G.R. No.

76931

May 29, 1991

Representation Office (ACRO), for the sale

of air passenger transportation. The
services to be performed by Orient Air
Services shall include:

ORIENT AIR SERVICES & HOTEL

REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES
INCORPORATED, respondents.
G.R. No. 76933

(a) soliciting and promoting

passenger traffic for the services of
American and, if necessary,
employing staff competent and
sufficient to do so;

May 29, 1991

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

(b) providing and maintaining a

suitable area in its place of
business to be used exclusively for
the transaction of the business of
American;

Francisco A. Lava, Jr. and Andresito X. Fornier for

Orient Air Service and Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for
American Airlines, Inc.

(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 subagents 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

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.

(e) holding out a passenger

reservation facility to sales agents
and the general public in the
assigned territory.
In connection with scheduled or nonscheduled 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.

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

xxx

In consideration of the mutual convenants

herein contained, the parties hereto agree
as follows:

xxx

xxx

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

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

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.

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.

5. Commissions
American will pay Orient Air Services
commission on transportation sold
hereunder by Orient Air Services or its subagents as follows:

xxx

xxx

xxx

(a) Sales agency commission

13. Termination

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:

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.

(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.

xxx

(b) Overriding commission

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

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

(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.

xxx

xxx

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.

xxx

10. Default
If Orient Air Services shall at any time
default in observing or performing any of
the provisions of this Agreement or shall
become bankrupt or make any assignment
for the benefit of or enter into any
agreement or promise with its creditors or
go into liquidation, or suffer any of its
goods to be taken in execution, or if it
ceases to be in business, this Agreement
may, at the option of American, be
terminated forthwith and American may,
without prejudice to any of its rights under

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:

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;

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.

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

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:

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.

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;

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:

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

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 Servicesor its subagents. (Emphasis supplied)

interpretation must at all times be avoided with

every effort exerted to harmonize the entire
Agreement.

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.

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:

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

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 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."

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. . . ."

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

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
Agreementthat 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.1wphi1We 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."

upon the first cause of action, and the defendant

appealed with respect to the action taken upon the
second cause of action. It results that, by the
appeal of the two parties, the decision of the lower
court is here under review as regards the action
taken upon both grounds of action set forth in the
complaint.

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.

It appears that Albaladejo y Cia. is a limited

partnership, organized in conformity with the laws
of these Islands, and having its principal place of
business at Legaspi, in the Province of Albay; and
during the transactions which gave origin to this
litigation said firm was engaged in the buying and
selling of the products of the country, especially
copra, and in the conduct of a general mercantile
business in Legaspi and in other places where it
maintained agencies, or sub-agencies, for the
prosecution of its commercial enterprises.
The Visayan Refining Co. is a corporation organized
under the laws of the Philippine Islands; and prior
to July 9, 1920, it was engaged in operating its
extensive plant at Opon, Cebu, for the manufacture
of coconut oil.
On August 28, 1918, the plaintiff made a contract
with the Visayan Refining Co., the material parts of
which are as follows:
Memorandum of Agreement Re Purchase
of Copra. This memorandum of
agreement, made and entered into by and
between Albaladejo y Compania, S. en C.,
of Legaspi, Province of Albay, Philippine
Islands, party of the first part, and the
Visayan Refining Company, Inc., of Opon,
Province of Cebu, Philippine Islands, party
of the second part,

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.
G.R. No. L-20726 December 20, 1923

Witnesseth That. Whereas, the party of

the first part is engaged in the purchase of
copra in the Province of Albay; and
Whereas, the party of the second part is
engaged in the business of the
manufacture of coconut oil, or which
purpose it must continually purchase large
quantities of copra; Now, Therefore, in
consideration of the premises and
covenants hereinafter set forth, the said
parties have agreed and do hereby
contract and agree as follows, to wit:

ALBALADEJO Y CIA., S. en C., plaintiffappellant,

vs.
The PHILIPPINE REFINING CO., as successor
to The Visayan Refining Co., defendantappellant.
Eduardo Gutierrez Repide and Felix Socias for
plaintiff.
Manly, Goddard and Lockwood for defendantappellant.
Fisher, DeWitt, Perkins and Brady of counsel.

1. The party of the first part agrees and

binds itself to sell to the party of the
second part, and the party of the second
part agrees and binds itself to buy from the
party of the first part, for a period of one
(1) year from the date of these presents, all
the copra purchased by the party of the
first part in Province of Albay.

STREET, J.:
This action was instituted in the Court of First
Instance of the Province of Albay by Albaladejo y
Cia., S. en C., to recover a sum of money from the
Philippine Refining Co., as successor to the Visayan
Refining Co., two causes of action being stated in
the complaint. Upon hearing the cause the trial
judge absolved the defendant from the first cause
of action but gave judgment for the plaintiff to
recover the sum of P49,626.68, with costs, upon
the second cause of action. From this judgment the
plaintiff appealed with respect to the action taken

2. The party of the second part agrees to

pay the party of the first part for the said
copra the market price thereof in Cebu at
date (of) purchase, deducting, however,
from such price the cost of transportation
by sea to the factory of the party of second
part at Opon, Cebu, the amount deducted

to be ascertained from the rates

established, from time to time, by the
public utility commission, or such entity as
shall succeed to its functions, and also a
further deduction for the shrinkage of the
copra from the time of its delivery to the
party of the second part to its arrival at
Opon, Cebu, plus one-half of a real per
picul in the event the copra is delivered to
boats which will unload it on the pier of the
party of the second part at Opon, Cebu,
plus one real per picul in the event that the
party of the first part shall employ its own
capital exclusively in its purchase.

to the Philippine Refining Co. (which had now

succeeded to the rights and liabilities of the
Visayan Refining Co.), expressing its approval of
said account. In this letter no dissatisfaction was
expressed by the plaintiff as to the state of affairs
between the parties; but about six weeks
thereafter the present action was begun.
Upon reference to paragraph five of the contract
reproduced above it will be seen that the Visayan
Refining Co. obligated itself to provide
transportation by sea to Opon, Cebu, for the copra
which should be delivered to it by the plaintiff; and
the first cause of action set forth in the complaint is
planted upon the alleged negligent failure of the
Visayan Refining Co. to provide opportune
transportation for the copra collected by the
plaintiff and deposited for shipment at various
places. In this connection we reproduce the
following allegations from the complaint:

3. During the continuance of this contract

the party of the second part will not
appoint any other agent for the purchase of
copra in Legaspi, nor buy copra from any
vendor in Legaspi.
4. The party of the second part will, so far
as practicable, keep the party of the first
part advised of the prevailing prices paid
for copra in the Cebu market.

6. That, from the month of September,

1918, until the month of June, 1920, the
plaintiff opportunely advised the Visayan of
the stocks that the former had for
shipment, and, from time to time,
requested the Visayan to send vessels to
take up said stocks; but that the Visayan
culpably and negligently allowed a great
number of days to elapse before sending
the boats for the transportation of the
copra to Opon, Cebu, and that due to the
fault and negligence of the Visayan, the
stocks of copra prepared for shipment by
the plaintiff had to remain an unnecessary
length of time in warehouses and could not
be delivered to the Visayan, nor could they
be transmitted to this latter because of the
lack of boats, and that for this reason the
copra gathered by the plaintiff and
prepared for delivery to the Visayan
suffered the diminishment of weight herein
below specified, through shrinkage or
excessive drying, and, in consequence
thereof, an important diminishment in its
value.

5. The party of the second part will provide

transportation by sea to Opon, Cebu, for
the copra delivered to it by the party of the
first part, but the party of the first part
must deliver such copra to the party of the
second part free on board the boats of the
latter's ships or on the pier alongside the
latter's ships, as the case may be.
Pursuant to this agreement the plaintiff, during the
year therein contemplated, bought copra
extensively for the Visayan Refining Co. At the end
of said year both parties found themselves
satisfied with the existing arrangement, and they
therefore continued by tacit consent to govern
their future relations by the same agreement. In
this situation affairs remained until July 9, 1920,
when the Visayan Refining Co. closed down its
factory at Opon and withdrew from the copra
market.

xxx

When the contract above referred to was originally

made, Albaladejo y Cia. apparently had only one
commercial establishment, i.e., that at Legaspi; but
the large requirements of the Visayan Refining Co.
for copra appeared so far to justify the extension of
the plaintiff's business that during the course of the
next two or three years it established some twenty
agencies, or subagencies, in various ports and
places of the Province of Albay and neighboring
provinces.

xxx

xxx

8. That the diminishment in weight suffered

as shrinkage through excessive drying by
all the lots of copra sold by the plaintiff to
the Visayan, due to the fault and
negligence of the Visayan in the sending of
boats to take up said copra, represents a
total of 9,695 piculs and 56 cates, the just
and reasonable value of which, at the rates
fixed by the purchaser as the price in its
liquidation, is a total of two hundred and
one thousand, five hundred and ninety-nine
pesos and fifty-three centavos
(P201,599.53), Philippine currency, in
which amount the plaintiff has been
damaged and injured by the negligent and
culpable acts and omissions of the Visayan,
as herein above stated and alleged.

After the Visayan Refining Co. had ceased to buy

copra, as above stated, of which fact the plaintiff
was duly notified, the supplies of copra already
purchased by the plaintiff were gradually shipped
out and accepted by the Visayan Refining Co., and
in the course of the next eight or ten months the
accounts between the two parties were liquidated.
The last account rendered by the Visayan Refining
Co. to the plaintiff was for the month of April, 1921,
and it showed a balance of P288 in favor of the
defendant. Under date of June 25, 1921, the
plaintiff company addressed a letter from Legaspi

In the course of the appealed decision the trial

judge makes a careful examination of the proof
relative to the movements of the fleet of boats

maintained by the Visayan Refining Co. for the

purpose of collecting copra from the various ports
where it was gathered for said company, as well as
of the movements of other boats chartered or hired
by said company for the same purpose; and upon
consideration of all the facts revealed in evidence,
his Honor found that the Visayan Refining Co. had
used reasonable promptitude in its efforts to get
out the copra from the places where it had been
deposited for shipment, notwithstanding occasional
irregularities due at times to the condition of the
weather as related to transportation by sea and at
other times to the inability of the Visayan Refining
Co. to dispatch boats to the more remote ports.
This finding of the trial judge, that no negligence of
the kind alleged can properly be imputed to the
Visayan Refining Co., is in our opinion supported by
the proof.

It appears that in the first six months of the year

1919, the plaintiff found that its transactions with
the Visayan Refining Co. had not been productive
of reasonable profit, a circumstance which the
plaintiff attributed to loss of weight or shrinkage in
the copra from the time of purchase to its arrival at
Opon; and the matter was taken up with the
officials of said company, with the result that a
bounty amounting to P15,610.41 was paid to the
plaintiff by the Visayan Refining Co. In the ninth
paragraph of the complaint the plaintiff alleges
that this payment was made upon account of
shrinkage, for which the Visayan Refining Co.
admitted itself to be liable; and it is suggested that
the making of this payment operated as a
recognition on the part of the Visayan refining Co.
of the justice of the plaintiff's claim with respect to
the shrinkage in all subsequent transactions. With
this proposition we cannot agree. At most the
payment appears to have been made in
recognition of an existing claim, without involving
any commitment as to liability on the part of the
defendant in the future; and furthermore it appears
to have been in the nature of a mere gratuity given
by the company in order to encourage the plaintiff
and to assure that the plaintiff's organization would
be kept in an efficient state for future activities. It
is certain that no general liability for plaintiff's
losses was assumed for the future; and the
defendant on more than one occasion thereafter
expressly disclaimed liability for such losses.

Upon the point of the loss of weight of the copra by

shrinkage, the trial judge found that this is a
product which necessarily undergoes considerable
shrinkage in the process of drying, and intelligent
witnesses who are conversant with the matter
testified at the trial that shrinkage of cobra varies
from twenty to thirty per centum of the original
gross weight. It is agreed that the shrinkage shown
in all of the copra which the plaintiff delivered to
the Visayan Refining Co. amounted to only 8.187
per centum of the whole, an amount which is
notably below the normal. This showing was
undoubtedly due in part, as the trial judge
suggests, to the fact that in purchasing the copra
directly from the producers the plaintiff's buyers
sometimes estimated the picul at sixty-eight kilos,
or somewhat less, but in no case at the true weight
of 63.25 kilos. The plaintiff was therefore protected
in a great measure from loss by shrinkage by
purchasing upon a different basis of weight from
that upon which he sold, otherwise the shrinkage
shown in the result must have been much greater
than that which actually appeared. But even
considering this fact, it is quite evident that the
demonstrated shrinkage of 8.187 per centum was
extremely moderate average; and this fact goes to
show that there was no undue delay on the part of
the Visayan Refining Co. in supplying
transportation for the copra collected by the
plaintiff.

As already stated purchases of copra by the

defendant were suspended in the month of July,
1920. At this time the plaintiff had an expensive
organization which had been built up chiefly, we
suppose, with a view to the buying of copra; and
this organization was maintained practically intact
for nearly a year after the suspension of purchases
by the Visayan Refining Co. Indeed in October,
1920, the plaintiff added an additional agency at
Gubat to the twenty or more already in existence.
As a second cause of action the plaintiff seeks to
recover the sum of P110,000, the alleged amount
expended by the plaintiff in maintaining and
extending its organization as above stated. As a
basis for the defendant's liability in this respect it is
alleged that said organization was maintained and
extended at the express request, or requirement,
of the defendant, in conjunction with repeated
assurances that the defendant would soon resume
activity as a purchaser of copra.

In the course of his well-reasoned opinion upon this

branch of the case, the trial judge calls attention to
the fact that it is expressly provided in paragraph
two of the contract that the shrinkage of copra
from the time of its delivery to the party of the
second part till its arrival at Opon should fall upon
the plaintiff, from whence it is to be interfered that
the parties intended that the copra should be paid
for according to its weight upon arrival at Opon
regardless of its weight when first purchased; and
such appears to have been the uniform practice of
the parties in settling their accounts for the copra
delivered over a period of nearly two years.

With reference to this cause of action the trial

judge found that the plaintiff, as claimed, had
incurred expenses at the request of the defendant
and upon its representation that the plaintiff would
be fully compensated therefor in the future.
Instead, however, of allowing the plaintiff the entire
amount claimed, his Honor gave judgment for only
thirty per centum of said amount, in view of the
fact that the plaintiff's transactions in copra had
amounted in the past only to about thirty per
centum of the total business transacted by it.
Estimated upon this basis, the amount recognized
as constituting a just claim was found to be
P49,626.68, and for this amount judgment was
rendered against the defendant.

From what has been said it follows that the first

cause of action set forth in the complaint is not
well founded, and the trial judge committed no
error in absolving the plaintiff therefrom.

The discussion of this branch of the appeal involves

the sole question whether the plaintiff's expense in

maintaining and extending its organization for the

purchase of copra in the period between July, 1920,
to July, 1921, were incurred at the instance and
request of the defendant, or upon any promise of
the defendant to make the expenditure good. A
careful examination of the evidence, mostly of a
documentary character, is, in our opinion,
convincing that the supposed liability does not
exist.

(Letter of July 9, 1920, from Visayan Refining Co. to

Albaladejo y Cia.)
Notify your subagents to drop out of the
market temporarily. We do not desire to
purchase at present.
(Letter of July 10, 1920, from K. B. Day, General
Manager, to Albaladejo y Cia.)

By recurring to paragraph four of the contract

between the plaintiff and the Visayan Refining Co.
it will be seen that the latter agreed to keep the
plaintiff advised of the prevailing prices paid for the
copra in the Cebu market. In compliance with this
obligation the Visayan Refining Co. was
accustomed to send out "trade letters" from time
to time its various clients in the southern provinces
of whom the plaintiff was one. In these letters the
manager of the company was accustomed to make
comment upon the state of the market and to give
such information as might be of interest or value to
the recipients of the letters. From the series of
letters thus sent to Albaladejo y Cia. during the
latter half of 1920, we here reproduce the following
excerpts:

The market continues to grow weaker.

Conditions are so uncertain that this
company desires to drop out of the copra
market until conditions have a chance to
readjust themselves. We request therefore
that our agents drop out of active
competition for copra temporarily. Stocks
that are at present on hand will, of course,
be liquidated, but no new stocks should be
acquired. Agents should do their best to
keep their organizations together
temporarily, for we expect to be in the
market again soon stronger than ever. We
expect the cooperation of agents in making
this effective; and if they give us this
cooperation, we will endeavor to see that
they do not lose by the transaction in the
long run. This company has been receiving
copra from its agents for a long time at
prices which have netted it a loss. The
company has been supporting its agents
during this period. It now expects the same
support from its agents. Agents having
stocks actually on hand in their bodegas
should telegraph us the quantity
immediately and we will protect same. But
stocks not actually in bodegas cannot be
considered.

(Letter of July 2, 1920, from K.B. Day, General

Manager of the Visayan Refining Co., to Albaladejo
y Cia.)
The copra market is still very weak. I have
spent the past two weeks in Manila
studying conditions and find that
practically no business at all is being done.
A few of the mills having provincial agents
are accepting small deliveries, but I do not
suppose that 500 piculs of copra are
changing hands a day. Buyers are offering
from P13 to P15, depending on quality, and
sellers are offering to sell at anywhere from
P16 to P18, but no business can be done
for the simple reason that the banks will
not lend the mills any money to buy copra
with at this time.

(Letter of July 17, 1920, from K.B. Day to

Albaladejo y Cia.)
Conditions have changed very little in the
copra market since last reports. . . . We are
in the same position as last week and are
out of the market.

Reports from the United States are to the

effect that the oil market is in a very
serious and depressed condition and that
large quantities of oil cannot be disposed of
at any price.
xxx

xxx

For the benefit of our agents, we wish to

explain in a few words just why we are
have been forced to close down our mill
until the arrival of a boat to load some of
our stocks on hand. We have large stocks
of copra. The market for oil is so uncertain
that we do not care to increase these
stocks until such time as we know that the
market has touched the bottom. As soon as
this period of uncertainty is over, we
expect to be in the market again stronger
than ever, but it is only the part of business
wisdom to play safe at such times as these.

xxx

Under this conditions it is imperative that

this mill buy no more copra than it can
possibly help at the present time. We are
not anxious to compete, nor do we wish to
purchase same in competition with others.
We do, however, desire to keep our agents
doing business and trust that they will
continue to hold their parroquianos
(customers), buying only minimum
quantities at present.

Owing to the very small amounts of copra

now in the provinces, we do not think that
our agents will lose anything by our being
out of the market. On the contrary, the
producers of copra will have a chance to
allow their nuts to mature on the trees so
that the quality of copra which you will
receive when we again are in the market

The local market has not changed since

last week, and our liquidating price is P14.

should be much better than what you have

been receiving in the past. Due to the high
prices and scarcity of copra a large
proportion of the copra we have received
has been made from unripe coconuts and
in order to keep revenue coming in the
producers have kept harvesting these
coconuts without giving them a chance to
reach maturity. This period now should give
them the chance to let their nuts ripen and
should give you a better copra in the future
which will shrink less and be more
satisfactory both from your standpoint and
ours. Please do all you can to assist us at
this time. We shall greatly appreciate your
cooperation.lawphi1.net

All agents should endeavor to liquidate

outstanding advances at this time because
this is a particularly good time to clean out
old accounts and be on a business basis
when we return to the market. We request
that our agents concentrate their attention
on this point during the coming
week.lawphi1.net
(Letter of October 16, 1920, from K.B. Day,
Manager, to Albaladejo y Cia.)
Copra in Manila and coconut oil in the
United States have taken a severe drop
during the past week. The Cebu price
seems to have remained unchanged, but
we look for an early drop in the local
market.

(Letter of August 7, 1920, from H.U. Umstead,

Assistant General Manager, to Albaladejo y Cia.)

We have received orders from our

president in New York to buy no more copra
until the situation becomes more favorable.
We had hoped and expected to be in the
market actively before this time, but this
most unexpected reaction in the market
makes the date of our entry in it more
doubtful.

The copra situation in Manila remains

unchanged and the outlook is still
uncertain. Arrivals continue small.
We are still out of the market and are not
yet in a position to give you buying orders.
We trust, however, that within the next few
days weeks we may be able to reenter the
market and resume our former activity.
xxx

xxx

With this in view, we hereby notify our

agents that we can accept no more copra
and advance no more money until we have
permission from our president to do so. We
request, therefore, that you go entirely out
of the market, so far as we are concerned,
with the exception of receiving copra
against outstanding accounts.

xxx

While we are not of the market we have no

objection whatever to our agents selling
copra to other purchasers, if by doing so
they are able to keep themselves in the
market and retain
their parroquianos(customers). We do not,
however, wish you to use our money, for
this purpose, nor do we want you to buy
copra on speculation with the idea in mind
that we will take it off of your hands at high
prices when we reenter the market. We
wish to warn you against this now so that
you will not be working under any
misapprehension.

In case any agent be compelled to take in

copra and desire to send same to us, we
will be glad to sell same for him to the
highest bidder in Cebu. We will make no
charge for our services in this connection,
but the copra must be forwarded to us on
consignment only so that we will not
appear as buyers and be required to pay
the internal-revenue tax.

In this same mail, we are sending you a

notice of change of organization. In your
dealings with us hereafter, will you kindly
address all communications to the
Philippine Refining Corporation, Cebu,
which you will understand will be delivered
to us.

We are extremely sorry to be compelled to

make the present announcement to you,
but the market is such that our president
does not deem it wise for us to purchase
copra at present, and, with this in view, we
have no alternative other than to comply
with his orders. We hope that our agents
will realize the spirit in which these orders
are given, and will do all they can to
remain faithful to us until such time as we
can reenter the market, which we hope and
believe will be within a comparatively short
time.

(Letter of August 21, 1920, from Philippine Refining

Corporation, by K.B. Day, to Albaladejo y Cia.)
We are not yet in the market, but, as we
have indicated before, are hopeful of
renewing our activities soon. We shall
advise all our agents seasonably of our
return to the market. . . .

(Special Letter of October 16, 1920, from Philippine

Refining Corporation, by K.B. Day, to Albaladejo y
Cia.)

We are preparing new form of agreement

between ourselves and our agents and
hope to have them completed in time to
refer them to our agents in the course of
the next week or ten days.

We have received very strict instructions

from New York temporarily to suspend the
purchase of copra, and of course we must
comply therewith. However, should you

find yourselves obliged to buy copra in

connection with your business activities,
and cannot dispose of it advantageously in
Cebu, we shall be glad to receive your
copra under the condition that we shall sell
it in the market on your account to the
highest bidder, or, in other words, we offer
you our services free, to sell your copra to
the best possible advantages that the local
market may offer, provided that, in doing
so, we be not obliged to accept your copra
as a purchase when there be no market for
this product.

showing that the officials of the defendant acted in

bad faith in holding out this hope.
In the appellant's brief the contention is advanced
that the contract between the plaintiff and the
Visayan Refining Co. created the relation of
principal and agent between the parties, and the
reliance is placed upon article 1729 of the Civil
Code which requires the principal to indemnify the
agent for damages incurred in carrying out the
agency. Attentive perusal of the contract is,
however, convincing to the effect that the relation
between the parties was not that of principal and
agent in so far as relates to the purchase of copra
by the plaintiff. It is true that the Visayan Refining
Co. made the plaintiff one of its instruments for the
collection of copra; but it is clear that in making its
purchases from the producers the plaintiff was
buying upon its own account and that when it
turned over the copra to the Visayan Refining Co.,
pursuant to that agreement, a second sale was
effected. In paragraph three of the contract it is
declared that during the continuance of this
contract the Visayan Refining Co. would not
appoint any other agent for the purchase of copra
in Legaspi; and this gives rise indirectly to the
inference that the plaintiff was considered its
buying agent. But the use of this term in one
clause of the contract cannot dominate the real
nature of the agreement as revealed in other
clauses, no less than in the caption of the
agreement itself. In some of the trade letters also
the various instrumentalities used by the Visayan
Refining Co. for the collection of copra are spoken
of as agents. But this designation was evidently
used for convenience; and it is very clear that in its
activities as a buyer the plaintiff was acting upon
its own account and not as agents, in the legal
sense, of the Visayan Refining Co. The title to all of
the copra purchased by the plaintiff undoubtedly
remained in it until it was delivered by way of
subsequent sale to said company.

Whenever you find yourselves obliged to

buy copra in order to liquidate pending
advances, we can accept it provided that,
so long as present conditions prevail, we be
not required to make further cash
advances.
We shall quote no further from letters written by
the management of the Philippine Refining
Corporation to the plaintiff, as we find nothing in
the correspondence which reflects an attitude
different from that reflected in the matter above
quoted. It is only necessary to add that the hope so
frequently expressed in the letters, to the effect
that the Philippine Refining Corporation would soon
enter the market as a buyer of copra on a more
extensive scale than its predecessor, was not
destined to be realized, and the factory at Opon
remained closed.
But it is quite obvious that there is nothing in these
letters on which to hold the defendant liable for the
expenses incurred by the plaintiff in keeping its
organization intact during the period now under
consideration. Nor does the oral testimony
submitted by the plaintiff materially change the
situation in any respect. Furthermore, the
allegation in the complaint that one agency in
particular (Gubat) had been opened on October 1,
1920, at the special instance and request of the
defendant, is not at all sustained by the evidence.

For the reasons stated we are of the opinion that

no liability on the part of the defendant is shown
upon the plaintiff's second cause of action, and the
judgment of the trial court on this part of the case
is erroneous.

We note that in his letter of July 10, 1920, Mr. Day

suggested that if the various purchasing agents of
the Visayan Refining Co. would keep their
organization intact, the company would endeavor
to see that they should not lose by the transaction
in the long run. These words afford no sufficient
basis for the conclusion, which the trial judge
deduced therefrom, that the defendant is bound to
compensate the plaintiff for the expenses incurred
in maintaining its organization. The
correspondence sufficiently shows on its face that
there was no intention on the part of the company
to lay a basis for contractual liability of any sort;
and the plaintiff must have understood the letters
in that light. The parties could undoubtedly have
contracted about it, but there was clearly no
intention to enter into contractual relation; and the
law will not raise a contract by implication against
the intention of the parties. The inducement held
forth was that, when purchasing should be
resumed, the plaintiff would be compensated by
the profits then to be earned for any expense that
would be incurred in keeping its organization
intact. It is needless to say that there is no proof

The appealed judgment will therefore be affirmed

in so far as it absolves the defendant from the first
cause of action and will be reversed in so far as it
gives judgment against the defendant upon the
second cause of action; and the defendant will be
completely absolved from the complaint. So
ordered, without express findings as to costs of
either instance.
G.R. No. 113074 January 22, 1997
ALFRED HAHN, petitioner,
vs.
COURT OF APPEALS and BAYERSCHE
MOTOREN WERKE AKTIENGSELLSCHAFT
(BMW), respondents.

MENDOZA, J.:

10

This is a petition for review of the decision 1 of the

Court of Appeals dismissing a complaint for specific
performance which petitioner had filed against
private respondent on the ground that the Regional
Trial Court of Quezon City did not acquire
jurisdiction over private respondent, a nonresident
foreign corporation, and of the appellate court's
order denying petitioner's motion for
reconsideration.

exclusively be the responsibility and for the

account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE
shall continue business relations as has
been usual in the past without a formal
contract, and for that purpose, the
dealership of ASSIGNOR shall cover the
ASSIGNEE's complete production program
with the only limitation that, for the
present, in view of ASSIGNEE's limited
production, the latter shall not be able to
supply automobiles to ASSIGNOR.

The following are the facts:

Petitioner Alfred Hahn is a Filipino citizen doing
business under the name and style "Hahn-Manila."
On the other hand, private respondent Bayerische
Motoren Werke Aktiengesellschaft (BMW) is a
nonresident foreign corporation existing under the
laws of the former Federal Republic of Germany,
with principal office at Munich, Germany.

Per the agreement, the parties "continue[d]

business relations as has been usual in the past
without a formal contract." But on February 16,
1993, in a meeting with a BMW representative and
the president of Columbia Motors Corporation
(CMC), Jose Alvarez, petitioner was informed that
BMW was arranging to grant the exclusive
dealership of BMW cars and products to CMC,
which had expressed interest in acquiring the
same. On February 24, 1993, petitioner received
confirmation of the information from BMW which, in
a letter, expressed dissatisfaction with various
aspects of petitioner's business, mentioning among
other things, decline in sales, deteriorating
services, and inadequate showroom and
warehouse facilities, and petitioner's alleged failure
to comply with the standards for an exclusive BMW
dealer. 2 Nonetheless, BMW expressed willingness
to continue business relations with the petitioner
on the basis of a "standard BMW importer"
contract, otherwise, it said, if this was not
acceptable to petitioner, BMW would have no
alternative but to terminate petitioner's exclusive
dealership effective June 30, 1993.

On March 7, 1967, petitioner executed in favor of

private respondent a "Deed of Assignment with
Special Power of Attorney," which reads in full as
follows:
WHEREAS, the ASSIGNOR is the present
owner and holder of the BMW trademark
and device in the Philippines which
ASSIGNOR uses and has been using on the
products manufactured by ASSIGNEE, and
for which ASSIGNOR is the authorized
exclusive Dealer of the ASSIGNEE in the
Philippines, the same being evidenced by
certificate of registration issued by the
Director of Patents on 12 December 1963
and is referred to as Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to
transfer and consequently record said
transfer of the said BMW trademark and
device in favor of the ASSIGNEE herein with
the Philippines Patent Office;

Petitioner protested, claiming that the termination

of his exclusive dealership would be a breach of
the Deed of Assignment. 3 Hahn insisted that as
long as the assignment of its trademark and device
subsisted, he remained BMW's exclusive dealer in
the Philippines because the assignment was made
in consideration of the exclusive dealership. In the
same letter petitioner explained that the decline in
sales was due to lower prices offered for BMW cars
in the United States and the fact that few
customers returned for repairs and servicing
because of the durability of BMW parts and the
efficiency of petitioner's service.

NOW THEREFORE, in view of the foregoing

and in consideration of the stipulations
hereunder stated, the ASSIGNOR hereby
affirms the said assignment and transfer in
favor of the ASSIGNEE under the following
terms and conditions:
1. The ASSIGNEE shall take appropriate
steps against any user other than
ASSIGNOR or infringer of the BMW
trademark in the Philippines; for such
purpose, the ASSIGNOR shall inform the
ASSIGNEE immediately of any such use or
infringement of the said trademark which
comes to his knowledge and upon such
information the ASSIGNOR shall
automatically act as Attorney-In-Fact of the
ASSIGNEE for such case, with full power,
authority and responsibility to prosecute
unilaterally or in concert with ASSIGNEE,
any such infringer of the subject mark and
for purposes hereof the ASSIGNOR is
hereby named and constituted as
ASSIGNEE's Attorney-In-Fact, but any such
suit without ASSIGNEE's consent will

Because of Hahn's insistence on the former

business relation, BMW withdrew on March 26,
1993 its offer of a "standard importer contract" and
terminated the exclusive dealer relationship
effective June 30, 1993. 4 At a conference of BMW
Regional Importers held on April 26, 1993 in
Singapore, Hahn was surprised to find Alvarez
among those invited from the Asian region. On
April 29, 1993, BMW proposed that Hahn and CMC
jointly import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14,
1993, he filed a complaint for specific performance
and damages against BMW to compel it to continue
the exclusive dealership. Later he filed an
amended complaint to include an application for
temporary restraining order and for writs of

11

preliminary, mandatory and prohibitory injunction

to enjoin BMW from terminating his exclusive
dealership. Hahn's amended complaint alleged in
pertinent parts:

The case was docketed as Civil Case No. Q-9315933 and raffled to Branch 104 of the Quezon City
Regional Trial Court, which on June 14, 1993 issued
a temporary restraining order. Summons and
copies of the complaint and amended complaint
were thereafter served on the private respondent
through the Department of Trade and Industry,
pursuant to Rule 14, 14 of the Rules of Court. The
order, summons and copies of the complaint and
amended complaint were later sent by the DTI to
BMW via registered mail on June 15, 1993 5 and
received by the latter on June 24, 1993.

2. Defendant [BMW] is a foreign

corporation doing business in the
Philippines with principal offices at Munich,
Germany. It may be served with summons
and other court processes through the
Secretary of the Department of Trade and
Industry of the Philippines. . . .

On June 17, 1993, without proof of service on BMW,

the hearing on the application for the writ of
preliminary injunction proceeded ex parte, with
petitioner Hahn testifying. On June 30, 1993, the
trial court issued an order granting the writ of
preliminary injunction upon the filing of a bond of
P100,000.00. On July 13, 1993, following the
posting of the required bond, a writ of preliminary
injunction was issued.

xxx xxx xxx

5. On March 7, 1967, Plaintiff executed in
favor of defendant BMW a Deed of
Assignment with Special Power of Attorney
covering the trademark and in
consideration thereof, under its first
whereas clause, Plaintiff was duly
acknowledged as the "exclusive Dealer of
the Assignee in the Philippines. . . .

On July 1, 1993, BMW moved to dismiss the case,

contending that the trial court did not acquire
jurisdiction over it through the service of summons
on the Department of Trade and Industry, because
it (BMW) was a foreign corporation and it was not
doing business in the Philippines. It contended that
the execution of the Deed of Assignment was an
isolated transaction; that Hahn was not its agent
because the latter undertook to assemble and sell
BMW cars and products without the participation of
BMW and sold other products; and that Hahn was
an indentor or middleman transacting business in
his own name and for his own account.

xxx xxx xxx

8. From the time the trademark "BMW &
DEVICE" was first used by the Plaintiff in
the Philippines up to the present, Plaintiff,
through its firm name "HAHN MANILA" and
without any monetary contribution from
defendant BMW, established BMW's
goodwill and market presence in the
Philippines. Pursuant thereto, Plaintiff has
invested a lot of money and resources in
order to single-handedly compete against
other motorcycle and car companies. . . .
Moreover, Plaintiff has built buildings and
other infrastructures such as service
centers and showrooms to maintain and
promote the car and products of defendant
BMW.

Petitioner Alfred Hahn opposed the motion. He

argued that BMW was doing business in the
Philippines through him as its agent, as shown by
the fact that BMW invoices and order forms were
used to document his transactions; that he gave
warranties as exclusive BMW dealer; that BMW
officials periodically inspected standards of service
rendered by him; and that he was described in
service booklets and international publications of
BMW as a "BMW Importer" or "BMW Trading
Company" in the Philippines.

xxx xxx xxx

10. In a letter dated February 24, 1993,
defendant BMW advised Plaintiff that it was
willing to maintain with Plaintiff a
relationship but only "on the basis of a
standard BMW importer contract as
adjusted to reflect the particular situation
in the Philippines" subject to certain
conditions, otherwise, defendant BMW
would terminate Plaintiffs exclusive
dealership and any relationship for cause
effective June 30, 1993. . . .

The trial court 6 deferred resolution of the motion to

dismiss until after trial on the merits for the reason
that the grounds advanced by BMW in its motion
did not seem to be indubitable.
Without seeking reconsideration of the
aforementioned order, BMW filed a petition
for certiorari with the Court of Appeals alleging
that:

xxx xxx xxx

I. THE RESPONDENT JUDGE ACTED WITH
UNDUE HASTE OR OTHERWISE
INJUDICIOUSLY IN PROCEEDINGS LEADING
TOWARD THE ISSUANCE OF THE WRIT OF
PRELIMINARY INJUNCTION, AND IN
PRESCRIBING THE TERMS FOR THE
ISSUANCE THEREOF.

15. The actuations of defendant BMW are

in breach of the assignment agreement
between itself and plaintiff since the
consideration for the assignment of the
BMW trademark is the continuance of the
exclusive dealership agreement. It thus,
follows that the exclusive dealership should
continue for so long as defendant BMW
enjoys the use and ownership of the
trademark assigned to it by Plaintiff.

II. THE RESPONDENT JUDGE PATENTLY

ERRED IN DEFERRING RESOLUTION OF THE

12

MOTION TO DISMISS ON THE GROUND OF

LACK OF JURISDICTION, AND THEREBY
FAILING TO IMMEDIATELY DISMISS THE
CASE A QUO.

that private respondent BMW is not doing business

in the Philippines and, for this reason, dismissing
petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14
provides:

BMW asked for the immediate issuance of a

temporary restraining order and, after hearing, for
a writ of preliminary injunction, to enjoin the trial
court from proceeding further in Civil Case No. Q93-15933. Private respondent pointed out that,
unless the trial court's order was set aside, it would
be forced to submit to the jurisdiction of the court
by filing its answer or to accept judgment in
default, when the very question was whether the
court had jurisdiction over it.

14. Service upon private foreign

corporations. If the defendant is a
foreign corporation, or a nonresident joint
stock company or association, doing
business in the Philippines, service may be
made on its resident agent designated in
accordance with law for that purpose, or, if
there be no such agent, on the government
official designated by law to that effect, or
on any of its officers or agents within the
Philippines. (Emphasis added).

The Court of Appeals enjoined the trial court from

hearing petitioner's complaint. On December 20,
1993, it rendered judgment finding the trial court
guilty of grave abuse of discretion in deferring
resolution of the motion to dismiss. It stated:

What acts are considered "doing business in the

Philippines" are enumerated in 3(d) of the Foreign
Investments Act of 1991 (R.A. No. 7042) as
follows: 7

Going by the pleadings already filed with

the respondent court before it came out
with its questioned order of July 26, 1993,
we rule and so hold that petitioner's (BMW)
motion to dismiss could be resolved then
and there, and that the respondent judge's
deferment of his action thereon until after
trial on the merit constitutes, to our mind,
grave abuse of discretion.

d) the phrase "doing business" shall

include soliciting orders, service contracts,
opening offices, whether called "liaison"
offices or branches; appointing
representatives or distributors domiciled in
the Philippines or who in any calendar year
stay in the country for a period or periods
totalling one hundred eighty (180) days or
more; participating in the management,
supervision or control of any domestic
business, firm, entity or corporation in the
Philippines; and any other act or acts that
imply a continuity of commercial dealings
or arrangements, and contemplate to that
extent the performance of acts or works, or
the exercise of some of the functions
normally incident to, and in progressive
prosecution of, commercial gain or of the
purpose and object of the business
organization: Provided, however, That the
phrase "doing business" shall not be
deemed to include mere investment as a
shareholder by a foreign entity in domestic
corporations duly registered to do
business, and/or the exercise of rights as
such investor; nor having a nominee
director or officer to represent its interests
in such corporation; nor appointing a
representative or distributor domiciled in
the Philippines which transacts business in
its own name and for its own account.
(Emphasis supplied)

xxx xxx xxx

. . . [T]here is not much appreciable
disagreement as regards the factual
matters relating to the motion to dismiss.
What truly divide (sic) the parties and to
which they greatly differ is the legal
conclusions they respectively draw from
such facts, (sic) with Hahn maintaining that
on the basis thereof, BMW is doing
business in the Philippines while the latter
asserts that it is not.
Then, after stating that any ruling which the trial
court might make on the motion to dismiss would
anyway be elevated to it on appeal, the Court of
Appeals itself resolved the motion. It ruled that
BMW was not doing business in the country and,
therefore, jurisdiction over it could not be acquired
through service of summons on the DTI pursuant to
Rule 14, 14. 'The court upheld private
respondent's contention that Hahn acted in his own
name and for his own account and independently
of BMW, based on Alfred Hahn's allegations that he
had invested his own money and resources in
establishing BMW's goodwill in the Philippines and
on BMW's claim that Hahn sold products other than
those of BMW. It held that petitioner was a mere
indentor or broker and not an agent through whom
private respondent BMW transacted business in the
Philippines. Consequently, the Court of Appeals
dismissed petitioner's complaint against BMW.

Thus, the phrase includes "appointing

representatives or distributors in the Philippines"
but not when the representative or distributor
"transacts business in its name and for its own
account." In addition, 1(f)(1) of the Rules and
Regulations implementing (IRR) the Omnibus
Investment Code of 1987 (E.O. No. 226) provided:
(f) "Doing business" shall be any act or
combination of acts, enumerated in Article
44 of the Code. In particular, "doing
business" includes:

Hence, this appeal. Petitioner contends that the

Court of Appeals erred (1) in finding that the trial
court gravely abused its discretion in deferring
action on the motion to dismiss and (2) in finding

13

(1) . . . A foreign firm which does business

through middlemen acting in their own
names, such as indentors, commercial
brokers or commission merchants, shall not
be deemed doing business in the
Philippines. But such indentors, commercial
brokers or commission merchants shall be
the ones deemed to be doing business in
the Philippines.

upon the invoicing of a vehicle order by BMW. Upon

confirmation in writing that the vehicles had been
registered in the Philippines and serviced by him,
Hahn received an additional 3% of the full
purchase price. Hahn performed after-sale services,
including warranty services, for which he received
reimbursement from BMW. All orders were on
invoices and forms of BMW. 8
These allegations were substantially admitted by
BMW which, in its petition for certiorari before the
Court of Appeals, stated: 9

The question is whether petitioner Alfred Hahn is

the agent or distributor in the Philippines of private
respondent BMW. If he is, BMW may be considered
doing business in the Philippines and the trial court
acquired jurisdiction over it (BMW) by virtue of the
service of summons on the Department of Trade
and Industry. Otherwise, if Hahn is not the agent of
BMW but an independent dealer, albeit of BMW
cars and products, BMW, a foreign corporation, is
not considered doing business in the Philippines
within the meaning of the Foreign Investments Act
of 1991 and the IRR, and the trial court did not
acquire jurisdiction over it (BMW).

9.4. As soon as the vehicles are fully

manufactured and full payment of the
purchase prices are made, the vehicles are
shipped to the Philippines. (The payments
may be made by the purchasers or thirdpersons or even by Hahn.) The bills of
lading are made up in the name of the
purchasers, but Hahn-Manila is therein
indicated as the person to be notified.
9.5. It is Hahn who picks up the vehicles
from the Philippine ports, for purposes of
conducting pre-delivery inspections.
Thereafter, he delivers the vehicles to the
purchasers.

The Court of Appeals held that petitioner Alfred

Hahn acted in his own name and for his own
account and not as agent or distributor in the
Philippines of BMW on the ground that "he alone
had contacts with individuals or entities interested
in acquiring BMW vehicles. Independence
characterizes Hahn's undertakings, for which
reason he is to be considered, under governing
statutes, as doing business." (p. 13) In support of
this conclusion, the appellate court cited the
following allegations in Hahn's amended complaint:

9.6. As soon as BMW invoices the vehicle

ordered, Hahn is credited with a
commission of fourteen percent (14%) of
the full purchase price thereof, and as soon
as he confirms in writing that the vehicles
have been registered in the Philippines and
have been serviced by him, he will receive
an additional three percent (3%) of the full
purchase prices as commission.

8. From the time the trademark "BMW &

DEVICE" was first used by the Plaintiff in
the Philippines up to the present, Plaintiff,
through its firm name "HAHN MANILA" and
without any monetary contributions from
defendant BMW, established BMW's
goodwill and market presence in the
Philippines. Pursuant thereto, Plaintiff
invested a lot of money and resources in
order to single-handedly compete against
other motorcycle and car companies. . . .
Moreover, Plaintiff has built buildings and
other infrastructures such as service
centers and showrooms to maintain and
promote the car and products of defendant
BMW.

Contrary to the appellate court's conclusion, this

arrangement shows an agency. An agent receives a
commission upon the successful conclusion of a
sale. On the other hand, a broker earns his pay
merely by bringing the buyer and the seller
together, even if no sale is eventually made.
As to the service centers and showrooms which he
said he had put up at his own expense, Hahn said
that he had to follow BMW specifications as
exclusive dealer of BMW in the Philippines.
According to Hahn, BMW periodically inspected the
service centers to see to it that BMW standards
were maintained. Indeed, it would seem from
BMW's letter to Hahn that it was for Hahn's alleged
failure to maintain BMW standards that BMW was
terminating Hahn's dealership.

As the above quoted allegations of the amended

complaint show, however, there is nothing to
support the appellate court's finding that Hahn
solicited orders alone and for his own account and
without "interference from, let alone direction of,
BMW." (p. 13) To the contrary, Hahn claimed he
took orders for BMW cars and transmitted them to
BMW. Upon receipt of the orders, BMW fixed the
downpayment and pricing charges, notified Hahn
of the scheduled production month for the orders,
and reconfirmed the orders by signing and
returning to Hahn the acceptance sheets. Payment
was made by the buyer directly to BMW. Title to
cars purchased passed directly to the buyer and
Hahn never paid for the purchase price of BMW
cars sold in the Philippines. Hahn was credited with
a commission equal to 14% of the purchase price

The fact that Hahn invested his own money to put

up these service centers and showrooms does not
necessarily prove that he is not an agent of BMW.
For as already noted, there are facts in the record
which suggest that BMW exercised control over
Hahn's activities as a dealer and made regular
inspections of Hahn's premises to enforce
compliance with BMW standards and
specifications. 10 For example, in its letter to Hahn
dated February 23, 1996, BMW stated:

14

In the last years we have pointed out to

you in several discussions and letters that
we have to tackle the Philippine market
more professionally and that we are
through your present activities not
adequately prepared to cope with the
forthcoming challenges. 11

with factual issues and it is not at all clear whether

some allegations correspond to the proof.
Anyway, private respondent need not apprehend
that by responding to the summons it would be
waiving its objection to the trial court's jurisdiction.
It is now settled that, for purposes of having
summons served on a foreign corporation in
accordance with Rule 14, 14, it is sufficient that it
be alleged in the complaint that the foreign
corporation is doing business in the Philippines.
The court need not go beyond the allegations of
the complaint in order to determine whether it has
Jurisdiction. 18 A determination that the foreign
corporation is doing business is only tentative and
is made only for the purpose of enabling the local
court to acquire jurisdiction over the foreign
corporation through service of summons pursuant
to Rule 14, 14. Such determination does not
foreclose a contrary finding should evidence later
show that it is not transacting business in the
country. As this Court has explained:

In effect, BMW was holding Hahn accountable to it

under the 1967 Agreement.
This case fits into the mould of Communications
Materials, Inc. v. Court of Appeals, 12 in which the
foreign corporation entered into a "Representative
Agreement" and a "Licensing Agreement" with a
domestic corporation, by virtue of which the latter
was appointed "exclusive representative" in the
Philippines for a stipulated commission. Pursuant to
these contracts, the domestic corporation sold
products exported by the foreign corporation and
put up a service center for the products sold
locally. This Court held that these acts constituted
doing business in the Philippines. The arrangement
showed that the foreign corporation's purpose was
to penetrate the Philippine market and establish its
presence in the Philippines.

This is not to say, however, that the

petitioner's right to question the
jurisdiction of the court over its person is
now to be deemed a foreclosed matter. If it
is true, as Signetics claims, that its only
involvement in the Philippines was through
a passive investment in Sigfil, which it even
later disposed of, and that TEAM Pacific is
not its agent, then it cannot really be said
to be doing business in the Philippines. It is
a defense, however, that requires the
contravention of the allegations of the
complaint, as well as a full ventilation, in
effect, of the main merits of the case,
which should not thus be within the
province of a mere motion to dismiss. So,
also, the issue posed by the petitioner as to
whether a foreign corporation which has
done business in the country, but which
has ceased to do business at the time of
the filing of a complaint, can still be made
to answer for a cause of action which
accrued while it was doing business, is
another matter that would yet have to
await the reception and admission of
evidence. Since these points have
seasonably been raised by the petitioner,
there should be no real cause for what may
understandably be its apprehension,i.e.,
that by its participation during the trial on
the merits, it may, absent an invocation of
separate or independent reliefs of its own,
be considered to have voluntarily
submitted itself to the court's jurisdiction. 19

In addition, BMW held out private respondent Hahn

as its exclusive distributor in the Philippines, even
as it announced in the Asian region that Hahn was
the "official BMW agent" in the Philippines. 13
The Court of Appeals also found that petitioner
Alfred Hahn dealt in other products, and not
exclusively in BMW products, and, on this basis,
ruled that Hahn was not an agent of BMW. (p. 14)
This finding is based entirely on allegations of BMW
in its motion to dismiss filed in the trial court and in
its petition for certiorari before the Court of
Appeals. 14 But this allegation was denied by
Hahn 15 and therefore the Court of Appeals should
not have cited it as if it were the fact.
Indeed this is not the only factual issue raised,
which should have indicated to the Court of
Appeals the necessity of affirming the trial court's
order deferring resolution of BMW's motion to
dismiss. Petitioner alleged that whether or not he is
considered an agent of BMW, the fact is that BMW
did business in the Philippines because it sold cars
directly to Philippine buyers. 16 This was denied by
BMW, which claimed that Hahn was not its agent
and that, while it was true that it had sold cars to
Philippine buyers, this was done without solicitation
on its part. 17
It is not true then that the question whether BMW
is doing business could have been resolved simply
by considering the parties' pleadings. There are
genuine issues of facts which can only be
determined on the basis of evidence duly
presented. BMW cannot short circuit the process on
the plea that to compel it to go to trial would be to
deny its right not to submit to the jurisdiction of
the trial court which precisely it denies. Rule 16, 3
authorizes courts to defer the resolution of a
motion to dismiss until after the trial if the ground
on which the motion is based does not appear to
be indubitable. Here the record of the case bristles

Far from committing an abuse of discretion, the

trial court properly deferred resolution of the
motion to dismiss and thus avoided prematurely
deciding a question which requires a factual basis,
with the same result if it had denied the motion
and conditionally assumed jurisdiction. It is the
Court of Appeals which, by ruling that BMW is not
doing business on the basis merely of uncertain
allegations in the pleadings, disposed of the whole
case with finality and thereby deprived petitioner
of his right to be heard on his cause of action. Nor
was there justification for nullifying the writ of
preliminary injunction issued by the trial court.

15

Although the injunction was issued ex parte, the

fact is that BMW was subsequently heard on its
defense by filing a motion to dismiss.

Quantity Unit Particulars Amount

10,000 yds Ashtone Acetate & Rayon-No.
13472
Width: 41/42 inches; Weight:
Approximately 8 oz. per yd; Ten (10)
colors, buyers choice, as per attached
samples, equally assorted; at $1.13
per yard F.A.S. New York U. S. $11,500.00
Item herein sold are FOB-FAS X C. & F
CIF

WHEREFORE, the decision of the Court of Appeals

is REVERSED and the case is REMANDED to the
trial court for further proceedings.
G.R. No. L-7144

May 31, 1955

FAR EASTERN EXPORT & IMPORT

CO., petitioner,
vs.
LIM TECK SUAN, respondent.

==========================
==========================
==
TERMS AND CONDITIONS

Juan Nabong and Crisolito Pascual for petitioner.

Jose P. Laurel, Marciano Almario and Jose T. Lojom
for respondent.

Acceptance
This Buyer's Order is subject to
confirmation by the exporter. Shipment

MONTEMAYOR, J.:
This is a petition for certiorari to review a decision
of the Court of Appeals dated September 25, 1953,
reversing the decision of the Court of First Instance
of Manila, and sentencing the defendant-petitioner
Far Eastern Export & Import Co. later referred to as
export company, to pay the plaintiff-respondent
Lim Teck Suan later to be referred to as Suan, the
sum of P11,4476.60, with legal interest from the
date of the filing of the complaint and to pay the
costs.

Period of Shipment is to be within

December. Bank Documents should be for
a line of 45 days to allow for presentation
and payment against "ON BOARD" bills of
lading. Partial shipments permitted.
Payment
Payment will be by "Confirmed Irrevocable
Letter of Credit" to be opened in favor of
Frenkel International Corporation, 52
Broadway, New York, 4, N. Y. for the full
amount of the above cost of merchandise
plus (approximately) for export packing:
insurance, freight, documentation,
forwarding, etc. which are for the buyers
accounts, IMMEDIATELY upon written
Confirmation. Our Guarantee In case
shipment is not affected, seller agrees to
reimburse buyer for all banking expenses.
Confirmed Accepted

As to the facts and the issue in the case we are

reproducing the findings of the Court of Appeals,
which findings are binding on this Tribunal in case
of similar appeals:
Sometime in November, 1948, Ignacio
Delizalde, an agent of the Far Eastern
Export & Import Company, went to the
store of Lim Teck Suan situated at 267 San
Vicente Street, Manila, and offered to sell
textile, showing samples thereof, and
having arrived at an agreement with
Bernardo Lim, the General Manager of Lim
Teck Suan, Delizalde returned on November
17 with the buyer's order, Exhibit A,
already prepared which reads:

Signed Nov. 17, 1948

Authorized official
Confirmed

FAR EASTERN EXPORT & IMPORT COMPANY

Accepted (Sgd.) Illegible Date Nov. 1948 to

be signed by our representative upon
confirmation.

75 Escolta 2nd Floor Brias Roxas Bldg.,

Manila
Ship to LIM TECK SUAN Date Written
11/17/48
475 Nueva St., Manila Your No.
Our No. 276

In accordance with said Exhibit A, plaintiff

established a letter of credit No. 6390
(Exhibit B) in favor of Frenkel International
Corporation through the Hongkong and
Shanghai Bangking Corporation, attached
to the agreed statement of facts. On
February 11, 1949, the textile arrived at
Manila on board the vessel M. S. Arnold
Maersk, covered by bill of lading No. 125
(Exhibit C), Invoice No. 1684-M (Exhibit D)
issued by Frenkel International Corporation
direct to the plaintiff. The plaintiff
complained to the defendant of the inferior
quality of the textile received by him and

I hereby commission you to procure for me

the following merchandise, subject to the
terms and conditions listed below:
==========================
==========================
==

16

had them examined by Marine Surveyor

Del Pan & Company. Said surveyor took
swatches of the textile and had the same
analyzed by the Institute of Science
(Exhibit E-1) and submitted a report or
survey under date of April 9, 1949 (Exhibit
E). Upon instructions of the defendants
plaintiff deposited the goods with the
United Warehouse Corporation (Exhibits H,
H-1 to H-6. As per suggestion of the Far
Eastern Export and Import Company
contained in its letter dated June 16, 1949,
plaintiff withdrew from the United Bonded
Warehouse, Port Area, Manila, the fifteen
cases of Ashtone Acetate and Rayon
Suiting for the purpose of offering them for
sale which netted P11,907.30. Deducting
this amount from the sum of P23,686.96
which included the amount paid by plaintiff
for said textile and the warehouse
expenses, a difference of P11,476.66 is left,
representing the net direct loss.

company by its principal office in America.

Acting upon this offer and representative
Velasco went to the Universal Trading Co.,
Inc., and after a conversation with the
latter's official entered into an agreement
couched in the following terms:
"Agreement is hereby made between
Messrs. Jose Velasco, Jr., 340 Echaque,
Manila, and the Universal Trading
Company, Manila, for order as follows and
under the following terms:
Quantity Merchan
dise and Unit Unit Amount
Price
Description
100 Panamanian Agewood Bourbon
Whisky ..........................Case $17.00
$1,700
_______
Total amount of order ........... $1,700

The defense set up is that the Far Eastern

Export and Import Company only acted as
a broker in this transaction; that after
placing the order the defendants took no
further action and the cargo was taken
directly by the buyer Lim Teck Suan, the
shipment having been made to him and all
the documents were also handled by him
directly without any intervention on the
part of the defendants; that upon receipt of
Lim Teck Suan's complaint the defendants
passed it to its principal, Frenkel
International Corporation, for comment,
and the latter maintained that the
merchandise was up to standard called for.

Terms of Agreement:
"1. That the Universal Trading Company
agrees to order the above merchandise
from their Los Angeles Office at the price
quoted above, C.I.F. Manila, for December
shipment;
"2. That Messrs. Jose Velasco, Jr., 340
Echaque, Manila, obligates
myself/themselves to take the above
merchandise when advised of its arrival
from the United States and to pay in cash
the full amount of the order in the
Philippine Currency at the office of the
Universal Trading Company;

The lower court acquitted the defendants

from the complaint asking for damages in
the sum of P19,500.00 representing the
difference in price between the textile
ordered and those received, plus profits
unrealized and the cost of this suit, and
dismissed the counterclaim filed by the
defendants without pronouncement as to
costs.

"3. This order may be subject to delay

because of uncertain shipping conditions.
War risk insurance, transhipping charges, if
any, port charges, and any storage that
may be incurred due to your not taking
delivery of the order upon being notified by
us that the order is ready for delivery, and
government taxes, are all for your account;

As already stated, the Court of Appeals reversed

the judgment entered by the Court of First Instance
of Manila, basing its decision of reversal on the
case of Jose Velasco, vs. Universal Trading Co., Inc.,
45 Off. Gaz. 4504 where the transaction therein
involved was found by the court to be one of
purchase and sale and not of brokerage or agency.
We have carefully examined the Velasco case and
we agree with the Court of Appeals that the facts in
that case are very similar to those in the present
case. In the case of Velasco, we have the following
statement by the court itself which we reproduced
below:

"4. The terms of this agreement will be

either of the following:
"a. To open up irrevocable letter of credit
for the value of the order with any of the
local banks, or thru bills of lading payable
to A. J. Wilson Company, 1263 South North
Avenue, Los Angeles, California;
"b. To put up a cash deposit equivalent to
50 % of the order;
"5. Reasonable substitute, whenever
possible, will be shipped in lieu of items
called for, if order is not available."

Prior to November 8, 1945 a salesman or

agent of the Universal Trading Co., Inc.
informed Jose Velasco, Jr. that his company
was in a position to accept and fill in orders
for Panamanian Agewood Bourbon Whisky
because there were several thousand cases
of this article ready for shipment to the

Accordingly, Velasco deposited with the

defendant the sum of $1,700 which is 50%
of the price of the whisky pursuant to
agreement made, instead of 'to open up
irrevocable letter of credit for the value of
the order with any of the local banks, or

17

through bills of lading payable to A. J.

Wilson Company.' On November 6, 1945,
the same date that the contract or
agreement, Exhibit A, was signed an
invoice under the name of the Universal
Trading Co., Inc. was issued to Velasco for
the 100 cases of Panamanian Agewood
Bourbon Whisky for the price of $1,700
which invoice manifested that the article
was sold to Jose Velasco, Jr. On January 15,
1946 another invoice was issued
containing besides the list price of $1,700
or P3,400, a statement of bank charges,
customs duties, internal revenue taxes,
etc., giving a total amount of P5,690.10
which after deducting the deposit of
$1,700, gives a balance of P3,990.01.

protested its poor quality and it was deposited in

the warehouse and later withdrawn and sold for the
best price possible, all at the suggestion of the
Export company. The present case is in our opinion
a stronger one than that of Velasco for holding the
transaction as one of purchase and sale because as
may be noticed from the agreement (Exhibit "A"),
the same speaks of the items (merchandise)
therein involved as sold, and the sale was even
confirmed by the Export company. In both cases,
the agents Universal Trading Co. and the export
company dealt directly with the local merchants
Velasco and Suan without expressly indicating or
revealing their principals. In both cases there was
no privity of contract between the buyers Suan
and Velasco and the suppliers Frenkel International
Corporation and A. J. Wilson Company, respectively.
In both cases no commission or monetary
consideration was paid or agreed to be paid by the
buyers to the Export company and the Universal
Trading Co., proof that there was no agency or
brokerage, and that the profit of the latter was
undoubtedly the difference between the price
listed to the buyers and the net or special price
quoted to the sellers, by the suppliers. As already
stated, it was held in the Velasco case that the
transaction therein entered into was one of
purchase and sale, and for the same reasons given
there, we agreed with the Court of Appeals that the
transaction entered into here is one of purchase
and sale.

On January 25, 1946 the Universal Trading

Co., Inc. wrote Exhibit 4 to Mr. Velasco
advising him that the S. S. Manoeran had
docked and that they would appreciate it if
he would pay the amount of P3,990.10
direct to them. It turned out, however, that
after the ship arrived, what the Universal
Trading Co., Inc. tried to deliver to Velasco
was not Panamanian Agewood Bourbon
Whisky but Panamanian Agewood Blended
Whisky. Velasco refused to receive the
shipment and in turn filed action against
the defendant for the return of his deposit
of $ 1,700 with interest. For its defense,
defendant contends that it merely acted as
agent for Velasco and could not be held
responsible for the substitution of Blended
Whisky for Bourbon Whisky and that
furthermore the Blended Whisky was a
reasonable substitute for Bourbon. After
due hearing the Court of First Instance of
Manila held that the transaction was
purchase and sale and ordered the
defendant to refund to the plaintiff his
deposit of P1,700 with legal interest from
the date of the filing of the suit with costs,
which decision on appeal was affirmed by
this Court.

As was held by this Tribunal in the case of Gonzalo

Puyat & Sons Incorporated vs. Arco Amusement, 72
Phil., 402, where a foreign company has an agent
here selling its goods and merchandise, that same
agent could not very well act as agent for local
buyers, because the interests of his foreign
principal and those of the buyer would be in direct
conflict. He could not serve two masters at the
same time. In the present case, the Export
company being an agent of the Frenkel
International Corporation could not, as it claims,
have acted as an agent or broker for Suan.
Finding no reversible error in the decision appealed
from, the same is hereby affirmed, with costs.

We notice the following similarities. In the present

case, the export company acted as agent for
Frenkel International Corporation, presumably the
supplier of the textile sold. In the Velasco case, the
Universal Trading Co., was acting as agent for A. J.
Wilson Company, also the supplier of the whisky
sold. In the present case, Suan according to the
first part of the agreement is said merely to be
commissioning the Export Company to procure for
him the merchandise in question, just as in the
other case, Velasco was supposed to be ordering
the whisky thru the Universal Trading Co. In the
present case, the price of the merchandise bought
was paid for by Suan by means of an irrevocable
letter of credit opened in favor of the supplier,
Frenkel International Corporation. In the Velasco
case, Velasco was given the choice of either
opening a similar irrevocable letter of credit in
favor of the supplier A. J. Wilson Company or
making a cash deposit. It is true that in the Velasco
case, upon the arrival of the whisky and because it
did not conform to specifications, Velasco refused
to received it; but in the present case although
Suan received the merchandise he immediately

G.R. No. L-8169

January 29, 1957

THE SHELL COMPANY OF THE PHILIPPINES,

LTD., petitioner,
vs.
FIREMEN'S INSURANCE COMPANY OF
NEWARK, NEW JERSEY COMMERCIAL
CASUALTY INSURANCE CO., SALVADOR SISON,
PORFIRIO DE LA FUENTE and THE COURT OF
APPEALS (First Division),respondents.
Ross, Selph, Carrascoso & Janda for petitioner.
J. A. Wolfson and Manuel Y. Macias for respondents.
PADILLA, J.:
Appeal by certiorari under Rule 46 to review a
judgment of the Court of Appeals which reversed
that of the Court of First Instance of Manila and
sentenced ". . . the defendants-appellees to pay,
jointly and severally, the plaintiffs-appellants the

18

sum of P1,651.38, with legal interest from

December 6, 1947 (Gutierrez vs. Gutierrez, 56 Phil.,
177, 180), and the costs in both instances."

The case was immediately reported to the Manila

Adjustor Company, the adjustor of the firemen's
Insurance Company and the Commercial Casualty
Insurance Company, as the car was insured with
these insurance companies. After having been
inspected by one Mr. Baylon, representative of the
Manila Adjustor Company, the damaged car was
taken to the shops of the Philippine Motors,
Incorporated, for repair upon order of the Firemen's
Insurance Company and the Commercial Casualty
Company, with the consent of Salvador R. Sison.
The car was restored to running condition after
repairs amounting to P1,651.38, and was delivered
to Salvador R. Sison, who, in turn made
assignments of his rights to recover damages in
favor of the Firemen's Insurance Company and the
Commercial Casualty Insurance Company.

The Court of Appeals found the following:

Inasmuch as both the Plaintiffs-Appellants
and the Defendant-Appellee, the Shell
Company of the Philippine Islands, Ltd.
accept the statement of facts made by the
trial court in its decision and appearing on
pages 23 to 37 of the Record on Appeal, we
quote hereunder such statement:
This is an action for recovery of sum of
money, based on alleged negligence of the
defendants.

On the other hand, the fall of the car from

the hydraulic lifter has been explained by
Alfonso M. Adriano, a greaseman in the
Shell Gasoline and Service Station, as
follows:

It is a fact that a Plymounth car owned by

Salvador R. Sison was brought, on
September 3, 1947 to the Shell Gasoline
and Service Station, located at the corner
of Marques de Comillas and Isaac Peral
Streets, Manila, for washing, greasing and
spraying. The operator of the station,
having agreed to do service upon payment
of P8.00, the car was placed on a hydraulic
lifter under the direction of the personnel
of the station.

Q. Were you able to lift the car on

the hydraulic lifter on the occasion,
September 3, 1947?
A. Yes, sir.
Q. To what height did you raise
more or less?

What happened to the car is recounted by

Perlito Sison, as follows:

A. More or less five feet, sir.

Q. Will you please describe how

they proceeded to do the work?

Q. After lifting that car that height,

what did you do with the car?

A. Yes, sir. The first thing that was

done, as I saw, was to drive the car
over the lifter. Then by the aid of
the two grease men they raised up
my car up to six feet high, and then
washing was done. After washing,
the next step was greasing. Before
greasing was finished, there is a
part near the shelf of the right
fender, right front fender, of my car
to be greased, but the the grease
men cannot reached that part, so
the next thing to be done was to
loosen the lifter just a few feet
lower. Then upon releasing the
valve to make the car lower, a little
bit lower . . .

A. I also washed it, sir.

Q. And after washing?
A. I greased it.
Q. On that occasion, have you been
able to finish greasing and washing
the car?
A. There is one point which I could
not reach.
Q. And what did you do then?

Q. Who released the valve?

A. I lowered the lifter in order to

reach that point.

A. The greasemen, for the escape

of the air. As the escape of the air
is too strong for my ear I faced
backward. I faced toward Isaac
Peral Street, and covered my ear.
After the escaped of the air has
been finished, the air coming out
from the valve, I turned to face the
car and I saw the car swaying at
that time, and just for a few second
the car fell., (t.s.n. pp. 22-23.)

Q. After lowering it a little, what did

you do then?
A. I pushed and pressed the valve
in its gradual pressure.
Q. Were you able to reach the
portion which you were not able to
reach while it was lower?

19

A. No more, sir.

The defendant Porfirio de la Fuente denied

negligence in the operation of the lifter in
his separate answer and contended further
that the accidental fall of the car was
caused by unforseen event (Record on
Appeal, pp. 17-19).

Q. Why?
A. Because when I was lowering the
lifter I saw that the car was
swinging and it fell.

The owner of the car forthwith notified the insurers

who ordered their adjustor, the Manila Adjustor
Company, to investigate the incident and after
such investigation the damaged car, upon order of
the insures and with the consent of the owner, was
brought to the shop of the Philippine Motors, Inc.
The car was restored to running condition after
thereon which amounted to P1,651.38 and
returned to the owner who assigned his right to
collect the aforesaid amount to the Firemen's
Insurance Company and the Commercial Casualty
Insurance Company.

THE COURT. Why did the car swing and fall?

WITNESS: 'That is what I do not know, sir'.
(t.s.n., p.67.)
The position of Defendant Porfirio de la Fuente is
stated in his counter-statement of facts which is
hereunder also reproduced:
In the afternoon of September 3, 1947, an
automobile belonging to the plaintiff
Salvador Sison was brought by his son,
Perlito Sison, to the gasoline and service
station at the corner of Marques de
Comillas and Isaac Peral Streets, City of
Manila, Philippines, owned by the
defendant The Shell Company of the
Philippine Islands, Limited, but operated by
the defendant Porfirio de la Fuente, for the
purpose of having said car washed and
greased for a consideration of P8.00 (t.s.n.,
pp. 19-20.) Said car was insured against
loss or damage by Firemen's Insurance
Company of Newark, New Jersey, and
Commercial Casualty Insurance Company
jointly for the sum of P10,000 (Exhibits "A',
"B", and "D").

On 6 December 1947 the insures and the owner of

the car brought an action in the Court of First
Instance of Manila against the Shell Company of
the Philippines, Ltd. and Porfirio de la Fuente to
recover from them, jointly and severally, the sum
of P1,651.38, interest thereon at the legal rate
from the filing of the complaint until fully paid, the
costs. After trial the Court dismissed the complaint.
The plaintiffs appealed. The Court of Appeals
reversed the judgment and sentenced the
defendant to pay the amount sought to be
recovered, legal interest and costs, as stated at the
beginning of this opinion.
In arriving at the conclusion that on 3 September
1947 when the car was brought to the station for
servicing Profirio de la Fuente, the operator of the
gasoline and service station, was an agent of the
Shell Company of the Philippines, Ltd., the Court of
Appeals found that

The job of washing and greasing was

undertaken by defendant Porfirio de la
Fuente through his two employees, Alfonso
M. Adriano, as greaseman and one
surnamed de los Reyes, a helper and
washer (t.s.n., pp. 65-67). To perform the
job the car was carefully and centrally
placed on the platform of the lifter in the
gasoline and service station
aforementioned before raising up said
platform to a height of about 5 feet and
then the servicing job was started. After
more than one hour of washing and
greasing, the job was about to be
completed except for an ungreased portion
underneath the vehicle which could not be
reached by the greasemen. So, the lifter
was lowered a little by Alfonso M. Adriano
and while doing so, the car for unknown
reason accidentally fell and suffered
damage to the value of P1, 651.38 (t.s.n.,
pp. 65-67).

. . . De la Fuente owned his position to the

Shell Company which could remove him
terminate his services at any time from the
said Company, and he undertook to sell the
Shell Company's products exculusively at
the said Station. For this purpose, De la
Fuente was placed in possession of the
gasoline and service station under
consideration, and was provided with all
the equipments needed to operate it, by
the said Company, such as the tools and
articles listed on Exhibit 2 which the
hydraulic lifter (hoist) and accessories,
from which Sison's automobile fell on the
date in question (Exhibit 1 and 2). These
equipments were delivered to De la Fuente
on a so-called loan basis. The Shell
Company took charge of its care and
maintenance and rendered to the public or
its customers at that station for the proper
functioning of the equipment. Witness
Antonio Tiongson, who was sales
superintendent of the Shell Company, and
witness Augusto Sawyer, foreman of the
same Company, supervised the operators
and conducted periodic inspection of the
Company's gasoline and service station,
the service station in question inclusive.
Explaining his duties and responsibilities

The insurance companies after paying the

sum of P1,651.38 for the damage and
charging the balance of P100.00 to
Salvador Sison in accordance with the
terms of the insurance contract, have filed
this action together with said Salvador
Sison for the recovery of the total amount
of the damage from the defendants on the
ground of negligence (Record on Appeal,
pp. 1-6).

20

and the reason for the loan, Tiongson said:

"mainly of the supervision of sales or (of)
our dealers and rountinary inspection of
the equipment loaned by the Company"
(t.s.n., 107); "we merely inquire about how
the equipments are, whether they have
complaints, and whether if said
equipments are in proper order . . .", (t.s.n.,
110); station equipments are "loaned for
the exclusive use of the dealer on condition
that all supplies to be sold by said dealer
should be exclusively Shell, so as a
concession we loan equipments for their
use . . .," "for the proper functioning of the
equipments, we answer and see to it that
the equipments are in good running order
usable condition . . .," "with respect to the
public." (t.s.n., 111-112). De la Fuente, as
operator, was given special prices by the
Company for the gasoline products sold
therein. Exhibit 1 Shell, which was a
receipt by Antonio Tiongson and signed by
the De la Fuente, acknowledging the
delivery of equipments of the gasoline and
service station in question was
subsequently replaced by Exhibit 2
Shell, an official from of the inventory of
the equipment which De la Fuente signed
above the words: "Agent's signature" And
the service station in question had been
marked "SHELL", and all advertisements
therein bore the same sign. . . .

To determine the nature of a contract courts do not

have or are not bound to rely upon the name or
title given it by the contracting parties, should
there be a controversy as to what they really had
intended to enter into, but the way the contracting
parties do or perform their respective obligation
stipulated or agreed upon may be shown and
inquired into, and should such performance conflict
with the name or title given the contract by the
parties, the former must prevail over the latter.
It was admitted by the operator of the gasoline and
service station that "the car was carefully and
centrally placed on the platform of the lifter . . ."
and the Court of Appeals found that
. . . the fall of Appellant Sison's car from
the hydraulic lift and the damage caused
therefor, were the result of the jerking and
swaying of the lift when the valve was
released, and that the jerking was due to
some accident and unforeseen
shortcoming of the mechanism itself, which
caused its faulty or defective operation or
functioning,
. . . the servicing job on Appellant Sison's
automobile was accepted by De la Fuente
in the normal and ordinary conduct of his
business as operator of his co-appellee's
service station, and that the jerking and
swaying of the hydraulic lift which caused
the fall of the subject car were due to its
defective condition, resulting in its faulty
operation. . . .

. . . De la Fuente was the operator of the

station "by grace" of the Defendant
Company which could and did remove him
as it pleased; that all the equipments
needed to operate the station was owned
by the Defendant Company which took
charge of their proper care and
maintenance, despite the fact that they
were loaned to him; that the Defendant
company did not leave the fixing of price
for gasoline to De la Fuente; on the other
hand, the Defendant company had
complete control thereof; and that
Tiongson, the sales representative of the
Defendant Company, had supervision over
De la Fuente in the operation of the station,
and in the sale of Defendant Company's
products therein. . . .

As the act of the agent or his employees acting

within the scope of his authority is the act of the
principal, the breach of the undertaking by the
agent is one for which the principal is answerable.
Moreover, the company undertook to "answer and
see to it that the equipments are in good running
order and usable condition;" and the Court of
Appeals found that the Company's mechanic failed
to make a thorough check up of the hydraulic lifter
and the check up made by its mechanic was
"merely routine" by raising "the lifter once or twice
and after observing that the operator was
satisfactory, he (the mechanic) left the place." The
latter was negligent and the company must answer
for the negligent act of its mechanic which was the
cause of the fall of the car from the hydraulic lifter.

Taking into consideration the fact that the operator

owed his position to the company and the latter
could remove him or terminate his services at will;
that the service station belonged to the company
and bore its tradename and the operator sold only
the products of the company; that the equipment
used by the operator belonged to the company and
were just loaned to the operator and the company
took charge of their repair and maintenance; that
an employee of the company supervised the
operator and conducted periodic inspection of the
company's gasoline and service station; that the
price of the products sold by the operator was fixed
by the company and not by the operator; and that
the receipt signed by the operator indicated that
he was a mere agent, the finding of the Court of
Appeals that the operator was an agent of the
company and not an independent contractor
should not be disturbed.

The judgment under review is affirmed, with costs

against the petitioner.
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O.
SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD
SERVICE, INC., ELISEO S.CANILAO, and
SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:

21

The petitioners invoke the provisions on human

relations of the Civil Code in this appeal by
certiorari. The facts are beyond dispute:

on June 4, 1962 to protect the

interests of the Tourist World
Service. When neither the
appellant Lina Sevilla nor any of
her employees could enter the
locked premises, a complaint wall
filed by the herein appellants
against the appellees with a prayer
for the issuance of mandatory
preliminary injunction. Both
appellees answered with
counterclaims. For apparent lack of
interest of the parties therein, the
trial court ordered the dismissal of
the case without prejudice.

xxx xxx xxx

On the strength of a contract
(Exhibit A for the appellant Exhibit
2 for the appellees) entered into on
Oct. 19, 1960 by and between Mrs.
Segundina Noguera, party of the
first part; the Tourist World Service,
Inc., represented by Mr. Eliseo
Canilao as party of the second part,
and hereinafter referred to as
appellants, the Tourist World
Service, Inc. leased the premises
belonging to the party of the first
part at Mabini St., Manila for the
former-s use as a branch office. In
the said contract the party of the
third part held herself solidarily
liable with the party of the part for
the prompt payment of the
monthly rental agreed on. When
the branch office was opened, the
same was run by the herein
appellant Una 0. Sevilla payable to
Tourist World Service Inc. by any
airline for any fare brought in on
the efforts of Mrs. Lina Sevilla, 4%
was to go to Lina Sevilla and 3%
was to be withheld by the Tourist
World Service, Inc.

The appellee Segundina Noguera

sought reconsideration of the order
dismissing her counterclaim which
the court a quo, in an order dated
June 8, 1963, granted permitting
her to present evidence in support
of her counterclaim.
On June 17,1963, appellant Lina
Sevilla refiled her case against the
herein appellees and after the
issues were joined, the reinstated
counterclaim of Segundina
Noguera and the new complaint of
appellant Lina Sevilla were jointly
heard following which the court a
quo ordered both cases dismiss for
lack of merit, on the basis of which
was elevated the instant appeal on
the following assignment of errors:

On or about November 24, 1961

(Exhibit 16) the Tourist World
Service, Inc. appears to have been
informed that Lina Sevilla was
connected with a rival firm, the
Philippine Travel Bureau, and, since
the branch office was anyhow
losing, the Tourist World Service
considered closing down its office.
This was firmed up by two
resolutions of the board of directors
of Tourist World Service, Inc. dated
Dec. 2, 1961 (Exhibits 12 and 13),
the first abolishing the office of the
manager and vice-president of the
Tourist World Service, Inc., Ermita
Branch, and the second,authorizing
the corporate secretary to receive
the properties of the Tourist World
Service then located at the said
branch office. It further appears
that on Jan. 3, 1962, the contract
with the appellees for the use of
the Branch Office premises was
terminated and while the effectivity
thereof was Jan. 31, 1962, the
appellees no longer used it. As a
matter of fact appellants used it
since Nov. 1961. Because of this,
and to comply with the mandate of
the Tourist World Service, the
corporate secretary Gabino Canilao
went over to the branch office, and,
finding the premises locked, and,
being unable to contact Lina
Sevilla, he padlocked the premises

I. THE LOWER COURT ERRED EVEN

IN APPRECIATING THE NATURE OF
PLAINTIFF-APPELLANT MRS. LINA O.
SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN
HOLDING THAT APPELLANT MRS.
LINA 0. SEVILA'S ARRANGEMENT
(WITH APPELLEE TOURIST WORLD
SERVICE, INC.) WAS ONE MERELY
OF EMPLOYER-EMPLOYEE RELATION
AND IN FAILING TO HOLD THAT THE
SAID ARRANGEMENT WAS ONE OF
JOINT BUSINESS VENTURE.
III. THE LOWER COURT ERRED IN
RULING THAT PLAINTIFFAPPELLANT MRS. LINA O. SEVILLA
IS ESTOPPED FROM DENYING THAT
SHE WAS A MERE EMPLOYEE OF
DEFENDANT-APPELLEE TOURIST
WORLD SERVICE, INC. EVEN AS
AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN
NOT HOLDING THAT APPELLEES
HAD NO RIGHT TO EVICT
APPELLANT MRS. LINA O. SEVILLA
FROM THE A. MABINI OFFICE BY
TAKING THE LAW INTO THEIR OWN
HANDS.

22

V. THE LOWER COURT ERRED IN

NOT CONSIDERING AT .ALL
APPELLEE NOGUERA'S
RESPONSIBILITY FOR APPELLANT
LINA O. SEVILLA'S FORCIBLE
DISPOSSESSION OF THE A. MABINI
PREMISES.

circle (pp. 3-6 tsn.

February 16,1965).
2. Appellant Mrs.
Sevilla was
signatory to a lease
agreement dated
19 October 1960
(Exh. 'A') covering
the premises at A.
Mabini St., she
expressly
warranting and
holding [sic] herself
'solidarily' liable
with appellee
Tourist World
Service, Inc. for the
prompt payment of
the monthly rentals
thereof to other
appellee Mrs.
Noguera (pp. 1415, tsn. Jan.
18,1964).

VI. THE LOWER COURT ERRED IN

FINDING THAT APPELLANT
APPELLANT MRS. LINA O. SEVILLA
SIGNED MERELY AS GUARANTOR
FOR RENTALS.
On the foregoing facts and in the light of the errors
asigned the issues to be resolved are:
1. Whether the appellee Tourist
World Service unilaterally disco the
telephone line at the branch office
on Ermita;
2. Whether or not the padlocking of
the office by the Tourist World
Service was actionable or not; and

3. Appellant Mrs.
Sevilla did not
receive any salary
from appellee
Tourist World
Service, Inc., which
had its own,
separate office
located at the
Trade & Commerce
Building; nor was
she an employee
thereof, having no
participation in nor
connection with
said business at
the Trade &
Commerce Building
(pp. 16-18 tsn Id.).

3. Whether or not the lessee to the

office premises belonging to the
appellee Noguera was appellees
TWS or TWS and the appellant.
In this appeal, appealant Lina
Sevilla claims that a joint bussiness
venture was entered into by and
between her and appellee TWS
with offices at the Ermita branch
office and that she was not an
employee of the TWS to the end
that her relationship with TWS was
one of a joint business venture
appellant made declarations
showing:
1. Appellant Mrs.
Lina 0. Sevilla, a
prominent figure
and wife of an
eminent eye, ear
and nose specialist
as well as a
imediately
columnist had been
in the travel
business prior to
the establishment
of the joint
business venture
with appellee
Tourist World
Service, Inc. and
appellee Eliseo
Canilao, her
compadre, she
being the
godmother of one
of his children, with
her own clientele,
coming mostly
from her own social

4. Appellant Mrs.
Sevilla earned
commissions for
her own
passengers, her
own bookings her
own business (and
not for any of the
business of
appellee Tourist
World Service, Inc.)
obtained from the
airline companies.
She shared the 7%
commissions given
by the airline
companies giving
appellee Tourist
World Service, Lic.
3% thereof aid
retaining 4% for
herself (pp. 18
tsn. Id.)

23

5. Appellant Mrs.
Sevilla likewise
shared in the
expenses of
maintaining the A.
Mabini St. office,
paying for the
salary of an office
secretary, Miss
Obieta, and other
sundry expenses,
aside from desicion
the office furniture
and supplying
some of fice
furnishings (pp.
15,18 tsn. April
6,1965), appellee
Tourist World
Service, Inc.
shouldering the
rental and other
expenses in
consideration for
the 3% split in the
co procured by
appellant Mrs.
Sevilla (p. 35 tsn
Feb. 16,1965).

respondent Court of Appeal

affirmance.

6. It was the
understanding
between them that
appellant Mrs.
Sevilla would be
given the title of
branch manager for
appearance's sake
only (p. 31 tsn. Id.),
appellee Eliseo
Canilao admit that
it was just a title for
dignity (p. 36 tsn.
June 18, 1965testimony of
appellee Eliseo
Canilao pp. 38-39
tsn April 61965testimony of
corporate secretary
Gabino Canilao (pp2-5, Appellants'
Reply Brief)

II

rendered an

The petitioners now claim that the respondent

Court, in sustaining the lower court, erred.
Specifically, they state:
I
THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW AND GRAVELY ABUSED ITS DISCRETION IN
HOLDING THAT "THE PADLOCKING OF THE
PREMISES BY TOURIST WORLD SERVICE INC.
WITHOUT THE KNOWLEDGE AND CONSENT OF THE
APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING
MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES
AND WITHOUT INFORMING COUNSEL FOR THE
APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE
THE PADLOCKING INCIDENT, WAS IN CONFERENCE
WITH THE CORPORATE SECRETARY OF TOURIST
WORLD SERVICE (ADMITTEDLY THE PERSON WHO
PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP
AMICABLY SETTLE THE CONTROVERSY BETWEEN
THE APPELLANT (SEVILLA) AND THE TOURIST
WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER
TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8
AND ANNEX "B" P. 2) DECISION AGAINST DUE
PROCESS WHICH ADHERES TO THE RULE OF LAW.

THE COURT OF APPEALS ERRED ON A QUESTION OF

LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING APPELLANT SEVILLA RELIEF BECAUSE
SHE HAD "OFFERED TO WITHDRAW HER COMP
PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS
LODGED BY BOTH APPELLEES WERE WITHDRAWN."
(ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING-IN FACT NOT PASSING AND RESOLVINGAPPELLANT SEVILLAS CAUSE OF ACTION FOUNDED
ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE
ON RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING APPEAL APPELLANT SEVILLA RELIEF YET
NOT RESOLVING HER CLAIM THAT SHE WAS IN
JOINT VENTURE WITH TOURIST WORLD SERVICE
INC. OR AT LEAST ITS AGENT COUPLED WITH AN
INTEREST WHICH COULD NOT BE TERMINATED OR
REVOKED UNILATERALLY BY TOURIST WORLD
SERVICE INC. 6

Upon the other hand, appellee TWS

contend that the appellant was an
employee of the appellee Tourist
World Service, Inc. and as such was
designated manager. 1
xxx xxx xxx
The trial court 2 held for the private respondent on
the premise that the private respondent, Tourist
World Service, Inc., being the true lessee, it was
within its prerogative to terminate the lease and
padlock the premises. 3 It likewise found the
petitioner, Lina Sevilla, to be a mere employee of
said Tourist World Service, Inc. and as such, she
was bound by the acts of her employer. 4 The

As a preliminary inquiry, the Court is asked to

declare the true nature of the relation between
Lina Sevilla and Tourist World Service, Inc. The
respondent Court of see fit to rule on the question,
the crucial issue, in its opinion being "whether or
not the padlocking of the premises by the Tourist
World Service, Inc. without the knowledge and
consent of the appellant Lina Sevilla entitled the

24

latter to the relief of damages prayed for and

whether or not the evidence for the said appellant
supports the contention that the appellee Tourist
World Service, Inc. unilaterally and without the
consent of the appellant disconnected the
telephone lines of the Ermita branch office of the
appellee Tourist World Service, Inc. 7 Tourist World
Service, Inc., insists, on the other hand, that Lina
SEVILLA was a mere employee, being "branch
manager" of its Ermita "branch" office and that
inferentially, she had no say on the lease executed
with the private respondent, Segundina Noguera.
The petitioners contend, however, that relation
between the between parties was one of joint
venture, but concede that "whatever might have
been the true relationship between Sevilla and
Tourist World Service," the Rule of Law enjoined
Tourist World Service and Canilao from taking the
law into their own hands, 8 in reference to the
padlocking now questioned.

cannot be said that Sevilla was under the control of

Tourist World Service, Inc. "as to the means used."
Sevilla in pursuing the business, obviously relied on
her own gifts and capabilities.
It is further admitted that Sevilla was not in the
company's payroll. For her efforts, she retained 4%
in commissions from airline bookings, the
remaining 3% going to Tourist World. Unlike an
employee then, who earns a fixed salary usually,
she earned compensation in fluctuating amounts
depending on her booking successes.
The fact that Sevilla had been designated 'branch
manager" does not make her, ergo, Tourist World's
employee. As we said, employment is determined
by the right-of-control test and certain economic
parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments
however, we are not, as a consequence, accepting
Lina Sevilla's own, that is, that the parties had
embarked on a joint venture or otherwise, a
partnership. And apparently, Sevilla herself did not
recognize the existence of such a relation. In her
letter of November 28, 1961, she expressly
'concedes your [Tourist World Service, Inc.'s] right
to stop the operation of your branch office 14 in
effect, accepting Tourist World Service, Inc.'s
control over the manner in which the business was
run. A joint venture, including a partnership,
presupposes generally a of standing between the
joint co-venturers or partners, in which each party
has an equal proprietary interest in the capital or
property contributed 15 and where each party
exercises equal rights in the conduct of the
business.16 furthermore, the parties did not hold
themselves out as partners, and the building itself
was embellished with the electric sign "Tourist
World Service, Inc. 17in lieu of a distinct partnership
name.

The Court finds the resolution of the issue material,

for if, as the private respondent, Tourist World
Service, Inc., maintains, that the relation between
the parties was in the character of employer and
employee, the courts would have been without
jurisdiction to try the case, labor disputes being the
exclusive domain of the Court of Industrial
Relations, later, the Bureau Of Labor Relations,
pursuant to statutes then in force. 9
In this jurisdiction, there has been no uniform test
to determine the evidence of an employeremployee relation. In general, we have relied on
the so-called right of control test, "where the
person for whom the services are performed
reserves a right to control not only the end to be
achieved but also the means to be used in reaching
such end." 10 Subsequently, however, we have
considered, in addition to the standard of right-of
control, the existing economic conditions prevailing
between the parties, like the inclusion of the
employee in the payrolls, in determining the
existence of an employer-employee relationship. 11

It is the Court's considered opinion, that when the

petitioner, Lina Sevilla, agreed to (wo)man the
private respondent, Tourist World Service, Inc.'s
Ermita office, she must have done so pursuant to a
contract of agency. It is the essence of this contract
that the agent renders services "in representation
or on behalf of another. 18 In the case at bar, Sevilla
solicited airline fares, but she did so for and on
behalf of her principal, Tourist World Service, Inc.
As compensation, she received 4% of the proceeds
in the concept of commissions. And as we said,
Sevilla herself based on her letter of November 28,
1961, pre-assumed her principal's authority as
owner of the business undertaking. We are
convinced, considering the circumstances and from
the respondent Court's recital of facts, that the ties
had contemplated a principal agent relationship,
rather than a joint managament or a partnership..

The records will show that the petitioner, Lina

Sevilla, was not subject to control by the private
respondent Tourist World Service, Inc., either as to
the result of the enterprise or as to the means used
in connection therewith. In the first place, under
the contract of lease covering the Tourist Worlds
Ermita office, she had bound herself in solidumas
and for rental payments, an arrangement that
would be like claims of a master-servant
relationship. True the respondent Court would later
minimize her participation in the lease as one of
mere guaranty, 12 that does not make her an
employee of Tourist World, since in any case, a true
employee cannot be made to part with his own
money in pursuance of his employer's business, or
otherwise, assume any liability thereof. In that
event, the parties must be bound by some other
relation, but certainly not employment.

But unlike simple grants of a power of attorney, the

agency that we hereby declare to be compatible
with the intent of the parties, cannot be revoked at
will. The reason is that it is one coupled with an
interest, the agency having been created for
mutual interest, of the agent and the principal. 19 It
appears that Lina Sevilla is a bona fide travel agent
herself, and as such, she had acquired an interest
in the business entrusted to her. Moreover, she had

In the second place, and as found by the Appellate

Court, '[w]hen the branch office was opened, the
same was run by the herein appellant Lina O.
Sevilla payable to Tourist World Service, Inc. by any
airline for any fare brought in on the effort of Mrs.
Lina Sevilla. 13 Under these circumstances, it

25

assumed a personal obligation for the operation

thereof, holding herself solidarily liable for the
payment of rentals. She continued the business,
using her own name, after Tourist World had
stopped further operations. Her interest, obviously,
is not to the commissions she earned as a result of
her business transactions, but one that extends to
the very subject matter of the power of
management delegated to her. It is an agency that,
as we said, cannot be revoked at the pleasure of
the principal. Accordingly, the revocation
complained of should entitle the petitioner, Lina
Sevilla, to damages.

interests of the Tourist World Service. "22 It is

strange indeed that Tourist World Service, Inc. did
not find such a need when it cancelled the lease
five months earlier. While Tourist World Service,
Inc. would not pretend that it sought to locate
Sevilla to inform her of the closure, but surely, it
was aware that after office hours, she could not
have been anywhere near the premises. Capping
these series of "offensives," it cut the office's
telephone lines, paralyzing completely its business
operations, and in the process, depriving Sevilla
articipation therein.
This conduct on the part of Tourist World Service,
Inc. betrays a sinister effort to punish Sevillsa it
had perceived to be disloyalty on her part. It is
offensive, in any event, to elementary norms of
justice and fair play.

As we have stated, the respondent Court avoided

this issue, confining itself to the telephone
disconnection and padlocking incidents. Anent the
disconnection issue, it is the holding of the Court of
Appeals that there is 'no evidence showing that the
Tourist World Service, Inc. disconnected the
telephone lines at the branch office. 20Yet, what
cannot be denied is the fact that Tourist World
Service, Inc. did not take pains to have them
reconnected. Assuming, therefore, that it had no
hand in the disconnection now complained of, it
had clearly condoned it, and as owner of the
telephone lines, it must shoulder responsibility
therefor.

We rule therefore, that for its unwarranted

revocation of the contract of agency, the private
respondent, Tourist World Service, Inc., should be
sentenced to pay damages. Under the Civil Code,
moral damages may be awarded for "breaches of
contract where the defendant acted ... in bad
faith. 23
We likewise condemn Tourist World Service, Inc. to
pay further damages for the moral injury done to
Lina Sevilla from its brazen conduct subsequent to
the cancellation of the power of attorney granted
to her on the authority of Article 21 of the Civil
Code, in relation to Article 2219 (10) thereof

The Court of Appeals must likewise be held to be in

error with respect to the padlocking incident. For
the fact that Tourist World Service, Inc. was the
lessee named in the lease con-tract did not accord
it any authority to terminate that contract without
notice to its actual occupant, and to padlock the
premises in such fashion. As this Court has ruled,
the petitioner, Lina Sevilla, had acquired a personal
stake in the business itself, and necessarily, in the
equipment pertaining thereto. Furthermore, Sevilla
was not a stranger to that contract having been
explicitly named therein as a third party in charge
of rental payments (solidarily with Tourist World,
Inc.). She could not be ousted from possession as
summarily as one would eject an interloper.

ART. 21. Any person who wilfully

causes loss or injury to another in a
manner that is contrary to morals,
good customs or public policy shall
compensate the latter for the
damage. 24
ART. 2219. Moral damages 25 may
be recovered in the following and
analogous cases:

The Court is satisfied that from the chronicle of

events, there was indeed some malevolent design
to put the petitioner, Lina Sevilla, in a bad light
following disclosures that she had worked for a
rival firm. To be sure, the respondent court speaks
of alleged business losses to justify the
closure '21 but there is no clear showing that
Tourist World Ermita Branch had in fact sustained
such reverses, let alone, the fact that Sevilla had
moonlit for another company. What the evidence
discloses, on the other hand, is that following such
an information (that Sevilla was working for
another company), Tourist World's board of
directors adopted two resolutions abolishing the
office of 'manager" and authorizing the corporate
secretary, the respondent Eliseo Canilao, to effect
the takeover of its branch office properties. On
January 3, 1962, the private respondents ended the
lease over the branch office premises, incidentally,
without notice to her.

xxx xxx xxx

(10) Acts and actions refered into
article 21, 26, 27, 28, 29, 30, 32,
34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor
is likewise hereby ordered to respond for the same
damages in a solidary capacity.
Insofar, however, as the private respondent,
Segundina Noguera is concerned, no evidence has
been shown that she had connived with Tourist
World Service, Inc. in the disconnection and
padlocking incidents. She cannot therefore be held
liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and
for moral damages,24 P10,000.00 as exemplary
damages, 25and P5,000.00 as nominal 26 and/or
temperate 27 damages, to be just, fair, and
reasonable under the circumstances.

It was only on June 4, 1962, and after office hours

significantly, that the Ermita office was padlocked,
personally by the respondent Canilao, on the
pretext that it was necessary to Protect the

26

WHEREFORE, the Decision promulgated on January

23, 1975 as well as the Resolution issued on July
31, 1975, by the respondent Court of Appeals is
hereby REVERSED and SET ASIDE. The private
respondent, Tourist World Service, Inc., and Eliseo
Canilao, are ORDERED jointly and severally to
indemnify the petitioner, Lina Sevilla, the sum of
25,00.00 as and for moral damages, the sum of
P10,000.00, as and for exemplary damages, and
the sum of P5,000.00, as and for nominal and/or
temperate damages.

To Whom It May Concern:

This is to certify
that I have
received from Mrs.
Maria de Guzman
Vda. de Ayroso. of
Gapan, Nueva
Ecija, six hundred
fifteen kilos of leaf
tobacco to be sold
at Pl.30 per kilo.
The proceed in the
amount of Seven
Hundred Ninety
Nine Pesos and
50/100 (P 799.50)
will be given to her
as soon as it was
sold.

Costs against said private respondents.

G.R. No. L-34338 November 21, 1984
LOURDES VALERIO LIM, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, respondent.
RELOVA, J.:

This was signed by the appellant

and witnessed by the
complainant's sister, Salud Bantug,
and the latter's maid, Genoveva
Ruiz. The appellant at that time
was bringing a jeep, and the
tobacco was loaded in the jeep and
brought by the appellant. Of the
total value of P799.50, the
appellant had paid to Ayroso only
P240.00, and this was paid on
three different times. Demands for
the payment of the balance of the
value of the tobacco were made
upon the appellant by Ayroso, and
particularly by her sister, Salud
Bantug. Salud Bantug further
testified that she had gone to the
house of the appellant several
times, but the appellant often
eluded her; and that the "camarin"
the appellant was empty. Although
the appellant denied that demands
for payment were made upon her,
it is a fact that on October 19,
1966, she wrote a letter to Salud
Bantug which reads as follows:

Petitioner Lourdes Valerio Lim was found guilty of

the crime of estafa and was sentenced "to suffer
an imprisonment of four (4) months and one (1)
day as minimum to two (2) years and four (4)
months as maximum, to indemnify the offended
party in the amount of P559.50, with subsidize
imprisonment in case of insolvency, and to pay the
costs." (p. 14, Rollo)
From this judgment, appeal was taken to the then
Court of Appeals which affirmed the decision of the
lower court but modified the penalty imposed by
sentencing her "to suffer an indeterminate penalty
of one (1) month and one (1) day of arresto
mayor as minimum to one (1) year and one (1) day
of prision correccional as maximum, to indemnify
the complainant in the amount of P550.50 without
subsidiary imprisonment, and to pay the costs of
suit." (p. 24, Rollo)
The question involved in this case is whether the
receipt, Exhibit "A", is a contract of agency to sell
or a contract of sale of the subject tobacco
between petitioner and the complainant, Maria de
Guzman Vda. de Ayroso, thereby precluding
criminal liability of petitioner for the crime charged.

Dear Salud,

The findings of facts of the appellate court are as

follows:

Hindi ako
nakapunta dian
noon a 17 nitong
nakaraan, dahil
kokonte pa ang
nasisingil kong
pera, magintay ka
hanggang dito sa
linggo ito at tiak na
ako ay magdadala
sa iyo. Gosto ko
Salud ay
makapagbigay man
lang ako ng
marami para hindi
masiadong
kahiyahiya sa iyo.
Ngayon kung gosto
mo ay kahit konte

... The appellant is a

businesswoman. On January 10,
1966, the appellant went to the
house of Maria Ayroso and
proposed to sell Ayroso's tobacco.
Ayroso agreed to the proposition of
the appellant to sell her tobacco
consisting of 615 kilos at P1.30 a
kilo. The appellant was to receive
the overprice for which she could
sell the tobacco. This agreement
was made in the presence of
plaintiff's sister, Salud G. Bantug.
Salvador Bantug drew the
document, Exh. A, dated January
10, 1966, which reads:

27

muna ay bibigyan
kita. Pupunta lang
kami ni Mina sa
Maynila ngayon.
Salud kung
talagang kailangan
mo ay bukas ay
dadalhan kita ng
pera.

receipt (Exhibit "A") gives rise to an

obligation wherein the duration of
the period depends upon the will of
the debtor in which case the only
action that can be maintained is a
petition to ask the court to fix the
duration of the period; and
3. Whether or not the honorable
Court of Appeals was legally right
in holding that the foregoing
receipt is a contract of agency to
sell as against the theory of the
petitioner that it is a contract of
sale. (pp. 3-4, Rollo)

Medio mahirap ang

maningil sa
palengke ng
Cabanatuan dahil
nagsisilipat ang
mga suki ko ng
puesto. Huwag
kang mabahala at
tiyak na babayaran
kita.

It is clear in the agreement, Exhibit "A", that the

proceeds of the sale of the tobacco should be
turned over to the complainant as soon as the
same was sold, or, that the obligation was
immediately demandable as soon as the tobacco
was disposed of. Hence, Article 1197 of the New
Civil Code, which provides that the courts may fix
the duration of the obligation if it does not fix a
period, does not apply.

Patnubayan tayo
ng mahal na
panginoon Dios.
(Exh. B).
Ludy
Pursuant to this letter, the
appellant sent a money order for
P100.00 on October 24, 1967, Exh.
4, and another for P50.00 on March
8, 1967; and she paid P90.00 on
April 18, 1967 as evidenced by the
receipt Exh. 2, dated April 18,
1967, or a total of P240.00. As no
further amount was paid, the
complainant filed a complaint
against the appellant for estafa.
(pp. 14, 15, 16, Rollo)

Anent the argument that petitioner was not an

agent because Exhibit "A" does not say that she
would be paid the commission if the goods were
sold, the Court of Appeals correctly resolved the
matter as follows:
... Aside from the fact that Maria
Ayroso testified that the appellant
asked her to be her agent in selling
Ayroso's tobacco, the appellant
herself admitted that there was an
agreement that upon the sale of
the tobacco she would be given
something. The appellant is a
businesswoman, and it is
unbelievable that she would go to
the extent of going to Ayroso's
house and take the tobacco with a
jeep which she had brought if she
did not intend to make a profit out
of the transaction. Certainly, if she
was doing a favor to Maria Ayroso
and it was Ayroso who had
requested her to sell her tobacco, it
would not have been the appellant
who would have gone to the house
of Ayroso, but it would have been
Ayroso who would have gone to the
house of the appellant and deliver
the tobacco to the appellant. (p.
19, Rollo)

In this petition for review by certiorari, Lourdes

Valerio Lim poses the following questions of law, to
wit:
1. Whether or not the Honorable
Court of Appeals was legally right
in holding that the foregoing
document (Exhibit "A") "fixed a
period" and "the obligation was
therefore, immediately
demandable as soon as the
tobacco was sold" (Decision, p. 6)
as against the theory of the
petitioner that the obligation does
not fix a period, but from its nature
and the circumstances it can be
inferred that a period was intended
in which case the only action that
can be maintained is a petition to
ask the court to fix the duration
thereof;

The fact that appellant received the tobacco to be

sold at P1.30 per kilo and the proceeds to be given
to complainant as soon as it was sold, strongly
negates transfer of ownership of the goods to the
petitioner. The agreement (Exhibit "A') constituted
her as an agent with the obligation to return the
tobacco if the same was not sold.

2. Whether or not the Honorable

Court of Appeals was legally right
in holding that "Art. 1197 of the
New Civil Code does not apply" as
against the alternative theory of
the petitioner that the fore. going

ACCORDINGLY, the petition for review on certiorari

is dismissed for lack of merit. With costs.

28

G.R. No. L-19265

May 29, 1964

which was his indiscriminate pleasant, of the

property with inadequate rentals.

MOISES SAN DIEGO, SR., petitioner,

vs.
ADELO NOMBRE and PEDRO
ESCANLAR, respondents.

From this Order, a petition for Certiorari asking for

the annulment of the Orders of April 8 and 24,
1961 was presented by Nombre and Escanlar with
the Court of Appeals. A Writ of preliminary
injunction was likewise prayed for to restrain the
new administrator Campillanos from possessing
the fishpond and from executing a new lease
contract covering it; requiring him to return the
possession thereof to Escanlar, plus damages and
attorney's fees in the amount of P10,000.00 and
costs. The Court of Appeals issued the injunctive
writ and required respondents therein to Answer.
Campillanos insisted on the invalidity of the
contract in favor of Escanlar; the lower court
alleged that it did not exactly annul or invalidate
the lease in his questioned orders but suggested
merely that Escanlar "may file a separate ordinary
action in the Court of general jurisdiction."

A. R. Castaeda and M. S. Roxas for petitioner.

Amado B. Parreo Law Office for respondents.
PAREDES, J.:
The case at bar had its origin in Special
Proceedings No. 7279 of the CFI of Negros
Occidental wherein respondent Adelo Nombre was
the duly constituted judicial administrator. On May
1, 1960, Nombre, in his capacity was judicial
administrator of the intestate estate subject of the
Sp. Proc. stated above, leased one of the properties
of the estate (a fishpond identified as Lot No. 1617
of the cadastral survey of Kabankaban, Negros
Occidental), to Pedro Escanlar, the other
respondent. The terms of the lease was for three
(3) years, with a yearly rental of P3,000.00 to
expire on May 1, 1963, the transaction having been
done, admittedly, without previous authority or
approval of the Court where the proceedings was
pending. On January 17, 1961, Nombre was
removed as administrator by Order of the court
and one Sofronio Campillanos was appointed in his
stead. The appeal on the Order of Nombre's
removal is supposedly pending with the Court of
Appeals. Respondent Escanlar was cited for
contempt, allegedly for his refusal to surrender the
fishpond to the newly appointed administrator. On
March 20, 1961, Campillanos filed a motion asking
for authority to execute a lease contract of the
same fishpond, in favor of petitioner herein, Moises
San Diego, Sr., for 5 years from 1961, at a yearly
rental of P5,000.00. Escanlar was not notified of
such motion. Nombre, the deposed administrator,
presented a written opposition to the motion of
Campillanos on April 11, 1964, pointing out that
the fishpond had been leased by him to Escanlar
for 3 years, the period of which was going to expire
on May 1, 1963. In a supplemental opposition, he
also invited the attention of the Court that to grant
the motion of the new administrator would in effect
nullify the contract in favor of Escanlar, a person on
whom the Court had no jurisdiction. He also
intimated that the validity of the lease contract
entered into by a judicial administrator, must be
recognized unless so declared void in a separate
action. The opposition notwithstanding, the Court
on April 8, 1961, in effect declared that the
contract in favor of Escanlar was null and void, for
want of judicial authority and that unless he would
offer the same as or better conditions than the
prospective lessee, San Diego, there was no good
reason why the motion for authority to lease the
property to San Diego should not be granted.
Nombre moved to reconsider the Order of April 8,
stating that Escanlar was willing to increase the
rental of P5,000.00, but only after the termination
of his original contract. The motion for
reconsideration was denied on April 24, 1961, the
trial judge stating that the contract in favor of
Escanlar was executed in bad faith and was
fraudulent because of the imminence of Nombre's
removal as administrator, one of the causes of

The Court of Appeals, in dismissing the petition

for certiorari, among others said
The controlling issue in this case is the
legality of the contract of lease entered
into by the former administrator Nombre,
and Pedro Escanlar on May 1, 1960.
Respondents contend that this contract,
not having been authorized or approved by
the Court, is null and void and cannot be
an obstacle to the execution of another of
lease by the new administrator,
Campillanos. This contention is without
merit. ... . It has been held that even in the
absence of such special powers, a contract
or lease for more than 6 years is not
entirely invalid; it is invalid only in so far as
it exceeds the six-year limit (Enrique v.
Watson Company, et al., 6 Phil. 84). 1
No such limitation on the power of a
judicial administrator to grant a lease of
property placed under his custody is
provided for in the present law. Under
Article 1647 of the present Civil Code, it is
only when the lease is to be recorded in
the Registry of Property that it cannot be
instituted without special authority. Thus,
regardless of the period of lease, there is
no need of special authority unless the
contract is to be recorded in the Registry of
Property. As to whether the contract in
favor of Escanlar is to be so recorded is not
material to our inquiry. 1wph1.t
On the contrary, Rule 85, Section 3, of the
Rules of Court authorizes a judicial
administrator, among other things, to
administer the estate of the deceased not
disposed of by will. Commenting on this
Section in the light of several Supreme
Court decisions (Jocson de Hilado v. Nava,
69 Phil. 1; Gamboa v. Gamboa, 68 Phil.
304; Ferraris v. Rodas, 65 Phil. 732;
Rodriguez v. Borromeo, 43 Phil. 479),
Moran says: "Under this provision, the
executor or administrator has the power of

29

administering the estate of the deceased

for purposes of liquidation and distribution.
He may, therefore, exercise all acts of
administration without special authority of
the Court. For instance, he may lease the
property without securing previously any
permission from the court. And where the
lease has formally been entered into, the
court cannot, in the same proceeding,
annul the same, to the prejudice of the
lessee, over whose person it had no
jurisdiction. The proper remedy would be a
separate action by the administrator or the
heirs to annul the lease. ... .

lease real property without prior court authority

and approval, if it exceeds one year. The lease
contract in favor of Escanlar being for 3 years and
without such court approval and authority is,
therefore, null and void. Upon the other hand,
respondents maintain that there is no limitation of
such right; and that Article 1878 does not apply in
the instant case.
We believe that the Court of Appeals was correct in
sustaining the validity of the contract of lease in
favor of Escanlar, notwithstanding the lack of prior
authority and approval. The law and prevailing
jurisprudence on the matter militates in favor of
this view. While it may be admitted that the duties
of a judicial administrator and an agent (petitioner
alleges that both act in representative capacity),
are in some respects, identical, the provisions on
agency (Art. 1878, C.C.), should not apply to a
judicial administrator. A judicial administrator is
appointed by the Court. He is not only the
representative of said Court, but also the heirs and
creditors of the estate (Chua Tan v. Del Rosario, 57
Phil. 411). A judicial administrator before entering
into his duties, is required to file a bond. These
circumstances are not true in case of agency. The
agent is only answerable to his principal. The
protection which the law gives the principal, in
limiting the powers and rights of an agent, stems
from the fact that control by the principal can only
be thru agreements, whereas the acts of a judicial
administrator are subject to specific provisions of
law and orders of the appointing court. The
observation of former Chief Justice Moran, as
quoted in the decision of the Court of Appeals, is
indeed sound, and We are not prone to alter the
same, at the moment.

On September 13, 1961, petitioner herein Moises

San Diego, Sr., who was not a party in the case,
intervened and moved for a reconsideration of the
above judgment. The original parties (the new
administrator and respondent judge) also filed
Motions for reconsideration, but we do not find
them in the record. On November 18, 1961, the
Court of Appeals denied the motions for
reconsideration. With the denial of the said
motions, only San Diego, appealed therefrom,
raising legal questions, which center on "Whether a
judicial administrator can validly lease property of
the estate without prior judicial authority and
approval", and "whether the provisions of the New
Civil Code on Agency should apply to judicial
administrators."
The Rules of Court provide that
An executor or administrator shall have the
right to the possession of the real as well
as the personal estate of the deceased so
long as it is necessary for the payment of
the debts and the expenses of
administration, and shall administer the
estate of the deceased not disposed of by
his will. (Sec. 3, Rule 85, old Rules).

We, likewise, seriously doubt petitioner's legal

standing to pursue this appeal. And, if We consider
the fact that after the expiration of the original
period of the lease contract executed by
respondent Nombre in favor of Escanlar, a new
contract in favor of said Escanlar, was executed on
May 1, 1963, by the new administrator
Campillanos. who, incidentally, did not take any
active participation in the present appeal, the right
of petitioner to the fishpond becomes a moot and
academic issue, which We need not pass upon.

Lease has been considered an act of administration

(Jocson v. Nava; Gamboa v. Gamboa; Rodriguez v.
Borromeo; Ferraris v. Rodas, supra).
The Civil Code, on lease, provides:
If a lease is to be recorded in the Registry
of Property, the following persons cannot
constitute the same without proper
authority, the husband with respect to the
wife's paraphernal real estate, the father or
guardian as to the property of the minor or
ward, and the manager without special
power. (Art. 1647).

WHEREFORE, the decision appealed from should

be, as it is hereby affirmed, in all respects, with
costs against petitioner Moises San Diego, Sr.
G.R. No. 2962

February 27, 1907

B. H. MACKE, ET AL., plaintiffs-appellees,

vs.
JOSE CAMPS, defendant-appellant.

The same Code, on Agency, states:

Manuel G. Gavieres for appellant.

Gibbs & Gale for appellees.

Special powers of attorneys are necessary

in the following cases:

CARSON, J.:

(8) To lease any real property to another

person for more than one year. (Art. 1878)

The plaintiffs in this action, B. H. Macke and W. H.

Chandler, partners doing business under the firm
name of Macke, Chandler & Company, allege that
during the months of February and March, 1905,

Petitioner contends, that No. 8, Art. 1878 is the

limitation to the right of a judicial administrator to

30

they sold to the defendant and delivered at his

place of business, known as the "Washington
Cafe," various bills of goods amounting to P351.50;
that the defendant has only paid on account of said
accounts the sum of P174; that there is still due
them on account of said goods the sum of P177.50;
that before instituting this action they made
demand for the payment thereof; and that
defendant had failed and refused to pay the said
balance or any part of it up to the time of the filing
of the complaint.

The defendant did not go on the stand nor call any

witnesses, and relies wholly on his contention that
the foregoing facts are not sufficient to establish
the fact that he received the goods for which
payment is demanded.
In the absence of proof of the contrary we think
that this evidence is sufficient to sustain a finding
that Flores was the agent of the defendant in the
management of the bar of the Washington Cafe
with authority to bind the defendant, his principal,
for the payment of the goods mentioned in the
complaint.

B. H. Macke, one of the plaintiffs, testified that on

the order of one Ricardo Flores, who represented
himself to be agent of the defendant, he shipped
the said goods to the defendants at the
Washington Cafe; that Flores later acknowledged
the receipt of said goods and made various
payments thereon amounting in all to P174; that
on demand for payment of balance of the account
Flores informed him that he did not have the
necessary funds on hand, and that he would have
to wait the return of his principal, the defendant,
who was at that time visiting in the provinces; that
Flores acknowledged the bill for the goods
furnished and the credits being the amount set out
in the complaint; that when the goods were
ordered they were ordered on the credit of the
defendant and that they were shipped by the
plaintiffs after inquiry which satisfied the witness
as to the credit of the defendant and as to the
authority of Flores to act as his agent; that the
witness always believed and still believes that
Flores was the agent of the defendant; and that
when he went to the Washington Cafe for the
purpose of collecting his bill he found Flores, in the
absence of the defendant in the provinces,
apparently in charge of the business and claiming
to be the business manager of the defendant, said
business being that of a hotel with a bar and
restaurant annexed.

The contract introduced in evidence sufficiently

establishes the fact that the defendant was the
owner of business and of the bar, and the title of
"managing agent" attached to the signature of
Flores which appears on that contract, together
with the fact that, at the time the purchases in
question were made, Flores was apparently in
charge of the business, performing the duties
usually entrusted to managing agent, leave little
room for doubt that he was there as authorized
agent of the defendant. One who clothes another
apparent authority as his agent, and holds him out
to the public as such, can not be permitted to deny
the authority of such person to act as his agent, to
the prejudice of innocent third parties dealing with
such person in good faith and in the following
preassumptions or deductions, which the law
expressly directs to be made from particular facts,
are deemed conclusive:
(1) "Whenever a party has, by his own declaration,
act, or omission, intentionally and deliberately led
another to believe a particular thing true, and to
act upon such belief, he can not, in any litigation
arising out such declaration, act, or omission, be
permitted to falsify it" (subsec. 1, sec. 333, Act no.
190); and unless the contrary appears, the
authority of an agent must be presumed to include
all the necessary and usual means of carrying his
agency into effect. (15 Conn., 347; 90 N. C. 101; 15
La. Ann, 247; 43 Mich., 364; 93 N. Y., 495; 87 Ind.,
187.)

A written contract dated May 25, 1904, was

introduced in evidence, from which it appears that
one Galmes, the former owner of the business now
know as the "Washington Cafe," subrented the
building wherein the business was conducted, to
the defendant for a period of one year, for the
purpose of carrying on that business, the
defendant obligating himself not to sublet or
subrent the building or the business without the
consent of the said Galmes. This contract was
signed by the defendant and the name of Ricardo
Flores appears thereon as a witness, and attached
thereto is an inventory of the furniture and fittings
which also is signed by the defendant with the
word "sublessee" (subarrendatario) below the
name, and at the foot of this inventory the word
"received" (recibo) followed by the name "Ricardo
Flores," with the words "managing agent" (el
manejante encargado) immediately following his
name.

That Flores, as managing agent of the Washington

Cafe, had authority to buy such reasonable
quantities of supplies as might from time to time
be necessary in carrying on the business of hotel
bar may fairly be presumed from the nature of the
business, especially in view of the fact that his
principal appears to have left him in charge during
more or less prolonged periods of absence; from an
examination of the items of the account attached
to the complaint, we are of opinion that he was
acting within the scope of his authority in ordering
these goods are binding on his principal, and in the
absence of evidence to the contrary, furnish
satisfactory proof of their delivery as alleged in the
complaint.

Galmes was called to the stand and identified the

above- described document as the contract and
inventory delivered to him by the defendant, and
further stated that he could not tell whether Flores
was working for himself or for some one else
that it to say, whether Flores was managing the
business as agent or sublessee.

The judgment of the trial court is affirmed with the

costs of his instance against the appellant. After
expiration of twenty days judgment will be
rendered in accordance herewith, and ten days
thereafter the case remanded to the lower court for
proper action. So ordered.

31

G.R. No. 94753. April 7, 1993.

Acting on said Petition, this Court in a Resolution 2

dated October 1, 1990 set aside the entry of
judgment made on May 3, 1989 in case G.R. No.
78898; admitted the amended petition; and issued
a temporary restraining order to restrain the
execution of the judgment appealed from.

MANOTOK BROTHERS, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, THE
HONORABLE JUDGE OF THE REGIONAL TRIAL
COURT OF MANILA (Branch VI), and SALVADOR
SALIGUMBA, respondents.

The amended petition 3 admitted, by this Court

sought relief from this Court's Resolution
abovequoted. In the alternative, petitioner begged
leave of court to re-file its Petition for Certiorari 4
(G.R. No. 78898) grounded on the allegation that
petitioner was deprived of its opportunity to be
heard.

Antonio C. Ravelo for petitioner.

Remigio M. Trinidad for private respondent.
SYLLABUS

The facts as found by the appellate court, revealed

that petitioner herein (then defendant-appellant) is
the owner of a certain parcel of land and building
which were formerly leased by the City of Manila
and used by the Claro M. Recto High School, at M.F.
Jhocson Street, Sampaloc Manila.

1. CIVIL LAW; AGENCY; AGENT'S COMMISSION;

WHEN ENTITLED' RULE; APPLICATION IN CASE AT
BAR. In an earlier case, this Court ruled that
when there is a close, proximate and causal
connection between the agent's efforts and labor
and the principal's sale of his property, the agent is
entitled to a commission. We agree with
respondent Court that the City of Manila ultimately
became the purchaser of petitioner's property
mainly through the efforts of private respondent.
Without discounting the fact that when Municipal
Ordinance No. 6603 was signed by the City Mayor
on May 17, 1968, private respondent's authority
had already expired, it is to be noted that the
ordinance was approved on April 26, 1968 when
private respondent's authorization was still in force.
Moreover, the approval by the City Mayor came
only three days after the expiration of private
respondent's authority. It is also worth emphasizing
that from the records, the only party given a
written authority by petitioner to negotiate the sale
from July 5, 1966 to May 14, 1968 was private
respondent.

By means of a letter 5 dated July 5, 1966,

petitioner authorized herein private respondent
Salvador Saligumba to negotiate with the City of
Manila the sale of the aforementioned property for
not less than P425,000.00. In the same writing,
petitioner agreed to pay private respondent a five
percent (5%) commission in the event the sale is
finally consummated and paid.
Petitioner, on March 4, 1967, executed another
letter 6 extending the authority of private
respondent for 120 days. Thereafter, another
extension was granted to him for 120 more days,
as evidenced by another letter 7 dated June 26,
1967.
Finally, through another letter 8 dated November
16, 1967, the corporation with Rufino Manotok, its
President, as signatory, authorized private
respondent to finalize and consummate the sale of
the property to the City of Manila for not less than
P410,000.00. With this letter came another
extension of 180 days.

DECISION
CAMPOS, JR., J p:
Petitioner Manotok Brothers., Inc., by way of the
instant Petition docketed as G.R. No. 94753 sought
relief from this Court's Resolution dated May 3,
1989, which reads:

The Municipal Board of the City of Manila

eventually, on April 26, 1968, passed Ordinance
No. 6603, appropriating the sum of P410,816.00 for
the purchase of the property which private
respondent was authorized to sell. Said ordinance
however, was signed by the City Mayor only on
May 17, 1968, one hundred eighty three (183) days
after the last letter of authorization.

"G.R. No. 78898 (Manotok Brothers, Inc. vs.

Salvador Saligumba and Court of Appeals).
Considering the manifestation of compliance by
counsel for petitioner dated April 14, 1989 with the
resolution of March 13, 1989 which required the
petitioner to locate private respondent and to
inform this Court of the present address of said
private respondent, the Court Resolved to DISMISS
this case, as the issues cannot be joined as private
respondent's and counsel's addresses cannot be
furnished by the petitioner to this court." 1

On January 14, 1969, the parties signed the deed

of sale of the subject property. The initial payment
of P200,000.00 having been made, the purchase
price was fully satisfied with a second payment on
April 8, 1969 by a check in the amount of
P210,816.00.

In addition, petitioner prayed for the issuance of a

preliminary injunction to prevent irreparable injury
to itself pending resolution by this Court of its
cause. Petitioner likewise urged this Court to hold
in contempt private respondent for allegedly
adopting sinister ploy to deprive petitioner of its
constitutional right to due process.

Notwithstanding the realization of the sale, private

respondent never received any commission, which
should have amounted to P20,554.50. This was due
to the refusal of petitioner to pay private
respondent said amount as the former does not
recognize the latter's role as agent in the
transaction.

32

Consequently, on June 29, 1969, private

respondent filed a complaint against petitioner,
alleging that he had successfully negotiated the
sale of the property. He claimed that it was
because of his efforts that the Municipal Board of
Manila passed Ordinance No. 6603 which
appropriated the sum for the payment of the
property subject of the sale.

know Rufino Manotok only in August, 1968, at

which meeting the latter told him that he would be
given a "gratification" in the amount of P20,000.00
if the sale was expedited.

Petitioner claimed otherwise. It denied the claim of

private respondent on the following grounds: (1)
private respondent would be entitled to a
commission only if the sale was consummated and
the price paid within the period given in the
respective letters of authority; and (2) private
respondent was not the person responsible for the
negotiation and consummation of the sale, instead
it was Filomeno E. Huelgas, the PTA president for
1967-1968 of the Claro M. Recto High School. As a
counterclaim, petitioner (then defendant-appellant)
demanded the sum of P4,000.00 as attorney's fees
and for moral damages.

On rebuttal, Atty. Bisbal said that Huelgas was

present in the PTA meetings from 1965 to 1967 but
he never offered to help in the acquisition of said
property. Moreover, he testified that Huelgas was
aware of the fact that it was private respondent
who was negotiating the sale of the subject
property.

Rufino Manotok confirmed that he knew Huelgas

and that there was an agreement between the two
of them regarding the "gratification".

Thereafter, the then Court of First Instance (now,

Regional Trial Court) rendered judgment sentencing
petitioner and/or Rufino Manotok to pay unto
private respondent the sum of P20,540.00 by way
of his commission fees with legal interest thereon
from the date of the filing of the complaint until
payment. The lower court also ordered petitioner to
pay private respondent the amount of P4,000.00 as
and for attorney's fees. 9

Thereafter, trial ensued. Private respondent, then

plaintiff, testified as to the efforts undertaken by
him to ensure the consummation of the sale. He
recounted that it first began at a meeting with
Rufino Manotok at the office of Fructuoso Ancheta,
principal of C.M. Recto High School. Atty.
Dominador Bisbal, then president of the PTA, was
also present. The meeting was set precisely to ask
private respondent to negotiate the sale of the
school lot and building to the City of Manila. Private
respondent then went to Councilor Mariano
Magsalin, the author of the Ordinance which
appropriated the money for the purchase of said
property, to present the project. He also went to
the Assessor's Office for appraisal of the value of
the property. While these transpired and his letters
of authority expired, Rufino Manotok always
renewed the former's authorization until the last
was given, which was to remain in force until May
14, 1968. After securing the report of the appraisal
committee, he went to the City Mayor's Office,
which indorsed the matter to the Superintendent of
City Schools of Manila. The latter office approved
the report and so private respondent went back to
the City Mayor's Office, which thereafter indorsed
the same to the Municipal Board for appropriation.
Subsequently, on April 26, 1968, Ordinance No.
6603 was passed by the Municipal Board for the
appropriation of the sum corresponding to the
purchase price. Petitioner received the full
payment of the purchase price, but private
respondent did not receive a single centavo as
commission.

Petitioner appealed said decision, but to no avail.

Respondent Court of Appeals affirmed the said
ruling of the trial court. 10
Its Motion for Reconsideration having been denied
by respondent appellate court in a Resolution
dated June 22, 1987, petitioner seasonably
elevated its case on Petition for Review on
Certiorari on August 10, 1987 before this Court,
docketed as G.R. No. 78898.
Acting on said Petition, this Court issued a Minute
Resolution 11 dated August 31, 1987 ordering
private respondent to comment on said Petition.
It appearing that the abovementioned Resolution
was returned unserved with the postmaster's
notation "unclaimed", this Court in another
Resolution 12 dated March 13, 1989, required
petitioner to locate private respondent and to
inform this Court of the present address of private
respondent within ten (10) days from notice. As
petitioner was unsuccessful in its efforts to locate
private respondent, it opted to manifest that
private respondent's last address was the same as
that address to which this. Court's Resolution was
forwarded.
Subsequently, this Court issued a Resolution dated
May 3, 1989 dismissing petitioner's case on the
ground that the issues raised in the case at bar
cannot be joined. Thus, the above-entitled case
became final and executory by the entry of
judgment on May 3, 1989.

Fructuoso Ancheta and Atty. Dominador Bisbal both

testified acknowledging the authority of private
respondent regarding the transaction.
Petitioner presented as its witnesses Filomeno
Huelgas and the petitioner's President, Rufino
Manotok.

Thereafter, on January 9, 1990 private respondent

filed a Motion to Execute the said judgment before
the court of origin. Upon discovery of said
development, petitioner verified with the court of
origin the circumstances by which private
respondent obtained knowledge of the resolution of
this Court. Sensing a fraudulent scheme employed

Huelgas testified to the effect that after being

inducted as PTA president in August, 1967 he
followed up the sale from the start with Councilor
Magsalin until after it was approved by the Mayor
on May 17, 1968. He. also said that he came to

33

by private respondent, petitioner then instituted

this instant Petition for Relief, on August 30, 1990.
On September 13, 1990, said petition was
amended to include, in the alternative, its petition
to re-file its Petition for Certiorari (G.R. No. 78898).

together again and finally consummating the

transaction at the same price of P3.25 per square
meter, although such finalization was after the
expiration of Prats' extended exclusive authority.
xxx xxx xxx

The sole issue to be addressed in this petition is

whether or not private respondent is entitled to the
five percent (5%) agent's commission.

Under the circumstances, the Court grants in

equity the sum of One hundred Thousand Pesos
(P100,000.00) by way of compensation for his
efforts and assistance in the transaction, which
however was finalized and consummated after the
expiration of his exclusive authority . . ." 15
(Emphasis supplied.).

It is petitioner's contention that as a broker, private

respondent's job is to bring together the parties to
a transaction. Accordingly, if the broker does not
succeed in bringing the minds of the purchaser and
the vendor to an agreement with respect to the
sale, he is not entitled to a commission.

From the foregoing, it follows then that private

respondent herein, with more reason, should be
paid his commission, While in Prats vs. Court of
Appeals, the agent was not even the efficient
procuring cause in bringing about the sale, unlike
in the case at bar, it was still held therein that the
agent was entitled to compensation. In the case at
bar, private respondent is the efficient procuring
cause for without his efforts, the municipality
would not have anything to pass and the Mayor
would not have anything to approve.

Private respondent, on the other hand, opposes

petitioner's position maintaining that it was
because of his efforts that a purchase actually
materialized between the parties.
We rule in favor of private respondent.
At first sight, it would seem that private respondent
is not entitled to any commission as he was not
successful in consummating the sale between the
parties, for the sole reason that when the Deed of
Sale was finally executed, his extended authority
had already expired. By this alone, one might be
misled to believe that this case squarely falls within
the ambit of the established principle that a broker
or agent is not entitled to any commission until he
has successfully done the job given to him. 13

In an earlier case, 16 this Court ruled that when

there is a close, proximate and causal connection
between the agent's efforts and labor and the
principal's sale of his property, the agent is entitled
to a commission.
We agree with respondent Court that the City of
Manila ultimately became the purchaser of
petitioner's property mainly through the efforts of
private respondent. Without discounting the fact
that when Municipal Ordinance No. 6603 was
signed by the City Mayor on May 17, 1968, private
respondent's authority had already expired, it is to
be noted that the ordinance was approved on April
26, 1968 when private respondent's authorization
was still in force. Moreover, the approval by the
City Mayor came only three days after the
expiration of private respondent's authority. It is
also worth emphasizing that from the records, the
only party given a written authority by petitioner to
negotiate the sale from July 5, 1966 to May 14,
1968 was private respondent.

Going deeper however into the case would reveal

that it is within the coverage of the exception
rather than of the general rule, the exception being
that enunciated in the case of Prats vs. Court of
Appeals. 14 In the said case, this Court ruled in
favor of claimant-agent, despite the expiration of
his authority, when a sale was finally
consummated.
In its decision in the abovecited case, this Court
said, that while it was respondent court's (referring
to the Court of Appeals) factual findings that
petitioner Prats (claimant-agent) was not the
efficient procuring cause in bringing about the sale
(prescinding from the fact of expiration of his
exclusive authority), still petitioner was awarded
compensation for his services. And We quote:

Contrary to what petitioner advances, the case of

Danon vs. Brimo, 17 on which it heavily anchors its
justification for the denial of private respondent's
claim, does not apply squarely to the instant
petition. Claimant-agent in said case fully
comprehended the possibility that he may not
realize the agent's commission as he was informed
that another agent was also negotiating the sale
and thus, compensation will pertain to the one who
finds a purchaser and eventually effects the sale.
Such is not the case herein. On the contrary,
private respondent pursued with his goal of seeing
that the parties reach an agreement, on the belief
that he alone was transacting the business with the
City Government as this was what petitioner made
it to appear.

"In equity, however, the Court notes that petitioner

had diligently taken steps to bring back together
respondent Doronila and the SSS,.
xxx xxx xxx
The court has noted on the other hand that
Doronila finally sold the property to the Social
Security System at P3.25 per square meter which
was the very same price counter-offered by the
Social Security System and accepted by him in July,
1967 when he alone was dealing exclusively with
the said buyer long before Prats came into the
picture but that on the other hand Prats' efforts
somehow were instrumental in bringing them

While it may be true that Filomeno Huelgas

followed up the matter with Councilor Magsalin, the

34

author of Municipal Ordinance No. 6603 and Mayor

Villegas, his intervention regarding the purchase
came only after the ordinance had already been
passed when the buyer has already agreed to
the purchase and to the price for which said
property is to be paid. Without the efforts of private
respondent then, Mayor Villegas would have
nothing to approve in the first place. It was actually
private respondent's labor that had set in motion
the intervention of the third party that produced
the sale, hence he should be amply compensated.

their purpose and expressed their desire to buy

it.8 However, they requested that the selling price
be reduced to Five Hundred Thirty Pesos (P530.00)
per square meter instead of Five Hundred Fifty
Pesos (P550.00) per square meter. Private
respondent Eduardo Gullas referred the
prospective buyers to his wife.
It was the first time that the buyers came to know
that private respondent Eduardo Gullas was the
owner of the property. On July 3, 1992, private
respondents agreed to sell the property to the
Sisters of Mary, and subsequently executed a
special power of attorney 9 in favor of Eufemia
Caete, giving her the special authority to sell,
transfer and convey the land at a fixed price of Two
Hundred Pesos (P200.00) per square meter.

WHEREFORE, in the light of the foregoing and

finding no reversible error committed by
respondent Court, the decision of the Court of
Appeals is hereby AFFIRMED. The temporary
restraining order issued by this Court in its
Resolution dated October 1, 1990 is hereby lifted.

On July 17, 1992, attorney-in-fact Eufemia Caete

executed a deed of sale in favor of the Sisters of
Mary for the price of Twenty Million Eight Hundred
Twenty Two Thousand Eight Hundred Pesos
(P20,822.800.00), or at the rate of Two Hundred
Pesos (P200.00) per square meter.10 The buyers
subsequently paid the corresponding
taxes.11 Thereafter, the Register of Deeds of Cebu
Province issued TCT No. 75981 in the name of the
Sisters of Mary of Banneaux, Inc.12

SO ORDERED.
G.R. No. 143978

December 3, 2002

MANUEL B. TAN, GREGG M. TECSON and

ALEXANDER SALDAA, petitioners,
vs.
EDUARDO R. GULLAS and NORMA S.
GULLAS, respondents.

Earlier, on July 3, 1992, in the afternoon,

petitioners went to see private respondent Eduardo
Gullas to claim their commission, but the latter told
them that he and his wife have already agreed to
sell the property to the Sisters of Mary. Private
respondents refused to pay the brokers fee and
alleged that another group of agents was
responsible for the sale of land to the Sisters of
Mary.

DECISION
YNARES-SANTIAGO, J.:
This is a petition for review seeking to set aside the
decision1 of the Court of Appeals2 in CA-G.R. CV No.
46539, which reversed and set aside the
decision3 of the Regional Trial Court of Cebu City,
Branch 22 in Civil Case No. CEB-12740.

On August 28, 1992, petitioners filed a

complaint13 against the defendants for recovery of
their brokers fee in the sum of One Million Six
Hundred Fifty Five Thousand Four Hundred Twelve
and 60/100 Pesos (P1,655,412.60), as well as moral
and exemplary damages and attorneys fees. They
alleged that they were the efficient procuring cause
in bringing about the sale of the property to the
Sisters of Mary, but that their efforts in
consummating the sale were frustrated by the
private respondents who, in evident bad faith,
malice and in order to evade payment of brokers
fee, dealt directly with the buyer whom petitioners
introduced to them. They further pointed out that
the deed of sale was undervalued obviously to
evade payment of the correct amount of capital
gains tax, documentary stamps and other internal
revenue taxes.

The records show that private respondents,

Spouses Eduardo R. Gullas and Norma S. Gullas,
were the registered owners of a parcel of land in
the Municipality of Minglanilla, Province of Cebu,
measuring 104,114 sq. m., with Transfer Certificate
of Title No. 31465.4 On June 29, 1992, they
executed a special power of attorney5 authorizing
petitioners Manuel B. Tan, a licensed real estate
broker,6 and his associates Gregg M. Tecson and
Alexander Saldaa, to negotiate for the sale of the
land at Five Hundred Fifty Pesos (P550.00) per
square meter, at a commission of 3% of the gross
price. The power of attorney was non-exclusive and
effective for one month from June 29, 1992. 7
On the same date, petitioner Tan contacted
Engineer Edsel Ledesma, construction manager of
the Sisters of Mary of Banneaux, Inc. (hereafter,
Sisters of Mary), a religious organization interested
in acquiring a property in the Minglanilla area.

In their answer, private respondents countered

that, contrary to petitioners claim, they were not
the efficient procuring cause in bringing about the
consummation of the sale because another broker,
Roberto Pacana, introduced the property to the
Sisters of Mary ahead of the petitioners. 14 Private
respondents maintained that when petitioners
introduced the buyers to private respondent
Eduardo Gullas, the former were already decided in
buying the property through Pacana, who had been
paid his commission. Private respondent Eduardo
Gullas admitted that petitioners were in his office

In the morning of July 1, 1992, petitioner Tan

visited the property with Engineer Ledesma.
Thereafter, the two men accompanied Sisters
Michaela Kim and Azucena Gaviola, representing
the Sisters of Mary, to see private respondent
Eduardo Gullas in his office at the University of
Visayas. The Sisters, who had already seen and
inspected the land, found the same suitable for

35

on July 3, 1992, but only to ask for the

reimbursement of their cellular phone expenses.

The Court of Appeals reversed and set aside the

lower courts decision and rendered another
judgment dismissing the complaint. 19

In their reply and answer to

counterclaim,15 petitioners alleged that although
the Sisters of Mary knew that the subject land was
for sale through various agents, it was petitioners
who introduced them to the owners thereof.

Hence, this appeal.

Petitioners raise following issues for resolution:
I.

After trial, the lower court rendered judgment in

favor of petitioners, the dispositive portion of which
reads:

THE APPELLATE COURT GROSSLY ERRED IN THEIR

FINDING THAT THE PETITIONERS ARE NOT
ENTITLED TO THE BROKERAGE COMMISSION.

WHEREFORE, UPON THE AEGIS OF THE

FOREGOING, judgment is hereby rendered for the
plaintiffs and against the defendants. By virtue
hereof, defendants Eduardo and Norma Gullas are
hereby ordered to pay jointly and severally
plaintiffs Manuel Tan, Gregg Tecson and Alexander
Saldaa;

II.
IN DISMISSING THE COMPLAINT, THE APPELLATE
COURT HAS DEPRIVED THE PETITIONERS OF MORAL
AND EXEMPLARY DAMAGES, ATTORNEYS FEES AND
INTEREST IN THE FOREBEARANCE OF MONEY.

1) The sum of SIX HUNDRED TWENTY FOUR

THOUSAND AND SIX HUNDRED EIGHTY
FOUR PESOS (P624,684.00) as brokers fee
with legal interest at the rate of 6% per
annum from the date of filing of the
complaint; and

The petition is impressed with merit.

The records show that petitioner Manuel B. Tan is a
licensed real estate broker, and petitioners Gregg
M. Tecson and Alexander Saldaa are his
associates. In Schmid and Oberly v. RJL Martinez
Fishing Corporation,20 we defined a "broker" as
"one who is engaged, for others, on a commission,
negotiating contracts relative to property with the
custody of which he has no concern; the negotiator
between other parties, never acting in his own
name but in the name of those who employed him.
x x x a broker is one whose occupation is to bring
the parties together, in matters of trade,
commerce or navigation." (Emphasis supplied)

2) The sum of FIFTY THOUSAND PESOS

(P50,000.00) as attorneys fees and costs
of litigation.
For lack of merit, defendants counterclaim is
hereby DISMISSED.
IT IS SO ORDERED.16
Both parties appealed to the Court of Appeals.
Private respondents argued that the lower court
committed errors of fact and law in holding that it
was petitioners efforts which brought about the
sale of the property and disregarding the previous
negotiations between private respondent Norma
Gullas and the Sisters of Mary and Pacana. They
further alleged that the lower court had no basis
for awarding brokers fee, attorneys fees and the
costs of litigation to petitioners. 17

During the trial, it was established that petitioners,

as brokers, were authorized by private respondents
to negotiate for the sale of their land within a
period of one month reckoned from June 29, 1992.
The authority given to petitioners was nonexclusive, which meant that private respondents
were not precluded from granting the same
authority to other agents with respect to the sale of
the same property. In fact, private respondent
authorized another agent in the person of Mr.
Bobby Pacana to sell the same property. There was
nothing illegal or amiss in this arrangement, per se,
considering the non-exclusivity of petitioners
authority to sell. The problem arose when it
eventually turned out that these agents were
entertaining one and the same buyer, the Sisters of
Mary.

Petitioners, for their part, assailed the lower courts

basis of the award of brokers fee given to them.
They contended that their 3% commission for the
sale of the property should be based on the price
of P55,180.420.00, or at P530.00 per square meter
as agreed upon and not on the alleged actual
selling price of P20,822,800.00 or at P200.00 per
square meter, since the actual purchase price was
undervalued for taxation purposes. They also
claimed that the lower court erred in not awarding
moral and exemplary damages in spite of its
finding of bad faith; and that the amount of
P50,000.00 as attorneys fees awarded to them is
insufficient. Finally, petitioners argued that the
legal interest imposed on their claim should have
been pegged at 12% per annum instead of the 6%
fixed by the court.18

As correctly observed by the trial court, the

argument of the private respondents that Pacana
was the one entitled to the stipulated 3%
commission is untenable, considering that it was
the petitioners who were responsible for the
introduction of the representatives of the Sisters of
Mary to private respondent Eduardo Gullas. Private
respondents, however, maintain that they were not
aware that their respective agents were
negotiating to sell said property to the same buyer.
Private respondents failed to prove their contention
that Pacana began negotiations with private

36

respondent Norma Gullas way ahead of petitioners.

They failed to present witnesses to substantiate
this claim. It is curious that Mrs. Gullas herself was
not presented in court to testify about her dealings
with Pacana. Neither was Atty. Nachura who was
supposedly the one actively negotiating on behalf
of the Sisters of Mary, ever presented in court.

would constitute unjust enrichment on the part of

petitioners as brokers.
In the matter of attorneys fees and expenses of
litigation, we affirm the amount of P50,000.00
awarded by the trial court to the petitioners.
WHEREFORE, in view of the foregoing, the petition
is GRANTED. The May 29, 2000 decision of the
Court of Appeals is REVERSED and SET ASIDE. The
decision of the Regional Trial Court of Cebu City,
Branch 22, in Civil Case No. CEB-12740 ordering
private respondents Eduardo Gullas and Norma S.
Gullas to pay jointly and severally petitioners
Manuel B. Tan, Gregg Tecson and Alexander
Saldaa the sum of Six Hundred Twenty-Four
Thousand and Six Hundred Eighty-Four Pesos
(P624,684.00) as brokers fee with legal interest at
the rate of 6% per annum from the filing of the
complaint; and the sum of Fifty Thousand Pesos
(P50,000.00) as attorneys fees and costs of
litigation, is REINSTATED.

Private respondents contention that Pacana was

the one responsible for the sale of the land is also
unsubstantiated. There was nothing on record
which established the existence of a previous
negotiation among Pacana, Mrs. Gullas and the
Sisters of Mary. The only piece of evidence that the
private respondents were able to present is an
undated and unnotarized Special Power of Attorney
in favor of Pacana. While the lack of a date and an
oath do not necessarily render said Special Power
of Attorney invalid, it should be borne in mind that
the contract involves a considerable amount of
money. Hence, it is inconsistent with sound
business practice that the authority to sell is
contained in an undated and unnotarized Special
Power of Attorney. Petitioners, on the other hand,
were given the written authority to sell by the
private respondents.

G.R. No. L-67889 October 10, 1985

PRIMITIVO SIASAT and MARCELINO
SIASAT, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and
TERESITA NACIANCENO, respondents.

The trial courts evaluation of the witnesses is

accorded great respect and finality in the absence
of any indication that it overlooked certain facts or
circumstances of weight and influence, which if
reconsidered, would alter the result of the case. 21

Payawal, Jimenez & Associates for petitioners.

Indeed, it is readily apparent that private
respondents are trying to evade payment of the
commission which rightfully belong to petitioners
as brokers with respect to the sale. There was no
dispute as to the role that petitioners played in the
transaction. At the very least, petitioners set the
sale in motion. They were not able to participate in
its consummation only because they were
prevented from doing so by the acts of the private
respondents. In the case of Alfred Hahn v. Court of
Appeals and Bayerische Motoren Werke
Aktiengesellschaft (BMW)22 we ruled that, "An
agent receives a commission upon the successful
conclusion of a sale. On the other hand, a broker
earns his pay merely by bringing the buyer and the
seller together, even if no sale is eventually made."
(Underscoring ours). Clearly, therefore, petitioners,
as brokers, should be entitled to the commission
whether or not the sale of the property subject
matter of the contract was concluded through their
efforts.

Nelson A. Loyola for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review of the decision of the
Intermediate Appellate Court affirming in toto the
judgment of the Court of First Instance of Manila,
Branch XXI, which ordered the petitioner to pay
respondent the thirty percent (30%) commission on
15,666 pieces of Philippine flags worth
P936,960.00, moral damages, attorney's fees and
the costs of the suit.
Sometime in 1974, respondent Teresita Nacianceno
succeeded in convincing officials of the then
Department of Education and Culture, hereinafter
called Department, to purchase without public
bidding, one million pesos worth of national flags
for the use of public schools throughout the
country. The respondent was able to expedite the
approval of the purchase by hand-carrying the
different indorsements from one office to another,
so that by the first week of September, 1974, all
the legal requirements had been complied with,
except the release of the purchase orders. When
Nacianceno was informed by the Chief of the
Budget Division of the Department that the
purchase orders could not be released unless a
formal offer to deliver the flags in accordance with
the required specifications was first submitted for
approval, she contacted the owners of the United
Flag Industry on September 17, 1974. The next

Having ruled that petitioners are entitled to the

brokers commission, we should now resolve how
much commission are petitioners entitled to?
Following the stipulation in the Special Power of
Attorney, petitioners are entitled to 3% commission
for the sale of the land in question. Petitioners
maintain that their commission should be based on
the price at which the land was offered for sale,
i.e., P530.00 per square meter. However, the actual
purchase price for which the land was sold was
only P200.00 per square meter. Therefore, equity
considerations dictate that petitioners commission
must be based on this price. To rule otherwise

37

day, after the transaction was discussed, the

following document (Exhibit A) was drawn up:

from the date of this decision, and

ordering the defendants to pay
jointly and solidarily the sum of
P25,000.00 as moral damages, and
P25,000.00 as attorney's fees, also
with legal interest from the date of
this decision, and the costs.

Mrs. Tessie Nacianceno,

This is to formalize our agreement
for you to represent United Flag
Industry to deal with any entity or
organization, private or
government in connection with the
marketing of our products-flags and
all its accessories.

The decision was affirmed in toto by the

Intermediate Appellate Court. After their motion for
reconsideration was denied, the petitioners went to
this Court on a petition for review on August 6,
1984.

For your service, you will be

entitled to a commission of thirty

In assailing the appellate court's decision, the

petition tenders the following arguments: first, the
authorization making the respondent the
petitioner's representative merely states that she
could deal with any entity in connection with the
marketing of their products for a commission of
30%. There was no specific authorization for the
sale of 15,666 Philippine flags to the Department;
second, there were two transactions involved
evidenced by the separate purchase orders and
separate delivery receipts, Exhibit 6-C for the
purchase and deliver on October 16, 1974, and
Exhibits 7 to 7-C, for the purchase and delivery on
November 6, 1974. The revocation of agency
effected by the parties with mutual consent on
October 17, 1974, therefore, forecloses the
respondent's claim of 30% commission on the
second transaction; and last, there was no basis for
the granting of attorney's fees and moral damages
because there was no showing of bad faith on the
part of the petitioner. It was respondent who
showed bad faith in denying having received her
commission on the first delivery. The petitioner's
counterclaim, therefore, should have been granted.

(30%) percent.
Signed
Mr. Primitive Siasat
Owner and Gen.
Manager
On October 16, 1974, the first delivery of 7,933
flags was made by the United Flag Industry. The
next day, on October 17, 1974, the respondent's
authority to represent the United Flag Industry was
revoked by petitioner Primitivo Siasat.
According to the findings of the courts below,
Siasat, after receiving the payment of P469,980.00
on October 23, 1974 for the first delivery, tendered
the amount of P23,900.00 or five percent (5%) of
the amount received, to the respondent as
payment of her commission. The latter allegedly
protested. She refused to accept the said amount
insisting on the 30% commission agreed upon. The
respondent was prevailed upon to accept the
same, however, because of the assurance of the
petitioners that they would pay the commission in
full after they delivered the other half of the order.
The respondent states that she later on learned
that petitioner Siasat had already received
payment for the second delivery of 7,833 flags.
When she confronted the petitioners, they
vehemently denied receipt of the payment, at the
same time claiming that the respondent had no
participation whatsoever with regard to the second
delivery of flags and that the agency had already
been revoked.

This petition was initially dismissed for lack of merit

in a minute resolution.On a motion for
reconsideration, however,this Court give due
course to the petition on November 14, 1984.
After a careful review of the records, we are
constrained to sustain with some modifications the
decision of the appellate court.
We find respondent's argument regarding
respondent's incapacity to represent them in the
transaction with the Department untenable. There
are several kinds of agents. To quote a
commentator on the matter:

The respondent originally filed a complaint with the

Complaints and Investigation Office in Malacaang
but when nothing came of the complaint, she filed
an action in the Court of First Instance of Manila to
recover the following commissions: 25%, as
balance on the first delivery and 30%, on the
second delivery.

An agent may be (1) universal: (2)

general, or (3) special. A universal;
agent is one authorized to do all
acts for his principal which can
lawfully be delegated to an agent.
So far as such a condition is
possible, such an agent may be
said to have universal authority.
(Mec. Sec. 58).

The trial court decided in favor of the respondent.

The dispositive portion of the decision reads as
follows:
WHEREFORE, judgment is hereby
rendered sentencing Primitivo
Siasat to pay to the plaintiff the
sum of P281,988.00, minus the
sum P23,900.00, with legal interest

A general agent is one authorized

to do all acts pertaining to a
business of a certain kind or at a
particular place, or all acts
pertaining to a business of a

38

particular class or series. He has

usually authority either expressly
conferred in general terms or in
effect made general by the usages,
customs or nature of the business
which he is authorized to transact.

reduced to writing, it is to be considered as

containing all such terms, and, therefore, there can
be between the parties and their successors-ininterest, no evidence of the terms of the
agreement other than the contents of the writing",
except in cases specifically mentioned in the same
rule. Petitioners have failed to show that their
agreement falls under any of these exceptions. The
respondent was given ample authority to transact
with the Department in behalf of the petitioners.
Equally without merit is the petitioners' proposition
that the transaction involved two separate
contracts because there were two purchase orders
and two deliveries. The petitioners' evidence is
overcome by other pieces of evidence proving that
there was only one transaction.

An agent, therefore, who is

empowered to transact all the
business of his principal of a
particular kind or in a particular
place, would, for this reason, be
ordinarily deemed a general agent.
(Mec Sec. ,30).
A special agent is one authorized to
do some particular act or to act
upon some particular occasion. lie
acts usually in accordance with
specific instructions or under
limitations necessarily implied from
the nature of the act to be done.
(Mec. Sec. 61) (Padilla, Civil Law
The Civil Code Annotated, Vol. VI,
1969 Edition, p. 204).

The indorsement of then Assistant Executive

Secretary Roberto Reyes to the Budget Commission
on September 3, 1974 (Exhibit "C") attests to the
fact that out of the total budget of the Department
for the fiscal year 1975, "P1,000,000.00 is for the
purchase of national flags." This is also reflected in
the Financial and Work Plan Request for Allotment
(Exhibit "F") submitted by Secretary Juan Manuel
for fiscal year 1975 which however, divided the
allocation and release of the funds into three,
corresponding to the second, third, and fourth
quarters of the said year. Later correspondence
between the Department and the Budget
Commission (Exhibits "D" and "E") show that the
first allotment of P500.000.00 was released during
the second quarter. However, due to the necessity
of furnishing all of the public schools in the country
with the Philippine flag, Secretary Manuel
requested for the immediate release of the
programmed allotments intended for the third and
fourth quarters. These circumstances explain why
two purchase orders and two deliveries had to be
made on one transaction.

One does not have to undertake a close scrutiny of

the document embodying the agreement between
the petitioners and the respondent to deduce that
the 'latter was instituted as a general agent.
Indeed, it can easily be seen by the way general
words were employed in the agreement that no
restrictions were intended as to the manner the
agency was to be carried out or in the place where
it was to be executed. The power granted to the
respondent was so broad that it practically covers
the negotiations leading to, and the execution of, a
contract of sale of petitioners' merchandise with
any entity or organization.
There is no merit in petitioners' allegations that the
contract of agency between the parties was
entered into under fraudulent representation
because respondent "would not disclose the
agency with which she was supposed to transact
and made the petitioner believe that she would be
dealing with The Visayas", and that "the petitioner
had known of the transactions and/or project for
the said purchase of the Philippine flags by the
Department of Education and Culture and precisely
it was the one being followed up also by the
petitioner."

The petitioners' evidence does not necessarily

prove that there were two separate transactions.
Exhibit "6" is a general indorsement made by
Secretary Manuel for the purchase of the national
flags for public schools. It contains no reference to
the number of flags to be ordered or the amount of
funds to be released. Exhibit "7" is a letter request
for a "similar authority" to purchase flags from the
United Flag Industry. This was, however, written by
Dr. Narciso Albarracin who was appointed Acting
Secretary of the Department after Secretary
Manuel's tenure, and who may not have known the
real nature of the transaction.

If the circumstances were as claimed by the

petitioners, they would have exerted efforts to
protect their interests by limiting the respondent's
authority. There was nothing to prevent the
petitioners from stating in the contract of agency
that the respondent could represent them only in
the Visayas. Or to state that the Department of
Education and Culture and the Department of
National Defense, which alone would need a million
pesos worth of flags, are outside the scope of the
agency. As the trial court opined, it is incredible
that they could be so careless after being in the
business for fifteen years.

If the contracts were separate and distinct from

one another, the whole or at least a substantial
part of the government's supply procurement
process would have been repeated. In this case,
what were issued were mere indorsements for the
release of funds and authorization for the next
purchase.
Since only one transaction was involved, we deny
the petitioners' contention that respondent
Nacianceno is not entitled to the stipulated
commission on the second delivery because of the
revocation of the agency effected after the first
delivery. The revocation of agency could not
prevent the respondent from earning her

A cardinal rule of evidence embodied in Section 7

Rule 130 of our Revised Rules of Court states that
"when the terms of an agreement have been

39

commission because as the trial court opined, it

came too late, the contract of sale having been
already perfected and partly executed.

involved, such an omission is too glaringly remiss

to be regarded as an oversight.
Moreover, the respondent's authorization letter
(Exhibit "5") bears her signature with the
handwritten words "Fully Paid", inscribed above it.

In Macondray & Co. v. Sellner (33 Phil. 370, 377), a

case analogous to this one in principle, this Court
held:

The respondent contested her signature as a

forgery, Handwriting experts from two government
agencies testified on the matter. The reason given
by the trial court in ruling for the respondent is too
flimsy to warrant a finding of forgery.

We do not mean to question the

general doctrine as to the power of
a principal to revoke the authority
of his agent at will, in the absence
of a contract fixing the duration of
the agency (subject, however, to
some well defined exceptions). Our
ruling is that at the time fixed by
the manager of the plaintiff
company for the termination of the
negotiations, the defendant real
estate agent had already earned
the commissions agreed upon, and
could not be deprived thereof by
the arbitrary action of the plaintiff
company in declining to execute
the contract of sale for some
reason personal to itself.

The court stated that in thirteen documents

presented as exhibits, the private respondent
signed her name as "Tessie Nacianceno" while in
this particular instance, she signed as "T.
Nacianceno."
The stated basis is inadequate to sustain the
respondent's allegation of forgery. A variance in the
manner the respondent signed her name can not
be considered as conclusive proof that the
questioned signature is a forgery. The mere fact
that the respondent signed thirteen documents
using her full name does not rule out the possibility
of her having signed the notation "Fully Paid", with
her initial for the given came and the surname
written in full. What she was signing was a mere
acknowledgment.

The principal cannot deprive his agent of the

commission agreed upon by cancelling the agency
and, thereafter, dealing directly with the buyer.
(Infante v. Cunanan, 93 Phil. 691).

This leaves the expert testimony as the sole basis

for the verdict of forgery.

The appellate courts citation of its previous ruling

in Heimbrod et al. v. Ledesma (C.A. 49 O.G. 1507)
is correct:

In support of their allegation of full payment as

evidenced by the signed authorization letter
(Exhibit "5-A"), the petitioners presented as
witness Mr. Francisco Cruz. Jr., a senior document
examiner of the Philippine Constabulary Crime
laboratory. In rebuttal, the respondent presented
Mr. Arcadio Ramos, a junior document examiner of
the National Bureau of Investigation.

The appellee is entitled to recovery.

No citation is necessary to show
that the general law of contracts
the equitable principle of estoppel.
and the expense of another, uphold
payment of compensation for
services rendered.

While the experts testified in a civil case, the

principles in criminal cases involving forgery are
applicable. Forgery cannot be presumed. It must be
proved.

There is merit, however, in the petitioners'

contention that the agent's commission on the first
delivery was fully paid. The evidence does not
sustain the respondent's claim that the petitioners
paid her only 5% and that their right to collect
another 25% commission on the first delivery must
be upheld.

In Borromeo v. Court of Appeals (131 SCRA 318,

326) we held that:
xxx xxx xxx

When respondent Nacianceno asked the

Malacanang Complaints and Investigation Office to
help her collect her commission, her statement
under oath referred exclusively to the 30%
commission on the second delivery. The statement
was emphatic that "now" her demand was for the
30% commission on the (second) release of
P469,980.00. The demand letter of the
respondent's lawyer dated November 13, 1984
asked petitioner Siasat only for the 30%
commission due from the second delivery. The fact
that the respondent demanded only the
commission on the second delivery without
reference to the alleged unpaid balance which was
only slightly less than the amount claimed can only
mean that the commission on the first delivery was
already fully paid, Considering the sizeable sum

... Where the evidence, as here,

gives rise to two probabilities, one
consistent with the defendant's
innocence and another indicative
of his guilt, that which is favorable
to the accused should be
considered. The constitutional
presumption of innocence
continues until overthrown by proof
of guilt beyond reasonable doubt,
which requires moral certainty
which convinces and satisfies the
reason and conscience of those
who are to act upon it. (People v.

40

Clores, et al., 125 SCRA 67; People

v. Bautista, 81 Phil. 78).

Culture in its purchase of Philippine flags. There is

no reason why a shocking 30% of the taxpayers'
money should go to an agent or facilitator who had
no flags to sell and whose only work was to secure
and handcarry the indorsements of education and
budget officials. There are only a few
manufacturers of flags in our country with the
petitioners claiming to have supplied flags for our
public schools on earlier occasions. If public
bidding was deemed unnecessary, the Department
should have negotiated directly with flag
manufacturers. Considering the sad plight of
underpaid and overworked classroom teachers
whose pitiful salaries and allowances cannot
sometimes be paid on time, a P300,000.00 fee for
a P1,000,000.00 purchase of flags is not only
clearly unnecessary but a scandalous waste of
public funds as well.

We ruled in another case that where the supposed

expert's testimony would constitute the sole
ground for conviction and there is equally
convincing expert testimony to the contrary, the
constitutional presumption of innocence must
prevail. (Lorenzo Ga. Cesar v. Hon. Sandiganbayan
and People of the Philippines, 134 SCRA 105). In
the present case, the circumstances earlier
mentioned taken with the testimony of the PC
senior document examiner lead us to rule against
forgery.
We also rule against the respondent's allegation
that the petitioners acted in bad faith when they
revoked the agency given to the respondent.

WHEREFORE, the decision of the respondent court

is hereby MODIFIED. The petitioners are ordered to
pay the respondent the amount of ONE HUNDRED
FOURTY THOUSAND NINE HUNDRED AND NINETY
FOUR PESOS (P140,994.00) as her commission on
the second delivery of flags with legal interest from
the date of the trial court's decision. No
pronouncement as to costs.

Fraud and bad faith are matters not to be

presumed but matters to be alleged with sufficient
facts. To support a judgment for damages, facts
which justify the inference of a lack or absence of
good faith must be alleged and proven. (BacolodMurcia Milling Co., Inc. vs. First Farmers Milling Co.,
Inc., Etc., 103 SCRA 436).
There is no evidence on record from which to
conclude that the revocation of the agency was
deliberately effected by the petitioners to avoid
payment of the respondent's commission. What
appears before us is only the petitioner's use in
court of such a factual allegation as a defense
against the respondent's claim. This alone does not
per se make the petitioners guilty of bad faith for
that defense should have been fully litigated.

G.R. No. L-11491

August 23, 1918

ANDRES QUIROGA, plaintiff-appellant,

vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza
for appellant.
Crossfield & O'Brien for appellee.

Moral damages cannot be awarded in the absence

of a wrongful act or omission or of fraud or bad
faith. (R & B Surety & Insurance Co., Inc. vs.
Intermediate Appellate Court, 129 SCRA 736).

AVANCEA, J.:
On January 24, 1911, in this city of manila, a
contract in the following tenor was entered into by
and between the plaintiff, as party of the first part,
and J. Parsons (to whose rights and obligations the
present defendant later subrogated itself), as party
of the second part:

We therefore, rule that the award of P25,000.00 as

moral damages is without basis.
The additional award of P25,000.00 damages by
way of attorney's fees, was given by the courts
below on the basis of Article 2208, Paragraph 2, of
the Civil Code, which provides: "When the
defendant's act or omission has compelled the
plaintiff to litigate with third persons or to incur
expenses to protect his interests;" attorney's fees
may be awarded as damages. (Pirovano et al. v. De
la Rama Steamship Co., 96 Phil. 335).

CONTRACT EXECUTED BY AND

BETWEEN ANDRES QUIROGA AND J.
PARSONS, BOTH MERCHANTS
ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF "QUIROGA"
BEDS IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the
exclusive right to sell his beds in the
Visayan Islands to J. Parsons under the
following conditions:

The underlying circumstances of this case lead us

to rule out any award of attorney's fees. For one
thing, the respondent did not come to court with
completely clean hands. For another, the
petitioners apparently believed they could legally
revoke the agency in the manner they did and deal
directly with education officials handling the
purchase of Philippine flags. They had reason to
sincerely believe they did not have to pay a
commission for the second delivery of flags.

(A) Mr. Quiroga shall furnish beds of his

manufacture to Mr. Parsons for the latter's
establishment in Iloilo, and shall invoice
them at the same price he has fixed for
sales, in Manila, and, in the invoices, shall
make and allowance of a discount of 25 per
cent of the invoiced prices, as commission
on the sale; and Mr. Parsons shall order the
beds by the dozen, whether of the same or
of different styles.

We cannot close this case without commenting

adversely on the inexplicably strange procurement
policies of the Department of Education and

41

(B) Mr. Parsons binds himself to pay Mr.

Quiroga for the beds received, within a
period of sixty days from the date of their
shipment.

sell the beds at higher prices than those of the

invoices; to have an open establishment in Iloilo;
itself to conduct the agency; to keep the beds on
public exhibition, and to pay for the advertisement
expenses for the same; and to order the beds by
the dozen and in no other manner. As may be seen,
with the exception of the obligation on the part of
the defendant to order the beds by the dozen and
in no other manner, none of the obligations
imputed to the defendant in the two causes of
action are expressly set forth in the contract. But
the plaintiff alleged that the defendant was his
agent for the sale of his beds in Iloilo, and that said
obligations are implied in a contract of commercial
agency. The whole question, therefore, reduced
itself to a determination as to whether the
defendant, by reason of the contract hereinbefore
transcribed, was a purchaser or an agent of the
plaintiff for the sale of his beds.

(C) The expenses for transportation and

shipment shall be borne by M. Quiroga, and
the freight, insurance, and cost of
unloading from the vessel at the point
where the beds are received, shall be paid
by Mr. Parsons.
(D) If, before an invoice falls due, Mr.
Quiroga should request its payment, said
payment when made shall be considered
as a prompt payment, and as such a
deduction of 2 per cent shall be made from
the amount of the invoice.
The same discount shall be made on the
amount of any invoice which Mr. Parsons
may deem convenient to pay in cash.

In order to classify a contract, due regard must be

given to its essential clauses. In the contract in
question, what was essential, as constituting its
cause and subject matter, is that the plaintiff was
to furnish the defendant with the beds which the
latter might order, at the price stipulated, and that
the defendant was to pay the price in the manner
stipulated. The price agreed upon was the one
determined by the plaintiff for the sale of these
beds in Manila, with a discount of from 20 to 25 per
cent, according to their class. Payment was to be
made at the end of sixty days, or before, at the
plaintiff's request, or in cash, if the defendant so
preferred, and in these last two cases an additional
discount was to be allowed for prompt payment.
These are precisely the essential features of a
contract of purchase and sale. There was the
obligation on the part of the plaintiff to supply the
beds, and, on the part of the defendant, to pay
their price. These features exclude the legal
conception of an agency or order to sell whereby
the mandatory or agent received the thing to sell
it, and does not pay its price, but delivers to the
principal the price he obtains from the sale of the
thing to a third person, and if he does not succeed
in selling it, he returns it. By virtue of the contract
between the plaintiff and the defendant, the latter,
on receiving the beds, was necessarily obliged to
pay their price within the term fixed, without any
other consideration and regardless as to whether
he had or had not sold the beds.

(E) Mr. Quiroga binds himself to give notice

at least fifteen days before hand of any
alteration in price which he may plan to
make in respect to his beds, and agrees
that if on the date when such alteration
takes effect he should have any order
pending to be served to Mr. Parsons, such
order shall enjoy the advantage of the
alteration if the price thereby be lowered,
but shall not be affected by said alteration
if the price thereby be increased, for, in
this latter case, Mr. Quiroga assumed the
obligation to invoice the beds at the price
at which the order was given.
(F) Mr. Parsons binds himself not to sell any
other kind except the "Quiroga" beds.
ART. 2. In compensation for the expenses
of advertisement which, for the benefit of
both contracting parties, Mr. Parsons may
find himself obliged to make, Mr. Quiroga
assumes the obligation to offer and give
the preference to Mr. Parsons in case
anyone should apply for the exclusive
agency for any island not comprised with
the Visayan group.

It would be enough to hold, as we do, that the

contract by and between the defendant and the
plaintiff is one of purchase and sale, in order to
show that it was not one made on the basis of a
commission on sales, as the plaintiff claims it was,
for these contracts are incompatible with each
other. But, besides, examining the clauses of this
contract, none of them is found that substantially
supports the plaintiff's contention. Not a single one
of these clauses necessarily conveys the idea of an
agency. The words commission on sales used in
clause (A) of article 1 mean nothing else, as stated
in the contract itself, than a mere discount on the
invoice price. The word agency, also used in
articles 2 and 3, only expresses that the defendant
was the only one that could sell the plaintiff's beds
in the Visayan Islands. With regard to the
remaining clauses, the least that can be said is that

ART. 3. Mr. Parsons may sell, or establish

branches of his agency for the sale of
"Quiroga" beds in all the towns of the
Archipelago where there are no exclusive
agents, and shall immediately report such
action to Mr. Quiroga for his approval.
ART. 4. This contract is made for an
unlimited period, and may be terminated
by either of the contracting parties on a
previous notice of ninety days to the other
party.
Of the three causes of action alleged by the
plaintiff in his complaint, only two of them
constitute the subject matter of this appeal and
both substantially amount to the averment that the
defendant violated the following obligations: not to

42

they are not incompatible with the contract of

purchase and sale.

In respect to the defendant's obligation to order by

the dozen, the only one expressly imposed by the
contract, the effect of its breach would only entitle
the plaintiff to disregard the orders which the
defendant might place under other conditions; but
if the plaintiff consents to fill them, he waives his
right and cannot complain for having acted thus at
his own free will.

The plaintiff calls attention to the testimony of

Ernesto Vidal, a former vice-president of the
defendant corporation and who established and
managed the latter's business in Iloilo. It appears
that this witness, prior to the time of his testimony,
had serious trouble with the defendant, had
maintained a civil suit against it, and had even
accused one of its partners, Guillermo Parsons, of
falsification. He testified that it was he who drafted
the contract Exhibit A, and, when questioned as to
what was his purpose in contracting with the
plaintiff, replied that it was to be an agent for his
beds and to collect a commission on sales.
However, according to the defendant's evidence, it
was Mariano Lopez Santos, a director of the
corporation, who prepared Exhibit A. But, even
supposing that Ernesto Vidal has stated the truth,
his statement as to what was his idea in
contracting with the plaintiff is of no importance,
inasmuch as the agreements contained in Exhibit A
which he claims to have drafted, constitute, as we
have said, a contract of purchase and sale, and not
one of commercial agency. This only means that
Ernesto Vidal was mistaken in his classification of
the contract. But it must be understood that a
contract is what the law defines it to be, and not
what it is called by the contracting parties.

For the foregoing reasons, we are of opinion that

the contract by and between the plaintiff and the
defendant was one of purchase and sale, and that
the obligations the breach of which is alleged as a
cause of action are not imposed upon the
defendant, either by agreement or by law.
The judgment appealed from is affirmed, with costs
against the appellant. So ordered.
G.R. No. L-24765

August 29, 1969

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
MAXIMO STA. MARIA, ET AL., defendant,
VALERIANA, EMETERIA, TEOFILO, QUINTIN,
ROSARIO and LEONILA, all surnamed STA.
MARIA, defendants-appellants.
Tomas Besa and Jose B. Galang for plaintiffappellee.
G.P. Nuguid, Jr. for defendants-appellants.

The plaintiff also endeavored to prove that the

defendant had returned beds that it could not sell;
that, without previous notice, it forwarded to the
defendant the beds that it wanted; and that the
defendant received its commission for the beds
sold by the plaintiff directly to persons in Iloilo. But
all this, at the most only shows that, on the part of
both of them, there was mutual tolerance in the
performance of the contract in disregard of its
terms; and it gives no right to have the contract
considered, not as the parties stipulated it, but as
they performed it. Only the acts of the contracting
parties, subsequent to, and in connection with, the
execution of the contract, must be considered for
the purpose of interpreting the contract, when such
interpretation is necessary, but not when, as in the
instant case, its essential agreements are clearly
set forth and plainly show that the contract belongs
to a certain kind and not to another. Furthermore,
the return made was of certain brass beds, and
was not effected in exchange for the price paid for
them, but was for other beds of another kind; and
for the letter Exhibit L-1, requested the plaintiff's
prior consent with respect to said beds, which
shows that it was not considered that the
defendant had a right, by virtue of the contract, to
make this return. As regards the shipment of beds
without previous notice, it is insinuated in the
record that these brass beds were precisely the
ones so shipped, and that, for this very reason, the
plaintiff agreed to their return. And with respect to
the so-called commissions, we have said that they
merely constituted a discount on the invoice price,
and the reason for applying this benefit to the beds
sold directly by the plaintiff to persons in Iloilo was
because, as the defendant obligated itself in the
contract to incur the expenses of advertisement of
the plaintiff's beds, such sales were to be
considered as a result of that advertisement.

TEEHANKEE, J.:
In this appeal certified to this Court by the Court of
Appeals as involving purely legal issues, we hold
that a special power of attorney to mortgage real
estate is limited to such authority to mortgage and
does not bind the grantor personally to other
obligations contracted by the grantee, in the
absence of any ratification or other similar act that
would estop the grantor from questioning or
disowning such other obligations contracted by the
grantee.
Plaintiff bank filed this action on February 10, 1961
against defendant Maximo Sta. Maria and his six
brothers and sisters, defendants-appellants,
Valeriana, Emeteria, Teofilo, Quintin, Rosario and
Leonila, all surnamed Sta. Maria, and the
Associated Insurance & Surety Co., Inc. as surety,
for the collection of certain amounts representing
unpaid balances on two agricultural sugar crop
loans due allegedly from defendants. 1
The said sugar crop loans were obtained by
defendant Maximo Sta. Maria from plaintiff bank
under a special power of attorney, executed in his
favor by his six brothers and sisters, defendantsappellants herein, to mortgagea 16-odd hectare
parcel of land, jointly owned by all of them, the
pertinent portion of which reads as follows:
That we, VALERIANA, EMETERIA, TEOFILO,
QUINTIN, ROSARIO and LEONILA all
surnamed STA. MARIA, sole heirs of our
deceased parents CANDIDO STA. MARIA
and FRANCISCA DE LOS REYES, all of legal

43

age, Filipinos, and residents of Dinalupihan,

Bataan, do hereby name, constitute and
appoint Dr. MAXIMO STA. MARIA, of legal
age, married, and residing at Dinalupihan,
Bataan to be our true and lawful attorney
of and in our place, name and stead to
mortgage, or convey as security to any
bank, company or to any natural or
juridical person, our undivided shares over
a certain parcel of land together the
improvements thereon which parcel of land
is more particularly described as follows, to
wit:

loan, with the notation that the bank already held a

first mortgage on the same properties for the
1951-1952 crop loan of Maximo, 4 and a 3rd
mortgage on the same properties for the 19531954 crop loan. 5
The trial court rendered judgment in favor of
plaintiff and against defendants thus:1wph1.t
WHEREFORE premises considered,
judgment is hereby rendered condemning
the defendant Maximo R. Sta. Maria and his
co-defendants Valeriana, Quintin, Rosario,
Emeteria, Teofilo, and Leonila all surnamed
Sta. Maria and the Associated Insurance
and Surety Company, Inc., jointly and
severally, to pay the plaintiff, the Philippine
National Bank, Del Carmen Branch, as
follows:

"Situated in the Barrio of Pinulot,

Municipality of Dinalupihan,
Bataan, containing an area of
16.7249 hectares and bounded as
follows to wit: North by property of
Alejandro Benito; on the Northeast,
by public land and property of
Tomas Tulop; on the southeast, by
property of Ramindo Agustin; on
the southwest, by properties of
Jose V. Reyes and Emilio Reyes; and
on the northwest, by excluded
portion claimed by Emilio Reyes."

1. On the first cause of action, the sum of

P8,500.72 with a daily interest of P0.83 on
P6,100.00 at 6% per annum beginning
August 21, 1963 until fully paid;
2. On the second cause of action, the sum
of P14,299.79 with a daily interest of P1.53
on P9,346.44 at 6% per annum until fully
paid; and

of which parcel of land aforementioned we

are together with our said attorney who is
our brother, the owners in equal undivided
shares as evidenced by Transfer Certificate
of Title No. T-2785 of the Registry of Deeds
of Bataan dated Feb. 26th 1951. (Exh. E)2

3. On both causes of action the further sum

equivalent to 10% of the total amount due
as attorney's fee as of the date of the
execution of this decision, and the costs.6

In addition, Valeriana Sta. Maria alone also

executed in favor of her brother, Maximo, a special
power of attorneyto borrow money and
mortgage any real estate owned by her, granting
him the following authority:

Defendant Maximo Sta. Maria and his surety,

defendant Associated Insurance & Surety Co., Inc.
who did not resist the action, did not appeal the
judgment. This appeals been taken by his six
brothers and sisters, defendants-appellants who
reiterate in their brief their main contention in their
answer to the complaint that under this special
power of attorney, Exh. E, they had not given their
brother, Maximo, the authority to borrow money
but only to mortgage the real estate jointly owned
by them; and that if they are liable at all, their
liability should not go beyond the value of the
property which they had authorized to be given as
security for the loans obtained by Maximo. In their
answer, defendants-appellants had further
contended that they did not benefit whatsoever
from the loans, and that the plaintiff bank's only
recourse against them is to foreclose on the
property which they had authorized Maximo to
mortgage.

For me and in my name to borrow

money and make, execute, sign and deliver
mortgages of real estate now owned by me
standing in my name and to make,
execute, sign and deliver any and all
promissory notes necessary in the
premises. (Exh. E-I)3
By virtue of the two above powers, Maximo Sta.
Maria applied for two separate crop loans, for the
1952-1953 and 1953-1954 crop years, with plaintiff
bank, one in the amount of P15,000.00, of which
only the sum of P13,216.11 was actually extended
by plaintiff, and the other in the amount of
P23,000.00, of which only the sum of P12,427.57
was actually extended by plaintiff. As security for
the two loans, Maximo Sta. Maria executed in his
own name in favor of plaintiff bank two chattel
mortgages on the standing crops, guaranteed by
surety bonds for the full authorized amounts of the
loans executed by the Associated Insurance &
Surety Co., Inc. as surety with Maximo Sta. Maria
as principal. The records of the crop loan
application further disclose that among the
securities given by Maximo for the loans were a
"2nd mortgage on 25.3023 Has. of sugarland,
including sugar quota rights therein" including, the
parcel of land jointly owned by Maximo and his six
brothers and sisters herein for the 1952-1953 crop

We find the appeal of defendants-appellants,

except for defendant Valeriana Sta. Maria who had
executed another special power of attorney, Exh.
E-1, expressly authorizing Maximo to borrow
money on her behalf, to be well taken.
1. Plaintiff bank has not made out a cause
of action against defendants-appellants
(except Valeriana), so as to hold them
liable for the unpaid balances of the loans
obtained by Maximo under the chattel
mortgages executed by him in his own
name alone. In the early case of Bank of

44

P.I. vs. De Coster, this Court, in holding that

the broad power of attorney given by the
wife to the husband to look after and
protect the wife's interests and to transact
her business did not authorize him to make
her liable as a surety for the payment of
the pre-existing debt of a third person,
cited the fundamental construction rule
that "where in an instrument powers and
duties are specified and defined, that all of
such powers and duties are limited
andconfined to those which are specified
and defined, and all other powers and
duties are excluded." 7 This is but in accord
with the disinclination of courts to enlarge
an authority granted beyond the powers
expressly given and those which
incidentally flow or derive therefrom as
being usual or reasonably necessary and
proper for the performance of such express
powers. Even before the filing of the
present action, this Court in the similar
case of De Villa vs. Fabricante 8 had already
ruled that where the power of attorney
given to the husband by the wife was
limited to a grant of authority to mortgage
a parcel of land titled in the wife's name,
the wife may not be held liable for the
payment of the mortgage debt contracted
by the husband, as the authority to
mortgage does not carry with it the
authority to contract obligation. This Court
thus held in the said case:

Since the power of attorney was

not presented as evidence, the trial
court was correct in presuming that
the power was merely limited to a
grant of authority to mortgage
unless the contrary is shown.9
2. The authority granted by defendantsappellants (except Valeriana) unto their
brother, Maximo, was merely to mortgage
the property jointly owned by them. They
did not grant Maximo any authority to
contract for any loans in their names and
behalf. Maximo alone, with Valeriana who
authorized him to borrow money, must
answer for said loans and the other
defendants-appellants' only liability is that
the real estate authorized by them to be
mortgaged would be subject to foreclosure
and sale to respond for the obligations
contracted by Maximo. But they cannot be
held personally liable for the payment of
such obligations, as erroneously held by
the trial court.
3. The fact that Maximo presented to the
plaintiff bank Valeriana's additional special
power of attorney expressly authorizing
him to borrow money, Exh. E-1, aside from
the authority to mortgage executed by
Valeriana together with the other
defendants-appellants also in Maximo's
favor, lends support to our view that the
bank was not satisfied with the authority to
mortgage alone. For otherwise, such
authority to borrow would have been
deemed unnecessary and a surplusage.
And having failed to require that Maximo
submit a similar authority to borrow, from
the other defendants-appellants, plaintiff,
which apparently was satisfied with the
surety bond for repayment put up by
Maximo, cannot now seek to hold said
defendants-appellants similarly liable for
the unpaid loans. Plaintiff's argument that
"a mortgage is simply an accessory
contract, and that to effect the mortgage, a
loan has to be secured" 10 falls, far short of
the mark. Maximo had indeed, secured the
loan on his own account and the
defendants-appellants had authorized him
to mortgage their respective undivided
shares of the real property jointly owned by
them as security for the loan. But that was
the extent of their authority land
consequent liability, to have the real
property answer for the loan in case of
non-payment. It is not unusual in family
and business circles that one would allow
his property or an undivided share in real
estate to be mortgaged by another as
security, either as an accommodation or for
valuable consideration, but the grant of
such authority does not extend to
assuming personal liability, much less
solidary liability, for any loan secured by
the grantee in the absence of express
authority so given by the grantor.

Appellant claims that the trial court

erred in holding that only Cesario
A. Fabricante is liable to pay the
mortgage debt and not his wife
who is exempt from liability. The
trial court said: "Only the
defendant Cesario A. Fabricante is
liable for the payment of this
amount because it does not appear
that the other defendant Maria G.
de Fabricante had authorized
Cesario A. Fabricante to contract
the debt also in her name. The
power of attorney was not
presented and it is to be presumed
that the power (of attorney) was
limited to a grant of authority to
Cesario A. Fabricante to mortgage
the parcel of land covered by
Transfer Certificate of Title in the
name of Maria G. de Fabricante.
We went over the contents of the
deed of mortgage executed by
Cesario Fabricante in favor of
Appellant on April 18, 1944, and
there is really nothing therein from
which we may infer that Cesario
was authorized by his wife to
construct the obligation in her
name. The deed shows that the
authority was limited to the
execution of the mortgage insofar
as the property of the wife is
concerned. There is a difference
between authority to mortgage and
authority to contract obligation.

4. The outcome might be different if there

had been an express ratification of the

45

loans by defendants-appellants or if it had

been shown that they had been benefited
by the crop loans so as to put them in
estoppel. But the burden of establishing
such ratification or estoppel falls squarely
upon plaintiff bank. It has not only failed to
discharge this burden, but the record
stands undisputed that defendantappellant Quintin Sta. Maria testified that
he and his co-defendants executed the
authority to mortgage "to accommodate
(my) brother Dr. Maximo Sta. Maria ... and
because he is my brother, I signed it to
accommodate him as security for whatever
he may apply as loan. Only for that land,
we gave him as, security" and that "we
brothers did not receive any centavo as
benefit." 11 The record further shows
plaintiff bank itself admitted during the trial
that defendants-appellants "did not profit
from the loan" and that they "did not
receive any money (the loan proceeds)
from (Maximo)." 12 No estoppel, therefore,
can be claimed by plaintiff as against
defendants-appellants.

WHEREFORE, the judgment of the trial court

against defendants-appellants Emeteria, Teofilo,
Quintin, Rosario and Leonila, all surnamed Sta.
Maria is hereby reversed and set aside, with costs
in both instances against plaintiff. The judgment
against defendant-appellant Valeriana Sta. Maria is
modified in that her liability is held to be joint and
not solidary, and the award of attorney's fees is
reduced as set forth in the preceding paragraph,
without costs in this instance.

5. Now, as to the extent of defendant

Valeriana Sta. Maria's liability to plaintiff.
As already stated above, Valeriana stands
liable not merely on the mortgage of her
share in the property, but also for the loans
which Maximo had obtained from plaintiff
bank, since she had expressly granted
Maximo the authority to incur such loans.
(Exh. E-1.) Although the question has not
been raised in appellants' brief, we hold
that Valeriana's liability for the loans
secured by Maximo is not joint and
several or solidary as adjudged by the trial
court, but only joint, pursuant to the
provisions of Article 1207 of the Civil Code
that "the concurrence ... of two or more
debtors in one and the same obligation
does not imply that ... each one of the
(debtors) is bound to render entire
compliance with the prestation. There is a
solidary liability only when the obligation
expressly so states, or when the law or the
nature of the obligation requires solidarity."
It should be noted that in the additional
special power of attorney, Exh. E-1,
executed by Valeriana, she did not grant
Maximo the authority to bind her solidarity
with him on any loans he might secure
thereunder.

STREET, J.:

G.R. No. L-30181

July 12, 1929

THE DIRECTOR OF PUBLIC WORKS, plaintiffappellee,

vs.
SING JUCO, ET AL., defendants.
SING JUCO, SING BENGCO and PHILIPPINE
NATIONAL BANK, appellants.
Roman J. Lacson for appellant National Bank.
Soriano and Nepomuceno for appellants Sing Juco
and Sing Bengco.
Attorney-General Jaranilla for appellee.

From Torrens certificate of title No. 1359 relating to

land in the municipality of Iloilo, it appears that on
September 28, 1920, the title of the property
described therein was owned, in undivided shares,
by Mariano de la Rama, Gonzalo Mariano
Tanboontien, Sing Juco and Sing Bengco. The
interest vested by said certificate in Mariano de la
Rama was subsequently transferred to sale to
Enrique Enchaus. It further appears that on
November 23, 1020, the owners of the property
covered by the said certificate conveyed it by way
of a mortgage to the Philippine National Bank for
the purpose of securing a credit in current account
in a mount not in excess of P170,000, with interest
at a rate of 12 percent per annum. The
indebtedness covered by this mortgage has not
been satisfied, and upon the date of the decision of
the court below it amounted to the sum of
P170,000, plus interest at 12 percent per annum
from November 24, 1920.
The land above referred to contains an area of
nearly 16 hectares, or to be exact, 158,589.44
square meters according to the certificate. It is
located on "Point Llorente" at the mouth of Iloilo
river, near the City of Iloilo, and it is of so low a
level that, prior to the improvement to which
reference is to be made, it was subject to frequent
flooding. In 1921, the Government of the Philippine
Islands was planning extensive harbor
improvements in this vicinity, requiring extensive
dredging by the Bureau of Public Works in the
mouth of said river. The conduct of these dredging
operations made it necessary for the Director of
Public Works to find a place of deposit for the dirt
and mud taken from the place, or places, dredged.
As the land already referred to was low and easily
accessible to the spot where dredging was to be
conducted, it was obviously for the interest of the
Government and the said owners of the land that
the material taken out by the dredges should be
deposited on the said property. Accordingly, after
preliminary negotiations to this effect have been

6. Finally, as to the 10% award of

attorney's fees, this Court believes that
considering the resources of plaintiff bank
and the fact that the principal debtor,
Maximo Sta. Maria, had not contested the
suit, an award of five (5%) per cent of the
balance due on the principal, exclusive of
interests, i.e., a balance of P6,100.00 on
the first cause of action and a balance of
P9,346.44 on the second cause of action,
per the bank's statements of August 20,
1963, (Exhs. Q-1 and BB-1, respectively)
should be sufficient.

46

conducted, a contract was made between the

Director of Public Works, representing the
Government of the Philippine Islands, and the four
owners, M. de la Rama, Sing Juco, G. M.
Tanboontien, and Seng Bengco, of which, as
modified by some respects by subsequent
agreement, the following features are noteworthy.

of Tan Toco, was also made defendant by reason of

her supposed liability derived from the act of De la
Rama in signing the firm "Casa Viuda de Tan Toco"
as a surety on bond. It was noteworthy that in the
complaint it was asked that, in the enforcement of
the government's lien, the property should be sold
"subject to the first mortgage in favor of the
Philippine National Bank."

(1) The Bureau of Public Works agreed to deposit

the material to be dredged by it from the Iloilo
River, in connection with the contempted
improvement, upon the lot of the land, already
described as covered by certificate No. 1359, at a
price to be determined at the actual cost of the
filling, with certain surcharges to be determined by
the Director of Public Works. It was contemplated in
the original draft of the contract that the Bureau
would be able to furnish some 250,000 cubic
meters of dredged material for filling in the land,
was limited to the material which should be
dredged from the river as a result of the proposed
improvement. To this stipulation the four owners of
the property assented on March 14, 1921.

To this complaint different defenses were set up, as

follows: On behalf of the owners of the property, it
was contended that the government has not
complied with that contract, in that dredged
material deposited on the land had not been
sufficient in quantity to raise the level of the land
above high water, and that, as a consequence, the
land had not been much benefited. It is therefore
asserted that the owners of the property are not
obligated to pay the filling operation. These
defendants sought to recover further damages by
way of cross-complaint for the same supposed
breach of contract on the part of the Government.
On the part of Viuda de Tan Toco the defense was
interposed that the name "Casa Viuda de Tan Toco"
signed to the contract of suretyship by Mariano de
la Rama was signed without authority; while on the
part of the Philippine National Bank was asserted
that the mortgage credit pertaining to the bank is
superior to the Governments lien for improvement,
and by way of counterclaim the bank asked that its
mortgage be foreclosed for the amount of its
mortgage credit, and that the four mortgagors,
Sing Juco, Sing Bengco, M. de la Rama and G.M.
Tanboontien, be required to pay the amount due to
the bank, and that in case of their failure to do so
the mortgaged property should be sold and the
proceeds paid preferentially to the bank upon its
mortgage.

(2) With respect to the compensation it was agreed

that the amount due should be determined by the
Director of Public Works, under certain conditions
mentioned in the contract, of an amount of not less
that 20 nor more than 75 centavos per cubic
meter. It was further agreed that, when the work
should be finished, the cost thereof should be paid
by the owners in 5 annual installments and that for
failure to pay such installment the whole of the
amount thereafter to accrue should become at
once due. This contract was noted in the Torrens
certificate of title on January 8, 1924.
In connection with the making of the contract
abovementioned, the, Director of Public Works
required a bond to be supplied by the owners in
the penal amount of P150,000, approximately
twice the estimated cost of the filling, conditioned
for the payment of the amount due from the
owners. This bond was executed
contemporaneously with the main contract; and in
connection therewith it should be noted that one of
the names appearing upon said contract was that
of "Casa Viuda de Tan Toco," purporting to be
signed by M. de la Rama.

Upon hearing the cause the trial court, ignoring

that part of the original complaint wherein the
Government seeks to enforce its lien in
subordination to its first mortgage, made
pronouncements:
(1) Declaring Sing Juco, Sing Bengco, M. de
la Rama and G. M. Tanboontien indebted to
the Government in the amount of P70, 938,
with interest from the date of the filing of
the complaint, and requiring them to pay
the said sum to the plaintiff;

The dredging operation were conducted by the

Bureau of Public Works in substantial accomplice,
we find, with the terms of said agreement; and
after the account with the owners were liquidated
and the amount due from them determined,
demand was made upon them for the payment of
the first installment. No such payment was,
however, made as a consequence this action was
instituted by the Director of Public Works on
October 14, 1926, for the purpose of recovering
the amount due to the Government under the
contract from the original owners of the property
from the sureties whose names were signed to the
contract of suretyship, and to enforce the
obligation as a real lien upon the property. In said
action the Philippine National Bank was made a
party defendant, as having an interest under its
prior mortgage upon the property, while Enrique
Enchaus was made defendant as successor in
interest of M. de la Rama, and Tan Ong Sze widow

(2) Declaring, in effect, that the lien of the

Government for the filing improvement was
superior to the mortgage of the Philippine
National Bank; and finally
(3) Declaring the defendant Tan Ong Sze,
Viuda de Tan Toco, personally liable upon
the contract of suretyship, in case the four
principal obligors should not satisfy their
indebtedness to the Government, or if the
land should not sell enough to satisfy the
same.
From this judgment various parties defendant
appealed as follows: All of the defendants, except
the Philippine National Bank, appealed from so
much of the decision as held that the defendant
owners and signatories to the contract of

47

suretyship has not been released by nonperformance of the contract on the part of the
Bureau of Public Works, and from the refusal of the
court to give to the defendant owners damages for
breach of contract on the part of the Government.
On the part of Tan Ong Sze, Viuda de Tan Toco,
error is assigned to the action of the court in
holding said defendant liable upon the contract of
suretyship. Finally, the Philippine National Bank
appealed from so much of the decision as gave the
lien of the Government for improvement priority
over the mortgagee executed in favor of the bank.

the contract of suretyship, is our pinion, wellfounded. It will be remembered that said contract
purports to have been signed by Mariano de la
Rama, acting for this defendant under the power of
attorney. But the Government has exhibited no
power of attorney which would authorize the
creation, by the attorney-in-fact, of an obligation in
the nature of suretyship binding upon this
principal.
It is true that the Government introduced in
evidence 2 documents exhibiting powers of
attorney, conferred by these documents (Exhibit K,
identical with Exhibit 5) Mariano de la Rama was
given the power which reads as follows:

Dealing with these contentions in the order

indicated, we find the contention of the appellants
(except the Philippine National Bank), to the effect
that the Director of Public Works has failed to
comply with the obligations imposed upon the
government by the contract, is wholly untenable.
By said contract, the Government was not
obligated to raise the land on which the dredged
material was deposited to any specified level. The
Government only obligated itself upon said land
the material should be dredged from the mouth of
the Iloilo River in the course of the improvement
undertaken by the Government in and near that
place. Under the original contract as originally
drafted, the Government agreed to furnish 250,000
cubic meters, more or less, of dredged material;
but on Mar. 14, 1921, the owners of the property
indicated their acceptance of a modification of the
contract effected by the Director of Public Works
and the Secretary of Commerce and
Communications, in which it was made clear that
the material to be supplied would be such only as
should be dredged from the river as a result of the
proposed improvement. In the endorsement of the
Director of Public Works, thus accepted by the
owners, it was made clear that the Bureau of Public
Works did not undertake to furnish material to
complete the filling of the land to any specified
level. Proof submitted on the part of the owners
tends to show that parts of the filled land are still
subject to inundation in rainy weather; and it is
contended, that the owners have, for this reason,
been able to sell in lots the property to individual
occupants. the sum of P15,000, which is claimed
upon this account, as damages by the owners, is
the amount of interest alleged to have been
accrued upon their investment, owing to their
inability to place the land advantageously upon the
market. The claim is, as already suggested,
untenable. There has been no breach on the part of
the Government in fulfilling the contract. In fact it
appears that the Government deposited in the
period covered by the contract 236,460 cubic
meters, and after the amount thus deposited had
been reduced by 21,840 cubic meters, owing to the
natural process of drying, the Bureau of Public
Works further deposited 53,000 cubic meters on
the same land. In this connection, the district
engineer testified that the filling which has been
charged to the owners at P70,938 actually cost the
Government the amount of P88,297.85. The charge
made for the work was evidently computed on a
very moderate basis; and the owners of the
property have no just ground of complaint
whatever.

. . . and also for me and in my name to

sign, seal and execute, and as my act and
deed deliver, any lease or any other deed
for the conveying any real or personal
property or the other matter or thing
wherein I am or may be personally
interested or concerned. And I do hereby
further authorize and empower my said
attorney to substitute and point any other
attorney or attorneys under him for the
purposes aforesaid, and the same again
and pleasure to revoke; and generally for
me and in my name to do, perform, and
execute all and any other lawful and
reasonable acts and things whatsoever as
fully and effectually as I, the said Tan Ong
Sze might or could do if personally present.
In another document, (Exhibits L and M), executed
in favor of the same Mariano de la Rama by his
uncle Tan Lien Co, attorney-in-fact of Tan Ong Sze,
with power of substitution, there appears the
following:
. . . and also for her and for her name to
sign, seal and execute, and as her act and
deed deliver, any lease, release, bargain,
sale, assignment, conveyance or
assurance, any other deed for the
conveying any real or personal property or
other matter or thing wherein she or may
be personally interested or concerned.
Neither of these powers officially confers upon
Mariano de la Rama the power to bind a principal
by a contract of suretyship. The clauses noted
relate more specifically to the execution of
contracts relating to property; and the more
general words at the close of the quoted clauses
should be interpreted, under the general
rule ejusdem generis, as referring to the contracts
of like character. Power to execute a contract so
exceptional a nature as a contract of suretyship or
guaranty cannot be inferred from the general
words contained in these powers.
In article 1827 of the Civil Code it is declared that
guaranty shall not be presumed; it must be
expressed and cannot be extended beyond its
specified limits. By analogy a power of attorney to
execute a contract of guaranty should not be
inferred from vague or general words, especially
when such words have their origin and explanation
in particular powers of a wholly different nature. It

The contention of Tan Ong Sze, widow of Tan Toco,

to the effect that she was not, and is not, bound by

48

results that the trial court was in error in giving

personal judgment against Tan Ong Sze upon the
bond upon which she was sued in this case.

to doubt; and again the result is that priority must

be conceded to the mortgage. The mortgage was
created by the lawful owners at a time when no
other competing interest existed in the property.
The lien of the mortgage therefore attached to the
fee, or unlimited interest of the owners in the
property. On the other hand, the lien created by the
filling contract was created after the mortgage had
been made and registered, and therefore, after the
owners of the property had parted with the interest
created by the mortgage. The Government's lien
owes its origin to the contract, and derives its
efficacy from the volition of the contracting parties.
But no party can by contract create a right in
another intrinsically greater than that which he
himself possess. The owners, at the time this
contract was made, were owners of the equity of
redemption only and not of the entire interest in
the property, and the lien created by the contract
could only operate upon the equity of redemption.

We now proceed to consider the last important

disputed question involved in this case, which is,
whether the indebtedness owing to the
Government under the contract for filling the
parcel of land already mentioned is entitled to
preference over the mortgage credit due to the
Philippine National Bank, as the trial judge held, or
whether on the contrary, the latter claim is entitled
to priority over the claim of the Government Upon
entering into the discussion of the feature of the
case it is well to recall the fact that the bank's
mortgage was registered in the office of the
Register of Deeds of the province of Iloilo on
November 26, 1920, while the filing contract was
registered on January 8, 1924, that is to say, there
is a priority of more than three years, in point of
time, in the inscription of the mortgage credit
under the filling contract was made an express lien
upon the property which was the subject of
improvement.

In this connection, we observed that, as the new

material was deposited from the Government
dredges upon the property in question, it became
an integral part of the soil and an irremovable
fixture; and the deposit having been made under
contract between the Government and the owners
of the equity of redemption, without the
concurrence of the mortgage creditor in said
contract the latter could not be prejudiced thereby.
The trial court, in declaring that the Government's
lien should have preference over the mortgage,
seems to have proceeded upon the idea that, at
the time the mortgage was created, the new soil
had yet been deposited under the filling contract
and that as a consequence the mortgage lien
should not been considered as attaching to the
value added by deposit of the additional material.
This proposition, however, overlooks the fact that
the deposited material became an irremovable
fixture, by the act and intention of the parties to
the filling contract, and the lien of the mortgage
undoubtedly attached to the increment thus spread
over and affixed to the mortgaged land. If the idea
which prevailed in the trial court should be
accepted as law upon this point, the result would
be that a mortgage creditor could, by the act of
strangers, be entirely proved out of his property by
making of improvements to which he has not
assented. This cannot be accepted as good law.

In the brief submitted in behalf of the bank it

appears to be assumed that the Government credit
under the filling contract is a true refectionary
credit (credito refacionario) under subsection 2 of
Article 1923 of the Civil Code. It may be observed,
however, that in a precise and technical sense, this
credit is not exactly of the nature of the
refectionary credit as known to the civil law. In the
civil law the refectionary credit is primarily an
indebtedness incurred in the repair or
reconstruction of something previously made, such
repair or reconstruction being made necessary by
the deterioration or destruction as it formerly
existed. The conception does not ordinarily include
an entirely new work, though Spanish
jurisprudence appears to have sanctioned this
broader conception in certain cases as may be
gathered from the decision in the Enciclopedia
Juridica Espanola (vol. 26, pp. 888-890) s.
v.Refaccionario. The question whether the credit
we are considering falls precisely under the
conception of the refectionary credit in the civil law
is in this case academic rather than practical, for
the reason that by the express terms of the filling
contract the credit was constituted a lien upon the
improved property. But assuming, as might be
tenable in the state of jurisprudence, that said
credit is a refectionary credit enjoying preference
under subsection 3 or article 1923 of the Civil
code , then the mortgage credit must be given
priority under subsection 2 of the article 1927 of
the same code, for the reason that the mortgage
was registered first.

We may add that the case cannot, on this point, be

resolved favorably to the contention of the Director
of Public Works, upon the authority of Unson vs.
Urquijo, Zuluoaga and Escubi (50 Phil., 160), for the
reason that upon the deposit of the dredged
material on the land such material lost its identity.
In the case cited the machinery in respect to which
the vendor's preference was upheld by this court
retained its separate existence and remained
perfectly capable of identification at all times.

Possibly the simpler view of the situation is to

consider the Government's right under the
stipulation expressly making the credit a lien upon
the property, for it was certainly lawful for the
parties to the filling contract to declare the credit a
lien upon the property to be improved to the
extent hereinafter define whether the credit
precisely fulfills the conception of refectionary
credit or not. In this aspect we have before us a
competition between the real lien created by the
filling contract of the later registration. The true
solution to the problem is, in our opinion, not open

From what it has been said it results that the

appealed judgment must be affirmed, and the
same is hereby affirmed, in dismissing, in effect,
the cross-complaint filed by some of the
defendants against the plaintiff, the Director of
Public Works. Such judgment is further affirmed in
its findings, which are not dispute, with respect to
the amount of the Government's claim under the
filling contract and the amount of mortgage credit

49

of the bank, as it is also affirmed in respect to the

joint and several judgment entered in favor of the
plaintiff against Sing Juco, Sing Bengco,
Tanboontien and Mariano de la Rama Tanbunco
(alias Mariano de la Rama) for the amount due to
the Government

Thereupon, Gallardo delivered to Aquino both the

special power of attorney and her owner's copy of
Transfer Certificate of Title No. S-79238 (19963-A).
On August 26, 1981, a Deed of Real Estate
Mortgage was executed by Rufino S. Aquino in
favor of the Rural Bank of Bombon (Camarines
Sur), Inc. (hereafter, defendant Rural Bank) over
the three parcels of land covered by TCT No. S79238. The deed stated that the property was
being given as security for the payment of "certain
loans, advances, or other accommodations
obtained by the mortgagor from the mortgagee in
the total sum of Three Hundred Fifty Thousand
Pesos only (P350,000.00), plus interest at the rate
of fourteen (14%) per annum . . ." (p. 11, Rollo).

Said judgment, however, must be reversed and the

same is being reversed in so far as it holds that Tan
Ong Sze, Viuda de Tan Toco, is liable upon the
contract of suretyship, and she is hereby absolved
from the complaint. The judgment must also be
reversed in so far as it declares that the
Government's lien under the filling contract is
entitled to priority over the bank's mortgage. On
the contrary it is hereby declared that the bank's
credit is entitled to priority out of the proceeds of
the foreclosure sale, the residue, if any, to be
applied to the Government's lien created by the
filling contract and otherwise in accordance with
law. For further proceedings in conformity with this
opinion, the cause is hereby remanded to the
cause of origin, without pronouncements as to
costs. So ordered.

On January 6, 1984, the spouses Ederlinda Gallardo

and Daniel Manzo filed an action against Rufino
Aquino and the Bank because Aquino allegedly left
his residence at San Pascual, Hagonoy, Bulacan,
and transferred to an unknown place in Bicol. She
discovered that Aquino first resided at Sta. Isabel,
Calabanga, Camarines Sur, and then later, at San
Vicente, Calabanga, Camarines Sur, and that they
(plaintiffs) were allegedly surprised to discover that
the property was mortgaged to pay personal loans
obtained by Aquino from the Bank solely for
personal use and benefit of Aquino; that the
mortgagor in the deed was defendant Aquino
instead of plaintiff Gallardo whose address up to
now is Manuyo, Las Pias, M.M., per the title (TCT
No. S-79238) and in the deed vesting power of
attorney to Aquino; that correspondence relative to
the mortgage was sent to Aquino's address at "Sta.
Isabel, Calabanga, Camarines Sur" instead of
Gallardo's postal address at Las Pias, Metro
Manila; and that defendant Aquino, in the real
estate mortgage, appointed defendant Rural Bank
as attorney in fact, and in case of judicial
foreclosure as receiver with corresponding power
to sell and that although without any express
authority from Gallardo, defendant Aquino waived
Gallardo's rights under Section 12, Rule 39, of the
Rules of Court and the proper venue of the
foreclosure suit.

G.R. No. 95703 August 3, 1992

RURAL BANK OF BOMBON (CAMARINES SUR),
INC., petitioner,
vs.
HON. COURT OF APPEALS, EDERLINDA M.
GALLARDO, DANIEL MANZO and RUFINO S.
AQUINO,respondents.
L.M. Maggay & Associates for petitioner.

GRIO-AQUINO, J.:
This petition for review seeks reversal of the
decision dated September 18, 1990 of the Court of
Appeals, reversing the decision of the Regional Trial
Court of Makati, Branch 150, which dismissed the
private respondents' complaint and awarded
damages to the petitioner, Rural Bank of Bombon.

On January 23, 1984, the trial court, thru the

Honorable Fernando P. Agdamag, temporarily
restrained the Rural Bank "from enforcing the real
estate mortgage and from foreclosing it either
judicially or extrajudicially until further orders from
the court" (p.36, Rollo).

On January 12, 1981, Ederlinda M. Gallardo,

married to Daniel Manzo, executed a special power
of attorney in favor of Rufina S. Aquino authorizing
him:
1. To secure a loan from any bank
or lending institution for any
amount or otherwise mortgage the
property covered by Transfer
Certificate of Title No. S-79238
situated at Las Pias, Rizal, the
same being my paraphernal
property, and in that connection, to
sign, or execute any deed of
mortgage and sign other document
requisite and necessary in securing
said loan and to receive the
proceeds thereof in cash or in
check and to sign the receipt
therefor and thereafter endorse the
check representing the proceeds of
loan. (p. 10, Rollo.)

Rufino S. Aquino in his answer said that the plaintiff

authorized him to mortgage her property to a bank
so that he could use the proceeds to liquidate her
obligation of P350,000 to him. The obligation to
pay the Rural Bank devolved on Gallardo. Of late,
however, she asked him to pay the Bank but
defendant Aquino set terms and conditions which
plaintiff did not agree to. Aquino asked for payment
to him of moral damages in the sum of P50,000
and lawyer's fees of P35,000.
The Bank moved to dismiss the complaint and filed
counter-claims for litigation expenses, exemplary
damages, and attorney's fees. It also filed a
crossclaim against Aquino for P350,000 with

50

interest, other bank charges and damages if the

mortgage be declared unauthorized.

Both assignments of error boil down to the lone

issue of the validity of the Deed of Real Estate
Mortgage dated August 26, 1981, executed by
Rufino S. Aquino, as attorney-in-fact of Ederlinda
Gallardo, in favor of the Rural Bank of Bombon
(Cam. Sur), Inc.

Meanwhile, on August 30, 1984, the Bank filed a

complaint against Ederlinda Gallardo and Rufino
Aquino for "Foreclosure of Mortgage" docketed as
Civil Case No. 8330 in Branch 141, RTC Makati. On
motion of the plaintiff, the foreclosure case and the
annulment case (Civil Case No. 6062) were
consolidated.

The Rural Bank contends that the real estate

mortgage executed by respondent Aquino is valid
because he was expressly authorized by Gallardo
to mortgage her property under the special power
of attorney she made in his favor which was duly
registered and annotated on Gallardo's title. Since
the Special Power of Attorney did not specify or
indicate that the loan would be for Gallardo's
benefit, then it could be for the use and benefit of
the attorney-in-fact, Aquino.

On January 16, 1986, the trial court rendered a

summary judgment in Civil Case No. 6062,
dismissing the complaint for annulment of
mortgage and declaring the Rural Bank entitled to
damages the amount of which will be determined
in appropriate proceedings. The court lifted the writ
of preliminary injunction it previously issued.

However, the Court of Appeals ruled otherwise. It

held:

On April 23, 1986, the trial court, in Civil Case No.

8330, issued an order suspending the foreclosure
proceedings until after the decision in the
annulment case (Civil Case No. 6062) shall have
become final and executory.

The Special Power of Attorney

above quoted shows the extent of
authority given by the plaintiff to
defendant Aquino. But defendant
Aquino in executing the deed of
Real Estate Mortgage in favor of
the rural bank over the three
parcels of land covered by
Gallardo's title named himself as
the mortgagor without stating that
his signature on the deed was for
and in behalf of Ederlinda Gallardo
in his capacity as her attorney-infact.

The plaintiff in Civil Case No. 6062 appealed to the

Court of Appeals, which on September 18, 1990,
reversed the trial court. The dispositive portion of
the decision reads:
UPON ALL THESE, the summary
judgment entered by the lower
court is hereby REVERSED and in
lieu thereof, judgment is hereby
RENDERED, declaring the deed of
real estate mortgage dated August
26, 1981, executed between Rufino
S. Aquino with the marital consent
of his wife Bibiana Aquino with the
appellee Rural Bank of Bombon,
Camarines Sur, unauthorized, void
and unenforceable against plaintiff
Ederlinda Gallardo; ordering the
reinstatement of the preliminary
injunction issued at the onset of
the case and at the same time,
ordering said injunction made
permanent.

At the beginning of the deed

mention was made of "attorney-infact of Ederlinda H. Gallardo," thus:
" (T)his MORTGAGE executed by
Rufino S. Aquino attorney in fact of
Ederlinda H. Gallardo, of legal age,
Filipino, married to Bibiana
Panganiban with postal address at
Sta. Isabel . . .," but which of itself,
was merely descriptive of the
person of defendant Aquino.
Defendant Aquino even signed it
plainly as mortgagor with the
marital consent yet of his wife
Bibiana P. Aquino who signed the
deed as "wife of mortgagor."

Appellee Rural Bank to pay the

costs. (p. 46, Rollo.)
Hence, this petition for review by the Rural Bank of
Bombon, Camarines Sur, alleging that the Court of
Appeals erred:

xxx xxx xxx

The three (3) promissory notes
respectively dated August 31,
1981, September 23, 1981 and
October 26, 1981, were each
signed by Rufino Aquino on top of a
line beneath which is written
"signature of mortgagor" and by
Bibiana P. Aquino on top of a line
under which is written "signature of
spouse," without any mention that
execution thereof was for and in
behalf of the plaintiff as mortgagor.
It results, borne out from what
were written on the deed, that the
amounts were the personal loans of

1. in declaring that the Deed of

Real Estate Mortgage was
unauthorized, void, and
unenforceable against the private
respondent Ederlinda Gallardo; and
2. in not upholding the validity of
the Real Estate Mortgage executed
by Rufino S. Aquino as attorney-infact for Gallardo, in favor of the
Rural Bank of Bombon, (Cam. Sur),
Inc.

51

defendant Aquino. As pointed out

by the appellant, Aquino's wife has
not been appointed co-agent of
defendant Aquino and her
signature on the deed and on the
promissory notes can only mean
that the obligation was personally
incurred by them and for their own
personal account.

Bank and not as the agent or attorney-in-fact of

Gallardo. The Court of Appeals further observed:
It will also be observed that the
deed of mortgage was executed on
August 26, 1981 therein clearly
stipulating that it was being
executed "as security for the
payment of certain loans, advances
or other accommodation obtained
by the Mortgagor from the
Mortgagee in the total sum of
Three Hundred Fifty Thousand
Pesos only (P350,000.00)" although
at the time no such loan or
advance had been obtained. The
promissory notes were dated
August 31, September 23 and
October 26, 1981 which were
subsequent to the execution of the
deed of mortgage. The appellant is
correct in claiming that the
defendant Rural Bank should not
have agreed to extend or
constitute the mortgage on the
properties of Gallardo who had no
existing indebtedness with it at the
time.

The deed of mortgage stipulated

that the amount obtained from the
loans shall be used or applied only
for "fishpond (bangus and sugpo
production)." As pointed out by the
plaintiff, the defendant Rural Bank
in its Answer had not categorically
denied the allegation in the
complaint that defendant Aquino in
the deed of mortgage was the
intended user and beneficiary of
the loans and not the plaintiff. And
the special power of attorney could
not be stretched to include the
authority to obtain a loan in said
defendant Aquino's own benefit.
(pp. 40-41, Rollo.)
The decision of the Court of Appeals is correct. This
case is governed by the general rule in the law of
agency which this Court, applied in "Philippine
Sugar Estates Development Co. vs. Poizat," 48 Phil.
536, 538:

Under the facts the defendant

Rural Bank appeared to have
ignored the representative capacity
of Aquino and dealt with him and
his wife in their personal
capacities. Said appellee Rural
Bank also did not conduct an
inquiry on whether the subject
loans were to benefit the interest of
the principal (plaintiff Gallardo)
rather than that of the agent
although the deed of mortgage was
explicit that the loan was for
purpose of the bangus and sugpo
production of defendant Aquino.

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. Neither
is it ordinarily sufficient that in the
mortgage the agent describes
himself as acting by virtue of a
power of attorney, if in fact the
agent has acted in his own name
and has set his own hand and seal
to the mortgage. This is especially
true where the agent himself is a
party to the instrument. However
clearly the body of the mortgage
may show and intend that it shall
be the act of the principal, yet,
unless in fact it is executed by the
agent for and on behalf of his
principal and as the act and deed
of the principal, it is not valid as to
the principal.

In effect, with the execution of the

mortgage under the circumstances
and assuming it to be valid but
because the loan taken was to be
used exclusively for Aquino's
business in the "bangus" and
"sugpo" production, Gallardo in
effect becomes a surety who is
made primarily answerable for
loans taken by Aquino in his
personal capacity in the event
Aquino defaults in such payment.
Under Art. 1878 of the Civil Code,
to obligate the principal as a
guarantor or surety, a special
power of attorney is required. No
such special power of attorney for
Gallardo to be a surety of Aquino
had been executed. (pp. 4243, Rollo.)

In view of this rule, Aquino's act of signing the

Deed of Real Estate Mortgage in his name alone as
mortgagor, without any indication that he was
signing for and in behalf of the property owner,
Ederlinda Gallardo, bound himself alone in his
personal capacity as a debtor of the petitioner

Petitioner claims that the Deed of Real Estate

Mortgage is enforceable against Gallardo since it
was executed in accordance with Article 1883
which provides:

52

Art. 1883. If an agent acts in his

own name, the principal has no
right of action against the persons
with whom the agent has
contracted; neither have such
persons against the principal.

Defendant-appellant Damaso Perez has presented

a motion for new trial on the ground of newly
discovered evidence. It is claimed that movant was
not aware of the nature of the power of attorney
that Ramon Racelis used, purportedly signed by
him, to secure the loans for the Republic Armored
Car Service Corporation and the Republic Credit
Corporation. In the motion it is claimed that a
photostatic copy of the power of attorney used by
Ramon Racelis was presented at the trial. This
photostatic copy or a copy thereof has not been
submitted to us, for this reason We cannot rule
upon his claim and contention that Ramon Racelis
had no authority to bind the movant as surety for
the loans obtained from the appellee Commercial
Bank & Trust Company. Not having before Us the
supposed photostatic copy of the power of attorney
used to secure the loans, there is no reason for Us
to rule, in accordance with his contention, that
Racelis exceeded his authority in securing the
loans subject of the present actions.

In such case the agent is the one

directly bound in favor of the
person with whom he has
contracted, as if the transaction
were his own, except when the
contract involves things belonging
to the principal.
The above provision of the Civil Code relied upon
by the petitioner Bank, is not applicable to the case
at bar. Herein respondent Aquino acted purportedly
as an agent of Gallardo, but actually acted in his
personal capacity. Involved herein are properties
titled in the name of respondent Gallardo against
which the Bank proposes to foreclose the mortgage
constituted by an agent (Aquino) acting in his
personal capacity. Under these circumstances, we
hold, as we did in Philippine Sugar Estates
Development Co. vs. Poizat, supra, that Gallardo's
property is not liable on the real estate mortgage:

The motion for reconsideration, however, presents

a copy of a power of attorney purportedly executed
by movant on October 22, 1952. It is not expressly
mentioned that this is the precise power of
attorney that Ramon Racelis Utilized to secure the
loans the collection of which is sought in these
cases. But assuming, for the sake of argument,
that the said power of attorney incorporated in the
motion for reconsideration was the one used to
obtain the loans. We find that the movant's
contention has no merit. In accordance with the
document, Racelis was authorized to negotiate for
a loan or various loans .. with other being
institution, financing corporation, insurance
companies or investment corporations, in such sum
or sums, aforesaid Attorney-in-fact Mr. Ramon
Racelis, may deem proper and convenient to my
interests, ... and to execute any and all documents
he deems requisite and necessary in order to
obtain such loans, always having in mind best
interest; ... We hold that this general power
attorney to secure loans from any banking institute
was sufficient authority for Ramon Racelis to obtain
the credits subject of the present suits.

There is no principle of law by

which a person can become liable
on a real mortgage which she
never executed either in person or
by attorney in fact. It should be
noted that this is a mortgage upon
real property, the title to which
cannot be divested except by sale
on execution or the formalities of a
will or deed. For such reasons, the
law requires that a power of
attorney to mortgage or sell real
property should be executed with
all of the formalities required in a
deed. For the same reason that the
personal signature of Poizat,
standing alone, would not convey
the title of his wife in her own real
property, such a signature would
not bind her as a mortgagor in real
property, the title to which was in
her name. (p. 548.)

It will be noted furthermore that Racelis, as agent

Damaso Perez, executed the documents evidencing
the loans signing the same "Damaso Perez by
Ramon Racelis," and in the said contracts Damaso
Perez agreed jointly and severally to be responsible
for the loans. As the document as signed makes
Perez jointly and severally responsible, there is no
merit in the contention that Perez was only being
held liable as a guarantor.1awphl.nt

WHEREFORE, finding no reversible error in the

decision of the Court of Appeals, we AFFIRM it in
toto. Costs against the petitioner.
G.R. Nos. L-18223 and L-18224
September 30, 1963

Furthermore, the promissory notes evidencing the

loan are attached to the complaint in G.R. Nos. L182 and L-18224. If the movant Perez claims that
Raceli had no authority to execute the said
promissory notes, the authenticity of said
documents should have been specifically denied
under oath in defendant's answers in the lower
court. This was done; consequently Perez could not
and may not now claim that his agent did not have
authority to execute the loan agreements.

COMMERCIAL BANK & TRUST COMPANY OF

THE PHILIPPINES, plaintiff-appellee,
vs.
REPUBLIC ARMORED CAR SERVICE
CORPORATION and DAMASO PEREZ, ET
AL., defendants-appellants.
RESOLUTION

Motion for new trial is denied.

LABRADOR, J.:

53

G.R. No. L-39037

October 30, 1933

On November 9, 1920, the defendant-appellant Paz

Agudelo y Gonzaga executed in favor of her
nephew, Mauro A. Garrucho, the document Exhibit
K conferring upon him a special power of attorney
sufficiently broad in scope to enable him to sell,
alienate and mortgage in the manner and form he
might deem convenient, all her real estate situated
in the municipalities of Murcia and Bacolod,
Occidental Negros, consisting in lots Nos. 61 and
207 of the cadastral survey of Bacolod, Occidental
Negros, together with the improvement thereon.

THE PHILIPPINE NATIONAL BANK, plaintiffappellee,

vs.
PAZ AGUDELO Y GONZAGA, ET
AL., defendants.
PAZ AGUDELO Y GONZAGA, appellant.
Hilado and Hilado and Norberto Romualdez for
appellant.
Roman J. Lacson for appellee.

On December 22, 1920, Amparo A. Garrucho

executed the document Exhibit H whereby she
conferred upon her brother Mauro A Garrucho a
special power of attorney sufficiently broad in
scope to enable him to sell, alienate, mortgage or
otherwise encumber, in the manner and form he
might deem convenient, all her real estate situated
in the municipalities of Murcia and Bago,
Occidental Negros.

VILLA-REAL, J.:
The defendant Paz Agudelo y Gonzaga appeals to
this court from the judgment rendered by the Court
of First Instance of Occidental Negros, the
dispositive part of which reads as follows:

Nothing in the aforesaid powers of attorney

expressly authorized Mauro A. Garrucho to contract
any loan nor to constitute a mortgage on the
properties belonging to the respective principals, to
secure his obligations.

Wherefore, judgment is rendered herein

absolving the defendant Mauro A. Garrucho
from the complaint and ordering the
defendant Paz Agudelo y Gonzaga to pay to
the plaintiff the sum of P31,091.55,
Philippine currency, together with the
interest on the balance of P20,774.73 at 8
per cent per annum of P4.55 daily from July
16, 1929, until fully paid, plus the sum of
P1,500 as attorney's fees, and the costs of
this suit.

On December 23, 1920, Mauro A. Garrucho

executed in the favor of the plaintiff entity, the
Philippine National bank, the document Exhibit G,
whereby he constituted a mortgage on lot No. 878
of the cadastral survey of Murcia, Occidental
Negros, with all the improvements thereon,
described in transfer certificate of title No. 2415
issued in the name of Amparo A. Garrucho, to
secure the payment of credits, loans, commercial
overdrafts, etc., not exceeding P6,000, together
with interest thereon, which he might obtain from
the aforesaid plaintiff entity, issuing the
corresponding promissory note to that effect.

It is hereby ordered that in case the above

sums adjudged in favor of the defendant
by virtue of this judgment are not paid to
the Philippine National Bank or deposited in
the office of the clerk of this court, for
delivery to the plaintiff, within three
months from the date of this decision, the
provincial sheriff of Occidental Negros shall
set at public auction the mortgaged
properties described in annex E of the
second amended complaint, and apply the
proceeds thereof to the payment of the
sums in question.

During certain months of the year 1921 and 1922,

Mauro A. Garrucho maintained a personal current
account with the plaintiff bank in the form of a
commercial credit withdrawable through checks
(Exhibits S, 1 and T).
On August 24, 1931, the said Mauro A. Garrucho
executed in favor of the plaintiff entity, the
Philippine National Bank, the document Exhibit J
whereby he constituted a mortgage on lots Nos. 61
and 207 of the cadastral survey of Bacolod
together with the buildings and improvements
thereon, described in original certificates of title
Nos. 2216 and 1148, respectively, issued in the
name of Paz Agudelo y Gonzaga, to secure the
payment of credits, loans and commercial
overdrafts which the said bank might furnish him to
the amount of P16,00, payable on August 24, 1922,
executing the corresponding promissory note to
that effect.

It is further ordered that in case the

proceeds of the mortgaged properties are
not sufficient to cover the amount of this
judgment, a writ of execution be issued
against any other property belonging to the
defendant Paz Agudelo y Gonzaga, not
otherwise exempt from execution, to cover
the balance resulting therefrom.
In support of her appeal, the appellant assigns six
alleged errors as committed by the trial court,
which we shall discuss in the course of this
decision.

The mortgage deeds Exhibit G and J as well as the

corresponding promissory notes for P6,000 and
P16,000, respectively, were executed in Mauro A.
Garrucho's own name and signed by him in his
personal capacity, authorizing the mortgage
creditor, the Philippine National Bank, to take
possession of the mortgaged properties, by means

The following pertinent facts, which have been

proven without dispute during the trial, are
necessary for the decision of the questions raised
in the present appeal, to wit:

54

of force if necessary, in case he failed to comply

with any of the conditions stipulated therein.

deed executed by Miss Amparo A. Garrucho

in favor of the Philippine National Bank.

On January 4, 1922, the manager of the Iloilo

branch of the Philippine National Bank notified
Mauro A. Garrucho that his promissory note for
P6,000 of 10 days within which to make payment
thereof (Exhibit O).1awphil.net

In testimony whereof, I hereunto affix my

signature in the City of Manila, P.I., this
15th of January, 1926.
(Sgd.) PAZ AGUDELO Y GONZAGA.

On May 9, 1922, the said manager notified Mauro

A. Garrucho that his commercial credit was closed
from that date (Exhibit S).

Pursuant to the sale made by Amparo A. Garrucho

in favor of Paz Agudelo y Gonzaga, of lot No. 878 of
the cadastral survey of Murcia, described in
certificate of title No. 2145 issued in the name of
said Amparo A. Garrucho, and to the affidavit,
Exhibit N, transfer certificate of title No. 5369 was
issued in the name of Paz Agudelo y Gonzaga.

Inasmuch as Mauro A. Garrucho had overdrawn his

credit with the plaintiff-appellee, the said manager
thereof, in a letter dated June 27, 1922 (Exhibit T),
requested him to liquidate his account amounting
to P15,148.15, at the same time notifying him that
his promissory note for P16,000 giving as security
for the commercial overdraft in question, had fallen
due some time since.

Without discussing and passing upon whether or

not the powers of attorney issued in favor of Mauro
A. Garrucho by his sister, Amparo A. Garrucho, and
by his aunt, Paz Agudelo y Gonzaga, respectively,
to mortgage their respective real estate,
authorized him to obtain loans secured by
mortgage in the properties in question, we shall
consider the question of whether or not Paz
Agudelo y Gonzaga is liable for the payment of the
loans obtained by Mauro A. Garrucho from the
Philippine National Bank for the security of which
he constituted a mortgage on the aforesaid real
estate belonging to the defendant-appellant Paz
Agudelo y Gonzaga.

On July 15, 1922, Mauro A. Garrucho, executed in

favor of the plaintiff entity the deed Exhibit C
whereby he constituted a mortgage on lots Nos. 61
and 207 of the cadastral survey of Bacolod,
together with the improvements thereon, described
in transfer certificates of title Nos. 2216 and 1148,
respectively, issued in the name of Paz Agudelo y
Gonzaga, and on lot No. 878 of the cadastral
survey of Murcia, described in transfer certificate of
title No. 2415, issued in the name of Amparo A.
Garrucho.

Article 1709 of the Civil Code provides the

following:

In connection of the credits, loans, and commercial

overdrafts amounting to P21,000 which had been
granted him, Mauro A. Garrucho, on the said date
July 15, 1922, executed the promissory note,
Exhibit B, for P21,000 as a novation of the former
promissory notes for P6,000 and P16,000,
respectively.

ART. 1709. By the contract of agency, one

person binds himself to render some
service, or to do something for the account
or at the request of another.
And article 1717 of the same Code provides as
follows:

In view of the aforesaid consolidated mortgage,

Exhibit C, the Philippine National Bank, on the said
date of July 15, 1922, cancelled the mortgages
constituted on lots Nos. 61, 207 and 878 described
in Torrens titles Nos. 2216, 1148 and 2415,
respectively.

ART. 1717. When an agent acts in his own

name, the principal shall have no right of
action against the persons with whom the
agent has contracted, or such persons
against the principal.

On November 25, 1925, Amparo A. Garrucho sold

lot No. 878 described in certificate of title No.
2415, to Paz Agudelo y Gonzaga (Exhibit M).

In such case, the agent is directly liable to

the person with whom he has contracted,
as if the transaction were his own. Cases
involving things belonging to the principal
are excepted.

On January 15, 1926, in the City of Manila, Paz

Agudelo y Gonzaga signed the affidavit, Exhibit N,
which reads as follows:

The provisions of this article shall be

understood to be without prejudice to
actions between principal and agent.

Know all men by these presents: That I, Paz

Agudelo y Gonzaga, single, of age, and
resident of the City of Manila, P. I., by these
present do hereby agree and consent to
the transfer in my favor of lot No. 878 of
the Cadastre of Murcia, Occidental Negros,
P. I., by Miss Amparo A. Garrucho, as
evidenced by the public instrument dated
November 25, 1925, executed before the
notary public Mr. Genaro B. Benedicto, and
do hereby further agree to the amount of
the lien thereon stated in the mortgage

Aside from the phrases "attorney in fact of his

sister, Amparo A. Garrucho, as evidenced by the
power of attorney attached hereto" and "attorney
in fact of Paz Agudelo y Gonzaga" written after the
name of Mauro A. Garrucho in the mortgage deeds,
Exhibits G. and J, respectively, there is nothing in
the said mortgage deeds to show that Mauro A.
Garrucho is attorney in fact of Amparo A. Garrucho
and of Paz Agudelo y Gonzaga, and that he

55

obtained the loans mentioned in the aforesaid

mortgage deeds and constituted said mortgages as
security for the payment of said loans, for the
account and at the request of said Amparo A.
Garrucho and Paz Agudelo y Gonzaga. The abovequoted phrases which simply described his legal
personality, did not mean that Mauro A. Garrucho
obtained the said loans and constituted the
mortgages in question for the account, and at the
request, of his principals. From the titles as well as
from the signatures therein, Mauro A. Garrucho,
appears to have acted in his personal capacity. In
the aforesaid mortgage deeds, Mauro A. Garrucho,
in his capacity as mortgage debtor, appointed the
mortgage creditor Philippine National Bank as his
attorney in fact so that it might take actual and full
possession of the mortgaged properties by means
of force in case of violation of any of the conditions
stipulated in the respective mortgage contracts. If
Mauro A. Garrucho acted in his capacity as mere
attorney in fact of Amparo A. Garrucho and of Paz
Agudelo y Gonzaga, he could not delegate his
power, in view of the legal principle of"delegata
potestas delegare non potest" (a delegated power
cannot be delegated), inasmuch as there is nothing
in the records to show that he has been expressly
authorized to do so.

of the principal is not valid as to the

principal.
It has been intimated, and the trial judge so stated.
that it was the intention of the parties that Mauro
A. Garrucho would execute the promissory note,
Exhibit B, and the mortgage deed, Exhibit C, in his
capacity as attorney in facts of Paz Agudelo y
Gonzaga, and that although the terms of the
aforesaid documents appear to be contrary to the
intention of the parties, such intention should
prevail in accordance with article 1281 of the Civil
Code.
Commenting on article 1281 of the Civil Code,
Manresa, in his Commentaries to the Civil Code,
says the following:
IV. Intention of the contracting parties; its
appreciation. In order that the intention
may prevail, it is necessary that the
question of interpretation be raised, either
because the words used appear to be
contrary thereto, or by the existence of
overt acts opposed to such words, in which
the intention of the contracting parties is
made manifest. Furthermore, in order that
it may prevail against the terms of the
contract, it must be clear or, in other
words, besides the fact that such intention
should be proven by admissible evidence,
the latter must be of such charter as to
carry in the mind of the judge an
unequivocal conviction. This requisite as to
the kind of evidence is laid down in the
decision relative to the Mortgage Law of
September 30, 1891, declaring that article
1281 of the Civil Code gives preference to
intention only when it is clear. When the
aforesaid circumstances is not present in a
document, the only thing left for the
register of deeds to do is to suspend the
registration thereof, leaving the solution of
the problem to the free will of the parties or
to the decision of the courts.

He executed the promissory notes evidencing the

aforesaid loans, under his own signature, without
authority from his principal and, therefore, were
not binding upon the latter (2 Corpus Juris, pp. 630637, par. 280). Neither is there anything to show
that he executed the promissory notes in question
for the account, and at the request, of his
respective principals (8 Corpus Juris, pp. 157-158).
Furthermore, it is noted that the mortgage deeds,
Exhibits C and J, were cancelled by the documents,
Exhibits I and L, on July 15, 1922, and in their stead
the mortgage deed, Exhibit C, was executed, in
which there is absolutely no mention of Mauro A.
Garrucho being attorney in fact of anybody, and
which shows that he obtained such credit fro
himself in his personal capacity and secured the
payment thereof by mortgage constituted by him
in his personal capacity, although on properties
belonging to his principal Paz Agudelo y Gonzaga.

However, the evident intention which

prevails against the defective wording
thereof is not that of one of the parties, but
the general intent, which, being so, is to a
certain extent equivalent to mutual
consent, inasmuch as it was the result
desired and intended by the contracting
parties. (8 Manresa, 3d edition, pp. 726
and 727.)

Furthermore, the promissory notes executed by

Mauro A. Garrucho in favor of the Philippine
National Bank, evidencing loans of P6,000 and
P16,000 have been novated by the promissory
notes for P21,000 (Exhibit B) executed by Mauro A.
Garrucho, not only without express authority from
his principal Paz Agudelo y Gonzaga but also under
his own signature.

Furthermore, the records do not show that the loan

obtained by Mauro A. Garrucho, evidenced by the
promissory note, Exhibit B, was for his principal Paz
Agudelo y Gonzaga. The special power of attorney,
Exhibit K, does not authorize Mauro A. Garrucho to
constitute a mortgage on the real estate of his
principal to secure his personal obligations.
Therefore, in doing so by virtue of the document,
Exhibit C, he exceeded the scope if his authority
and his principal is not liable for his acts. (2 Corpus
Juris, p. 651; article 1714, Civil Code.)

In the case of National Bank vs. Palma Gil (55 Phil.,

639), this court laid down the following doctrine:
A promissory note and two mortgages
executed by the agent for and on behalf of
his principal, in accordance with a power of
attorney executed by the principal in favor
of the agent, are valid, and as provided by
article 1727 of contracted by the agent;
but a mortgage on real property of the
principal not made and signed in the name

It is further claimed that inasmuch as the

properties mortgaged by Mauro A. Garrucho belong

56

to Paz Agudelo y Gonzaga, the latter is responsible

for the acts of the former although he acted in his
own name, in accordance with the exception
contained in article 1717 of the Civil Code. It would
be an exception with the properties of his own
name in connection with the properties of his
principal, does so within the scope of his authority.
It is noted that Mauro A. Garrucho was not
authorized to execute promissory notes even in the
name of his principal Paz Agudelo y Gonzaga, nor
to constitute a mortgage on her real properties to
secure such promissory notes. The plaintiff
Philippine National Bank should know this
inasmuch as it is in duty bound to ascertain the
extent of the agent's authority before dealing with
him. Therefore, Mauro A. Garrucho and not Paz
Agudelo y Gonzaga is personally liable for the
amount of the promissory note Exhibit B. (2 Corpus
Juris, pp. 563-564.)

cadastral survey of Murcia, Occidental Negros,

described in Torrens title No. 2415. However,
inasmuch as the principal obligator, Mauro A.
Garrucho, has been absolved from the complaint
and the plaintiff- appellee has not appealed from
the judgment absolving him, the law does not
afford any remedy whereby Paz Agudelo y Gonzaga
may be required to comply with the said subsidiary
obligation in view of the legal maxim that the
accessory follows the principal. Wherefore, the
defendant herein should also be absolved from the
complaint which is hereby dismissed, with the
costs against the appellee. So ordered.
G.R. No. 129919

February 6, 2002

DOMINION INSURANCE
CORPORATION, petitioner,
vs.
COURT OF APPEALS, RODOLFO S. GUEVARRA,
and FERNANDO AUSTRIA, respondents.

However, Paz Agudelo y Gonzaga in an affidavit

dated January 15, 1926 (Exhibit AA), and in a letter
dated January 16, 1926 (Exhibit Z), gave her
consent to the lien on lot No. 878 of the cadastre of
Murcia, Occidental Negros, described in Torrens
title No. 5369, the ownership of which was
transferred to her by her niece Amparo A.
Garrucho. This acknowledgment, however, does
not extend to lots Nos. 207 and 61 of the cadastral
survey of Bacolod, described in transfer certificates
of title Nos. 1148 and 2216, respectively, inasmuch
as, although it is true that a mortgage is indivisible
as to the contracting parties and as top their
successors in interest (article 1860, Civil Code), it is
not so with respect to a third person who did not
take part in the constitution thereof either
personally or through an agent, inasmuch as he
can make the acknowledgment thereof in the form
and to the extent he may deem convenient, on the
ground that he is not in duty bound to
acknowledge the said mortgage. Therefore, the
only liability of the defendant-appellant Paz
Agudelo y Gonzaga is that which arises from the
aforesaid acknowledgment, but only with respect
to the lien and not to the principal obligation
secured by the mortgage acknowledged by her to
have been constituted on said lot No. 878 of the
cadastral survey of Murcia, Occidental Negros.
Such liability is not direct but a subsidiary one.

DECISION
PARDO, J.:
The Case
This is an appeal via certiorari1 from the decision of
the Court of Appeals2 affirming the decision3 of the
Regional Trial Court, Branch 44, San Fernando,
Pampanga, which ordered petitioner Dominion
Insurance Corporation (Dominion) to pay Rodolfo S.
Guevarra (Guevarra) the sum of
P156,473.90 representing the total amount
advanced by Guevarra in the payment of the
claims of Dominions clients.
The Facts
The facts, as found by the Court of Appeals, are as
follows:
"On January 25, 1991, plaintiff Rodolfo S. Guevarra
instituted Civil Case No. 8855 for sum of money
against defendant Dominion Insurance
Corporation. Plaintiff sought to recover thereunder
the sum of P156,473.90 which he claimed to have
advanced in his capacity as manager of defendant
to satisfy certain claims filed by defendants
clients.

Having reach this contention, it is unnecessary to

pass upon the other questions of law raised by the
defendant- appellant in her brief and upon the law
cited therein.

"In its traverse, defendant denied any liability to

plaintiff and asserted a counterclaim for
P249,672.53, representing premiums that plaintiff
allegedly failed to remit.

In view of the foregoing consideration, we are of

the opinion and so hold that when an agent
negotiates a loan in his personal capacity and
executes a promissory note under his own
signature, without express authority from his
principal, giving as security therefor real estate
belonging to the letter, also in his own name and
not in the name and representation of the said
principal, the obligation do constructed by him is
personal and does not bind his aforesaid principal.

"On August 8, 1991, defendant filed a third-party

complaint against Fernando Austria, who, at the
time relevant to the case, was its Regional
Manager for Central Luzon area.
"In due time, third-party defendant Austria filed his
answer.

Wherefore, it is hereby held that the liability

constructed by the aforesaid defendant-appellant
Paz Agudelo y Gonzaga is merely subsidiary to that
of Mauro A. Garrucho, limited lot No. 878 of the

"Thereafter the pre-trial conference was set on the

following dates: October 18, 1991, November 12,

57

1991, March 29, 1991, December 12, 1991,

January 17, 1992, January 29, 1992, February 28,
1992, March 17, 1992 and April 6, 1992, in all of
which dates no pre-trial conference was held. The
record shows that except for the settings on
October 18, 1991, January 17, 1992 and March 17,
1992 which were cancelled at the instance of
defendant, third-party defendant and plaintiff,
respectively, the rest were postponed upon joint
request of the parties.

of merit and that it further failed to allege or

specify the facts constituting his meritorious
defense.
"On September 28, 1992 defendant moved for
reconsideration of the aforesaid order. For the first
time counsel revealed to the trial court that the
reason for his nonappearance at the pre-trial
conference was his illness. An Affidavit of Merit
executed by its Executive Vice-President purporting
to explain its meritorious defense was attached to
the said Motion. Just the same, in an Order dated
November 13, 1992, the trial court denied said
Motion.

"On May 22, 1992 the case was again called for
pre-trial conference. Only plaintiff and counsel
were present. Despite due notice, defendant and
counsel did not appear, although a messenger, Roy
Gamboa, submitted to the trial court a handwritten
note sent to him by defendants counsel which
instructed him to request for postponement.
Plaintiffs counsel objected to the desired
postponement and moved to have defendant
declared as in default. This was granted by the trial
court in the following order:

"On November 18, 1992, the court a quo rendered

judgment as follows:
"WHEREFORE, premises considered, judgment is
hereby rendered ordering:
"1. The defendant Dominion Insurance
Corporation to pay plaintiff the sum of
P156,473.90 representing the total amount
advanced by plaintiff in the payment of the
claims of defendants clients;

"ORDER
"When this case was called for pre-trial this
afternoon only plaintiff and his counsel Atty. Romeo
Maglalang appeared. When shown a note dated
May 21, 1992 addressed to a certain Roy who was
requested to ask for postponement, Atty.
Maglalang vigorously objected to any
postponement on the ground that the note is but a
mere scrap of paper and moved that the defendant
corporation be declared as in default for its failure
to appear in court despite due notice.

"2. The defendant to pay plaintiff

P10,000.00 as and by way of attorneys
fees;
"3. The dismissal of the counter-claim of
the defendant and the third-party
complaint;

"Finding the verbal motion of plaintiffs counsel to

be meritorious and considering that the pre-trial
conference has been repeatedly postponed on
motion of the defendant Corporation, the
defendant Dominion Insurance Corporation is
hereby declared (as) in default and plaintiff is
allowed to present his evidence on June 16, 1992
at 9:00 oclock in the morning.

"4. The defendant to pay the costs of suit."4

On December 14, 1992, Dominion appealed the
decision to the Court of Appeals.5
On July 19, 1996, the Court of Appeals promulgated
a decision affirming that of the trial court.6 On
September 3, 1996, Dominion filed with the Court
of Appeals a motion for reconsideration. 7 On July
16, 1997, the Court of Appeals denied the motion.8

"The plaintiff and his counsel are notified of this

order in open court.

Hence, this appeal.9

"SO ORDERED.

The Issues

"Plaintiff presented his evidence on June 16, 1992.

This was followed by a written offer of
documentary exhibits on July 8 and a supplemental
offer of additional exhibits on July 13, 1992. The
exhibits were admitted in evidence in an order
dated July 17, 1992.

The issues raised are: (1) whether respondent

Guevarra acted within his authority as agent for
petitioner, and (2) whether respondent Guevarra is
entitled to reimbursement of amounts he paid out
of his personal money in settling the claims of
several insured.

"On August 7, 1992 defendant corporation filed a

MOTION TO LIFT ORDER OF DEFAULT. It alleged
therein that the failure of counsel to attend the pretrial conference was due to an unavoidable
circumstance and that counsel had sent his
representative on that date to inform the trial court
of his inability to appear. The Motion was
vehemently opposed by plaintiff.

The Court's Ruling

The petition is without merit.
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.10 The basis for
agency is representation.11 On the part of the
principal, there must be an actual intention to

"On August 25, 1992 the trial court denied

defendants motion for reasons, among others, that
it was neither verified nor supported by an affidavit

58

appoint12 or an intention naturally inferrable from

his words or actions; 13 and on the part of the agent,
there must be an intention to accept the
appointment and act on it,14 and in the absence of
such intent, there is generally no agency. 15

"Article 1878. Special powers of attorney are

necessary in the following cases:
"(1) To make such payments as are not usually
considered as acts of administration;

A perusal of the Special Power of Attorney 16 would

show that petitioner (represented by third-party
defendant Austria) and respondent Guevarra
intended to enter into a principal-agent
relationship. Despite the word "special" in the title
of the document, the contents reveal that what
was constituted was actually a general agency. The
terms of the agreement read:

"x x x

xxx

xxx

"(15) Any other act of strict dominion."

The payment of claims is not an act of
administration. The settlement of claims is not
included among the acts enumerated in the Special
Power of Attorney, neither is it of a character
similar to the acts enumerated therein. A special
power of attorney is required before respondent
Guevarra could settle the insurance claims of the
insured.

"That we, FIRST CONTINENTAL ASSURANCE

COMPANY, INC.,17 a corporation duly organized and
existing under and by virtue of the laws of the
Republic of the Philippines, xxx represented by the
undersigned as Regional Manager, xxx do hereby
appoint RSG Guevarra Insurance Services
represented by Mr. Rodolfo Guevarra xxx to be our
Agency Manager in San Fdo., for our place and
stead, to do and perform the following acts and
things:

Respondent Guevarras authority to settle claims is

embodied in the Memorandum of Management
Agreement23dated February 18, 1987 which
enumerates the scope of respondent Guevarras
duties and responsibilities as agency manager for
San Fernando, Pampanga, as follows:

"1. To conduct, sign, manager (sic), carry

on and transact Bonding and Insurance
business as usually pertain to a Agency
Office, or FIRE, MARINE, MOTOR CAR,
PERSONAL ACCIDENT, and BONDING with
the right, upon our prior written consent, to
appoint agents and sub-agents.

"x x x

xxx

xxx

"1. You are hereby given authority to settle

and dispose of all motor car claims in the
amount of P5,000.00 with prior approval of
the Regional Office.

"2. To accept, underwrite and subscribed

(sic) cover notes or Policies of Insurance
and Bonds for and on our behalf.

"2. Full authority is given you on TPPI

claims settlement.
"xxx

"3. To demand, sue, for (sic) collect,

deposit, enforce payment, deliver and
transfer for and receive and give effectual
receipts and discharge for all money to
which the FIRST CONTINENTAL ASSURANCE
COMPANY, INC.,18 may hereafter become
due, owing payable or transferable to said
Corporation by reason of or in connection
with the above-mentioned appointment.

xxx

x x x "24

In settling the claims mentioned above, respondent

Guevarras authority is further limited by the
written standard authority to pay,25 which states
that the payment shall come from respondent
Guevarras revolving fund or collection. The
authority to pay is worded as follows:
"This is to authorize you to withdraw from your
revolving fund/collection the amount of PESOS
__________________ (P ) representing the payment on
the _________________ claim of assured
_______________ under Policy No. ______ in that
accident of ___________ at ____________.

"4. To receive notices, summons, and legal

processes for and in behalf of the FIRST
CONTINENTAL ASSURANCE COMPANY, INC.,
in connection with actions and all legal
proceedings against the said
Corporation."19 [Emphasis supplied]

"It is further expected, release papers will be

signed and authorized by the concerned and
attached to the corresponding claim folder after
effecting payment of the claim.

The agency comprises all the business of the

principal,20 but, couched in general terms, it is
limited only to acts of administration.21

"(sgd.) FERNANDO C. AUSTRIA

Regional Manager"26

A general power permits the agent to do all acts for

which the law does not require a special
power.22 Thus, the acts enumerated in or similar to
those enumerated in the Special Power of Attorney
do not require a special power of attorney.

[Emphasis supplied]
The instruction of petitioner as the principal could
not be any clearer.1wphi1 Respondent Guevarra
was authorized to pay the claim of the insured, but
the payment shall come from the revolving fund or
collection in his possession.

Article 1878, Civil Code, enumerates the instances

when a special power of attorney is required. The
pertinent portion that applies to this case provides
that:

59

Having deviated from the instructions of the

principal, the expenses that respondent Guevarra
incurred in the settlement of the claims of the
insured may not be reimbursed from petitioner
Dominion. This conclusion is in accord with Article
1918, Civil Code, which states that:

IN VIEW WHEREOF, we DENY the Petition.

However, we MODIFY the decision of the Court of
Appeals28 and that of the Regional Trial Court,
Branch 44, San Fernando, Pampanga, 29 in that
petitioner is ordered to pay respondent Guevarra
the amount of P112,672.11 representing the total
amount advanced by the latter in the payment of
the claims of petitioners clients.

"The principal is not liable for the expenses

incurred by the agent in the following cases:

G.R. No. 75640

"(1) If the agent acted in contravention of
the principals instructions, unless the
latter should wish to avail himself of the
benefits derived from the contract;
"xxx

xxx

April 5, 1990

NATIONAL FOOD AUTHORITY, (NFA), petitioner,

vs.
INTERMEDIATE APPELLATE COURT, SUPERIOR
(SG) SHIPPING CORPORATION, respondents.

xxx"
Zapanta, Gloton & Ulejorada for petitioner.
Sison, Ortiz & Associates for private respondents.

However, while the law on agency prohibits

respondent Guevarra from obtaining
reimbursement, his right to recover may still be
justified under the general law on obligations and
contracts.

PARAS, J.:
Article 1236, second paragraph, Civil Code,
provides:

This is a petition for review on certiorari made by

National Food Authority (NFA for brevity) then
known as the National Grains Authority or NGA
from the decision 1 of the Intermediate Appellate
Court affirming the decision 2 of the trial court, the
decretal portion of which reads:

"Whoever pays for another may demand from the

debtor what he has paid, except that if he paid
without the knowledge or against the will of the
debtor, he can recover only insofar as the payment
has been beneficial to the debtor."

WHEREFORE, defendants Gil Medalla and

National Food Authority are ordered to pay
jointly and severally the plaintiff:

In this case, when the risk insured against

occurred, petitioners liability as insurer
arose.1wphi1 This obligation was extinguished
when respondent Guevarra paid the claims and
obtained Release of Claim Loss and Subrogation
Receipts from the insured who were paid.

a. the sum of P25,974.90, with

interest at the legal rate from
October 17, 1979 until the same is
fully paid; and,

Thus, to the extent that the obligation of the

petitioner has been extinguished, respondent
Guevarra may demand for reimbursement from his
principal. To rule otherwise would result in unjust
enrichment of petitioner.

b. the sum of P10,000.00 as and for

attorney's fees.
Costs against both defendants.

The extent to which petitioner was benefited by the

settlement of the insurance claims could best be
proven by the Release of Claim Loss and
Subrogation Receipts27 which were attached to the
original complaint as Annexes C-2, D-1, E-1, F-1, G1, H-1, I-1 and J-l, in the total amount of
P116,276.95.

SO ORDERED. (p. 22, Rollo)

Hereunder are the undisputed facts as established
by the then Intermediate Appellate Court (now
Court of Appeals), viz:
On September 6, 1979 Gil Medalla, as
commission agent of the plaintiff Superior
Shipping Corporation, entered into a
contract for hire of ship known as "MV Sea
Runner" with defendant National Grains
Authority. Under the said contract Medalla
obligated to transport on the "MV Sea
Runner" 8,550 sacks of rice belonging to
defendant National Grains Authority from
the port of San Jose, Occidental Mindoro, to
Malabon, Metro Manila.

However, the amount of the revolving

fund/collection that was then in the possession of
respondent Guevarra as reflected in the statement
of account dated July 11, 1990 would be deducted
from the above amount.
The outstanding balance and the
production/remittance for the period corresponding
to the claims was P3,604.84. Deducting this from
P116,276.95, we get P112,672.11. This is the
amount that may be reimbursed to respondent
Guevarra.

Upon completion of the delivery of rice at

its destination, plaintiff on October 17,
1979, wrote a letter requesting defendant
NGA that it be allowed to collect the

The Fallo

60

amount stated in its statement of account

(Exhibit "D"). The statement of account
included not only a claim for freightage but
also claims for demurrage and stevedoring
charges amounting to P93,538.70.

who deals with an agent acquires no right against

the undisclosed principal."
Petitioner NFA's contention holds no water. It is an
undisputed fact that Gil Medalla was a commission
agent of respondent Superior Shipping Corporation
which owned the vessel "MV Sea Runner" that
transported the sacks of rice belonging to
petitioner NFA. The context of the law is clear. Art.
1883, which is the applicable law in the case at bar
provides:

On November 5, 1979, plaintiff wrote again

defendant NGA, this time specifically
requesting that the payment for freightage
and other charges be made to it and not to
defendant Medalla because plaintiff was
the owner of the vessel "MV Sea Runner"
(Exhibit "E"). In reply, defendant NGA on
November 16, 1979 informed plaintiff that
it could not grant its request because the
contract to transport the rice was entered
into by defendant NGA and defendant
Medalla who did not disclose that he was
acting as a mere agent of plaintiff (Exhibit
"F"). Thereupon on November 19, 1979,
defendant NGA paid defendant Medalla the
sum of P25,974.90, for freight services in
connection with the shipment of 8,550
sacks of rice (Exhibit "A").

Art. 1883. If an agent acts in his own name,

the principal has no right of action against
the persons with whom the agent has
contracted; neither have such persons
against the principal.
In such case the agent is the one directly
bound in favor of the person with whom he
has contracted, as if the transaction were
his own, except when the contract involves
things belonging to the principal.
The provision of this article shall be
understood to be without prejudice to the
actions between the principal and agent.

On December 4, 1979, plaintiff wrote

defendant Medalla demanding that he turn
over to plaintiff the amount of P27,000.00
paid to him by defendant NFA. Defendant
Medalla, however, "ignored the demand."

Consequently, when things belonging to the

principal (in this case, Superior Shipping
Corporation) are dealt with, the agent is bound to
the principal although he does not assume the
character of such agent and appears acting in his
own name. In other words, the agent's apparent
representation yields to the principal's true
representation and that, in reality and in effect, the
contract must be considered as entered into
between the principal and the third person (Sy Juco
and Viardo v. Sy Juco, 40 Phil. 634). Corollarily, if
the principal can be obliged to perform his duties
under the contract, then it can also demand the
enforcement of its rights arising from the contract.

Plaintiff was therefore constrained to file

the instant complaint.
Defendant-appellant National Food
Authority admitted that it entered into a
contract with Gil Medalla whereby plaintiffs
vessel "MV Sea Runner" transported 8,550
sacks of rice of said defendant from San
Jose, Mindoro to Manila.
For services rendered, the National Food
Authority paid Gil Medalla P27,000.00 for
freightage.

WHEREFORE, PREMISES CONSIDERED, the petition

is hereby DENIED and the appealed decision is
hereby AFFIRMED.

Judgment was rendered in favor of the

plaintiff. Defendant National Food Authority
appealed to this court on the sole issue as
to whether it is jointly and severally liable
with defendant Gil Medalla for freightage.
(pp. 61-62, Rollo)

G.R. No. 137471

January 16, 2002

GUILLERMO ADRIANO, petitioner,

vs.
ROMULO PANGILINAN, respondent.

The appellate court affirmed the judgment of the

lower court, hence, this appeal by way of certiorari,
petitioner NFA submitting a lone issue to wit:
whether or not the instant case falls within the
exception of the general rule provided for in Art.
1883 of the Civil Code of the Philippines.

PANGANIBAN, J.:
Loss brought about by the concurrent negligence of
two persons shall be borne by the one who was in
the immediate, primary and overriding position to
prevent it. In the present case, the mortgagee -who is engaged in the business of lending money
secured by real estate mortgages -- could have
easily avoided the loss by simply exercising due
diligence in ascertaining the identity of the
impostor who claimed to be the registered owner
of the property mortgaged.

It is contended by petitioner NFA that it is not liable

under the exception to the rule (Art. 1883) since it
had no knowledge of the fact of agency between
respondent Superior Shipping and Medalla at the
time when the contract was entered into between
them (NFA and Medalla). Petitioner submits that
"(A)n undisclosed principal cannot maintain an
action upon a contract made by his agent unless
such principal was disclosed in such contract. One

The Case

61

Before us is a Petition for Review under Rule 45 of

the Rules of Court, assailing the November 11,
1998 Decision1of the Court of Appeals (CA) in CAGR CV No. 44558. The dispositive portion of the CA
Decision reads as follows:

a first Real Estate Mortgage purportedly

executed by one Guillermo Adriano over
the aforesaid parcel of land, together with
the improvements thereon, in favor of the
[Respondent] Romulo Pangilinan, in
consideration of the sum of Sixty Thousand
Pesos (P60,000.00). [Petitioner] denied that
he ever executed the deed of mortgage,
and denounced his signature thereon as a
forgery; he also denied having received the
consideration of P60,000.00 stated therein.

"WHEREFORE, premises considered, the

judgment appealed from is hereby
REVERSED and SET ASIDE, and another
entered dismissing the complaint instituted
in the court below. Without costs in this
instance."2

"[Petitioner] thereafter repeatedly

demanded that [respondent] return or
reconvey to him his title to the said
property and when these demands were
ignored or disregarded, he instituted the
present suit.

Also questioned is the February 5, 1999 CA

Resolution3 denying petitioner's Motion for
Reconsideration.
The CA reversed the Regional Trial Court (RTC) of
San Mateo, Rizal (Branch 76) in Civil Case No. 845,
which disposed as follows:

"[Petitioner] likewise filed a criminal case

for estafa thru falsification of public
document against [Respondent] Romulo
Pangilinan, as well as against Angelina
Salvador, Romy de Castro and Marilen
Macanaya, in connection with the
execution of the allegedly falsified deed of
real estate mortgage: this was docketed as
Criminal Case No. 1533-91 of the Regional
Trial Court of San Mateo, Rizal, Branch 76.

"WHEREFORE, premises considered,

judgment is hereby rendered declaring the
real estate mortgage constituted on the
property described in and covered by TCT
No. 337942 of the Registry of Deeds for the
Province of Rizal, in the name of Guillermo
Adriano, to be null and void and of no force
and effect, and directing defendant Romulo
Pangilinan to reconvey or deliver to herein
plaintiff Guillermo Adriano the aforesaid
title after causing and effecting a discharge
and cancellation of the real estate
mortgage annotated on the said title. No
pronouncement as to costs.

"[Respondent] in his defense testified that

he [was] a businessman engaged in the
buying and selling as well as in the
mortgage of real estate properties; that
sometime in the first week of December,
1990 Angelina Salvador, together with
Marilou Macanaya and a person who
introduced himself as Guillermo Adriano,
came to his house inquiring on how they
could secure a loan over a parcel of land;
that he asked them to submit the
necessary documents, such as the owner's
duplicate of the transfer certificate of title
to the property, the real estate tax
declaration, its vicinity location plan, a
photograph of the property to be
mortgaged, and the owner's residence
certificate; that when he conducted an
ocular inspection of the property to be
mortgaged, he was there met by a person
who had earlier introduced himself as
Guillermo Adriano, and the latter gave him
all the original copies of the required
documents to be submitted; that after he
(defendant) had verified from the Registry
of Deeds of Marikina that the title to the
property to be mortgaged was indeed
genuine, he and that person Guillermo
Adriano executed the subject real estate
mortgage, and then had it notarized and
registered with the Registry of Deeds. After
that, the alleged owner, Guillermo Adriano,
together with Marilou Macanaya and
another person signed the promissory note
in the amount of Sixty Thousand Pesos
(P60,000.00) representing the appraised
value of the mortgage property. This done,
he (defendant) gave them the aforesaid
amount in cash.

"Defendant's counterclaim is dismissed for

want of basis."4
The Facts
The undisputed facts of the case are summarized
by the Court of Appeals as follows:
"[Petitioner] Guillermo Adriano is the
registered owner of a parcel of land with an
area of three hundred four (304) square
meters, more or less, situated at Col. S.
Cruz, Geronimo, Montalban, Rizal and
covered by Transfer Certificate of Title No.
337942.
"Sometime on November 23, 1990[,
petitioner] entrusted the original owner's
copy of the aforesaid Transfer Certificate of
Title to Angelina Salvador, a distant
relative, for the purpose of securing a
mortgage loan.
"Without the knowledge and consent of
[petitioner], Angelina Salvador mortgaged
the subject property to the [Respondent]
Romulo Pangilinan. After a time,
[petitioner] verified the status of his title
with the Registry of Deeds of Marikina,
Metro Manila, and was surprised to
discover that upon the said TCT No.
337942 was already annotated or inscribed

62

"[Respondent] claimed that [petitioner]

voluntarily entrusted his title to the subject
property to Angelina Salvador for the
purpose of securing a loan, thereby
creating a principal-agent relationship
between the plaintiff and Angelina Salvador
for the aforesaid purpose. Thus, according
to [respondent], the execution of the real
estate mortgage was within the scope of
the authority granted to Angelina Salvador;
that in any event TCT No. 337942 and the
other relevant documents came into his
possession in the regular course of
business; and that since the said transfer
certificate of title has remained with
[petitioner], the latter has no cause of
action for reconveyance against him."5

II
"Whether or not the Motion for
Reconsideration filed by the petitioner
before the Court of Appeals should have
been dismissed[.]"11
This Court's Ruling
The Petition is meritorious.
First Issue:
Effect of Mortgage by Non-Owner
Petitioner contends that because he did not give
his consent to the real estate mortgage (his
signature having been forged), then the mortgage
is void and produces no force and effect.

In his appeal before the CA, respondent contended

that the RTC had erred (1) in holding that
petitioner's signature on the Real Estate Mortgage
was a forgery and (2) in setting aside and nullifying
the Mortgage.
6

Article 2085 of the Civil Code enumerates

the essential requisites of a mortgage, as follows:

Ruling of the Court of Appeals

"Art. 2085. The following requisites are
essential to the contracts of pledge
and mortgage:

The CA ruled that "when a mortgagee relies upon a

Torrens title and lends money in all good faith on
the basis of the title standing in the name of the
mortgagor, only to discover one defendant to be an
alleged forger and the other defendant to have by
his negligence or acquiescence made it possible for
fraud to transpire, as between two innocent
persons, the mortgagee and one of the
mortgagors, the latter who made the fraud possible
by his act of confidence must bear the loss."7

"(1) That they be constituted to secure the

fulfillment of a principal obligation;
"(2) That the pledgor or mortgagor be the
absolute owner of the thing pledged or
mortgaged;
"(3) That the persons constituting the
pledge or mortgage have the free disposal
of their property, and in the absence
thereof, that they be legally authorized for
that purpose.

It further explained that "even conceding for the

sake of argument that the appellant's signature on
the Deed of First Real Estate Mortgage was a
forgery, and even granting that the appellee did
not participate in the execution of the said deed of
mortgage, and was not as well aware of the alleged
fraud committed by other persons relative to its
execution, the undeniable and irrefutable fact
remains that the appellee did entrust and did
deliver his Transfer Certificate of Title No. 337942
covering the subject property, to a distant relative,
one Angelina Salvador, for the avowed purpose of
using the said property as a security or collateral
for a real estate mortgage debt of loan."8

"Third persons who are not parties to the

principal obligation may secure the latter
by pledging or mortgaging their own
property. (1857)" (Italics supplied)
In the case at bar, not only was it proven in the
trial court that the signature of the mortgagor had
been forged, but also that somebody else -- an
impostor -- had pretended to be the former when
the mortgagee made an ocular inspection of the
subject property. On this point, the RTC held as
follows:

Hence, this present recourse.9

The Issues

"The falsity attendant to the subject real

estate mortgage is evidenced not only by
herein plaintiff's vehement denial of having
entered into that contract with defendant,
but also by a comparison between the
signature of the debtor-mortgagor
appearing in the said mortgage contract,
and plaintiff's signatures appearing in the
records of this case. Even to the naked eye,
the difference is glaring, and there can be
no denying the fact that both signatures
were not written or affixed by one and the
same person. The falsity is further
infe[r]able from defendant's admission that

In his Memorandum,10 petitioner raises the

following issues for our consideration:
I
"Whether or not consent is an issue in
determining who must bear the loss if a
mortgage contract is sought to be declared
a nullity[;]
and

63

the plaintiff in this case who appeared in

court [was] not the same person who
represented himself as the owner of the
property (TSN, pp. 7, 11, June 21, 1993
hearing) and who therefore was the one
who signed the contract as the debtormortgagor."12

Both cases cited involved individuals who, by their

negligence, enabled other persons to cause the
cancellation of the original TCT of the disputed
property and the issuance of a new one in their
favor. Having obtained TCTs in their names, they
conveyed the subject property to third persons,
who in Blondeau was a bona fide purchaser while
in Philippine National Bank was an innocent
mortgagee for value. It should be stressed that in
both these cases, the seller and the mortgagor
were the registered owners of the subject property;
whereas in the present case, the mortgagor was an
impostor, not the registered owner.1wphi1.nt

The CA did not dispute the foregoing finding, but

faulted petitioner for entrusting to Angelina
Salvador the TCT covering the property. Without his
knowledge or consent, however, she caused or
abetted an impostor's execution of the real estate
mortgage.

It must be noted that a Torrens certificate "serves

as evidence of an indefeasible title to the property
in favor of the person whose name appears
therein."18 Moreover, the Torrens system "does not
create or vest title. It only confirms and records
title already existing and vested. It does not
protect a usurper from the true owner. It cannot be
a shield for the commission of fraud. It does not
permit one to enrich himself at the expense of
another."19

"Even conceding for the sake of argument

that the appellee's signature on the Deed
of First Real Estate Mortgage (Exh. B;
Original Record, pp. 56-58) was a forgery,
and even granting that the appellee did not
participate in the execution of the said
deed of mortgage, and was not as well
aware of the alleged fraud committed by
other persons relative to its execution, the
undeniable and irrefutable fact remains
that the appellee did entrust and did
deliver his Transfer Certificate of Title No.
337942 (Exh. A; Original Record, pp. 53-55)
covering the subject property, to a distant
relative, one Angelina Salvador, for the
avowed purpose of using the said property
as a security or collateral for a real estate
mortgage debt of loan. x x x"13

Thus, we ask these questions: Was petitioner

negligent in entrusting and delivering his TCT to a
relative who was supposed to help him find a
money lender? And if so, was such negligence
sufficient to deprive him of his property?
To be able to answer these questions and apply the
holding in Philippine National Bank, it is crucial to
determine whether herein respondent was an
"innocent mortgagee for value." After a careful
review of the records and pleadings of the case, we
hold that he is not, because he failed to observe
due diligence in the grant of the loan and in the
execution of the real estate mortgage.20

Be that as it may, it is clear that petitioner who is

undisputedly the property owner -- did not
mortgage the property himself. Neither did he
authorize Salvador or anyone else to do so.
In Parqui v. Philippine National Bank,14 this Court
affirmed the trial court's ruling that a mortgage
was invalid if the mortgagor was not the property
owner:

Respondent testified that he was engaged in the

real estate business, including the grant of loans
secured by real property mortgages. Thus, he is
expected to ascertain the status and condition of
the properties offered to him as collaterals, as well
as to verify the identities of the persons he
transacts business with. Specifically, he cannot
simply rely on a hasty examination of the property
offered to him as security and the documents
backing them up.21 He should also verify the
identity of the person who claims to be the
registered property owner.

"After carefully considering the issue, we

reach the conclusion that His Honor's
decision was correct. One of the essential
requisites of a valid mortgage, under the
Civil Code is 'that the thing pledged or
mortgaged be owned by the person who
pledges or mortgages it' (Art. 1857, par. 2);
and there is no question that Roman Oliver
who pledged the property to the Philippine
National Bank did not own it. The mortgage
was consequently void."15

Respondent stated in his testimony that he had

been engaged in the real estate business for
almost seven years.22 Before the trial court, he
testified on how he had approved the loan sought
and the property mortgaged:

Second Issue:
Concurrent Negligence of the Parties

"Q
Mr. witness, you stated earlier that
you are a businessman. Will you please
inform the Hon. Court what kind of
business you are engaged in?

The CA reversed the lower court, because

petitioner had been negligent in entrusting and
delivering his TCT No. 337942 to his "distant
relative" Angelina Salvador, who undertook to find
a money lender. Citing Blondeau v.
Nano16 and Philippine National Bank v. CA,17 it then
applied the "bona fide purchaser for value"
principle.

A
First, as a businessman, I buy and sell
real estate properties, sir, and engaged in
real estate mortgage, sir.

64

Q
In relation to your buy and sell
business, Mr. witness, how many clients
have you had since you started?

A
The owner's duplicate title [to] the
property, sir.
Q
Will you inform the Court why you
asked for these documents?

A
Since I started in 1985, I have [had]
almost 30 to 50 clients, sir.
xxx

xxx

A
To see to it that the title [was]
genuine, sir.

xxx

Q
Will you inform the Court, Mr.
[W]itness, how are you found by your
clients?
A

xxx

xxx

Q
You mentioned Residence Certificate.
Why did you ask for a Residence
Certificate?

I advertise it in the newspapers, sir.

Q
And what is the frequency of this
advertisement in the newspapers?
A

xxx

To fully identify the alleged owner, sir.

Q
So, when the machine copies of
these documents x x x were given to you
[as you said], what did you do next, if any?

One whole week in every month, sir.

Q
Let us go specifically [to] the real
estate mortgage, Mr. [W]itness, which has
relation to this case. Will you inform the
Court how you go about this business,
meaning, if you have any procedure that
you follow?

A
x x x [O]cular inspection, sir, that is
my standard procedure. After they gave me
all the requirements, we usually go there
for the ocular inspection for the appraisal
of the property, sir.

A
As soon as my client go[es] to our
house, I usually give them the
requirements, sir.

So, you went to the house itself?

Yes, sir.

Q
Did you go there alone or were you
with somebody else?

And what are these requirements?

A
I usually require them to submit to
me at least a machine copy of the title, the
location plan with vicinity, the real estate
tax, the tax declaration, the picture of the
property and the Res. Cert. of the owner,
sir.

A
With the[ir] group x x x, sir, the one
[which] came to our house. The two of
them were Marilou Macanaya and Angelina
Salvador.
Q
And when you went to the house,
what did you see?

Q
And when these documents are given
to you, what else do you do, if any?

A
I saw a man there x x x who posed as
Guillermo Adriano and gave me all the
original copies of the requirements, sir.

A
When they present to me the
machine copy, I require them to visit
the place for the ocular inspection for
the appraisal of the property, sir.
Q

What other steps, if any?

Did you get to enter the house?

A
As an architect, as soon as I [saw] the
house, I already knew what [was] the
appraisal, sir, and I knew already the
surroundings of the property.

A
After that ocular inspection, sir,
appraising the property, I usually tell
them to come back after one week for
verification of the title in the Register
of Deeds, sir.

Q
So, you did not need to go inside the
house?

Q
Will you inform the Court how you
verif[ied] the title with the Register of
Deeds?

A
Inside the house, not anymore, sir,
we talked only inside the property.

A
I got a certified true copy from the
Register of Deeds, sir.

Q
And this person who gave you the
original documents is the owner of the
house?

Q
Certified true copy of what, Mr.
witness?

A
I assumed it, sir, [that] he [was] the
owner."23 (Emphasis supplied)

65

On cross[-]examination, he made a clarification:

much less on who is collecting them, or

who is recognized by the tenants as their
landlord - it was held that any prospective
buyer or mortgagee of such a valuable
building and land at the center of Manila, if
prudent and in good faith, is normally
expected to inquire into all these and
related facts and circumstances. For failing
to conduct such an investigation, a party
would be negligent in protecting his
interests and cannot be held as an
innocent purchaser for value."28

"Q
Mr. Pangilinan, will you state again
what business are you engaged [in]?
A
First, as an Architect, I do design and
build and as a businessman, I do the buy
and sell of real properties and engag[e] in
mortgage contract, sir.
Q
Actually, it is in the mortgage
business that you practically have the big
bulk of your business. Isn't it?
A

We are not impressed by the claim of respondent

that he exercised due diligence in ascertaining the
identity of the alleged mortgagor when he made an
ocular inspection29 of the mortgaged property.
Respondent's testimony negated this assertion.

Yes, sir."24

It is quite clear from the testimony of respondent

that he dismally failed to verify whether the
individual executing the mortgage was really the
owner of the property.

"Q
Now you told me also that you
conducted an ocular inspection o[f] the
premises. How many times did you do it?

The ocular inspection respondent conducted was

primarily intended to appraise the value of the
property in order to determine how much loan he
would grant. He did not verify whether the
mortgagor was really the owner of the property
sought to be mortgaged. Because of this, he must
bear the consequences of his negligence.

Once, sir.

Q
Who were with you when you went
there?
A

In Uy v. CA,25 the Court through Mr. Justice Jose A.

R. Melo made the following significant
observations:

The same group of them, sir.

Q
How long did you stay in the
premises?
A

"Thus, while it is true, as asserted by

petitioners, that a person dealing with
registered lands need not go beyond the
certificate of title, it is likewise a wellsettled rule that a purchaser or mortgagee
cannot close his eyes to facts which should
put a reasonable man on his guard, and
then claim that he acted in good faith
under the belief that there was no defect in
the title of the vendor or mortgagor. His
mere refusal to face up to the fact that
such defect exists, or his willful closing of
his eyes to the possibility of the existence
of a defect in the vendor's or mortgagor's
title, will not make him an innocent
purchaser for value, if it afterwards
develops that the title was in fact
defective, and it appears that he had such
notice of the defect as would have led to its
discovery had he acted with the measure
of precaution which may be required of a
prudent man in a like situation."26

I think 5 to 10 minutes, sir.

Q
And did you see any people inside
the premises where you visited?
A

Yes, sir.

Did you ask these persons?

They told me that. . .

Q
Did you ask these persons whom you
saw in the premises?
A

No, sir.

Q
And what x x x did you [just] do when
you inspected the premises?
xxx

Indeed, there are circumstances that should put a

party on guard and prompt an investigation of the
property being mortgaged. Citing Torres v.
CA,27 the Court continued as follows:

xxx

xxx

A
When I arrived in the property,
that house, the alleged owner told me
that the one staying at his house were
just renting from him, sir.

"x x x [T]he value of the property, its

principal value being its income potential in
the form of monthly rentals being located
at the corner of Quezon Boulevard and
Raon Street, Manila, and the registered title
not yielding any information as to the
amount of rentals due from the building,

xxx

xxx

xxx

Q
Again, Mr. Pangilinan, my question to
you is, what did you do when you arrived in
the premises in the course of your ocular
inspection?

66

Atty. Garcia:

His superior knowledge of the matter should have

made him more cautious before releasing the loan
and accepting the identity of the mortgagor. 31

Already answered.

Given the particular circumstances of this case, we

believe that the negligence of petitioner is not
enough to offset the fault of respondent himself in
granting the loan. The former should not be made
to suffer for respondent's failure to verify the
identity of the mortgagor and the actual status of
the subject property before agreeing to the real
estate mortgage. While we commiserate with
respondent -- who in the end appears to have been
the victim of scoundrels -- his own negligence was
the primary, immediate and overriding reason that
put him in his present predicament.1wphi1.nt

Court:
You may answer.
A
When I arrived at that place, I
just looked around and as an
Architect, I [saw] that I [could]
appraise it just [by] one look at it, sir.
Atty. Amado:
Q
And after that, where did you go?
Where did you and this group go?

To summarize, we hold that both law and equity

favor petitioner. First, the relevant legal provision,
Article 2085 of the Civil Code, requires that the
"mortgagor be the absolute owner of the thing x x
x mortgaged." Here, the mortgagor was an
impostor who executed the contract without the
knowledge and consent of the owner. Second,
equity dictates that a loss brought about by the
concurrent negligence of two persons shall be
borne by one who was in the immediate, primary
and overriding position to prevent it. Herein
respondent who, we repeat, is engaged in the
business of lending money secured by real estate
mortgages could have easily avoided the loss by
simply exercising due diligence in ascertaining the
identity of the impostor who claimed to be the
owner of the property being mortgaged. Finally,
equity merely supplements, not supplants, the law.
The former cannot contravene or take the place of
the latter.

A
Just inside the property, sir. We talked
[about] how much [would] be given to
them and I told them this [was] only the
amount I [could] give them,
sir."30 (Emphasis supplied)
Since he knew that the property was being leased,
respondent should have made inquiries about the
rights of the actual possessors. He could have
easily verified from the lessees whether the
claimed owner was, indeed, their lessor.
Petitioner's act of entrusting and delivering his TCT
and Residence Certificate to Salvador was only for
the purpose of helping him find a money lender.
Not having executed a power of attorney in her
favor, he clearly did not authorize her to be his
agent in procuring the mortgage. He only asked
her to look for possible money lenders. Article 1878
of the Civil Code provides:

In any event, respondent is not precluded from

availing himself of proper remedies against
Angelina Salvador and her cohorts.

"Art. 1878. Special powers of attorney are

necessary in the following cases:
xxx

xxx

WHEREFORE, the Petition is GRANTED and the

assailed Decision SET ASIDE. The November 25,
1993 Decision of the RTC of San Mateo, Rizal
(Branch 76) is hereby REINSTATED. No costs.

xxx

(7) To loan or borrow money, unless the

latter act be urgent and indispensable for
the preservation of the things which are
under administration;
xxx

xxx

G.R. No. L-28740 February 24, 1981

FERMIN Z. CARAM, JR., petitioner,
vs.
CLARO L. LAURETA, respondent.

xxx

FERNANDEZ, J.:

(12) To create or convey real rights over

immovable property;
xxx

xxx

This is a petition for certiorari to review the

decision of the Court of Appeals promulgated on
January 29, 1968 in CA-G. R. NO. 35721-R entitled
"Claro L. Laureta, plaintiff-appellee versus Marcos
Mata, Codidi Mata and Fermin Caram, Jr.,
defendants- appellants; Tampino (Mansaca), et al.
Intervenors-appellants," affirming the decision of
the Court of First Instance of Davao in Civil Case
No. 3083. 1

x x x."

As between petitioner and respondent, we hold

that the failure of the latter to verify essential facts
was the immediate cause of his predicament. If he
were an ordinary individual without any expertise
or experience in mortgages and real estate
dealings, we would probably understand his failure
to verify essential facts. However, he has been in
the mortgage business for seven years. Thus,
assuming that both parties were negligent, the
Court opines that respondent should bear the loss.

On June 25, 1959, Claro L. Laureta filed in the Court

of First Instance of Davao an action for nullity,
recovery of ownership and/or reconveyance with
damages and attorney's fees against Marcos Mata,

67

Codidi Mata, Fermin Z. Caram, Jr. and the Register

of Deeds of Davao City. 2

he refused he had no other alternative but to sign

the document. 6

On June 10, 1945, Marcos Mata conveyed a large

tract of agricultural land covered by Original
Certificate of Title No. 3019 in favor of Claro
Laureta, plaintiff, the respondent herein. The deed
of absolute sale in favor of the plaintiff was not
registered because it was not acknowledged before
a notary public or any other authorized officer. At
the time the sale was executed, there was no
authorized officer before whom the sale could be
acknowledged inasmuch as the civil government in
Tagum, Davao was not as yet organized. However,
the defendant Marcos Mata delivered to Laureta
the peaceful and lawful possession of the premises
of the land together with the pertinent papers
thereof such as the Owner's Duplicate Original
Certificate of Title No. 3019, sketch plan, tax
declaration, tax receipts and other papers related
thereto. 3 Since June 10, 1945, the plaintiff Laureta
had been and is stin in continuous, adverse and
notorious occupation of said land, without being
molested, disturbed or stopped by any of the
defendants or their representatives. In fact,
Laureta had been paying realty taxes due thereon
and had introduced improvements worth not less
than P20,000.00 at the time of the filing of the
complaint. 4

The defendants Marcos Mata and Codidi Mata also

admit the existence of a record in the Registry of
Deeds regarding a document allegedly signed by
him in favor of his co-defendant Fermin Caram, Jr.
but denies that he ever signed the document for he
knew before hand that he had signed a deed of
sale in favor of the plaintiff and that the plaintiff
was in possession of the certificate of title; that if
ever his thumb mark appeared in the document
purportedly alienating the property to Fermin
Caram, did his consent was obtained through fraud
and misrepresentation for the defendant Mata is
illiterate and ignorant and did not know what he
was signing; and that he did not receive a
consideration for the said sale. 7
The defendant Fermin Caram Jr. filed his answer on
October 23, 1959 alleging that he has no
knowledge or information about the previous
encumbrances, transactions, and alienations in
favor of plaintiff until the filing of the complaints. 8
The trial court rendered a decision dated February
29, 1964, the dispositive portion of which reads: 9
1. Declaring that the deed of sale,
Exhibit A, executed by Marcos Mata
in favor of Claro L. Laureta stands
and prevails over the deed of sale,
Exhibit F, in favor of Fermin Caram,
Jr.;

On May 5, 1947, the same land covered by Original

Certificate of Title No. 3019 was sold by Marcos
Mata to defendant Fermin Z. Caram, Jr., petitioner
herein. The deed of sale in favor of Caram was
acknowledged before Atty. Abelardo Aportadera.
On May 22, 1947, Marcos Mata, through Attys.
Abelardo Aportadera and Gumercindo Arcilla, filed
with the Court of First Instance of Davao a petition
for the issuance of a new Owner's Duplicate of
Original Certificate of Title No. 3019, alleging as
ground therefor the loss of said title in the
evacuation place of defendant Marcos Mata in
Magugpo, Tagum, Davao. On June 5, 1947, the
Court of First Instance of Davao issued an order
directing the Register of Deeds of Davao to issue a
new Owner's Duplicate Certificate of Title No. 3019
in favor of Marcos Mata and declaring the lost title
as null and void. On December 9, 1947, the second
sale between Marcos Mata and Fermin Caram, Jr.
was registered with the Register of Deeds. On the
same date, Transfer Certificate of Title No. 140 was
issued in favor of Fermin Caram Jr. 5

2. Declaring as null and void the

deed of sale Exhibit F, in favor of
Fermin Caram, Jr.;
3. Directing Marcos Mata to
acknowledge the deed of sale,
Exhibit A, in favor of Claro L.
Laureta;
4. Directing Claro L. Laureta to
secure the approval of the
Secretary of Agriculture and
Natural Resources on the deed,
Exhibit A, after Marcos Mata shall
have acknowledged the same
before a notary public;

On August 29, 1959, the defendants Marcos Mata

and Codidi Mata filed their answer with
counterclaim admitting the existence of a private
absolute deed of sale of his only property in favor
of Claro L. Laureta but alleging that he signed the
same as he was subjected to duress, threat and
intimidation for the plaintiff was the commanding
officer of the 10th division USFIP operating in the
unoccupied areas of Northern Davao with its
headquarters at Project No. 7 (Km. 60, Davao
Agusan Highways), in the Municipality of Tagum,
Province of Davao; that Laureta's words and
requests were laws; that although the defendant
Mata did not like to sell his property or sign the
document without even understanding the same,
he was ordered to accept P650.00 Mindanao
Emergency notes; and that due to his fear of harm
or danger that will happen to him or to his family, if

5. Directing Claro L. Laureta to

surrender to the Register of Deeds
for the City and Province of Davao
the Owner's Duplicate of Original
Certificate of Title No. 3019 and the
latter to cancel the same;
6. Ordering the Register of Deeds
for the City and Province of Davao
to cancel Transfer Certificate of
Title No. T-140 in the name of
Fermin Caram, Jr.;
7. Directing the Register of Deeds
for the City and Province of Davao
to issue a title in favor of Claro L.

68

Laureta, Filipino, resident of

Quezon City, upon presentation of
the deed executed by Marcos Mata
in his favor, Exhibit A, duly
acknowledged by him and
approved by the Secretary of
Agriculture and Natural Resources,
and

THE RESPONDENT COURT OF

APPEALS ERRED IN NOT HOLDING
THAT AN ACTION FOR
RECONVEYANCE ON THE GROUND
OF FRAUD PRESCRIBES WITHIN
FOUR (4) YEARS.
The petitioner assails the finding of the trial court
that the second sale of the property was made
through his representatives, Pedro Irespe and Atty.
Abelardo Aportadera. He argues that Pedro Irespe
was acting merely as a broker or intermediary with
the specific task and duty to pay Marcos Mata the
sum of P1,000.00 for the latter's property and to
see to it that the requisite deed of sale covering
the purchase was properly executed by Marcos
Mata; that the Identity of the property to be bought
and the price of the purchase had already been
agreed upon by the parties; and that the other
alleged representative, Atty. Aportadera, merely
acted as a notary public in the execution of the
deed of sale.

8. Dismissing the counterclaim and

cross claim of Marcos Mata and
Codidi Mata, the counterclaim of
Caram, Jr., the answer in
intervention, counterclaim and
cross-claim of the Mansacas.
The Court makes no
pronouncement as to costs.
SO ORDERED.
The defendants appealed from the judgment to the
Court of Appeals. 10 The appeal was docketed as
CA-G.R. NO. 35721- R.

The contention of the petitioner has no merit. The

facts of record show that Mata, the vendor, and
Caram, the second vendee had never met. During
the trial, Marcos Mata testified that he knows Atty.
Aportadera but did not know Caram. 12 Thus, the
sale of the property could have only been through
Caram's representatives, Irespe and Aportadera.
The petitioner, in his answer, admitted that Atty.
Aportadera acted as his notary public and attorneyin-fact at the same time in the purchase of the
property. 13

The Court of Appeals promulgated its decision on

January 29, 1968 affirming the judgment of the trial
court.
In his brief, the petitioner assigns the following
errors: 11
I

The petitioner contends that he cannot be

considered to have acted in bad faith because
there is no direct proof showing that Irespe and
Aportadera, his alleged agents, had knowledge of
the first sale to Laureta. This contention is also
without merit.

THE RESPONDENT COURT OF

APPEALS ERRED IN CONCLUDING
THAT IRESPE AND APORTADERA
WERE ATTORNEYS-IN-FACT OF
PETITIONER CARAM FOR THE
PURPOSE OF BUYING THE
PROPERTY IN QUESTION.

The Court of Appeals, in affirming the decision of

the trial court, said: 14

II

The trial court, in holding that

appellant Caram. Jr. was not a
purchaser in good faith, at the time
he bought the same property from
appellant Mata, on May 5, 1947,
entirely discredited the testimony
of Aportadera. Thus it stated in its
decision:

THE RESPONDENT COURT OF

APPEALS ERRED IN CONCLUDING
THAT THE EVIDENCE ADDUCED IN
THE TRIAL COURT CONSTITUTE
LEGAL EVIDENCE OF FRAUD ON
THE PART OF IRESPE AND
APORTADERA AT TRIBUTABLE TO
PETITIONER.

The testimony of Atty. Aportadera

quoted elsewhere in this decision is
hollow. There is every reason to
believe that Irespe and he had
known of the sale of the property in
question to Laureta on the day
Mata and Irespe, accompanied by
Leaning Mansaca, went to the
office of Atty. Aportadera for the
sale of the same property to
Caram, Jr., represented by Irespe as
attorney-in-fact. Ining Mansaca was
with the two Irespe and Mata
to engage the services 6f Atty.
Aportadera in the annulment of the
sale of his land to Laureta. When

III
THE RESPONDENT COURT OF
APPEALS COMMITTED GRAVE
ERROR OF LAW IN HOLDING THAT
KNOWLEDGE OF IRESPE AND
APORTADERA OF A PRIOR
UNREGISTERED SALE OF A TITLED
PROPERTY ATTRIBUTABLE TO
PETITIONER AND EQUIVALENT IN
LAW OF REGISTRATION OF SAID
SALE.
IV

69

Leaning Mansaca narrated to Atty.

Aportadera the circumstances
under which his property had been
sold to Laureta, he must have
included in the narration the sale of
the land of Mata, for the two
properties had been sold on the
same occassion and under the
same circumstances. Even as early
as immediately after liberation,
Irespe, who was the witness in
most of the cases filed by Atty.
Aportadera in his capacity as
Provincial Fiscal of Davao against
Laureta, must have known of the
purchases of lands made by
Laureta when he was regimental
commander, one of which was the
sale made by Mata. It was not a
mere coincidence that Irespe was
made guardian ad litem of Leaning
Mansaca, at the suggestion of Atty.
Aportadera and attorney-in-fact of
Caram, Jr.

him with the defects in the title of

his vendor.
In the instant case, Irespe and Aportadera had
knowledge of circumstances which ought to have
put them an inquiry. Both of them knew that Mata's
certificate of title together with other papers
pertaining to the land was taken by soldiers under
the command of Col. Claro L. Laureta. 16 Added to
this is the fact that at the time of the second sale
Laureta was already in possession of the land.
Irespe and Aportadera should have investigated
the nature of Laureta's possession. If they failed to
exercise the ordinary care expected of a buyer of
real estate they must suffer the consequences. The
rule of caveat emptor requires the purchaser to be
aware of the supposed title of the vendor and one
who buys without checking the vendor's title takes
all the risks and losses consequent to such
failure. 17
The principle that a person dealing with the owner
of the registered land is not bound to go behind the
certificate and inquire into transactions the
existence of which is not there intimated 18 should
not apply in this case. It was of common knowledge
that at the time the soldiers of Laureta took the
documents from Mata, the civil government of
Tagum was not yet established and that there were
no officials to ratify contracts of sale and make
them registerable. Obviously, Aportadera and
Irespe knew that even if Mata previously had sold t
he Disputed such sale could not have been
registered.

The Court cannot help being

convinced that Irespe, attorney-infact of Caram, Jr. had knowledge of
the prior existing transaction,
Exhibit A, between Mata and
Laureta over the land, subject
matter of this litigation, when the
deed, Exhibit F, was executed by
Mata in favor of Caram, Jr. And this
knowledge has the effect of
registration as to Caram, Jr. RA pp.
123-124)

There is no doubt then that Irespe and Aportadera,

acting as agents of Caram, purchased the property
of Mata in bad faith. Applying the principle of
agency, Caram as principal, should also be deemed
to have acted in bad faith.

We agree with His Honor's

conclusion on this particular point,
on two grounds the first, the
same concerns matters affecting
the credibility of a witness of which
the findings of the trial court
command great weight, and
second, the same is borne out by
the testimony of Atty. Aportadera
himself. (t.s.n., pp. 187-190, 213215, Restauro).

Article 1544 of the New Civil Code provides that:

Art. 1544. If the same thing should
have been sold to different
vendees, the ownership shall be
transferred to the person who may
have first taken possession thereof
in good faith, if it should be
movable property.

Even if Irespe and Aportadera did not have actual

knowledge of the first sale, still their actions have
not satisfied the requirement of good faith. Bad
faith is not based solely on the fact that a vendee
had knowledge of the defect or lack of title of his
vendor. In the case of Leung Yee vs. F. L. Strong
Machinery Co. and Williamson, this Court held: 15

Should it be immovable property,

the ownership shall belong to the
person acquiring it who in good
faith first recordered it in the
Registry of Property.

One who purchases real estate with

knowledge of a defect or lack of
title in his vendor can not claim
that he has acquired title thereto in
good faith, as against the true
owner of the land or of an interest
therein, and the same rule must be
applied to one who has knowledge
of facts which should have put him
upon such inquiry and investigation
as might be necessary to acquaint

Should there be no inscription, the

ownership shag pertain to the
person who in good faith was first
in the possession; and, in the
absence thereof, to the person who
presents the oldest title, provided
there is good faith. (1473)
Since Caram was a registrant in bad faith, the
situation is as if there was no registration at all.

70

19

The question to be determined now is, who was

first in possession in good faith? A possessor in
good faith is one who is not aware that there exists
in his title or mode of acquisition any flaw which
invalidates it. 20 Laureta was first in possession of
the property. He is also a possessor in good faith. It
is true that Mata had alleged that the deed of sale
in favor of Laureta was procured by force. 21 Such
defect, however, was cured when, after the lapse
of four years from the time the intimidation ceased,
Marcos Mata lost both his rights to file an action for
annulment or to set up nullity of the contract as a
defense in an action to enforce the same.

that the action of Laureta against Caram has

prescribed because the second contract of sale is
not void under Article 1409 23 of the Civil Code of
the Philippines which enumerates the kinds of
contracts which are considered void. Moreover,
Article 1544 of the New Civil Code of the
Philippines does not declare void a second sale of
immovable registered in bad faith.
The fact that the second contract is not considered
void under Article 1409 and that Article 1544 does
not declare void a deed of sale registered in bad
faith does not mean that said contract is not void.
Article 1544 specifically provides who shall be the
owner in case of a double sale of an immovable
property. To give full effect to this provision, the
status of the two contracts must be declared valid
so that one vendee may contract must be declared
void to cut off all rights which may arise from said
contract. Otherwise, Article 1544 win be
meaningless.

Anent the fourth error assigned, the petitioner

contends that the second deed of sale, Exhibit "F",
is a voidable contract. Being a voidable contract,
the action for annulment of the same on the
ground of fraud must be brought within four (4)
years from the discovery of the fraud. In the case
at bar, Laureta is deemed to have discovered that
the land in question has been sold to Caram to his
prejudice on December 9, 1947, when the Deed of
Sale, Exhibit "F" was recorded and entered in the
Original Certificate of Title by the Register of Deeds
and a new Certificate of Title No. 140 was issued in
the name of Caram. Therefore, when the present
case was filed on June 29, 1959, plaintiff's cause of
action had long prescribed.

The first sale in favor of Laureta prevails over the

sale in favor of Caram.
WHEREFORE, the petition is hereby denied and the
decision of the Court of Appeals sought to be
reviewed is affirmed, without pronouncement as to
costs.

The petitioner's conclusion that the second deed of

sale, "Exhibit F", is a voidable contract is not
correct. I n order that fraud can be a ground for the
annulment of a contract, it must be employed prior
to or simultaneous to the, consent or creation of
the contract. The fraud or dolo causante must be
that which determines or is the essential cause of
the contract. Dolo causante as a ground for the
annulment of contract is specifically described in
Article 1338 of the New Civil Code of the
Philippines as "insidious words or machinations of
one of the contracting parties" which induced the
other to enter into a contract, and "without them,
he would not have agreed to".

G.R. No. L-25950

December 24, 1926

E. AWAD, plaintiff-appellant,
vs.
FILMA MERCANTILE CO., INC., defendantappellee.
M. H. de Joya and Ramon P. Gomez for appellant.
Crossfield and O'Brien for appellee.

OSTRAND, J.:
The second deed of sale in favor of Caram is not a
voidable contract. No evidence whatsoever was
shown that through insidious words or
machinations, the representatives of Caram, Irespe
and Aportadera had induced Mata to enter into the
contract.

Early in the month of September, 1924, the

plaintiff, doing business in the Philippine Islands
under the name of E. Awad & Co., delivered certain
merchandise of the invoice value of P11,140 to
Chua Lioc, a merchant operating under the name
of Hang Chua Co. in Manila, said merchandise to be
sold on commission by Chua Lioc. Representing
himself as being the owner of the merchandise,
Chua Lioc, on September 8, 1924, sold it to the
defendant for the sum of P12,155.60. He owed the
Philippine Manufacturing Co., the sum of P3,480,
which the defendant agreed to pay, and was also
indebted to the defendant itself in the sum of
P2,017.98. The total amount of the two debts,
P5,497.98, was deducted from the purchase price,
leaving a balance of P6,657.52 which the
defendant promised to pay to Chua Lioc on or
before October 9, 1924.

Since the second deed of sale is not a voidable

contract, Article 1391, Civil Code of the Philippines
which provides that the action for annulment shall
be brought within four (4) years from the time of
the discovery of fraud does not apply. Moreover,
Laureta has been in continuous possession of the
land since he bought it in June 1945.
A more important reason why Laureta's action
could not have prescribed is that the second
contract of sale, having been registered in bad
faith, is null and void. Article 1410 of the Civil Code
of the Philippines provides that any action or
defense for the declaration of the inexistence of a
contract does not prescribe.

The merchandise so purchased on September 9,

was delivered to the defendant, who immediately
offered it for sale. Three days later D. J. Awad, the
representative of the plaintiff in the Philippine
Islands; having ascertained that the goods

In a Memorandum of Authorities 22 submitted to

this Court on March 13, 1978, the petitioner insists

71

entrusted to Chua Lioc was being offered for sale

by the defendant, obtained authorization from
Chua Lioc to collect the sum of P11,707 from said
defendant and informed the latter's treasurer of
the facts above set forth. On September 15, D. J.
Awad, in behalf of E. Awad & Co., wrote a letter to
the defendant corporation advising it that,
inasmuch as the merchandise belonged to E. Awad
& Co., the purchase price should be paid to them,
to which letter, the defendant, on September 18,
1924, made the following answer:

therefore had acquired title to the merchandise

purchased; that the balance of P6,657.52, now in
the hands of the defendant had been attached in
the two actions brought on September 18, and
October 7, respectively, and garnishment served
upon the defendant, who therefore, holds the
money subject to the orders of the court in the
cases above-mentioned, but which sum the
defendant is able and willing to pay at any time
when the court decides to whom the money
lawfully pertains.1awphil.net

Messrs. E. AWAD & CO.

Upon trial, the court below dismissed the case

without costs on the ground that the plaintiff was
only entitled to payment of the sum of P6,657.52,
but which sum the defendant had the right to
retain subject to the orders of the court in cases
Nos. 26134 and 27016. From this judgment the
plaintiff appealed.

435 Juan Luna Manila.

GENTLEMEN: We are in receipt of your letter of
September 15, 1924, in which you state that
certain blankets and shirts were brought from you
by the Chinaman Chua Lioc under false pretenses
on consignment, basis, and in which you say that
the merchandise is yours and we should make
payment to you for said merchandise. In answer to
your letter, we beg to say to you that the blankets
and shirts in question, together with other
merchandise, were purchased and received by us
from the Chinaman Chua Lioc on September 9,
1924, in the ordinary course of business, and that
there is now due from us to the said Chinaman a
balance of P6,657.52, which is payable on October
9, 1924. In view of these facts, we are unable to
comply with your request, and would advise you, in
case this Chinaman is indebted to you for said
merchandise, to take the necessary steps through
the Court to secure the payment of this balance
due to him to your firm, inasmuch as if you do not
do so, we shall be obliged to pay the balance which
we owe for said merchandise directly to him.

The law applicable to the case is well settled.

Article 246 of the Code of Commerce reads as
follows:
When the agent transacts business in his
own name, it shall not be necessary for him
to state who is the principal and he shall be
directly liable, as if the business were for
his own account, to the persons with whom
he transacts the same, said persons not
having any right of action against the
principal, nor the latter against the former,
the liabilities of the principal and of the
agent to each other always being reserved.
The rule laid down in the article quoted is contrary
to the general rule in the United States as to
purchases of merchandise from agents with
undisclosed principal, but it has been followed in a
number of cases and is the law in its jurisdiction.
(Pastells & Regordosa vs. Hollman & Co., 2 Phil.,
235; Castle Bros., Wolf & Sons vs. Go-Juno, & Phil.,
144; Lim Tiu vs. Ruiz y Rementeria, 15 Phil., 367.)
But the appellant points out several circumstances
which, in his opinion, indicate that the defendantappellee was aware of the condition under which
the merchandise was entrusted to the agent Chua
Lioc and therefore did not purchase the goods in
good faith. This, if true, would, of course, lead to a
decision of the case in favor of the plaintiff, but
there is, in our opinion, nothing conclusive about
the circumstances referred to and they are not
sufficient to overcome the presumption of good
faith.

Yours respectfully,
FILMA MERCHANTILE CO. INC.

On the same date, September 18, 1924, the

Philippine Trust Company, brought an action, civil
case No. 26934, against Chua Lioc for the recovery
of the sum of P1,036.36 and under a writ of
attachment garnished the balance due Chua Lioc
from the defendant. On October 7, E. Awad also
brought an action, civil case No. 27016, against
Chua Lioc for the recovery of the sum of P11,140,
the invoice value of the merchandise abovementioned and also obtained a writ of attachment
under which notice of garnishment of the said
aforesaid balance we served upon the herein
defendant.

The appealed judgment is in accordance with the

law and the facts and is affirmed with the costs
against the appellant. So ordered.

The complaint in the present action was filed on

November 26, 1924, the plaintiff demanding
payment of the same sum of P11,140 for which
action had already been brought against Chua Lioc.
The defendant, its answer, set up as special
defense that it brought the merchandise in good
faith and without any knowledge whether of the
person from whom or the condition under which
the said merchandise had been acquired by Chua
Lioc or Hang Chuan Co.; that the defendant

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