sugar

covered by SLDR No. 1214M;

" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of

the value of the undelivered bags of refined sugar, as

attorneys fees;

"3) Pay the costs of suit.

"SO ORDERED."i[11]

Both parties then seasonably filed separate motions for

reconsideration.

In its resolution dated September 30, 1994, the appellate court

modified its decision to read:

"WHEREFORE, the Court hereby modifies the assailed

judgment and orders defendant-appellant to:

"(1) Deliver to plaintiff-appellee 23,000 bags of refined

sugar under SLDR No. 1214M;

"(2) Pay costs of suit.

"SO ORDERED."i[12]

The appellate court explained the rationale for the modification

as follows:

"There is merit in plaintiff-appellee's position.

"Exhibit F' We relied upon in fixing the number of bags of

sugar which remained undelivered as 12,586 cannot be

made the basis for such a finding. The rule is explicit that

courts should consider the evidence only for the purpose

for which it was offered. (People v. Abalos, et al, 1 CA

Rep 783). The rationale for this is to afford the party

against whom the evidence is presented to object

thereto if he deems it necessary. Plaintiff-appellee is,

therefore, correct in its argument that Exhibit F' which was

offered to prove that checks in the total amount of

P15,950,000.00 had been cleared. (Formal Offer of

Evidence for Plaintiff, Records p. 58) cannot be used to

prove the proposition that 12,586 bags of sugar remained

undelivered.

"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10

October 1990, p. 33] and Marianito L. Santos [TSN, 17

October 1990, pp. 16, 18, and 36]) presented by plaintiff-

appellee was to the effect that it had withdrawn only

2,000 bags of sugar from SLDR after which it was not

allowed to withdraw anymore. Documentary evidence

(Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-

appellee had sent demand letters to defendant-

appellant asking the latter to allow it to withdraw the

remaining 23,000 bags of sugar from SLDR 1214M.

Defendant-appellant, on the other hand, alleged that

sugar delivery to the STM corresponded only to the value

of cleared checks; and that all sugar corresponded to

cleared checks had been withdrawn. Defendant-

appellant did not rebut plaintiff-appellee's assertions. It

did not present evidence to show how many bags of

sugar had been withdrawn against SLDR No. 1214M,

precisely because of its theory that all sales in question

were a series of one single transaction and withdrawal of

sugar depended on the clearing of checks paid therefor.

"After a second look at the evidence, We see no reason

to overturn the findings of the trial court on this point."i[13]

Hence, the instant petition, positing the following errors as

grounds for review:

"1. The Court of Appeals erred in not holding that STM's

and private respondent's specially informing petitioner

that respondent was authorized by buyer STM to

withdraw sugar against SLDR No. 1214M "for and in our

(STM) behalf," (emphasis in the original) private

respondent's withdrawing 2,000 bags of sugar for STM,

and STM's empowering other persons as its agents to

withdraw sugar against the same SLDR No. 1214M,

rendered respondent like the other persons, an agent of

STM as held in Rallos v. Felix Go Chan & Realty Corp., 81

SCRA 252, and precluded it from subsequently claiming

and proving being an assignee of SLDR No. 1214M and

from suing by itself for its enforcement because it was

conclusively presumed to be an agent (Sec. 2, Rule 131,

Rules of Court) and estopped from doing so. (Art. 1431,

Civil Code).

" 2. The Court of Appeals erred in manifestly and

arbitrarily ignoring and disregarding certain relevant and

undisputed facts which, had they been considered,

would have shown that petitioner was not liable, except

for 69 bags of sugar, and which would justify review of its

conclusion of facts by this Honorable Court.

" 3. The Court of Appeals misapplied the law on

compensation under Arts. 1279, 1285 and 1626 of the

Civil Code when it ruled that compensation applied only

to credits from one SLDR or contract and not to those

from two or more distinct contracts between the same

parties; and erred in denying petitioner's right to setoff all

its credits arising prior to notice of assignment from other

sales or SLDRs against private respondent's claim as

assignee under SLDR No. 1214M, so as to extinguish or

reduce its liability to 69 bags, because the law on

compensation applies precisely to two or more distinct

contracts between the same parties (emphasis in the

original).

"4. The Court of Appeals erred in concluding that the

settlement or liquidation of accounts in Exh. F between

petitioner and STM, respondent's admission of its

balance, and STM's acquiescence thereto by silence for

almost one year did not render Exh. `F' an account

stated and its balance binding.

"5. The Court of Appeals erred in not holding that the

conditions of the assigned SLDR No. 1214, namely, (a) its

subject matter being generic, and (b) the sale of sugar

being subject to its availability at the Nawaco

warehouse, made the sale conditional and prevented

STM or private respondent from acquiring title to the

sugar; and the non-availability of sugar freed petitioner

from further obligation.

"6. The Court of Appeals erred in not holding that the

"clean hands" doctrine precluded respondent from

seeking judicial reliefs (sic) from petitioner, its only remedy

being against its assignor."i[14]

Simply stated, the issues now to be resolved are:

(1)....Whether or not the Court of Appeals erred in not

ruling that CSC was an agent of STM and hence,

estopped to sue upon SLDR No. 1214M as an assignee.

(2)....Whether or not the Court of Appeals erred in

applying the law on compensation to the transaction

under SLDR No. 1214M so as to preclude petitioner from

offsetting its credits on the other SLDRs.

(3)....Whether or not the Court of Appeals erred in not

ruling that the sale of sugar under SLDR No. 1214M was a

conditional sale or a contract to sell and hence freed

petitioner from further obligations.

(4)....Whether or not the Court of Appeals committed an

error of law in not applying the "clean hands doctrine" to

preclude CSC from seeking judicial relief.

The issues will be discussed in seriatim.

Anent the first issue, we find from the records that petitioner

raised this issue for the first time on appeal. It is settled that an

issue which was not raised during the trial in the court below

could not be raised for the first time on appeal as to do so

would be offensive to the basic rules of fair play, justice, and

due process.i[15] Nonetheless, the Court of Appeals opted to

address this issue, hence, now a matter for our consideration.

Petitioner heavily relies upon STM's letter of authority allowing

CSC to withdraw sugar against SLDR No. 1214M to show that the

latter was STM's agent. The pertinent portion of said letter reads:

"This is to authorize Consolidated Sugar Corporation or its

representative to withdraw for and in our behalf (stress

supplied) the refined sugar covered by Shipping

List/Delivery Receipt = Refined Sugar (SDR) No. 1214

dated October 16, 1989 in the total quantity of 25, 000

bags."i[16]

The Civil Code defines a contract of agency as follows:

"Art. 1868. By the contract of agency a person binds

himself to render some service or to do something in

representation or on behalf of another, with the consent

or authority of the latter."

It is clear from Article 1868 that the basis of agency is

representation.i[17] On the part of the principal, there must be

an actual intention to appointi[18] or an intention naturally

inferable from his words or actions;i[19] and on the part of the

agent, there must be an intention to accept the appointment

and act on it,i[20] and in the absence of such intent, there is

generally no agency.i[21] One factor which most clearly

distinguishes agency from other legal concepts is control; one

person - the agent - agrees to act under the control or direction

of another - the principal. Indeed, the very word "agency" has

come to connote control by the principal.i[22] The control

factor, more than any other, has caused the courts to put

contracts between principal and agent in a separate

category.i[23] The Court of Appeals, in finding that CSC, was

not an agent of STM, opined:

"This Court has ruled that where the relation of agency is

dependent upon the acts of the parties, the law makes

no presumption of agency, and it is always a fact to be

proved, with the burden of proof resting upon the

persons alleging the agency, to show not only the fact of

its existence, but also its nature and extent (Antonio vs.

Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant

failed to sufficiently establish the existence of an agency

relation between plaintiff-appellee and STM. The fact

alone that it (STM) had authorized withdrawal of sugar by

plaintiff-appellee "for and in our (STM's) behalf" should not

be eyed as pointing to the existence of an agency

relation ...It should be viewed in the context of all the

circumstances obtaining. Although it would seem STM

represented plaintiff-appellee as being its agent by the

use of the phrase "for and in our (STM's) behalf" the

matter was cleared when on 23 January 1990, plaintiff-

appellee informed defendant-appellant that SLDFR No.

1214M had been "sold and endorsed" to it by STM (Exhibit

I, Records, p. 78). Further, plaintiff-appellee has shown

that the 25, 000 bags of sugar covered by the SLDR No.

1214M were sold and transferred by STM to it ...A

conclusion that there was a valid sale and transfer to

plaintiff-appellee may, therefore, be made thus

capacitating plaintiff-appellee to sue in its own name,

without need of joining its imputed principal STM as co-

plaintiff."i[24]

In the instant case, it appears plain to us that private

respondent CSC was a buyer of the SLDFR form, and not an

agent of STM. Private respondent CSC was not subject to STM's

control. The question of whether a contract is one of sale or

agency depends on the intention of the parties as gathered

from the whole scope and effect of the language

employed.i[25] That the authorization given to CSC contained

the phrase "for and in our (STM's) behalf" did not establish an

agency. Ultimately, what is decisive is the intention of the

parties.i[26] That no agency was meant to be established by

the CSC and STM is clearly shown by CSC's communication to

petitioner that SLDR No. 1214M had been "sold and endorsed"

to it.i[27] The use of the words "sold and endorsed" means that

STM and CSC intended a contract of sale, and not an agency.

Hence, on this score, no error was committed by the

respondent appellate court when it held that CSC was not STM's

agent and could independently sue petitioner.

On the second issue, proceeding from the theory that the

transactions entered into between petitioner and STM are but

serial parts of one account, petitioner insists that its debt has

been offset by its claim for STM's unpaid purchases, pursuant to

Article 1279 of the Civil Code.i[28] However, the trial court

found, and the Court of Appeals concurred, that the purchase

of sugar covered by SLDR No. 1214M was a separate and

independent transaction; it was not a serial part of a single

transaction or of one account contrary to petitioner's insistence.

Evidence on record shows, without being rebutted, that

petitioner had been paid for the sugar purchased under SLDR

No. 1214M. Petitioner clearly had the obligation to deliver said

commodity to STM or its assignee. Since said sugar had been

fully paid for, petitioner and CSC, as assignee of STM, were not

mutually creditors and debtors of each other. No reversible error

could thereby be imputed to respondent appellate court when,

it refused to apply Article 1279 of the Civil Code to the present

case.

Regarding the third issue, petitioner contends that the sale of

sugar under SLDR No. 1214M is a conditional sale or a contract

to sell, with title to the sugar still remaining with the vendor.

Noteworthy, SLDR No. 1214M contains the following terms and

conditions:

"It is understood and agreed that by payment by

buyer/trader of refined sugar and/or receipt of this

document by the buyer/trader personally or through a

representative, title to refined sugar is transferred to

buyer/trader and delivery to him/it is deemed effected

and completed (stress supplied) and buyer/trader

assumes full responsibility therefore"i[29]

The aforequoted terms and conditions clearly show that

petitioner transferred title to the sugar to the buyer or his

assignee upon payment of the purchase price. Said terms

clearly establish a contract of sale, not a contract to sell.

Petitioner is now estopped from alleging the contrary. The

contract is the law between the contracting parties.i[30] And

where the terms and conditions so stipulated are not contrary

to law, morals, good customs, public policy or public order, the

contract is valid and must be upheld.i[31] Having transferred

title to the sugar in question, petitioner is now obliged to deliver

it to the purchaser or its assignee.

As to the fourth issue, petitioner submits that STM and private

respondent CSC have entered into a conspiracy to defraud it

of its sugar. This conspiracy is allegedly evidenced by: (a) the

fact that STM's selling price to CSC was below its purchasing

price; (b) CSC's refusal to pursue its case against Teresita Ng Go;

and (c) the authority given by the latter to other persons to

withdraw sugar against SLDR No. 1214M after she had sold her

rights under said SLDR to CSC. Petitioner prays that the doctrine

of "clean hands" should be applied to preclude CSC from

seeking judicial relief. However, despite careful scrutiny, we find

here the records bare of convincing evidence whatsoever to

support the petitioner's allegations of fraud. We are now

constrained to deem this matter purely speculative, bereft of

concrete proof.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs

against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

THIRD DIVISION

G.R. No. 156262 July 14, 2005

MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses

ANASTACIO and MARY T. BUENAVENTURA, Petitioners,

vs.

HEIRS OF BARTOLOME RAMOS, Respondents.

D E C I S I O N

PANGANIBAN, J.:

Stripped of nonessentials, the present case involves the collection of a

sum of money. Specifically, this case arose from the failure of

petitioners to pay respondents’ predecessor-in-interest. This fact was

shown by the non-encashment of checks issued by a third person, but

indorsed by herein Petitioner Maria Tuazon in favor of the said

predecessor. Under these circumstances, to enable respondents to

collect on the indebtedness, the check drawer need not be

impleaded in the Complaint. Thus, the suit is directed, not against the

drawer, but against the debtor who indorsed the checks in payment

of the obligation.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court,

challenging the July 31, 2002 Decision2 of the Court of Appeals (CA) in

CA-GR CV No. 46535. The decretal portion of the assailed Decision

reads:

"WHEREFORE, the appeal is DISMISSED and the appealed decision is

AFFIRMED."

On the other hand, the affirmed Decision3 of Branch 34 of the Regional

Trial Court (RTC) of Gapan, Nueva Ecija, disposed as follows:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and

against the defendants, ordering the defendants spouses Leonilo

Tuazon and Maria Tuazon to pay the plaintiffs, as follows:

"1. The sum of P1,750,050.00, with interests from the filing of the second

amended complaint;

"2. The sum of P50,000.00, as attorney’s fees;

"3. The sum of P20,000.00, as moral damages

"4. And to pay the costs of suit.

x x x x x x x x x"4

The Facts

The facts are narrated by the CA as follows:

"[Respondents] alleged that between the period of May 2, 1988 and

June 5, 1988, spouses Leonilo and Maria Tuazon purchased a total of

8,326 cavans of rice from [the deceased Bartolome] Ramos

[predecessor-in-interest of respondents]. That of this [quantity,] x x x

only 4,437 cavans [have been paid for so far], leaving unpaid 3,889

cavans valued at P1,211,919.00. In payment therefor, the spouses

Tuazon issued x x x [several] Traders Royal Bank checks.

x x x x x x x x x

[B]ut when these [checks] were encashed, all of the checks bounced

due to insufficiency of funds. [Respondents] advanced that before

issuing said checks[,] spouses Tuazon already knew that they had no

available fund to support the checks, and they failed to provide for

the payment of these despite repeated demands made on them.

"[Respondents] averred that because spouses Tuazon anticipated that

they would be sued, they conspired with the other [defendants] to

defraud them as creditors by executing x x x fictitious sales of their

properties. They executed x x x simulated sale[s] [of three lots] in favor

of the x x x spouses Buenaventura x x x[,] as well as their residential lot

and the house thereon[,] all located at Nueva Ecija, and another

simulated deed of sale dated July 12, 1988 of a Stake Toyota

registered with the Land Transportation Office of Cabanatuan City on

September 7, 1988. [Co-petitioner] Melecio Tuazon, a son of spouses

Tuazon, registered a fictitious Deed of Sale on July 19, 1988 x x x over a

residential lot located at Nueva Ecija. Another simulated sale of a

Toyota Willys was executed on January 25, 1988 in favor of their other

son, [co-petitioner] Alejandro Tuazon x x x. As a result of the said sales,

the titles of these properties issued in the names of spouses Tuazon

were cancelled and new ones were issued in favor of the [co-

]defendants spouses Buenaventura, Alejandro Tuazon and Melecio

Tuazon. Resultantly, by the said ante-dated and simulated sales and

the corresponding transfers there was no more property left registered

in the names of spouses Tuazon answerable to creditors, to the

damage and prejudice of [respondents].

"For their part, defendants denied having purchased x x x rice from

[Bartolome] Ramos. They alleged that it was Magdalena Ramos, wife

of said deceased, who owned and traded the merchandise and

Maria Tuazon was merely her agent. They argued that it was

Evangeline Santos who was the buyer of the rice and issued the

checks to Maria Tuazon as payments therefor. In good faith[,] the

checks were received [by petitioner] from Evangeline Santos and

turned over to Ramos without knowing that these were not funded.

And it is for this reason that [petitioners] have been insisting on the

inclusion of Evangeline Santos as an indispensable party, and her non-

inclusion was a fatal error. Refuting that the sale of several properties

were fictitious or simulated, spouses Tuazon contended that these

were sold because they were then meeting financial difficulties but

the disposals were made for value and in good faith and done before

the filing of the instant suit. To dispute the contention of plaintiffs that

they were the buyers of the rice, they argued that there was no sales

invoice, official receipts or like evidence to prove this. They assert that

they were merely agents and should not be held answerable."5

The corresponding civil and criminal cases were filed by respondents

against Spouses Tuazon. Those cases were later consolidated and

amended to include Spouses Anastacio and Mary Buenaventura, with

Alejandro Tuazon and Melecio Tuazon as additional defendants.

Having passed away before the pretrial, Bartolome Ramos was

substituted by his heirs, herein respondents.

Contending that Evangeline Santos was an indispensable party in the

case, petitioners moved to file a third-party complaint against her.

Allegedly, she was primarily liable to respondents, because she was

the one who had purchased the merchandise from their predecessor,

as evidenced by the fact that the checks had been drawn in her

name. The RTC, however, denied petitioners’ Motion.

Since the trial court acquitted petitioners in all three of the

consolidated criminal cases, they appealed only its decision finding

them civilly liable to respondents.

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioners had failed to prove the

existence of an agency between respondents and Spouses Tuazon.

The appellate court disbelieved petitioners’ contention that

Evangeline Santos should have been impleaded as an indispensable

party. Inasmuch as all the checks had been indorsed by Maria Tuazon,

who thereby became liable to subsequent holders for the amounts

stated in those checks, there was no need to implead Santos.

Hence, this Petition.6

Issues

Petitioners raise the following issues for our consideration:

"1. Whether or not the Honorable Court of Appeals erred in ruling that

petitioners are not agents of the respondents.

"2. Whether or not the Honorable Court of Appeals erred in rendering

judgment against the petitioners despite x x x the failure of the

respondents to include in their action Evangeline Santos, an

indispensable party to the suit."7

The Court’s Ruling

The Petition is unmeritorious.

First Issue:

Agency

Well-entrenched is the rule that the Supreme Court’s role in a petition

under Rule 45 is limited to reviewing errors of law allegedly committed

by the Court of Appeals. Factual findings of the trial court, especially

when affirmed by the CA, are conclusive on the parties and this

Court.8 Petitioners have not given us sufficient reasons to deviate from

this rule.

In a contract of agency, one binds oneself to render some service or

to do something in representation or on behalf of another, with the

latter’s consent or authority.9 The following are the elements of

agency: (1) the parties’ consent, express or implied, to establish the

relationship; (2) the object, which is the execution of a juridical act in

relation to a third person; (3) the representation, by which the one who

acts as an agent does so, not for oneself, but as a representative; (4)

the limitation that the agent acts within the scope of his or her

authority.10 As the basis of agency is representation, there must be, on

the part of the principal, an actual intention to appoint, an intention

naturally inferable from the principal’s words or actions. In the same

manner, there must be an intention on the part of the agent to accept

the appointment and act upon it. Absent such mutual intent, there is

generally no agency.11

This Court finds no reversible error in the findings of the courts a quo

that petitioners were the rice buyers themselves; they were not mere

agents of respondents in their rice dealership. The question of whether

a contract is one of sale or of agency depends on the intention of the

parties.12

The declarations of agents alone are generally insufficient to establish

the fact or extent of their authority.13 The law makes no presumption of

agency; proving its existence, nature and extent is incumbent upon

the person alleging it.14 In the present case, petitioners raise the fact of

agency as an affirmative defense, yet fail to prove its existence.

The Court notes that petitioners, on their own behalf, sued Evangeline

Santos for collection of the amounts represented by the bounced

checks, in a separate civil case that they sought to be consolidated

with the current one. If, as they claim, they were mere agents of

respondents, petitioners should have brought the suit against Santos

for and on behalf of their alleged principal, in accordance with

Section 2 of Rule 3 of the Rules on Civil Procedure.15 Their filing a suit

against her in their own names negates their claim that they acted as

mere agents in selling the rice obtained from Bartolome Ramos.

Second Issue:

Indispensable Party

Petitioners argue that the lower courts erred in not allowing Evangeline

Santos to be impleaded as an indispensable party. They insist that

respondents’ Complaint against them is based on the bouncing

checks she issued; hence, they point to her as the person primarily

liable for the obligation.

We hold that respondents’ cause of action is clearly founded on

petitioners’ failure to pay the purchase price of the rice. The trial court

held that Petitioner Maria Tuazon had indorsed the questioned checks

in favor of respondents, in accordance with Sections 31 and 63 of the

Negotiable Instruments Law.16 That Santos was the drawer of the

checks is thus immaterial to the respondents’ cause of action.

As indorser, Petitioner Maria Tuazon warranted that upon due

presentment, the checks were to be accepted or paid, or both,

according to their tenor; and that in case they were dishonored, she

would pay the corresponding amount.17 After an instrument is

dishonored by nonpayment, indorsers cease to be merely secondarily

liable; they become principal debtors whose liability becomes

identical to that of the original obligor. The holder of a negotiable

instrument need not even proceed against the maker before suing the

indorser.18 Clearly, Evangeline Santos -- as the drawer of the checks -- is

not an indispensable party in an action against Maria Tuazon, the

indorser of the checks.

Indispensable parties are defined as "parties in interest without whom

no final determination can be had."19 The instant case was originally

one for the collection of the purchase price of the rice bought by

Maria Tuazon from respondents’ predecessor. In this case, it is clear

that there is no privity of contract between respondents and Santos.

Hence, a final determination of the rights and interest of the parties

may be made without any need to implead her.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.

Costs against petitioners.

SO ORDERED.

ARTEMIO V. PANGANIBAN

G.R. No. 187769 June 4, 2014

ALVIN PATRIMONIO, Petitioner,

vs.

NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.

D E C I S I O N

BRION, J.:

Assailed in this petition for review on certiorari1 under Rule 45 of the

Revised Rules of Court is the decision2 dated September 24, 2008 and

the resolution3 dated April 30, 2009 of the Court of Appeals (CA) in

CA-G.R. CV No. 82301. The appellate court affirmed the decision of

the Regional Trial Court (RTC) of Quezon City, Branch 77, dismissing the

complaint for declaration of nullity of loan filed by petitioner Alvin

Patrimonio and ordering him to pay respondent Octavio Marasigan III

(Marasigan) the sum of P200,000.00.

The Factual Background

The facts of the case, as shown by the records, are briefly summarized

below.

The petitioner and the respondent Napoleon Gutierrez (Gutierrez)

entered into a business venture under the name of Slam Dunk

Corporation (Slum Dunk), a production outfit that produced mini-

concerts and shows related to basketball. Petitioner was already then

a decorated professional basketball player while Gutierrez was a well-

known sports columnist.

In the course of their business, the petitioner pre-signed several checks

to answer for the expenses of Slam Dunk. Although signed, these

checks had no payee’s name, date or amount. The blank checks

were entrusted to Gutierrez with the specific instruction not to fill them

out without previous notification to and approval by the petitioner.

According to petitioner, the arrangement was made so that he could

verify the validity of the payment and make the proper arrangements

to fund the account.

In the middle of 1993, without the petitioner’s knowledge and consent,

Gutierrez went to Marasigan (the petitioner’s former teammate), to

secure a loan in the amount of P200,000.00 on the excuse that the

petitioner needed the money for the construction of his house. In

addition to the payment of the principal, Gutierrez assured Marasigan

that he would be paid an interest of 5% per month from March to May

1994.

After much contemplation and taking into account his relationship

with the petitioner and Gutierrez, Marasigan acceded to Gutierrez’

request and gave him P200,000.00 sometime in February 1994.

Gutierrez simultaneously delivered to Marasigan one of the blank

checks the petitioner pre-signed with Pilipinas Bank, Greenhills Branch,

Check No. 21001764 with the blank portions filled out with the words

"Cash" "Two Hundred Thousand Pesos Only", and the amount of

"P200,000.00". The upper right portion of the check corresponding to

the date was also filled out with the words "May 23, 1994" but the

petitioner contended that the same was not written by Gutierrez.

On May 24, 1994, Marasigan deposited the check but it was

dishonored for the reason "ACCOUNT CLOSED." It was later revealed

that petitioner’s account with the bank had been closed since May

28, 1993.

Marasigan sought recovery from Gutierrez, to no avail. He thereafter

sent several demand letters to the petitioner asking for the payment of

P200,000.00, but his demands likewise went unheeded. Consequently,

he filed a criminal case for violation of B.P. 22 against the petitioner,

docketed as Criminal Case No. 42816.

On September 10, 1997, the petitioner filed before the Regional Trial

Court (RTC) a Complaint for Declaration of Nullity of Loan and

Recovery of Damages against Gutierrez and co-respondent

Marasigan. He completely denied authorizing the loan or the check’s

negotiation, and asserted that he was not privy to the parties’ loan

agreement.

Only Marasigan filed his answer to the complaint. In the RTC’s order

dated December 22, 1997,Gutierrez was declared in default.

The Ruling of the RTC

The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that

the petitioner, in issuing the pre-signed blank checks, had the intention

of issuing a negotiable instrument, albeit with specific instructions to

Gutierrez not to negotiate or issue the check without his approval.

While under Section 14 of the Negotiable Instruments Law Gutierrez

had the prima facie authority to complete the checks by filling up the

blanks therein, the RTC ruled that he deliberately violated petitioner’s

specific instructions and took advantage of the trust reposed in him by

the latter.

Nonetheless, the RTC declared Marasigan as a holder in due course

and accordingly dismissed the petitioner’s complaint for declaration of

nullity of the loan. It ordered the petitioner to pay Marasigan the face

value of the check with a right to claim reimbursement from Gutierrez.

The petitioner elevated the case to the Court of Appeals (CA), insisting

that Marasigan is not a holder in due course. He contended that when

Marasigan received the check, he knew that the same was without a

date, and hence, incomplete. He also alleged that the loan was

actually between Marasigan and Gutierrez with his check being used

only as a security.

The Ruling of the CA

On September 24, 2008, the CA affirmed the RTC ruling, although

premised on different factual findings. After careful analysis, the CA

agreed with the petitioner that Marasigan is not a holder in due course

as he did not receive the check in good faith.

The CA also concluded that the check had been strictly filled out by

Gutierrez in accordance with the petitioner’s authority. It held that the

loan may not be nullified since it is grounded on an obligation arising

from law and ruled that the petitioner is still liable to pay Marasigan the

sum of P200,000.00.

After the CA denied the subsequent motion for reconsideration that

followed, the petitioner filed the present petition for review on

certiorari under Rule 45 of the Revised Rules of Court.

The Petition

The petitioner argues that: (1) there was no loan between him and

Marasigan since he never authorized the borrowing of money nor the

check’s negotiation to the latter; (2) under Article 1878 of the Civil

Code, a special power of attorney is necessary for an individual to

make a loan or borrow money in behalf of another; (3) the loan

transaction was between Gutierrez and Marasigan, with his check

being used only as a security; (4) the check had not been completely

and strictly filled out in accordance with his authority since the

condition that the subject check can only be used provided there is

prior approval from him, was not complied with; (5) even if the check

was strictly filled up as instructed by the petitioner, Marasigan is still not

entitled to claim the check’s value as he was not a holder in due

course; and (6) by reason of the bad faith in the dealings between the

respondents, he is entitled to claim for damages.

The Issues

Reduced to its basics, the case presents to us the following issues:

1. Whether the contract of loan in the amount of P200,000.00

granted by respondent Marasigan to petitioner, through

respondent Gutierrez, may be nullified for being void;

2. Whether there is basis to hold the petitioner liable for the

payment of the P200,000.00 loan;

3. Whether respondent Gutierrez has completely filled out the

subject check strictly under the authority given by the

petitioner; and

4. Whether Marasigan is a holder in due course.

The Court’s Ruling

The petition is impressed with merit.

We note at the outset that the issues raised in this petition are

essentially factual in nature. The main point of inquiry of whether the

contract of loan may be nullified, hinges on the very existence of the

contract of loan – a question that, as presented, is essentially, one of

fact. Whether the petitioner authorized the borrowing; whether

Gutierrez completely filled out the subject check strictly under the

petitioner’s authority; and whether Marasigan is a holder in due course

are also questions of fact, that, as a general rule, are beyond the

scope of a Rule 45 petition.

The rule that questions of fact are not the proper subject of an appeal

by certiorari, as a petition for review under Rule 45 is limited only to

questions of law, is not an absolute rule that admits of no exceptions.

One notable exception is when the findings off act of both the trial

court and the CA are conflicting, making their review necessary.5 In

the present case, the tribunals below arrived at two conflicting factual

findings, albeit with the same conclusion, i.e., dismissal of the

complaint for nullity of the loan. Accordingly, we will examine the

parties’ evidence presented.

I. Liability Under the Contract of Loan

The petitioner seeks to nullify the contract of loan on the ground that

he never authorized the borrowing of money. He points to Article 1878,

paragraph 7 of the Civil Code, which explicitly requires a written

authority when the loan is contracted through an agent. The petitioner

contends that absent such authority in writing, he should not be held

liable for the face value of the check because he was not a party or

privy to the agreement.

Contracts of Agency May be Oral Unless The Law Requires a Specific

Form

Article 1868 of the Civil Code defines a contract of agency as a

contract whereby a person "binds himself to render some service or to

do something in representation or on behalf of another, with the

consent or authority of the latter." Agency may be express, or implied

from the acts of the principal, from his silence or lack of action, or his

failure to repudiate the agency, knowing that another person is acting

on his behalf without authority.

As a general rule, a contract of agency may be oral.6 However, it

must be written when the law requires a specific form, for example, in

a sale of a piece of land or any interest therein through an agent.

Article 1878 paragraph 7 of the Civil Code expressly requires a special

power of authority before an agent can loan or borrow money in

behalf of the principal, to wit:

Art. 1878. Special powers of attorney are necessary in the following

cases:

x x x x

(7) To loan or borrow money, unless the latter act be urgent and

indispensable for the preservation of the things which are under

administration. (emphasis supplied)

Article 1878 does not state that the authority be in writing. As long as

the mandate is express, such authority may be either oral or written.

We unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the

requirement under Article 1878 of the Civil Code refers to the nature of

the authorization and not to its form. Be that as it may, the authority

must be duly established by competent and convincing evidence

other than the self serving assertion of the party claiming that such

authority was verbally given, thus:

The requirements of a special power of attorney in Article 1878 of the

Civil Code and of a special authority in Rule 138 of the Rules of Court

refer to the nature of the authorization and not its form. The

requirements are met if there is a clear mandate from the principal

specifically authorizing the performance of the act. As early as 1906,

this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such a

mandate may be either oral or written, the one vital thing being that it

shall be express. And more recently, We stated that, if the special

authority is not written, then it must be duly established by evidence:

x x x the Rules require, for attorneys to compromise the litigation of their

clients, a special authority. And while the same does not state that the

special authority be in writing the Court has every reason to expect

that, if not in writing, the same be duly established by evidence other

than the self-serving assertion of counsel himself that such authority

was verbally given him.(Home Insurance Company vs. United States

lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA

210; 225). (emphasis supplied).

The Contract of Loan Entered Into by Gutierrez in Behalf of the

Petitioner Should be Nullified for Being Void; Petitioner is Not Bound by

the Contract of Loan.

A review of the records reveals that Gutierrez did not have any

authority to borrow money in behalf of the petitioner.1âwphi1 Records

do not show that the petitioner executed any special power of

attorney (SPA) in favor of Gutierrez. In fact, the petitioner’s testimony

confirmed that he never authorized Gutierrez (or anyone for that

matter), whether verbally or in writing, to borrow money in his behalf,

nor was he aware of any such transaction:

ALVIN PATRIMONIO (witness)

ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of

Attorney in writing authorizing him to borrow using your money?

WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8

x x x x

Marasigan however submits that the petitioner’s acts of pre-signing the

blank checks and releasing them to Gutierrez suffice to establish that

the petitioner had authorized Gutierrez to fill them out and contract

the loan in his behalf.

Marasigan’s submission fails to persuade us.

In the absence of any authorization, Gutierrez could not enter into a

contract of loan in behalf of the petitioner. As held in Yasuma v. Heirs

of De Villa,9 involving a loan contracted by de Villa secured by real

estate mortgages in the name of East Cordillera Mining Corporation, in

the absence of an SPA conferring authority on de Villa, there is no

basis to hold the corporation liable, to wit:

The power to borrow money is one of those cases where corporate

officers as agents of the corporation need a special power of

attorney. In the case at bar, no special power of attorney conferring

authority on de Villa was ever presented. x x x There was no showing

that respondent corporation ever authorized de Villa to obtain the

loans on its behalf.

x x x x

Therefore, on the first issue, the loan was personal to de Villa. There was

no basis to hold the corporation liable since there was no authority,

express, implied or apparent, given to de Villa to borrow money from

petitioner. Neither was there any subsequent ratification of his act.

x x x x

The liability arising from the loan was the sole indebtedness of de Villa

(or of his estate after his death). (citations omitted; emphasis supplied).

This principle was also reiterated in the case of Gozun v. Mercado,10

where this court held:

Petitioner submits that his following testimony suffices to establish that

respondent had authorized Lilian to obtain a loan from him.

x x x x

Petitioner’s testimony failed to categorically state, however, whether

the loan was made on behalf of respondent or of his wife. While

petitioner claims that Lilian was authorized by respondent, the

statement of account marked as Exhibit "A" states that the amount

was received by Lilian "in behalf of Mrs. Annie Mercado.

It bears noting that Lilian signed in the receipt in her name alone,

without indicating therein that she was acting for and in behalf of

respondent. She thus bound herself in her personal capacity and not

as an agent of respondent or anyone for that matter.

It is a general rule in the law of agency that, in order to bind the

principal by a mortgage on real property executed by an agent, it

must upon its face purport to be made, signed and sealed in the

name of the principal, otherwise, it will bind the agent only. It is not

enough merely that the agent was in fact authorized to make the

mortgage, if he has not acted in the name of the principal. x x x

(emphasis supplied).

In the absence of any showing of any agency relations or special

authority to act for and in behalf of the petitioner, the loan agreement

Gutierrez entered into with Marasigan is null and void. Thus, the

petitioner is not bound by the parties’ loan agreement.

Furthermore, that the petitioner entrusted the blank pre-signed checks

to Gutierrez is not legally sufficient because the authority to enter into

a loan can never be presumed. The contract of agency and the

special fiduciary relationship inherent in this contract must exist as a

matter of fact. The person alleging it has the burden of proof to show,

not only the fact of agency, but also its nature and extent.11 As we

held in People v. Yabut:12

Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut

or Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the

holding of the respondent Judges, be licitly taken as delivery of the

checks to the complainant Alicia P. Andan at Caloocan City to fix the

venue there. He did not take delivery of the checks as holder, i.e., as

"payee" or "indorsee." And there appears to beno contract of agency

between Yambao and Andan so as to bind the latter for the acts of

the former. Alicia P. Andan declared in that sworn testimony before

the investigating fiscal that Yambao is but her "messenger" or "part-

time employee." There was no special fiduciary relationship that

permeated their dealings. For a contract of agency to exist, the

consent of both parties is essential, the principal consents that the

other party, the agent, shall act on his behalf, and the agent consents

so to act. It must exist as a fact. The law makes no presumption

thereof. The person alleging it has the burden of proof to show, not

only the fact of its existence, but also its nature and extent. This is more

imperative when it is considered that the transaction dealt with

involves checks, which are not legal tender, and the creditor may

validly refuse the same as payment of obligation.(at p. 630). (emphasis

supplied)

The records show that Marasigan merely relied on the words of

Gutierrez without securing a copy of the SPA in favor of the latter and

without verifying from the petitioner whether he had authorized the

borrowing of money or release of the check. He was thus bound by

the risk accompanying his trust on the mere assurances of Gutierrez.

No Contract of Loan Was Perfected Between Marasigan And

Petitioner, as The Latter’s Consent Was Not Obtained.

Another significant point that the lower courts failed to consider is that

a contract of loan, like any other contract, is subject to the rules

governing the requisites and validity of contracts in general.13 Article

1318 of the Civil Code14 enumerates the essential requisites for a valid

contract, namely:

1. consent of the contracting parties;

2. object certain which is the subject matter of the contract;

and

3. cause of the obligation which is established.

In this case, the petitioner denied liability on the ground that the

contract lacked the essential element of consent. We agree with the

petitioner. As we explained above, Gutierrez did not have the

petitioner’s written/verbal authority to enter into a contract of loan.

While there may be a meeting of the minds between Gutierrez and

Marasigan, such agreement cannot bind the petitioner whose consent

was not obtained and who was not privy to the loan agreement.

Hence, only Gutierrez is bound by the contract of loan.

True, the petitioner had issued several pre-signed checks to Gutierrez,

one of which fell into the hands of Marasigan. This act, however, does

not constitute sufficient authority to borrow money in his behalf and

neither should it be construed as petitioner’s grant of consent to the

parties’ loan agreement. Without any evidence to prove Gutierrez’

authority, the petitioner’s signature in the check cannot be taken,

even remotely, as sufficient authorization, much less, consent to the

contract of loan. Without the consent given by one party in a

purported contract, such contract could not have been perfected;

there simply was no contract to speak of.15

With the loan issue out of the way, we now proceed to determine

whether the petitioner can be made liable under the check he signed.

II. Liability Under the Instrument

The answer is supplied by the applicable statutory provision found in

Section 14 of the Negotiable Instruments Law (NIL) which states:

Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in

any material particular, the person in possession thereof has a prima

facie authority to complete it by filling up the blanks therein. And a

signature on a blank paper delivered by the person making the

signature in order that the paper may be converted into a negotiable

instrument operates as a prima facie authority to fill it up as such for

any amount. In order, however, that any such instrument when

completed may be enforced against any person who became a

party thereto prior to its completion, it must be filled up strictly in

accordance with the authority given and within a reasonable time.

But if any such instrument, after completion, is negotiated to a holder

in due course, it is valid and effectual for all purposes in his hands, and

he may enforce it as if it had been filled up strictly in accordance with

the authority given and within a reasonable time.

This provision applies to an incomplete but delivered instrument. Under

this rule, if the maker or drawer delivers a pre-signed blank paper to

another person for the purpose of converting it into a negotiable

instrument, that person is deemed to have prima facie authority to fill it

up. It merely requires that the instrument be in the possession of a

person other than the drawer or maker and from such possession,

together with the fact that the instrument is wanting in a material

particular, the law presumes agency to fill up the blanks.16

In order however that one who is not a holder in due course can

enforce the instrument against a party prior to the instrument’s

completion, two requisites must exist: (1) that the blank must be filled

strictly in accordance with the authority given; and (2) it must be filled

up within a reasonable time. If it was proven that the instrument had

not been filled up strictly in accordance with the authority given and

within a reasonable time, the maker can set this up as a personal

defense and avoid liability. However, if the holder is a holder in due

course, there is a conclusive presumption that authority to fill it up had

been given and that the same was not in excess of authority.17

In the present case, the petitioner contends that there is no legal basis

to hold him liable both under the contract and loan and under the

check because: first, the subject check was not completely filled out

strictly under the authority he has given and second, Marasigan was

not a holder in due course.

Marasigan is Not a Holder in Due Course

The Negotiable Instruments Law (NIL) defines a holder in due course,

thus:

Sec. 52 — A holder in due course is a holder who has taken the

instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and

without notice that it had been previously dishonored, if such

was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had no notice

of any infirmity in the instrument or defect in the title of the

person negotiating it.(emphasis supplied)

Section 52(c) of the NIL states that a holder in due course is one who

takes the instrument "in good faith and for value." It also provides in

Section 52(d) that in order that one may be a holder in due course, it is

necessary that at the time it was negotiated to him he had no notice

of any infirmity in the instrument or defect in the title of the person

negotiating it.

Acquisition in good faith means taking without knowledge or notice of

equities of any sort which could beset up against a prior holder of the

instrument.18 It means that he does not have any knowledge of fact

which would render it dishonest for him to take a negotiable paper.

The absence of the defense, when the instrument was taken, is the

essential element of good faith.19

As held in De Ocampo v. Gatchalian:20

In order to show that the defendant had "knowledge of such facts that

his action in taking the instrument amounted to bad faith," it is not

necessary to prove that the defendant knew the exact fraud that was

practiced upon the plaintiff by the defendant's assignor, it being

sufficient to show that the defendant had notice that there was

something wrong about his assignor's acquisition of title, although he

did not have notice of the particular wrong that was committed.

It is sufficient that the buyer of a note had notice or knowledge that

the note was in some way tainted with fraud. It is not necessary that he

should know the particulars or even the nature of the fraud, since all

that is required is knowledge of such facts that his action in taking the

note amounted bad faith.

The term ‘bad faith’ does not necessarily involve furtive motives, but

means bad faith in a commercial sense. The manner in which the

defendants conducted their Liberty Loan department provided an

easy way for thieves to dispose of their plunder. It was a case of "no

questions asked." Although gross negligence does not of itself

constitute bad faith, it is evidence from which bad faith may be

inferred. The circumstances thrust the duty upon the defendants to

make further inquiries and they had no right to shut their eyes

deliberately to obvious facts. (emphasis supplied).

In the present case, Marasigan’s knowledge that the petitioner is not a

party or a privy to the contract of loan, and correspondingly had no

obligation or liability to him, renders him dishonest, hence, in bad faith.

The following exchange is significant on this point:

WITNESS: AMBET NABUS

Q: Now, I refer to the second call… after your birthday. Tell us what you

talked about?

A: Since I celebrated my birthday in that place where Nap and I live

together with the other crew, there were several visitors that included

Danny Espiritu. So a week after my birthday, Bong Marasigan called

me up again and he was fuming mad. Nagmumura na siya.

Hinahanap niya si… hinahanap niya si Nap, dahil pinagtataguan na

siya at sinabi na niya na kailangan I-settle na niya yung utang ni Nap,

dahil…

x x x x

WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa

mauwi sa kung saan ang tsekeng tumalbog… (He told me that we

have to fix it up before it…) mauwi pa kung saan…

x x x x

Q: What was your reply, if any?

A: I actually asked him. Kanino ba ang tseke na sinasabi mo?

(Whose check is it that you are referring to or talking about?)

Q: What was his answer?

A: It was Alvin’s check.

Q: What was your reply, if any?

A: I told him do you know that it is not really Alvin who borrowed

money from you or what you want to appear…

x x x x

Q: What was his reply?

A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin

ang maiipit dito.(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71;

emphasis supplied)21

Since he knew that the underlying obligation was not actually for the

petitioner, the rule that a possessor of the instrument is prima facie a

holder in due course is inapplicable. As correctly noted by the CA, his

inaction and failure to verify, despite knowledge of that the petitioner

was not a party to the loan, may be construed as gross negligence

amounting to bad faith.

Yet, it does not follow that simply because he is not a holder in due

course, Marasigan is already totally barred from recovery. The NIL does

not provide that a holder who is not a holder in due course may not in

any case recover on the instrument.22 The only disadvantage of a

holder who is not in due course is that the negotiable instrument is

subject to defenses as if it were non-negotiable.23 Among such

defenses is the filling up blank not within the authority.

On this point, the petitioner argues that the subject check was not

filled up strictly on the basis of the authority he gave. He points to his

instruction not to use the check without his prior approval and argues

that the check was filled up in violation of said instruction.

Check Was Not Completed Strictly Under The Authority Given by The

Petitioner

Our own examination of the records tells us that Gutierrez has

exceeded the authority to fill up the blanks and use the

check.1âwphi1 To repeat, petitioner gave Gutierrez pre-signed checks

to be used in their business provided that he could only use them upon

his approval. His instruction could not be any clearer as Gutierrez’

authority was limited to the use of the checks for the operation of their

business, and on the condition that the petitioner’s prior approval be

first secured.

While under the law, Gutierrez had a prima facie authority to

complete the check, such prima facie authority does not extend to its

use (i.e., subsequent transfer or negotiation)once the check is

completed. In other words, only the authority to complete the check is

presumed. Further, the law used the term "prima facie" to underscore

the fact that the authority which the law accords to a holder is a

presumption juris tantumonly; hence, subject to subject to contrary

proof. Thus, evidence that there was no authority or that the authority

granted has been exceeded may be presented by the maker in order

to avoid liability under the instrument.

In the present case, no evidence is on record that Gutierrez ever

secured prior approval from the petitioner to fill up the blank or to use

the check. In his testimony, petitioner asserted that he never

authorized nor approved the filling up of the blank checks, thus:

ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to

write the date, May 23, 1994?

WITNESS: No, sir.

Q: Did you authorize anyone including Nap Gutierrez to put the word

cash? In the check?

A: No, sir.

Q: Did you authorize anyone including Nap Gutierrez to write the

figure P200,000 in this check?

A: No, sir.

Q: And lastly, did you authorize anyone including Nap Gutierrez to

write the words P200,000 only xx in this check?

A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24

Notably, Gutierrez was only authorized to use the check for business

expenses; thus, he exceeded the authority when he used the check to

pay the loan he supposedly contracted for the construction of

petitioner's house. This is a clear violation of the petitioner's instruction

to use the checks for the expenses of Slam Dunk. It cannot therefore

be validly concluded that the check was completed strictly in

accordance with the authority given by the petitioner.

Considering that Marasigan is not a holder in due course, the

petitioner can validly set up the personal defense that the blanks were

not filled up in accordance with the authority he gave. Consequently,

Marasigan has no right to enforce payment against the petitioner and

the latter cannot be obliged to pay the face value of the check.

WHEREFORE, in view of the foregoing, judgment is hereby rendered

GRANTING the petitioner Alvin Patrimonio's petition for review on

certiorari. The appealed Decision dated September 24, 2008 and the

Resolution dated April 30, 2009 of the Court of Appeals are

consequently ANNULLED AND SET ASIDE. Costs against the

respondents.

SO ORDERED.

ARTURO D. BRION

Associate Justice

G.R. No. 174978 July 31, 2013

SALLY YOSHIZAKI, Petitioner,

vs.

JOY TRAINING CENTER OF AURORA, INC., Respondent.

D E C I S I O N

BRION, J.:

We resolve the petition for review on certiorari1 filed by petitioner Sally

Yoshizaki to challenge the February 14, 2006 Decision2 and the

October 3, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R.

CV No. 83773.

The Factual Antecedents

Respondent Joy Training Center of Aurora, Inc. (Joy Training) is a non-

stock, non-profit religious educational institution. It was the registered

owner of a parcel of land and the building thereon (real properties)

located in San Luis Extension Purok No. 1, Barangay Buhangin, Baler,

Aurora. The parcel of land was designated as Lot No. 125-L and was

covered by Transfer Certificate of Title (TCT) No. T-25334.4

On November 10, 1998, the spouses Richard and Linda Johnson sold

the real properties, a Wrangler jeep, and other personal properties in

favor of the spouses Sally and Yoshio Yoshizaki. On the same date, a

Deed of Absolute Sale5 and a Deed of Sale of Motor Vehicle6 were

executed in favor of the spouses Yoshizaki. The spouses Johnson were

members of Joy Training’s board of trustees at the time of sale. On

December 7, 1998, TCT No. T-25334 was cancelled and TCT No. T-

260527 was issued in the name of the spouses Yoshizaki.

On December 8, 1998, Joy Training, represented by its Acting

Chairperson Reuben V. Rubio, filed an action for the Cancellation of

Sales and Damages with prayer for the issuance of a Temporary

Restraining Order and/or Writ of Preliminary Injunction against the

spouses Yoshizaki and the spouses Johnson before the Regional Trial

Court of Baler, Aurora (RTC).8 On January 4, 1999, Joy Training filed a

Motion to Amend Complaint with the attached Amended Complaint.

The amended complaint impleaded Cecilia A. Abordo, officer-in-

charge of the Register of Deeds of Baler, Aurora, as additional

defendant. The RTC granted the motion on the same date.9

In the complaint, Joy Training alleged that the spouses Johnson sold its

properties without the requisite authority from the board of directors.10

It assailed the validity of a board resolution dated September 1, 199811

which purportedly granted the spouses Johnson the authority to sell its

real properties. It averred that only a minority of the board, composed

of the spouses Johnson and Alexander Abadayan, authorized the sale

through the resolution. It highlighted that the Articles of Incorporation

provides that the board of trustees consists of seven members, namely:

the spouses Johnson, Reuben, Carmencita Isip, Dominador Isip,

Miraflor Bolante, and Abelardo Aquino.12

Cecilia and the spouses Johnson were declared in default for their

failure to file an Answer within the reglementary period.13 On the other

hand, the spouses Yoshizaki filed their Answer with Compulsory

Counterclaims on June 23, 1999. They claimed that Joy Training

authorized the spouses Johnson to sell the parcel of land. They

asserted that a majority of the board of trustees approved the

resolution. They maintained that the actual members of the board of

trustees consist of five members, namely: the spouses Johnson,

Reuben, Alexander, and Abelardo. Moreover, Connie Dayot, the

corporate secretary, issued a certification dated February 20, 199814

authorizing the spouses Johnson to act on Joy Training’s behalf.

Furthermore, they highlighted that the Wrangler jeep and other

personal properties were registered in the name of the spouses

Johnson.15 Lastly, they assailed the RTC’s jurisdiction over the case.

They posited that the case is an intra-corporate dispute cognizable by

the Securities and Exchange Commission (SEC).16

After the presentation of their testimonial evidence, the spouses

Yoshizaki formally offered in evidence photocopies of the resolution

and certification, among others.17 Joy Training objected to the formal

offer of the photocopied resolution and certification on the ground

that they were not the best evidence of their contents.18 In an Order19

dated May 18, 2004, the RTC denied the admission of the offered

copies.

The RTC Ruling

The RTC ruled in favor of the spouses Yoshizaki. It found that Joy

Training owned the real properties. However, it held that the sale was

valid because Joy Training authorized the spouses Johnson to sell the

real properties. It recognized that there were only five actual members

of the board of trustees; consequently, a majority of the board of

trustees validly authorized the sale. It also ruled that the sale of

personal properties was valid because they were registered in the

spouses Johnson’s name.20

Joy Training appealed the RTC decision to the CA.

The CA Ruling

The CA upheld the RTC’s jurisdiction over the case but reversed its

ruling with respect to the sale of real properties. It maintained that the

present action is cognizable by the RTC because it involves recovery

of ownership from third parties.

It also ruled that the resolution is void because it was not approved by

a majority of the board of trustees. It stated that under Section 25 of

the Corporation Code, the basis for determining the composition of

the board of trustees is the list fixed in the articles of incorporation.

Furthermore, Section 23 of the Corporation Code provides that the

board of trustees shall hold office for one year and until their

successors are elected and qualified. Seven trustees constitute the

board since Joy Training did not hold an election after its

incorporation.

The CA did not also give any probative value to the certification. It

stated that the certification failed to indicate the date and the names

of the trustees present in the meeting. Moreover, the spouses Yoshizaki

did not present the minutes that would prove that the certification had

been issued pursuant to a board resolution.21 The CA also denied22 the

spouses Yoshizaki’s motion for reconsideration, prompting Sally23 to file

the present petition.

The Petition

Sally avers that the RTC has no jurisdiction over the case. She points out

that the complaint was principally for the nullification of a corporate

act. The transfer of the SEC’s original and exclusive jurisdiction to the

RTC24 does not have any retroactive application because jurisdiction is

a substantive matter.

She argues that the spouses Johnson were authorized to sell the parcel

of land and that she was a buyer in good faith because she merely

relied on TCT No. T-25334. The title states that the spouses Johnson are

Joy Training’s representatives.

She also argues that it is a basic principle that a party dealing with a

registered land need not go beyond the certificate of title to

determine the condition of the property. In fact, the resolution and the

certification are mere reiterations of the spouses Johnson’s authority in

the title to sell the real properties. She further claims that the resolution

and the certification are not even necessary to clothe the spouses

Johnson with the authority to sell the disputed properties. Furthermore,

the contract of agency was subsisting at the time of sale because

Section 108 of Presidential Decree No. (PD) 1529 requires that the

revocation of authority must be approved by a court of competent

jurisdiction and no revocation was reflected in the certificate of title.25

The Case for the Respondent

In its Comment26 and Memorandum,27 Joy Training takes the opposite

view that the RTC has jurisdiction over the case. It posits that the action

is essentially for recovery of property and is therefore a case

cognizable by the RTC. Furthermore, Sally is estopped from questioning

the RTC’s jurisdiction because she seeks to reinstate the RTC ruling in

the present case.

Joy Training maintains that it did not authorize the spouses Johnson to

sell its real properties. TCT No. T-25334 does not specifically grant the

authority to sell the parcel of land to the spouses Johnson. It further

asserts that the resolution and the certification should not be given any

probative value because they were not admitted in evidence by the

RTC. It argues that the resolution is void for failure to comply with the

voting requirements under Section 40 of the Corporation Code. It also

posits that the certification is void because it lacks material particulars.

The Issues

The case comes to us with the following issues:

1) Whether or not the RTC has jurisdiction over the present case;

and

2) Whether or not there was a contract of agency to sell the

real properties between Joy Training and the spouses Johnson.

3) As a consequence of the second issue, whether or not there

was a valid contract of sale of the real properties between Joy

Training and the spouses Yoshizaki.

Our Ruling

We find the petition unmeritorious.

The RTC has jurisdiction over disputes concerning the application of

the Civil Code

Jurisdiction over the subject matter is the power to hear and

determine cases of the general class to which the proceedings before

a court belong.28 It is conferred by law. The allegations in the

complaint and the status or relationship of the parties determine which

court has jurisdiction over the nature of an action.29 The same test

applies in ascertaining whether a case involves an intra-corporate

controversy.30

The CA correctly ruled that the RTC has jurisdiction over the present

case. Joy Training seeks to nullify the sale of the real properties on the

ground that there was no contract of agency between Joy Training

and the spouses Johnson. This was beyond the ambit of the SEC’s

original and exclusive jurisdiction prior to the enactment of Republic

Act No. 8799 which only took effect on August 3, 2000. The

determination of the existence of a contract of agency and the

validity of a contract of sale requires the application of the relevant

provisions of the Civil Code. It is a well-settled rule that "disputes

concerning the application of the Civil Code are properly cognizable

by courts of general jurisdiction."31 Indeed, no special skill requiring the

SEC’s technical expertise is necessary for the disposition of this issue

and of this case.

The Supreme Court may review questions of fact in a petition for

review on certiorari when the findings of fact by the lower courts are

conflicting

We are aware that the issues at hand require us to review the pieces

of evidence presented by the parties before the lower courts. As a

general rule, a petition for review on certiorari precludes this Court

from entertaining factual issues; we are not duty-bound to analyze

again and weigh the evidence introduced in and considered by the

lower courts. However, the present case falls under the recognized

exception that a review of the facts is warranted when the findings of

the lower courts are conflicting.32 Accordingly, we will examine the

relevant pieces of evidence presented to the lower court.

There is no contract of agency between Joy Training and the spouses

Johnson to sell the parcel of land with its improvements

Article 1868 of the Civil Code defines a contract of agency as a

contract whereby a person "binds himself to render some service or to

do something in representation or on behalf of another, with the

consent or authority of the latter." It may be express, or implied from

the acts of the principal, from his silence or lack of action, or his failure

to repudiate the agency, knowing that another person is acting on his

behalf without authority.

As a general rule, a contract of agency may be oral. However, it must

be written when the law requires a specific form.33 Specifically, Article

1874 of the Civil Code provides that the contract of agency must be

written for the validity of the sale of a piece of land or any interest

therein. Otherwise, the sale shall be void. A related provision, Article

1878 of the Civil Code, states that special powers of attorney are

necessary to convey real rights over immovable properties.

The special power of attorney mandated by law must be one that

expressly mentions a sale or that includes a sale as a necessary

ingredient of the authorized act. We unequivocably declared in

Cosmic Lumber Corporation v. Court of Appeals34 that a special

power of attorneymust express the powers of the agent in clear and

unmistakable language for the principal to confer the right upon an

agent to sell real estate. When there is any reasonable doubt that the

language so used conveys such power, no such construction shall be

given the document. The purpose of the law in requiring a special

power of attorney in the disposition of immovable property is to

protect the interest of an unsuspecting owner from being prejudiced

by the unwarranted act of another and to caution the buyer to assure

himself of the specific authorization of the putative agent.35

In the present case, Sally presents three pieces of evidence which

allegedly prove that Joy Training specially authorized the spouses

Johnson to sell the real properties: (1) TCT No. T-25334, (2) the

resolution, (3) and the certification. We quote the pertinent portions of

these documents for a thorough examination of Sally’s claim. TCT No.

T-25334, entered in the Registry of Deeds on March 5, 1998, states:

A parcel of land x x x is registered in accordance with the provisions of

the Property Registration Decree in the name of JOY TRAINING CENTER

OF AURORA, INC., Rep. by Sps. RICHARD A. JOHNSON and LINDA S.

JOHNSON, both of legal age, U.S. Citizen, and residents of P.O. Box

3246, Shawnee, Ks 66203, U.S.A.36 (emphasis ours)

On the other hand, the fifth paragraph of the certification provides:

Further, Richard A. and Linda J. Johnson were given FULL AUTHORITY

for ALL SIGNATORY purposes for the corporation on ANY and all

matters and decisions regarding the property and ministry here. They

will follow guidelines set forth according to their appointment and

ministerial and missionary training and in that, they will formulate and

come up with by-laws which will address and serve as governing

papers over the center and corporation. They are to issue monthly and

quarterly statements to all members of the corporation.37 (emphasis

ours)

The resolution states:

We, the undersigned Board of Trustees (in majority) have authorized

the sale of land and building owned by spouses Richard A. and Linda

J. Johnson (as described in the title SN No. 5102156 filed with the

Province of Aurora last 5th day of March, 1998. These proceeds are

going to pay outstanding loans against the project and the dissolution

of the corporation shall follow the sale. This is a religious, non-profit

corporation and no profits or stocks are issued.38 (emphasis ours)

The above documents do not convince us of the existence of the

contract of agency to sell the real properties. TCT No. T-25334 merely

states that Joy Training is represented by the spouses Johnson. The title

does not explicitly confer to the spouses Johnson the authority to sell

the parcel of land and the building thereon. Moreover, the phrase

"Rep. by Sps. RICHARD A. JOHNSON and LINDA S. JOHNSON"39 only

means that the spouses Johnson represented Joy Training in land

registration.

The lower courts should not have relied on the resolution and the

certification in resolving the case.1âwphi1 The spouses Yoshizaki did

not produce the original documents during trial. They also failed to

show that the production of pieces of secondary evidence falls under

the exceptions enumerated in Section 3, Rule 130 of the Rules of

Court.40 Thus, the general rule – that no evidence shall be admissible

other than the original document itself when the subject of inquiry is

the contents of a document – applies.41

Nonetheless, if only to erase doubts on the issues surrounding this case,

we declare that even if we consider the photocopied resolution and

certification, this Court will still arrive at the same conclusion.

The resolution which purportedly grants the spouses Johnson a special

power of attorney is negated by the phrase "land and building owned

by spouses Richard A. and Linda J. Johnson."42 Even if we disregard

such phrase, the resolution must be given scant consideration. We

adhere to the CA’s position that the basis for determining the board of

trustees’ composition is the trustees as fixed in the articles of

incorporation and not the actual members of the board. The second

paragraph of Section 2543 of the Corporation Code expressly provides

that a majority of the number of trustees as fixed in the articles of

incorporation shall constitute a quorum for the transaction of

corporate business.

Moreover, the certification is a mere general power of attorney which

comprises all of Joy Training’s business.44 Article 1877 of the Civil Code

clearly states that "an agency couched in general terms comprises

only acts of administration, even if the principal should state that he

withholds no power or that the agent may execute such acts as he

may consider appropriate, or even though the agency should

authorize a general and unlimited management."45

The contract of sale is unenforceable

Necessarily, the absence of a contract of agency renders the

contract of sale unenforceable;46 Joy Training effectively did not enter

into a valid contract of sale with the spouses Yoshizaki. Sally cannot

also claim that she was a buyer in good faith. She misapprehended

the rule that persons dealing with a registered land have the legal right

to rely on the face of the title and to dispense with the need to inquire

further, except when the party concerned has actual knowledge of

facts and circumstances that would impel a reasonably cautious man

to make such inquiry.47 This rule applies when the ownership of a

parcel of land is disputed and not when the fact of agency is

contested.

At this point, we reiterate the established principle that persons dealing

with an agent must ascertain not only the fact of agency, but also the

nature and extent of the agent’s authority.48 A third person with whom

the agent wishes to contract on behalf of the principal may require

the presentation of the power of attorney, or the instructions as

regards the agency.49 The basis for agency is representation and a

person dealing with an agent is put upon inquiry and must discover on

his own peril the authority of the agent.50 Thus, Sally bought the real

properties at her own risk; she bears the risk of injury occasioned by her

transaction with the spouses Johnson.

WHEREFORE, premises considered, the assailed Decision dated

February 14, 2006 and Resolution dated October 3, 2006 of the Court

of Appeals are hereby AFFIRMED and the petition is hereby DENIED for

lack of merit.

SO ORDERED.

G.R. No. 163928 January 21, 2015

MANUEL JUSAYAN, ALFREDO JUSAYAN, AND MICHAEL JUSAYAN

Petitioners,

vs.

JORGE SOMBILLA, Respondent.

D E C I S I O N

BERSAMIN, J.:

The Court resolves whether a lease of agricultural land between the

respondent and the predecessor of the petitioners was a civil law

lease or an agricultural lease. The resolution is determinative of

whether or not the Regional Trial Court (RTC) had original exclusive

jurisdiction over the action commenced by the predecessor of the

petitioners against the respondent. The Case

Under review on certiorari is the decision promulgated on October 20,

2003,1 whereby the Court of Appeals (CA) reversed the judgment in

favor of the petitioners rendered on April 13, 1999 in CAR Case No.

17117 entitled Timoteo Jusayan, Manuel Jusayan, Alfredo Jusayan and

Michael Jusayan v. Jorge Sombillaby the RTC, Branch 30, in Iloilo City.2

Antecedents

Wilson Jesena (Wilson) owned four parcels of land situated in New

Lucena, Iloilo. On June 20, 1970, Wilson entered into an agreement

with respondent Jorge Sombilla (Jorge),3 wherein Wilson designated

Jorge as his agent to supervise the tilling and farming of his riceland in

crop year 1970-1971. On August 20, 1971, before the expiration of the

agreement, Wilson sold the four parcels of land to Timoteo Jusayan

(Timoteo).4 Jorge and Timoteo verbally agreed that Jorge would

retain possession of the parcels of land and would deliver 110 cavans

of palay annually to Timoteo without need for accounting of the

cultivation expenses provided that Jorge would pay the irrigation fees.

From 1971 to 1983, Timoteo and Jorge followed the arrangement. In

1975, the parcels of land were transferred in the names of Timoteo’s

sons, namely; Manuel, Alfredo and Michael (petitioners). In 1984,

Timoteo sent several letters to Jorge terminating his administration and

demanding the return of the possession of the parcels of land.5

Due to the failure of Jorge to render accounting and to return the

possession of the parcels of land despite demands, Timoteo filed on

June 30, 1986 a complaint for recovery of possession and accounting

against Jorge in the RTC (CAR Case No. 17117). Following Timoteo’s

death on October 4, 1991, the petitioners substituted him as the

plaintiffs.

In his answer,6 Jorge asserted that he enjoyed security of tenure as the

agricultural lessee of Timoteo; and that he could not be dispossessed

of his landholding without valid cause.

Ruling of the RTC

In its decision rendered on April 13, 1999,7 the RTC upheld the

contractual relationship of agency between Timoteo and Jorge; and

ordered Jorge to deliver the possession of the parcels of land to the

petitioners.

Judgment of the CA

Jorge appealed to the CA.

In the judgment promulgated on October 20, 2003,8 the CA reversed

the RTC and dismissed the case, declaring that the contractual

relationship between the parties was one of agricultural tenancy; and

that the demand of Timoteo for the delivery of his share in the harvest

and the payment of irrigation fees constituted an agrarian dispute that

was outside the jurisdiction of the RTC, and well within the exclusive

jurisdiction of the Department of Agriculture (DAR) pursuant to Section

3(d) of Republic Act No. 6657 (Comprehensive Agrarian Reform Law of

1988).

Issues

The petitioners now appeal upon the following issues, namely:

a.) Whether or not the relationship between the petitioners and

respondent is that of agency or agricultural leasehold; and

b.) Whether or not RTC, Branch 30, Iloilo City as Regional Trial

Court and Court of Agrarian Relations, had jurisdiction over the

herein case.9

Ruling of the Court

The petition for review lacks merit.

To properly resolve whether or not the relationship between Timoteo

and Jorge was that of an agency or a tenancy, an analysis of the

concepts of agency and tenancy is in order.

In agency, the agent binds himself to render some service or to do

something in representation or on behalf of the principal, with the

consent or authority of the latter.10 The basis of the civil law

relationship of agency is representation,11 the elements of which are,

namely: (a) the relationship is established by the parties’ consent,

express or implied; (b) the object is the execution of a juridical act in

relation to a third person; (c) the agent acts as representative and not

for himself; and (d) the agent acts within the scope of his authority.12

Whether or not an agency has been created is determined by the

fact that one is representing and acting for another.13 The law does

not presume agency; hence, proving its existence, nature and extent

is incumbent upon the person alleging it.14

The claim of Timoteo that Jorge was his agent contradicted the verbal

agreement he had fashioned with Jorge. By assenting to Jorge’s

possession of the land sans accounting of the cultivation expenses and

actual produce of the land provided that Jorge annually delivered to

him 110 cavans of palay and paid the irrigation fees belied the very

nature of agency, which was representation. The verbal agreement

between Timoteo and Jorge left all matters of agricultural production

to the sole discretion of Jorge and practically divested Timoteo of the

right to exercise his authority over the acts to be performed by Jorge.

While inpossession of the land, therefore, Jorge was acting for himself

instead offor Timoteo. Unlike Jorge, Timoteo did not benefit whenever

the production increased, and did not suffer whenever the production

decreased. Timoteo’s interest was limited to the delivery of the 110

cavans of palay annually without any concern about how the

cultivation could be improved in order to yield more produce.

On the other hand, to prove the tenancy relationship, Jorge presented

handwritten receipts15 indicating that the sacks of palay delivered to

and received by one Corazon Jusayan represented payment of

rental. In this regard, rental was the legal term for the consideration of

the lease.16 Consequently, the receipts substantially proved that the

contractual relationship between Jorge and Timoteo was a lease.

Yet, the lease of an agricultural land can be either a civil law or an

agricultural lease.1âwphi1 In the civil law lease, one of the parties

binds himself to give to another the enjoyment or use ofa thing for a

price certain, and for a period that may be definite or indefinite.17 In

the agricultural lease, also termed as a lease hold tenancy, the

physical possession of the land devoted to agriculture is given by its

owner or legal possessor (landholder) to another (tenant) for the

purpose of production through labor of the latter and of the members

of his immediate farm household, in consideration of which the latter

agrees to share the harvest with the landholder, or to pay a price

certain or ascertainable, either in produce or in money, or in both.18

Specifically, in Gabriel v. Pangilinan,19 this Court differentiated

between a leasehold tenancy and a civil law lease in the following

manner, namely: (1) the subject matter of a leasehold tenancy is

limited to agricultural land, but that of a civil law lease may be rural or

urban property; (2) as to attention and cultivation, the law requires the

leasehold tenant to personally attend to and cultivate the agricultural

land; the civil law lessee need not personally cultivate or work the

thing leased; (3) as to purpose, the landholding in leasehold tenancy is

devoted to agriculture; in civil law lease, the purpose may be for any

other lawful pursuits; and(4) as to the law that governs, the civil law

lease is governed by the Civil Code, but the leasehold tenancy is

governed by special laws.

The sharing of the harvest in proportion to the respective contributions

of the landholder and tenant, otherwise called share tenancy,20 was

abolished on August 8, 1963 under Republic Act No. 3844. To date, the

only permissible system of agricultural tenancy is leasehold tenancy,21

a relationship wherein a fixed consideration is paid instead of

proportionately sharing the harvest as in share tenancy.

In Teodoro v. Macaraeg,22 this Court has synthesized the elements of

agricultural tenancy to wit: (1) the object of the contract or the

relationship is an agricultural land that is leased or rented for the

purpose of agricultural production; (2) the size of the landholding is

such that it is susceptible of personal cultivation by a single person with

the assistance of the members of his immediate farm household; (3)

the tenant-lessee must actually and personally till, cultivate or operate

the land, solely or with the aid of labor from his immediate farm

household; and (4) the landlord-lessor, who is either the lawful owner or

the legal possessor of the land, leases the same to the tenant-lessee

for a price certain or ascertainable either in an amount of money or

produce.

It can be gleaned that in both civil law lease of an agricultural land

and agricultural lease, the lessor gives to the lessee the use and

possession of the land for a price certain. Although the purpose of the

civil law lease and the agricultural lease may be agricultural

cultivation and production, the distinctive attribute that sets a civil law

lease apart from an agricultural lease is the personal cultivation by the

lessee. An agricultural lessee cultivates by himself and with the aid of

those of his immediate farm household. Conversely, even when the

lessee is in possession of the leased agricultural land and paying a

consideration for it but is not personally cultivating the land, he or she is

a civil law lessee.

The only issue remaining to be resolved is whether or not Jorge

personally cultivated the leased agricultural land.

Cultivation is not limited to the plowing and harrowing of the land, but

includes the various phases of farm labor such as the maintenance,

repair and weeding of dikes, paddies and irrigation canals in the

landholding. Moreover, it covers attending to the care of the growing

plants,23 and grown plants like fruit trees that require watering,

fertilizing, uprooting weeds, turning the soil, fumigating to eliminate

plant pests24 and all other activities designed to promote the growth

and care of the plants or trees and husbanding the earth, by general

industry, so that it may bring forth more products or fruits.25 In Tarona v.

Court of Appeals,26 this Court ruled that a tenant is not required to be

physically present in the land at all hours of the day and night

provided that he lives close enough to the land to be cultivated to

make it physically possible for him to cultivate it with some degree of

constancy.

Nor was there any question that the parcels of agricultural land with a

total area of 7.9 hectares involved herein were susceptible of

cultivation by a single person with the help of the members of his

immediate farm household. As the Court has already observed, an

agricultural land of an area of four hectares,27 or even of an area as

large as 17 hectares,28 could be personally cultivated by a tenant by

himself or with help of the members of his farm household.

It is elementary that he who alleges the affirmative of the issue has the

burden of proof.29 Hence, Jorge, as the one claiming to be an

agricultural tenant, had to prove all the requisites of his agricultural

tenancy by substantial evidence.30 In that regard, his knowledge of

and familiarity with the landholding, its production and the instances

when the landholding was struck by drought definitely established that

he personally cultivated the land.31 His ability to farm the seven

hectares of land despite his regular employment as an Agricultural

Technician at the Municipal Agriculture Office32 was not physically

impossible for him to accomplish considering that his daughter, a

member of his immediate farm household, was cultivating one of the

parcels of the land.33 Indeed, the law did not prohibit him as the

agricultural lessee who generally worked the land himself or with the

aid of member of his immediate household from availing himself

occasionally or temporarily of the help of others in specific jobs.34 In

short, the claim of the petitioners that the employment of Jorge as an

Agricultural Technician at the Municipal Agriculture Office disqualified

him as a tenant lacked factual or legal basis.

Section 7 of Republic Act No. 3844 provides that once there is an

agricultural tenancy, the agricultural tenant’s right to security of tenure

is recognized and protected. The landowner cannot eject the

agricultural tenant from the land unless authorized by the proper court

for causes provided by law. Section 36 of Republic Act No. 3844, as

amended by Republic Act No. 6389, enumerates the several grounds

for the valid dispossession of the tenant.35 It is underscored, however,

that none of such grounds for valid dispossession of landholding was

attendant in Jorge’s case.

Although the CA has correctly categorized Jorge’s case as an

agrarian dispute, it ruled that the RTC lacked jurisdiction over the case

based on Section 50 of Republic Act No. 6657, which vested in the

Department of Agrarian Reform (DAR) the "primary jurisdiction to

determine and adjudicate agrarian reform matters" and the "exclusive

original jurisdiction over all matters involving the implementation of

agrarian reform" except disputes falling under the exclusive jurisdiction

of the Department of Agriculture and the Department of Environment

and Natural Resources.

We hold that the CA gravely erred. The rule is settled that the

jurisdiction of a court is determined by the statute in force at the time

of the commencement of an action.36 In 1980, upon the passage of

Batas Pambansa Blg. 129 (Judiciary Reorganization Act), the Courts of

Agrarian Relations were integrated into the Regional Trial Courts and

the jurisdiction of the Courts of Agrarian Relations was vested in the

Regional Trial Courts.37 It was only on August 29, 1987, when Executive

Order No. 229 took effect, that the general jurisdiction of the Regional

Trial Courts to try agrarian reform matters was transferred to the DAR.

Therefore, the RTC still had jurisdiction over the dispute at the time the

complaint was filed in the RTC on June 30, 1986.

WHEREFORE, the Court GRANTS the petition for review on certiorari by

PARTIALLY AFFIRMING the decision of the Court of Appeals to the

extent that it upheld the tenancy relationship of the parties; DISMISSES

the complaint for recovery of possession and accounting; and ORDERS

the petitioners to pay the costs of suit.

The parties are ordered to comply with their undertakings as

agricultural lessor and agricultural lessee.

SO ORDERED.

LUCAS P. BERSAMIN

Associate Justice