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REYES, J.:
G.R. No. 188288
SPOUSES FERNANDO
CA-G.R. CV No. 88586 entitled Spouses Fernando and Lourdes Viloria v. Continental Airlines,
CARPIO, J., Inc., the dispositive portion of which states:
Chairperson,
PEREZ,
WHEREFORE, the Decision of the Regional Trial Court, Branch
74, dated 03 April 2006, awarding US$800.00 or its peso equivalent at
SERENO, the time of payment, plus legal rate of interest from 21 July 1997 until
- versus - fully paid, [P]100,000.00 as moral damages, [P]50,000.00 as exemplary
REYES, and damages, [P]40,000.00 as attorneys fees and costs of suit to
plaintiffs-appellees is hereby REVERSED and SET ASIDE.
BERNABE, JJ.
SO ORDERED.2
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On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC)
DECISION
rendered a Decision, giving due course to the complaint for sum of money and damages
filed by petitioners Fernando Viloria (Fernando) and Lourdes Viloria (Lourdes), As he was having second thoughts on traveling via Frontier Air, Fernando went to
collectively called Spouses Viloria, against respondent Continental Airlines, Inc. (CAI). As the Greyhound Station where he saw an Amtrak station nearby. Fernando made inquiries
culled from the records, below are the facts giving rise to such complaint. and was told that there are seats available and he can travel on Amtrak anytime and any
day he pleased. Fernando then purchased two (2) tickets for Washington, D.C.
On or about July 21, 1997 and while in the United States, Fernando purchased for
himself and his wife, Lourdes, two (2) round trip airline tickets from San Diego, California From Amtrak, Fernando went to Holiday Travel and confronted Mager with the
to Newark, New Jersey on board Continental Airlines. Fernando purchased the tickets at Amtrak tickets, telling her that she had misled them into buying the Continental Airlines
US$400.00 each from a travel agency called Holiday Travel and was attended to by a tickets by misrepresenting that Amtrak was already fully booked. Fernando reiterated his
certain Margaret Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the demand for a refund but Mager was firm in her position that the subject tickets are
said tickets after Mager informed them that there were no available seats at Amtrak, an non-refundable.
intercity passenger train service provider in the United States. Per the tickets, Spouses
Viloria were scheduled to leave for Newark on August 13, 1997 and return to San Diego on
1998, demanding a refund and alleging that Mager had deluded them into purchasing the
subject tickets.3
Subsequently, Fernando requested Mager to reschedule their flight to Newark to
an earlier date or August 6, 1997. Mager informed him that flights to Newark via
Continental Airlines were already fully booked and offered the alternative of a round trip
In a letter dated February 24, 1998, Continental Micronesia informed Fernando
flight via Frontier Air. Since flying with Frontier Air called for a higher fare of US$526.00
that his complaint had been referred to the Customer Refund Services of Continental
per passenger and would mean traveling by night, Fernando opted to request for a refund.
Airlines at Houston, Texas.4
Mager, however, denied his request as the subject tickets are non-refundable and the only
option that Continental Airlines can offer is the re-issuance of new tickets within one (1)
year from the date the subject tickets were issued. Fernando decided to reserve two (2)
seats with Frontier Air. In a letter dated March 24, 1998, Continental Micronesia denied Fernandos
request for a refund and advised him that he may take the subject tickets to any
Continental ticketing location for the re-issuance of new tickets within two (2) years from
the date they were issued. Continental Micronesia informed Fernando that the subject
tickets may be used as a form of payment for the purchase of another Continental ticket, CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for
albeit with a re-issuance fee.5 a refund as the subject tickets are non-refundable; (b) Fernando cannot insist on using the
ticket in Lourdes name for the purchase of a round trip ticket to Los Angeles since the
same is non-transferable; (c) as Mager is not a CAI employee, CAI is not liable for any of
her acts; (d) CAI, its employees and agents did not act in bad faith as to entitle Spouses
On June 17, 1999, Fernando went to Continentals ticketing office at Ayala
Viloria to moral and exemplary damages and attorneys fees. CAI also invoked the
Avenue, Makati City to have the subject tickets replaced by a single round trip ticket to Los
following clause printed on the subject tickets:
Angeles, California under his name. Therein, Fernando was informed that Lourdes ticket
was non-transferable, thus, cannot be used for the purchase of a ticket in his favor. He was
also informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to
3. To the extent not in conflict with the foregoing carriage and other
pay what will not be covered by the value of his San Diego to Newark round trip ticket. services performed by each carrier are subject to: (i) provisions
contained in this ticket, (ii) applicable tariffs, (iii) carriers conditions of
carriage and related regulations which are made part hereof (and are
available on application at the offices of carrier), except in
transportation between a place in the United States or Canada and any
In a letter dated June 21, 1999, Fernando demanded for the refund of the subject place outside thereof to which tariffs in force in those countries apply.8
circumstances under which the subject tickets were issued, Fernando claimed that CAIs
act of charging him with US$1,867.40 for a round trip ticket to Los Angeles, which other
airlines priced at US$856.00, and refusal to allow him to use Lourdes ticket, breached its
According to CAI, one of the conditions attached to their contract of carriage is
undertaking under its March 24, 1998 letter.6
the non-transferability and non-refundability of the subject tickets.
On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that
The RTCs Ruling
CAI be ordered to refund the money they used in the purchase of the subject tickets with
legal interest from July 21, 1997 and to pay P1,000,000.00 as moral damages, P500,000.00
as exemplary damages and P250,000.00 as attorneys fees.7
Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding
obtaining their consent in the purchase of the subject tickets. 9 The relevant portion of the
undertaking to replace the subject tickets within two (2) years from their date of issue
when it charged Fernando with the amount of US$1,867.40 for a round trip ticket to Los
Art. 1868. By the contract of agency a
person binds himself to render some service or to do Angeles and when it refused to allow Fernando to use Lourdes ticket. Specifically:
something in representation or on behalf of another,
with the consent or authority of the latter.
the latter. The elements of agency are: (1) consent, express or implied,
of the parties to establish the relationship; (2) the object is the
execution of a juridical act in relation to a third person; (3) the agent
Tickets may be reissued for up to two years from the original date of acts as a representative and not for him/herself; and (4) the agent acts
issue. When defendant airline still charged plaintiffs spouses within the scope of his/her authority. As the basis of agency is
US$1,867.40 or more than double the then going rate of US$856.00 for representation, there must be, on the part of the principal, an actual
the unused tickets when the same were presented within two (2) years intention to appoint, an intention naturally inferable from the
from date of issue, defendant airline exhibited callous treatment of principals words or actions. In the same manner, there must be an
passengers.12 intention on the part of the agent to accept the appointment and act
upon it. Absent such mutual intent, there is generally no agency. It is
likewise a settled rule that persons dealing with an assumed agent are
bound at their peril, if they would hold the principal liable, to ascertain
not only the fact of agency but also the nature and extent of authority,
and in case either is controverted, the burden of proof is upon them to
establish it. Agency is never presumed, neither is it created by the mere
The Appellate Courts Ruling use of the word in a trade or business name. We have perused the
evidence and documents so far presented. We find nothing except bare
allegations of plaintiffs-appellees that Mager/Holiday Travel was acting
in behalf of Continental Airlines. From all sides of legal prism, the
transaction in issue was simply a contract of sale, wherein Holiday
Travel buys airline tickets from Continental Airlines and then, through
On appeal, the CA reversed the RTCs April 3, 2006 Decision, holding that CAI its employees, Mager included, sells it at a premium to clients.13
cannot be held liable for Magers act in the absence of any proof that a principal-agent
relationship existed between CAI and Holiday Travel. According to the CA, Spouses Viloria,
who have the burden of proof to establish the fact of agency, failed to present evidence
agency but that of a sale. non-refundable was clearly printed on the face of the subject tickets, which constitute
their contract with CAI. Therefore, the grant of their prayer for a refund would violate the
We do not agree. By the contract of agency, a person binds US$856.00, which Spouses Viloria claim to be the fee charged by other airlines. The matter
him/herself to render some service or to do something in
representation or on behalf of another, with the consent or authority of
of fixing the prices for its services is CAIs prerogative, which Spouses Viloria cannot
intervene. In particular:
The Respondents Case
Spouses Vilorias sole basis to claim that the price at which CAI was willing to issue the
on a newspaper stating that airfares from Manila to Los Angeles or San Francisco cost
US$818.00.15 Also, the advertisement pertains to airfares in September 2000 and not to
The Petitioners Case
airfares prevailing in June 1999, the time when Fernando asked CAI to apply the value of
the subject tickets for the purchase of a new one.16 CAI likewise argued that it did not
undertake to protect Spouses Viloria from any changes or fluctuations in the prices of
In this Petition, this Court is being asked to review the findings and conclusions airline tickets and its only obligation was to apply the value of the subject tickets to the
of the CA, as the latters reversal of the RTCs April 3, 2006 Decision allegedly lacks factual purchase of the newly issued tickets.
and legal bases. Spouses Viloria claim that CAI acted in bad faith when it required them to
pay a higher amount for a round trip ticket to Los Angeles considering CAIs undertaking
to re-issue new tickets to them within the period stated in their March 24, 1998 letter. CAI
With respect to Spouses Vilorias claim that they are not aware of CAIs
likewise acted in bad faith when it disallowed Fernando to use Lourdes ticket to purchase
restrictions on the subject tickets and that the terms and conditions that are printed on
a round trip to Los Angeles given that there is nothing in Lourdes ticket indicating that it is
them are ambiguous, CAI denies any ambiguity and alleged that its representative
non-transferable. As a common carrier, it is CAIs duty to inform its passengers of the
informed Fernando that the subject tickets are non-transferable when he applied for the
terms and conditions of their contract and passengers cannot be bound by such terms and
issuance of a new ticket. On the other hand, the word non-refundable clearly appears on
conditions which they are not made aware of. Also, the subject contract of carriage is a
the face of the subject tickets.
contract of adhesion; therefore, any ambiguities should be construed against CAI. Notably,
the petitioners are no longer questioning the validity of the subject contracts and limited
its claim for a refund on CAIs alleged breach of its undertaking in its March 24, 1998 letter.
CAI also denies that it is bound by the acts of Holiday Travel and Mager and that e. Is CAI justified in pegging a different price for the round trip ticket to
no principal-agency relationship exists between them. As an independent contractor, Los Angeles requested by Fernando?
To determine the propriety of disturbing the CAs January 30, 2009 Decision and
whether Spouses Viloria have the right to the reliefs they prayed for, this Court deems it
I. A principal-agent relationship
a. Does a principal-agent relationship exist between CAI and Holiday exists between CAI and Holiday
Travel? Travel.
c. Assuming that CAI is bound by the acts of Holiday Travels agents and Court to review and re-examine the evidence presented by the parties below, this Court
employees, can the representation of Mager as to takes exception to the general rule that the CAs findings of fact are conclusive upon Us and
unavailability of seats at Amtrak be considered fraudulent as our jurisdiction is limited to the review of questions of law. It is well-settled to the point of
to vitiate the consent of Spouse Viloria in the purchase of the being axiomatic that this Court is authorized to resolve questions of fact if confronted with
subject tickets? contrasting factual findings of the trial court and appellate court and if the findings of the
exists has the burden of proof. Spouses Viloria, on whose shoulders such burden rests,
presented evidence that fell short of indubitably demonstrating the existence of such
agency. Contrary to the findings of the CA, all the elements of an agency exist in this case.
The first and second elements are present as CAI does not deny that it concluded an
agreement with Holiday Travel, whereby Holiday Travel would enter into contracts of
carriage with third persons on CAIs behalf. The third element is also present as it is
We disagree. The CA failed to consider undisputed facts, discrediting CAIs denial
undisputed that Holiday Travel merely acted in a representative capacity and it is CAI and
that Holiday Travel is one of its agents. Furthermore, in erroneously characterizing the
not Holiday Travel who is bound by the contracts of carriage entered into by Holiday
contractual relationship between CAI and Holiday Travel as a contract of sale, the CA failed
Travel on its behalf. The fourth element is also present considering that CAI has not made
to apply the fundamental civil law principles governing agency and differentiating it from
any allegation that Holiday Travel exceeded the authority that was granted to it. In fact,
sale.
CAI consistently maintains the validity of the contracts of carriage that Holiday Travel
executed with Spouses Viloria and that Mager was not guilty of any fraudulent
misrepresentation. That CAI admits the authority of Holiday Travel to enter into contracts
of carriage on its behalf is easily discernible from its February 24, 1998 and March 24,
In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the
1998 letters, where it impliedly recognized the validity of the contracts entered into by
nature of an agency and spelled out the essential elements thereof:
Holiday Travel with Spouses Viloria. When Fernando informed CAI that it was Holiday
Travel who issued to them the subject tickets, CAI did not deny that Holiday Travel is its
authorized agent.
Out of the above given principles, sprung the creation and
acceptance of the relationship of agency whereby one party, called the
principal (mandante), authorizes another, called the agent (mandatario),
to act for and in his behalf in transactions with third persons. The
essential elements of agency are: (1) there is consent, express or
implied of the parties to establish the relationship; (2) the object is the Prior to Spouses Vilorias filing of a complaint against it, CAI never refuted that it
execution of a juridical act in relation to a third person; (3) the agent
gave Holiday Travel the power and authority to conclude contracts of carriage on its behalf.
acts as a representative and not for himself, and (4) the agent acts
within the scope of his authority. As clearly extant from the records, CAI recognized the validity of the contracts of carriage
that Holiday Travel entered into with Spouses Viloria and considered itself bound with
Spouses Viloria by the terms and conditions thereof; and this constitutes an unequivocal
Agency is basically personal, representative, and derivative in testament to Holiday Travels authority to act as its agent. This Court cannot therefore
nature. The authority of the agent to act emanates from the powers
granted to him by his principal; his act is the act of the principal if done allow CAI to take an altogether different position and deny that Holiday Travel is its agent
within the scope of the authority. Qui facit per alium facit se. "He who
without condoning or giving imprimatur to whatever damage or prejudice that may result
acts through another acts himself."19
Since the company retained ownership of the goods, even as it
from such denial or retraction to Spouses Viloria, who relied on good faith on CAIs acts in delivered possession unto the dealer for resale to customers, the price
recognition of Holiday Travels authority. Estoppel is primarily based on the doctrine of and terms of which were subject to the company's control, the
relationship between the company and the dealer is one of agency,
good faith and the avoidance of harm that will befall an innocent party due to its injurious tested under the following criterion:
reliance, the failure to apply it in this case would result in gross travesty of
and Holiday Travel as one of sale. The distinctions between a sale and an agency are not
difficult to discern and this Court, as early as 1970, had already formulated the guidelines
that would aid in differentiating the two (2) contracts. In Commissioner of Internal Revenue
the Civil Code and this constitutes the very notion of agency.
contractual relationship between the airline company and its agent does not operate to
create a juridical tie between the airline company and its agents employees. Article 2180
II. In actions based on
quasi-delict, a principal can of the Civil Code does not make the principal vicariously liable for the tort committed by its
only be held liable for the tort
agents employees and the principal-agency relationship per se does not make the
committed by its agents
employees if it has been principal a party to such tort; hence, the need to prove the principals own fault or
established by preponderance
of evidence that the principal negligence.
was also at fault or negligent or
that the principal exercise
control and supervision over
them.
On the other hand, if the passengers cause of action for damages against the
that there be evidence of the airline companys fault or negligence. As this Court previously
stated in China Air Lines and reiterated in Air France vs. Gillego,24 in an action based on a
Considering that Holiday Travel is CAIs agent, does it necessarily follow that CAI breach of contract of carriage, the aggrieved party does not have to prove that the common
is liable for the fault or negligence of Holiday Travels employees? Citing China Air Lines, carrier was at fault or was negligent. All that he has to prove is the existence of the
Ltd. v. Court of Appeals, et al.,23 CAI argues that it cannot be held liable for the actions of the contract and the fact of its non-performance by the carrier.
employee of its ticketing agent in the absence of an employer-employee relationship.
premised on culpa aquiliana or quasi-delict for a tort committed by the employee of the
airline companys agent, there must be an independent showing that the airline company
was at fault or negligent or has contributed to the negligence or tortuous conduct However, the records are devoid of any evidence by which CAIs alleged liability
committed by the employee of its agent. The mere fact that the employee of the airline can be substantiated. Apart from their claim that CAI must be held liable for Magers
companys agent has committed a tort is not sufficient to hold the airline company liable. supposed fraud because Holiday Travel is CAIs agent, Spouses Viloria did not present
There is no vinculum juris between the airline company and its agents employees and the evidence that CAI was a party or had contributed to Magers complained act either by
instructing or authorizing Holiday Travel and Mager to issue the said misrepresentation.
status, occupy a position of dependency with respect to the person
made liable for their conduct.26 (emphasis supplied)
It may seem unjust at first glance that CAI would consider Spouses Viloria bound
by the terms and conditions of the subject contracts, which Mager entered into with them
on CAIs behalf, in order to deny Spouses Vilorias request for a refund or Fernandos use of
Lourdes ticket for the re-issuance of a new one, and simultaneously claim that they are not It is incumbent upon Spouses Viloria to prove that CAI exercised control or
bound by Magers supposed misrepresentation for purposes of avoiding Spouses Vilorias supervision over Mager by preponderant evidence. The existence of control or supervision
claim for damages and maintaining the validity of the subject contracts. It may likewise be cannot be presumed and CAI is under no obligation to prove its denial or nugatory
argued that CAI cannot deny liability as it benefited from Magers acts, which were assertion. Citing Belen v. Belen,27 this Court ruled in Jayme v. Apostol,28 that:
performed in compliance with Holiday Travels obligations as CAIs agent.
In Belen v. Belen, this Court ruled that it was enough for defendant to
deny an alleged employment relationship. The defendant is under no
However, a persons vicarious liability is anchored on his possession of control, obligation to prove the negative averment. This Court said:
whether absolute or limited, on the tortfeasor. Without such control, there is nothing
which could justify extending the liability to a person other than the one who committed
the tort. As this Court explained in Cangco v. Manila Railroad Co.:25 It is an old and well-settled rule of the
courts that the burden of proving the action is upon
the plaintiff, and that if he fails satisfactorily to show
the facts upon which he bases his claim, the
defendant is under no obligation to prove his
With respect to extra-contractual obligation arising from exceptions. This [rule] is in harmony with the
negligence, whether of act or omission, it is competent for the provisions of Section 297 of the Code of Civil
legislature to elect and our Legislature has so elected to limit such Procedure holding that each party must prove his
liability to cases in which the person upon whom such an obligation is own affirmative allegations, etc.29 (citations
imposed is morally culpable or, on the contrary, for reasons of public omitted)
policy, to extend that liability, without regard to the lack of moral
culpability, so as to include responsibility for the negligence of
those persons whose acts or omissions are imputable, by a legal
fiction, to others who are in a position to exercise an absolute or
limited control over them. The legislature which adopted our Civil
Code has elected to limit extra-contractual liability with certain
well-defined exceptions to cases in which moral culpability can be Therefore, without a modicum of evidence that CAI exercised control over Holiday Travels
directly imputed to the persons to be charged. This moral responsibility
employees or that CAI was equally at fault, no liability can be imposed on CAI for Magers
may consist in having failed to exercise due care in one's own acts, or in
having failed to exercise due care in the selection and control of one's supposed misrepresentation.
agent or servants, or in the control of persons who, by reasons of their
fraudulent means, it is plainly apparent that their demand for a refund is tantamount to
seeking for an annulment of the subject contracts on the ground of vitiated consent.
1.
Even on the
assumption that CAI
may be held liable for
Whether the subject contracts are annullable, this Court is required to determine
the acts of Mager, still,
Spouses Viloria are not whether Magers alleged misrepresentation constitutes causal fraud. Similar to the dispute
entitled to a refund.
Magers statement on the existence of an agency, whether fraud attended the execution of a contract is factual
cannot be considered a in nature and this Court, as discussed above, may scrutinize the records if the findings of
causal fraud that
would justify the the CA are contrary to those of the RTC.
annulment of the
subject contracts that
would oblige CAI to
indemnify Spouses
Viloria and return the
Under Article 1338 of the Civil Code, there is fraud when, through insidious
money they paid for
the subject tickets. words or machinations of one of the contracting parties, the other is induced to enter into
a contract which, without them, he would not have agreed to. In order that fraud may
2.
vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo
Appeals,31 causal fraud was defined as a deception employed by one party prior to or
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the
consent of the contracting parties was obtained through fraud, the contract is considered
voidable and may be annulled within four (4) years from the time of the discovery of the
Also, fraud must be serious and its existence must be established by clear and
fraud. Once a contract is annulled, the parties are obliged under Article 1398 of the same
convincing evidence. As ruled by this Court in Sierra v. Hon. Court of Appeals, et al.,33 mere
Code to restore to each other the things subject matter of the contract, including their
preponderance of evidence is not adequate:
fruits and interest.
On the basis of the foregoing and given the allegation of Spouses Viloria that
Fernandos consent to the subject contracts was supposedly secured by Mager through
Art. 1338. There is fraud when, through
insidious words or machinations of one of the to be wanting. As CAI correctly pointed out and as Fernando admitted, it was possible that
contracting parties, the other is induced to enter into during the intervening period of three (3) weeks from the time Fernando purchased the
a contract which without them, he would not have
agreed to. subject tickets to the time he talked to said Amtrak employee, other passengers may have
cancelled their bookings and reservations with Amtrak, making it possible for Amtrak to
accommodate them. Indeed, the existence of fraud cannot be proved by mere speculations
Art. 1344. In order that fraud may make a and conjectures. Fraud is never lightly inferred; it is good faith that is. Under the Rules of
contract voidable, it should be serious and should not
have been employed by both contracting parties. Court, it is presumed that "a person is innocent of crime or wrong" and that "private
transactions have been fair and regular."35 Spouses Viloria failed to overcome this
presumption.
Even assuming that Magers representation is causal fraud, the subject contracts
After meticulously poring over the records, this Court finds that the fraud alleged
have been impliedly ratified when Spouses Viloria decided to exercise their right to use the
by Spouses Viloria has not been satisfactorily established as causal in nature to warrant
subject tickets for the purchase of new ones. Under Article 1392 of the Civil Code,
the annulment of the subject contracts. In fact, Spouses Viloria failed to prove by clear and
ratification extinguishes the action to annul a voidable contract.
convincing evidence that Magers statement was fraudulent. Specifically, Spouses Viloria
failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey
on August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew
about this; and (c) that she purposely informed them otherwise. Ratification of a voidable contract is defined under Article 1393 of the Civil Code
as follows:
This Court finds the only proof of Magers alleged fraud, which is Fernandos
testimony that an Amtrak had assured him of the perennial availability of seats at Amtrak,
Art. 1393. Ratification may be effected expressly or tacitly. It is
understood that there is a tacit ratification if, with knowledge of the contract valid are present; in annulment, one of the essential elements to a formation of a
reason which renders the contract voidable and such reason having contract, which is consent, is absent. In resolution, the defect is in the consummation stage
ceased, the person who has a right to invoke it should execute an act
which necessarily implies an intention to waive his right. of the contract when the parties are in the process of performing their respective
obligations; in annulment, the defect is already present at the time of the negotiation and
perfection stages of the contract. Accordingly, by pursuing the remedy of rescission under
Article 1191, the Vilorias had impliedly admitted the validity of the subject contracts,
forfeiting their right to demand their annulment. A party cannot rely on the contract and
Implied ratification may take diverse forms, such as by silence or acquiescence; claim rights or obligations under it and at the same time impugn its existence or validity.
by acts showing approval or adoption of the contract; or by acceptance and retention of Indeed, litigants are enjoined from taking inconsistent positions.39
benefits flowing therefrom.36
V. Contracts cannot be
rescinded for a slight or casual
Simultaneous with their demand for a refund on the ground of Fernandos breach.
vitiated consent, Spouses Viloria likewise asked for a refund based on CAIs supposed bad
faith in reneging on its undertaking to replace the subject tickets with a round trip ticket
contracts based on contractual breach. Resolution, the action referred to in Article 1191, is
based on the defendants breach of faith, a violation of the reciprocity between the
parties37 and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation,38 this Court
Considering that the subject contracts are not annullable on the ground of
ruled that a claim for a reimbursement in view of the other partys failure to comply with
vitiated consent, the next question is: Do Spouses Viloria have the right to rescind the
his obligations under the contract is one for rescission or resolution.
contract on the ground of CAIs supposed breach of its undertaking to issue new tickets
upon surrender of the subject tickets?
However, annulment under Article 1390 of the Civil Code and rescission under
Article 1191 are two (2) inconsistent remedies. In resolution, all the elements to make the
Article 1191, as presently worded, states:
The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon Clearly, there is nothing in the above-quoted section of CAIs letter from which
him.
the restriction on the non-transferability of the subject tickets can be inferred. In fact, the
words used by CAI in its letter supports the position of Spouses Viloria, that each of them
can use the ticket under their name for the purchase of new tickets whether for themselves
The injured party may choose between the fulfilment and the rescission
of the obligation, with the payment of damages in either case. He may or for some other person.
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.
Moreover, as CAI admitted, it was only when Fernando had expressed his interest
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period. to use the subject tickets for the purchase of a round trip ticket between Manila and Los
Angeles that he was informed that he cannot use the ticket in Lourdes name as payment.
implied from a plain reading of the provision printed on the subject tickets stating that
[t]o the extent not in conflict with the foregoing carriage and other services performed by
each carrier are subject to: (a) provisions contained in this ticket, x x x (iii) carriers
conditions of carriage and related regulations which are made part hereof (and are
According to Spouses Viloria, CAI acted in bad faith and breached the subject
available on application at the offices of carrier) x x x. As a common carrier whose
contracts when it refused to apply the value of Lourdes ticket for Fernandos purchase of a
business is imbued with public interest, the exercise of extraordinary diligence requires
round trip ticket to Los Angeles and in requiring him to pay an amount higher than the
CAI to inform Spouses Viloria, or all of its passengers for that matter, of all the terms and
price fixed by other airline companies.
conditions governing their contract of carriage. CAI is proscribed from taking advantage of
any ambiguity in the contract of carriage to impute knowledge on its passengers of and
demand compliance with a certain condition or undertaking that is not clearly stipulated.
In its March 24, 1998 letter, CAI stated that non-refundable tickets may be used Since the prohibition on transferability is not written on the face of the subject tickets and
as a form of payment toward the purchase of another Continental ticket for $75.00, per CAI failed to inform Spouses Viloria thereof, CAI cannot refuse to apply the value of
ticket, reissue fee ($50.00, per ticket, for tickets purchased prior to October 30, 1997). Lourdes ticket as payment for Fernandos purchase of a new ticket.
CAIs refusal to accept Lourdes
ticket for the purchase of a new Moreover, Spouses Vilorias demand for rescission cannot prosper as CAI cannot
ticket for Fernando is only a be solely faulted for the fact that their agreement failed to consummate and no new ticket
casual breach.
was issued to Fernando. Spouses Viloria have no right to insist that a single round trip
ticket between Manila and Los Angeles should be priced at around $856.00 and refuse to
pay the difference between the price of the subject tickets and the amount fixed by CAI.
The petitioners failed to allege, much less prove, that CAI had obliged itself to issue to them
Nonetheless, the right to rescind a contract for non-performance of its tickets for any flight anywhere in the world upon their surrender of the subject tickets. In
stipulations is not absolute. The general rule is that rescission of a contract will not be its March 24, 1998 letter, it was clearly stated that [n]on-refundable tickets may be used
permitted for a slight or casual breach, but only for such substantial and fundamental as a form of payment toward the purchase of another Continental ticket 42 and there is
violations as would defeat the very object of the parties in making the nothing in it suggesting that CAI had obliged itself to protect Spouses Viloria from any
agreement.40 Whether a breach is substantial is largely determined by the attendant fluctuation in the prices of tickets or that the surrender of the subject tickets will be
circumstances.41 considered as full payment for any ticket that the petitioners intend to buy regardless of
actual price and destination. The CA was correct in holding that it is CAIs right and
exclusive prerogative to fix the prices for its services and it may not be compelled to
payment for the purchase of a new ticket is unjustified as the non-transferability of the
subject tickets was not clearly stipulated, it cannot, however be considered substantial.
The endorsability of the subject tickets is not an essential part of the underlying contracts The conflict as to the endorsability of the subject tickets is an altogether different
and CAIs failure to comply is not essential to its fulfillment of its undertaking to issue new matter, which does not preclude CAI from fixing the price of a round trip ticket between
tickets upon Spouses Vilorias surrender of the subject tickets. This Court takes note of Manila and Los Angeles in an amount it deems proper and which does not provide Spouses
CAIs willingness to perform its principal obligation and this is to apply the price of the Viloria an excuse not to pay such price, albeit subject to a reduction coming from the value
ticket in Fernandos name to the price of the round trip ticket between Manila and Los of the subject tickets. It cannot be denied that Spouses Viloria had the concomitant
Angeles. CAI was likewise willing to accept the ticket in Lourdes name as full or partial obligation to pay whatever is not covered by the value of the subject tickets whether or not
payment as the case may be for the purchase of any ticket, albeit under her name and for the subject tickets are transferable or not.
her exclusive use. In other words, CAIs willingness to comply with its undertaking under
its March 24, 1998 cannot be doubted, albeit tainted with its erroneous insistence that
faith by being charged with a higher rate. The only evidence the petitioners presented to the purchase of Fernandos round trip ticket is offset by Spouses Vilorias liability for their
prove that the price of a round trip ticket between Manila and Los Angeles at that time was refusal to pay the amount, which is not covered by the subject tickets. Moreover, the
only $856.00 is a newspaper advertisement for another airline company, which is contract between them remains, hence, CAI is duty bound to issue new tickets for a
inadmissible for being hearsay evidence, twice removed. Newspaper clippings are destination chosen by Spouses Viloria upon their surrender of the subject tickets and
hearsay if they were offered for the purpose of proving the truth of the matter alleged. As Spouses Viloria are obliged to pay whatever amount is not covered by the value of the
hence, none of them can seek judicial redress for the cancellation or resolution of the
subject contracts and they are therefore bound to their respective obligations thereunder. Article 1192 of the Civil Code provides that in case both
parties have committed a breach of their reciprocal obligations, the
As the 1st sentence of Article 1192 provides:
liability of the first infractor shall be equitably tempered by the courts.
WE rule that the liability of Island Savings Bank for damages in not
Art. 1192. In case both parties have committed a breach of
furnishing the entire loan is offset by the liability of Sulpicio M.
the obligation, the liability of the first infractor shall be equitably
Tolentino for damages, in the form of penalties and surcharges, for not
tempered by the courts. If it cannot be determined which of the
paying his overdue P17,000.00 debt. x x x.47
parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages. (emphasis
supplied)
Another consideration that militates against the propriety of holding CAI liable
for moral damages is the absence of a showing that the latter acted fraudulently and in bad
faith. Article 2220 of the Civil Code requires evidence of bad faith and fraud and moral
damages are generally not recoverable in culpa contractual except when bad faith had
been proven.48The award of exemplary damages is likewise not warranted. Apart from the
requirement that the defendant acted in a wanton, oppressive and malevolent manner, the
SO ORDERED.
[G.R. No. 117356. June 19, 2000] Private respondent CSC surrendered SLDR No. 1214M to the petitioner's
NAWACO warehouse and was allowed to withdraw sugar. However, after 2,000
VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and bags had been released, petitioner refused to allow further withdrawals of sugar
CONSOLIDATED SUGAR CORPORATION, respondents. against SLDR No. 1214M. CSC then sent petitioner a letter dated January 23, 1990
informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it
had been refused further withdrawals of sugar from petitioner's warehouse
DECISION
despite the fact that only 2,000 bags had been withdrawn.[5] CSC thus inquired
when it would be allowed to withdraw the remaining 23,000 bags.
QUISUMBING, J.:
On January 31, 1990, petitioner replied that it could not allow any further
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court withdrawals of sugar against SLDR No. 1214M because STM had already
assailing the decision of the Court of Appeals dated February 24, 1994, in CA-G.R. dwithdrawn all the sugar covered by the cleared checks.[6]
CV No. 31717, as well as the respondent court's resolution of September 30, 1994
modifying said decision. Both decision and resolution amended the judgment
On March 2, 1990, CSC sent petitioner a letter demanding the release of the
dated February 13, 1991, of the Regional Trial Court of Makati City, Branch 147,
balance of 23,000 bags.
in Civil Case No. 90-118.
Seven days later, petitioner reiterated that all the sugar corresponding to the
The facts of this case as found by both the trial and appellate courts are as
amount of STM's cleared checks had been fully withdrawn and hence, there
follows:
would be no more deliveries of the commodity to STM's account. Petitioner also
noted that CSC had represented itself to be STM's agent as it had withdrawn the
St. Therese Merchandising (hereafter STM) regularly bought sugar from 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.
petitioner Victorias Milling Co., Inc., (VMC). In the course of their dealings,
petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as
On April 27, 1990, CSC filed a complaint for specific performance, docketed as
proof of purchases. Among these was SLDR No. 1214M, which gave rise to the
Civil Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under
instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of
the name of St. Therese Merchandising) and herein petitioner. Since the former
sugar. Each bag contained 50 kilograms and priced at P638.00 per bag as "per
could not be served with summons, the case proceeded only against the latter.
sales order VMC Marketing No. 042 dated October 16, 1989."[1] The transaction it
During the trial, it was discovered that Teresita Ng Go who testified for CSC was
covered was a "direct sale."[2] The SLDR also contains an additional note which
the same Teresita Ng Sy who could not be reached through summons.[7] CSC,
reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)."[3]
however, did not bother to pursue its case against her, but instead used her as its
witness.
On October 25, 1989, STM sold to private respondent Consolidated Sugar
Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered
one check dated October 25, 1989 and three checks postdated November 13,
by SLDR No. 1214M. Therefore, the latter had no justification for refusing
1989 in payment. That same day, CSC wrote petitioner that it had been
delivery of the sugar. CSC prayed that petitioner be ordered to deliver the 23,000
authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed
bags covered by SLDR No. 1214M and sought the award of P1,104,000.00 in
in the letter were a copy of SLDR No. 1214M and a letter of authority from STM
unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as
authorizing CSC "to withdraw for and in our behalf the refined sugar covered by
attorney's fees and litigation expenses.
Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated October 16,
1989 in the total quantity of 25,000 bags."[4]
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000
bags.[8] Since STM had already drawn in full all the sugar corresponding to the
On October 27, 1989, STM issued 16 checks in the total amount of
amount of its cleared checks, it could no longer authorize further delivery of
P31,900,000.00 with petitioner as payee. The latter, in turn, issued Official
sugar to CSC. Petitioner also contended that it had no privity of contract with CSC.
Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said
checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also
covered SLDR No. 1213. Petitioner explained that the SLDRs, which it had issued, were not documents of
title, but mere delivery receipts issued pursuant to a series of transactions
entered into between it and STM. The SLDRs prescribed delivery of the sugar to account of Victorias Milling Company because on October 27, 1989
the party specified therein and did not authorize the transfer of said party's Victorias Milling Company issued official receipt no. 34734 in favor of St.
rights and interests. Therese Merchandising for the amount of P31,900,000.00 (Exhibits B
and B-1). The testimony of Teresita Ng Go is further supported by
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's Exhibit F, which is a computer printout of defendant Victorias Milling
co-conspirator to defraud it through a misrepresentation that CSC was an Company showing the quantity and value of the purchases made by St.
innocent purchaser for value and in good faith. Petitioner then prayed that CSC Therese Merchandising, the SLDR no. issued to cover the purchase, the
be ordered to pay it the following sums: P10,000,000.00 as moral damages; official reciept no. and the status of payment. It is clear in Exhibit 'F' that
P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees. with respect to the sugar covered by SLDR No. 1214 the same has been
Petitioner also prayed that cross-defendant STM be ordered to pay it fully paid as indicated by the word 'cleared' appearing under the
P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees. column of 'status of payment.'
Since no settlement was reached at pre-trial, the trial court heard the case on the "On the other hand, the claim of defendant Victorias Milling Company
merits. that the purchase price of the 25,000 bags of sugar purchased by St.
Therese Merchandising covered by SLDR No. 1214 has not been fully
paid is supported only by the testimony of Arnulfo Caintic, witness for
As earlier stated, the trial court rendered its judgment favoring private
defendant Victorias Milling Company. The Court notes that the
respondent CSC, as follows:
testimony of Arnulfo Caintic is merely a sweeping barren assertion that
the purchase price has not been fully paid and is not corroborated by
"WHEREFORE, in view of the foregoing, the Court hereby renders any positive evidence. There is an insinuation by Arnulfo Caintic in his
judgment in favor of the plaintiff and against defendant Victorias Milling testimony that the postdated checks issued by the buyer in payment of
Company: the purchased price were dishonored. However, said witness failed to
present in Court any dishonored check or any replacement check. Said
"1) Ordering defendant Victorias Milling Company to deliver to the witness likewise failed to present any bank record showing that the
plaintiff 23,000 bags of refined sugar due under SLDR No. 1214; checks issued by the buyer, Teresita Ng Go, in payment of the purchase
price of the sugar covered by SLDR No. 1214 were dishonored."[10]
"2) Ordering defendant Victorias Milling Company to pay the amount of
P920,000.00 as unrealized profits, the amount of P800,000.00 as Petitioner appealed the trial courts decision to the Court of Appeals.
exemplary damages and the amount of P1,357,000.00, which is 10% of
the acquisition value of the undelivered bags of refined sugar in the On appeal, petitioner averred that the dealings between it and STM were part of a
amount of P13,570,000.00, as attorney's fees, plus the costs. series of transactions involving only one account or one general contract of sale.
Pursuant to this contract, STM or any of its authorized agents could withdraw
"SO ORDERED."[9] bags of sugar only against cleared checks of STM. SLDR No. 21214M was only one
of 22 SLDRs issued to STM andsince the latter had already withdrawn its full
It made the following observations: quota of sugar under the said SLDR, CSC was already precluded from seeking
delivery of the 23,000 bags of sugar.
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully
paid the purchase price of P15,950,000.00 of the 25,000 bags of sugar Private respondent CSC countered that the sugar purchases involving SLDR No.
bought by her covered by SLDR No. 1214 as well as the purchase price 1214M were separate and independent transactions and that the details of the
of P15,950,000.00 for the 25,000 bags of sugar bought by her covered series of purchases were contained in a single statement with a consolidated
by SLDR No. 1213 on the same date, October 16, 1989 (date of the two summary of cleared check payments and sugar stock withdrawals because this a
SLDRs) is duly supported by Exhibits C to C-15 inclusive which are more convenient system than issuing separate statements for each purchase.
post-dated checks dated October 27, 1989 issued by St. Therese
Merchandising in favor of Victorias Milling Company at the time it The appellate court considered the following issues: (a) Whether or not the
purchased the 50,000 bags of sugar covered by SLDR No. 1213 and transaction between petitioner and STM involving SLDR No. 1214M was a
1214. Said checks appear to have been honored and duly credited to the separate, independent, and single transaction; (b) Whether or not CSC had the
capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as CA Rep 783). The rationale for this is to afford the party against whom
buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M the evidence is presented to object thereto if he deems it necessary.
could compel petitioner to deliver 23,000 bags allegedly unwithdrawn. Plaintiff-appellee is, therefore, correct in its argument that Exhibit F'
which was offered to prove that checks in the total amount of
On February 24, 1994, the Court of Appeals rendered its decision modifying the P15,950,000.00 had been cleared. (Formal Offer of Evidence for Plaintiff,
trial court's judgment, to wit: Records p. 58) cannot be used to prove the proposition that 12,586 bags
of sugar remained undelivered.
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and
orders defendant-appellant to: "Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990,
p. 33] and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and
36]) presented by plaintiff-appellee was to the effect that it had
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR
withdrawn only 2,000 bags of sugar from SLDR after which it was not
No. 1214M;
allowed to withdraw anymore. Documentary evidence (Exhibit I, Id., p.
78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand
" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of letters to defendant-appellant asking the latter to allow it to withdraw
the undelivered bags of refined sugar, as attorneys fees; the remaining 23,000 bags of sugar from SLDR 1214M.
Defendant-appellant, on the other hand, alleged that sugar delivery to
"3) Pay the costs of suit. the STM corresponded only to the value of cleared checks; and that all
sugar corresponded to cleared checks had been withdrawn.
"SO ORDERED."[11] Defendant-appellant did not rebut plaintiff-appellee's assertions. It did
not present evidence to show how many bags of sugar had been
Both parties then seasonably filed separate motions for reconsideration. withdrawn against SLDR No. 1214M, precisely because of its theory that
all sales in question were a series of one single transaction and
withdrawal of sugar depended on the clearing of checks paid therefor.
In its resolution dated September 30, 1994, the appellate court modified its
decision to read:
"After a second look at the evidence, We see no reason to overturn the
findings of the trial court on this point."[13]
"WHEREFORE, the Court hereby modifies the assailed judgment and
orders defendant-appellant to:
Hence, the instant petition, positing the following errors as grounds for review:
" 3. The Court of Appeals misapplied the law on compensation under The issues will be discussed in seriatim.
Arts. 1279, 1285 and 1626 of the Civil Code when it ruled that
compensation applied only to credits from one SLDR or contract and Anent the first issue, we find from the records that petitioner raised this issue for
not to those from two or more distinct contracts between the same the first time on appeal. It is settled that an issue which was not raised during the
parties; and erred in denying petitioner's right to setoff all its credits trial in the court below could not be raised for the first time on appeal as to do so
arising prior to notice of assignment from other sales or SLDRs against would be offensive to the basic rules of fair play, justice, and due
private respondent's claim as assignee under SLDR No. 1214M, so as to process.[15] Nonetheless, the Court of Appeals opted to address this issue, hence,
extinguish or reduce its liability to 69 bags, because the law on now a matter for our consideration.
compensation applies precisely to two or more distinct contracts
between the same parties (emphasis in the original).
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw
sugar against SLDR No. 1214M to show that the latter was STM's agent. The
"4. The Court of Appeals erred in concluding that the settlement or pertinent portion of said letter reads:
liquidation of accounts in Exh. F between petitioner and STM,
respondent's admission of its balance, and STM's acquiescence thereto
"This is to authorize Consolidated Sugar Corporation or its
by silence for almost one year did not render Exh. `F' an account stated
representative to withdraw for and in our behalf (stress supplied) the
and its balance binding.
refined sugar covered by Shipping List/Delivery Receipt = Refined
Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,
"5. The Court of Appeals erred in not holding that the conditions of the 000 bags."[16]
assigned SLDR No. 1214, namely, (a) its subject matter being generic,
and (b) the sale of sugar being subject to its availability at the Nawaco
The Civil Code defines a contract of agency as follows:
warehouse, made the sale conditional and prevented STM or private
respondent from acquiring title to the sugar; and the non-availability of
sugar freed petitioner from further obligation. "Art. 1868. By the contract of agency a person binds himself to render
some service or to do something in representation or on behalf of
another, with the consent or authority of the latter."
"6. The Court of Appeals erred in not holding that the "clean hands"
doctrine precluded respondent from seeking judicial reliefs (sic) from
petitioner, its only remedy being against its assignor."[14] It is clear from Article 1868 that the basis of agency is representation.[17] On the
part of the principal, there must be an actual intention to appoint[18] or an
intention naturally inferable from his words or actions;[19] and on the part of the
Simply stated, the issues now to be resolved are:
agent, there must be an intention to accept the appointment and act on it,[20] and
in the absence of such intent, there is generally no agency.[21] One factor which
(1)....Whether or not the Court of Appeals erred in not ruling that CSC most clearly distinguishes agency from other legal concepts is control; one
was an agent of STM and hence, estopped to sue upon SLDR No. 1214M person - the agent - agrees to act under the control or direction of another - the
as an assignee. principal. Indeed, the very word "agency" has come to connote control by the
principal.[22] The control factor, more than any other, has caused the courts to put
(2)....Whether or not the Court of Appeals erred in applying the law on contracts between principal and agent in a separate category.[23] The Court of
compensation to the transaction under SLDR No. 1214M so as to Appeals, in finding that CSC, was not an agent of STM, opined:
preclude petitioner from offsetting its credits on the other SLDRs.
"This Court has ruled that where the relation of agency is dependent
(3)....Whether or not the Court of Appeals erred in not ruling that the upon the acts of the parties, the law makes no presumption of agency,
sale of sugar under SLDR No. 1214M was a conditional sale or a contract and it is always a fact to be proved, with the burden of proof resting
to sell and hence freed petitioner from further obligations. upon the persons alleging the agency, to show not only the fact of its
existence, but also its nature and extent (Antonio vs. Enriquez [CA], 51 Regarding the third issue, petitioner contends that the sale of sugar under SLDR
O.G. 3536]. Here, defendant-appellant failed to sufficiently establish the No. 1214M is a conditional sale or a contract to sell, with title to the sugar still
existence of an agency relation between plaintiff-appellee and STM. The remaining with the vendor. Noteworthy, SLDR No. 1214M contains the following
fact alone that it (STM) had authorized withdrawal of sugar by terms and conditions:
plaintiff-appellee "for and in our (STM's) behalf" should not be eyed as
pointing to the existence of an agency relation ...It should be viewed in "It is understood and agreed that by payment by buyer/trader of
the context of all the circumstances obtaining. Although it would seem refined sugar and/or receipt of this document by the buyer/trader
STM represented plaintiff-appellee as being its agent by the use of the personally or through a representative, title to refined sugar is
phrase "for and in our (STM's) behalf" the matter was cleared when on transferred to buyer/trader and delivery to him/it is deemed effected and
23 January 1990, plaintiff-appellee informed defendant-appellant that completed (stress supplied) and buyer/trader assumes full
SLDFR No. 1214M had been "sold and endorsed" to it by STM (Exhibit I, responsibility therefore"[29]
Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000
bags of sugar covered by the SLDR No. 1214M were sold and
The aforequoted terms and conditions clearly show that petitioner transferred
transferred by STM to it ...A conclusion that there was a valid sale and
title to the sugar to the buyer or his assignee upon payment of the purchase price.
transfer to plaintiff-appellee may, therefore, be made thus capacitating
Said terms clearly establish a contract of sale, not a contract to sell. Petitioner is
plaintiff-appellee to sue in its own name, without need of joining its
now estopped from alleging the contrary. The contract is the law between the
imputed principal STM as co-plaintiff."[24]
contracting parties.[30] And where the terms and conditions so stipulated are not
contrary to law, morals, good customs, public policy or public order, the contract
In the instant case, it appears plain to us that private respondent CSC was a buyer is valid and must be upheld.[31] Having transferred title to the sugar in question,
of the SLDFR form, and not an agent of STM. Private respondent CSC was not petitioner is now obliged to deliver it to the purchaser or its assignee.
subject to STM's control. The question of whether a contract is one of sale or
agency depends on the intention of the parties as gathered from the whole scope
As to the fourth issue, petitioner submits that STM and private respondent CSC
and effect of the language employed.[25]That the authorization given to CSC
have entered into a conspiracy to defraud it of its sugar. This conspiracy is
contained the phrase "for and in our (STM's) behalf" did not establish an agency.
allegedly evidenced by: (a) the fact that STM's selling price to CSC was below its
Ultimately, what is decisive is the intention of the parties.[26] That no agency was
purchasing price; (b) CSC's refusal to pursue its case against Teresita Ng Go; and
meant to be established by the CSC and STM is clearly shown by CSC's
(c) the authority given by the latter to other persons to withdraw sugar against
communication to petitioner that SLDR No. 1214M had been "sold and endorsed"
SLDR No. 1214M after she had sold her rights under said SLDR to CSC. Petitioner
to it.[27]The use of the words "sold and endorsed" means that STM and CSC
prays that the doctrine of "clean hands" should be applied to preclude CSC from
intended a contract of sale, and not an agency. Hence, on this score, no error was
seeking judicial relief. However, despite careful scrutiny, we find here the records
committed by the respondent appellate court when it held that CSC was not
bare of convincing evidence whatsoever to support the petitioner's allegations of
STM's agent and could independently sue petitioner.
fraud. We are now constrained to deem this matter purely speculative, bereft of
concrete proof.
On the second issue, proceeding from the theory that the transactions entered
into between petitioner and STM are but serial parts of one account, petitioner
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against
insists that its debt has been offset by its claim for STM's unpaid purchases,
petitioner.
pursuant to Article 1279 of the Civil Code.[28] However, the trial court found, and
the Court of Appeals concurred, that the purchase of sugar covered by SLDR No.
1214M was a separate and independent transaction; it was not a serial part of a SO ORDERED.
single transaction or of one account contrary to petitioner's insistence. Evidence
on record shows, without being rebutted, that petitioner had been paid for the
sugar purchased under SLDR No. 1214M. Petitioner clearly had the obligation to
deliver said commodity to STM or its assignee. Since said sugar had been fully
paid for, petitioner and CSC, as assignee of STM, were not mutually creditors and
debtors of each other. No reversible error could thereby be imputed to
respondent appellate court when, it refused to apply Article 1279 of the Civil
Code to the present case.
[G.R. No. 130148. December 15, 1997] Criminal Case No. 785-M-94. That criminal case appears to be still pending in said trial
court.
During the trial of the civil case, petitioners claimed that Deganos acted as the agent
of Brigida D. Luz when he received the subject items of jewelry and, because he failed to
JOSE BORDADOR and LYDIA BORDADOR, petitioners, vs. BRIGIDA D. LUZ, ERNESTO M.
pay for the same, Brigida, as principal, and her spouse are solidarily liable with him
LUZ and NARCISO DEGANOS, respondents.
therefor.
DECISION On the other hand, while Deganos admitted that he had an unpaid obligation to
petitioners, he claimed that the same was only in the sum of P382,816.00 and
REGALADO, J.: not P725,463.98. He further asserted that it was he alone who was involved in the
transaction with the petitioners; that he neither acted as agent for nor was he authorized
In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in to act as an agent by Brigida D. Luz, notwithstanding the fact that six of the receipts
CA-G.R. CV No. 49175 affirming the adjudication of the Regional Trial Court of Malolos, indicated that the items were received by him for the latter. He further claimed that he
Bulacan which found private respondent Narciso Deganos liable to petitioners for actual never delivered any of the items he received from petitioners to Brigida.
damages, but absolved respondent spouses Brigida D. Luz and Ernesto M. Luz of liability.
Brigida, on her part, denied that she had anything to do with the transactions
Petitioners likewise belabor the subsequent resolution of the Court of Appeals which
between petitioners and Deganos. She claimed that she never authorized Deganos to
denied their motion for reconsideration of its challenged decision.
receive any item of jewelry in her behalf and, for that matter, neither did she actually
Petitioners were engaged in the business of purchase and sale of jewelry and receive any of the articles in question.
respondent Brigida D. Luz, also known as Aida D. Luz, was their regular customer. On
After trial, the court below found that only Deganos was liable to petitioners for the
several occasions during the period from April 27, 1987 to September 4, 1987, respondent
amount and damages claimed. It held that while Brigida D. Luz did have transactions with
Narciso Deganos, the brother of Brigida D. Luz, received several pieces of gold and jewelry
petitioners in the past, the items involved were already paid for and all that Brigida owed
from petitioners amounting to P382,816.00. [1] These items and their prices were indicated
petitioners was the sum of P21,483.00 representing interest on the principal account
in seventeen receipts covering the same. Eleven of the receipts stated that they were
which she had previously paid for.[6]
received for a certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated
that they were received for Brigida D. Luz. [2] The trial court also found that it was petitioner Lydia Bordador who indicated in the
receipts that the items were received by Deganos for Evelyn Aquino and Brigida D.
Deganos was supposed to sell the items at a profit and thereafter remit the proceeds
Luz. [7] Said court was persuaded that Brigida D. Luz was behind Deganos, but because
and return the unsold items to petitioners. Deganos remitted only the sum
there was no memorandum to this effect, the agreement between the parties was
of P53,207.00. He neither paid the balance of the sales proceeds, nor did he return any
unenforceable under the Statute of Frauds. [8] Absent the required memorandum or any
unsold item to petitioners. By January 1990, the total of his unpaid account to petitioners,
written document connecting the respondent Luz spouses with the subject receipts, or
including interest, reached the sum of P725,463.98. [3] Petitioners eventually filed a
authorizing Deganos to act on their behalf, the alleged agreement between petitioners and
complaint in the barangay court against Deganos to recover said amount.
Brigida D. Luz was unenforceable.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case,
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal
appeared as a witness for Deganos and ultimately, she and her husband, together with
interest thereon from June 25, 1990, and attorneys fees. Brigida D. Luz was ordered to
Deganos, signed a compromise agreement with petitioners. In that compromise agreement,
pay P21,483.00 representing the interest on her own personal loan. She and her
Deganos obligated himself to pay petitioners, on installment basis, the balance of his
co-defendant spouse were absolved from any other or further liability. [9]
account plus interest thereon. However, he failed to comply with his aforestated
undertakings. As stated at the outset, petitioners appealed the judgment of the court a quo to the
Court of Appeals which affirmed said judgment. [10] The motion for reconsideration filed by
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial
petitioners was subsequently dismissed, [11] hence the present recourse to this Court.
Court of Malolos, Bulacan against Deganos and Brigida D. Luz for recovery of a sum of
money and damages, with an application for preliminary attachment.[4] Ernesto Luz was The primary issue in the instant petition is whether or not herein respondent
impleaded therein as the spouse of Brigida. spouses are liable to petitioners for the latters claim for money and damages in the sum
of P725,463.98, plus interests and attorneys fees, despite the fact that the evidence does
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged
not show that they signed any of the subject receipts or authorized Deganos to receive the
with estafa[5] in the Regional Trial Court of Malolos, Bulacan, which was docketed as
items of jewelry on their behalf.
Petitioners argue that the Court of Appeals erred in adopting the findings of the Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos,
court a quo that respondent spouses are not liable to them, as said conclusion of the trial not once or twice but on at least six occasions as evidenced by six receipts, several pieces
court is contradicted by the finding of fact of the appellate court that (Deganos) acted as of jewelry of substantial value without requiring a written authorization from his alleged
agent of his sister (Brigida Luz). [12] In support of this contention, petitioners quoted principal. A person dealing with an agent is put upon inquiry and must discover upon his
several letters sent to them by Brigida D. Luz wherein the latter acknowledged her peril the authority of the agent. [16]
obligation to petitioners and requested for more time to fulfill the same. They likewise
aver that Brigida testified in the trial court that Deganos took some gold articles from The records show that neither an express nor an implied agency was proven to have
petitioners and delivered the same to her. existed between Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent in
their transactions with Deganos, cannot seek relief from the effects of their negligence by
Both the Court of Appeals and the trial court, however, found as a fact that the conjuring a supposed agency relation between the two respondents where no evidence
aforementioned letters concerned the previous obligations of Brigida to petitioners, and supports such claim.
had nothing to do with the money sought to be recovered in the instant case. Such
concurrent factual findings are entitled to great weight, hence, petitioners cannot plausibly Petitioners next allege that the Court of Appeals erred in ignoring the fact that the
claim in this appellate review that the letters were in the nature of acknowledgments by decision of the court below, which it affirmed, is null and void as it contradicted its ruling
Brigida that she was the principal of Deganos in the subject transactions. in CA-G.R. SP No. 39445 holding that there is sufficient evidence/proof against Brigida D.
Luz and Deganos for estafa in the pending criminal case. They further aver that said
On the other hand, with regard to the testimony of Brigida admitting delivery of the appellate court erred in ruling against them in this civil action since the same would result
gold to her, there is no showing whatsoever that her statement referred to the items which in an inevitable conflict of decisions should the trial court convict the accused in the
are the subject matter of this case. It cannot, therefore, be validly said that she admitted criminal case.
her liability regarding the same.
By way of backdrop for this argument of petitioners, herein respondents Brigida D.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed Luz and Deganos had filed a demurrer to evidence and a motion for reconsideration in the
him with apparent authority as her agent and held him out to the public as such, hence aforestated criminal case, both of which were denied by the trial court. They then filed a
Brigida can not be permitted to deny said authority to innocent third parties who dealt petition for certiorari in the Court of Appeals to set aside the denial of their demurrer and
with Deganos under such belief. [13] Petitioners further represent that the Court of Appeals motion for reconsideration but, as just stated, their petition therefor was dismissed.[17]
recognized in its decision that Deganos was an agent of Brigida.[14]
Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the
The evidence does not support the theory of petitioners that Deganos was an agent petition in CA-G.R. SP No. 39445 with respect to the criminal case is equivalent to a finding
of Brigida D. Luz and that the latter should consequently be held solidarily liable with that there is sufficient evidence in the estafa case against Brigida D. Luz and
Deganos in his obligation to petitioners. While the quoted statement in the findings of fact Deganos. Hence, as already stated, petitioners theorize that the decision and resolution of
of the assailed appellate decision mentioned that Deganos ostensibly acted as an agent of the Court of Appeals now being impugned in the case at bar would result in a possible
Brigida, the actual conclusion and ruling of the Court of Appeals categorically stated that, conflict with the prospective decision in the criminal case. Instead of promulgating the
(Brigida Luz) never authorized her brother (Deganos) to act for and in her behalf in any present decision and resolution under review, so they suggest, the Court of Appeals should
transaction with Petitioners xx x. [15] It is clear, therefore, that even have awaited the decision in the criminal case, so as not to render academic or preempt
assuming arguendo that Deganos acted as an agent of Brigida, the latter never authorized the same or, worse, create two conflicting rulings. [18]
him to act on her behalf with regard to the transactions subject of this case.
Petitioners have apparently lost sight of Article 33 of the Civil Code which provides
The Civil Code provides: that in cases involving alleged fraudulent acts, a civil action for damages, entirely separate
and distinct from the criminal action, may be brought by the injured party. Such civil action
Art. 1868. By the contract of agency a person binds himself to render some service or to do shall proceed independently of the criminal prosecution and shall require only a
something in representation or on behalf of another, with the consent or authority of the preponderance of evidence.
latter.
It is worth noting that this civil case was instituted four years before the criminal
case for estafa was filed, and that although there was a move to consolidate both cases, the
The basis for agency is representation. Here, there is no showing that Brigida same was denied by the trial court. Consequently, it was the duty of the two branches of
consented to the acts of Deganos or authorized him to act on her behalf, much less with the Regional Trial Court concerned to independently proceed with the civil and criminal
respect to the particular transactions involved. Petitioners attempt to foist liability on cases. It will also be observed that a final judgment rendered in a civil action absolving the
respondent spouses through the supposed agency relation with Deganos is groundless and defendant from civil liability is no bar to a criminal action. [19]
ill-advised.
It is clear, therefore, that this civil case may proceed independently of the criminal The fact that a resolution was issued by said court within a relatively short period of
case [20] especially because while both cases are based on the same facts, the quantum of time after the records of the case were elevated to the office of the ponente cannot, by itself,
proof required for holding the parties liable therein differ. Thus, it is improvident of be deemed irregular. There is no showing whatsoever that the resolution was issued
petitioners to claim that the decision and resolution of the Court of Appeals in the present without considering the reply filed by petitioners. In fact, that brief pleading filed by
case would be preemptive of the outcome of the criminal case. Their fancied fear of petitioners does not exhibit any esoteric or ponderous argument which could not be
possible conflict between the disposition of this civil case and the outcome of the pending analyzed within an hour. It is a legal presumption, born of wisdom and experience, that
criminal case is illusory. official duty has been regularly performed; [27] that the proceedings of a judicial tribunal
are regular and valid, and that judicial acts and duties have been and will be duly and
Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to properly performed. [28] The burden of proving irregularity in official conduct is on the
issue the denial resolution dated August 18, 1997, as the same was tainted with part of petitioners and they have utterly failed to do so. It is thus reprehensible for them to
irregularities and badges of fraud perpetrated by its court officers. [21] They charge that cast aspersions on a court of law on the bases of conjectures or surmises, especially since
said appellate court, through conspiracy and fraud on the part of its officers, gravely one of the petitioners appears to be a member of the Philippine Bar.
abused its discretion in issuing that resolution denying their motion for
reconsideration. They claim that said resolution was drafted by the ponente, then signed Lastly, petitioners fault the trial courts holding that whatever contract of agency was
and issued by the members of the Eleventh Division of said court within one and a half established between Brigida D. Luz and Narciso Deganos is unenforceable under the
days from the elevation thereof by the division clerk of court to the office of the ponente. Statute of Frauds as that aspect of this case allegedly is not covered thereby. [29] They
proceed on the premise that the Statute of Frauds applies only to executory contracts and
It is the thesis of petitioners that there was undue haste in issuing the resolution as not to executed or to partially executed ones. From there, they move on to claim that the
the same was made without waiting for the lapse of the ten-day period for respondents to contract involved in this case was an executed contract as the items had already been
file their comment and for petitioners to file their reply. It was allegedly impossible for the delivered by petitioners to Brigida D. Luz, hence, such delivery resulted in the execution of
Court of Appeals to resolve the issue in just one and a half days, especially because the contract and removed the same from the coverage of the Statute of Frauds.
its ponente, the late Justice Maximiano C. Asuncion, was then recuperating from surgery
and, that, additionally, hundreds of more important cases were pending. [22] Petitioners claim is speciously unmeritorious. It should be emphasized that neither
the trial court nor the appellate court categorically stated that there was such a contractual
These lamentable allegation of irregularities in the Court of Appeals and in the relation between these two respondents. The trial court merely said that if there was such
conduct of its officers strikes us as a desperate attempt of petitioners to induce this Court an agency existing between them, the same is unenforceable as the contract would fall
to give credence to their arguments which, as already found by both the trial and under the Statute of Frauds which requires the presentation of a note or memorandum
intermediate appellate courts, are devoid of factual and legal substance. The regrettably thereof in order to be enforceable in court. That was merely a preparatory statement of a
irresponsible attempt to tarnish the image of the intermediate appellate tribunal and its principle of law. What was finally proven as a matter of fact is that there was no such
judicial officers through ad hominem imputations could well be contumacious, but we are contract between Brigida D. Luz and Narciso Deganos, executed or partially executed, and
inclined to let that pass with a strict admonition that petitioners refrain from indulging in no delivery of any of the items subject of this case was ever made to the former.
such conduct in litigations.
WHEREFORE, no error having been committed by the Court of Appeals in affirming
On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the the judgment of the court a quo, its challenged decision and resolution are hereby
trial courts decision. [23] Petitioners moved for reconsideration and the Court of Appeals AFFIRMED and the instant petition is DENIED, with double costs against petitioners
ordered respondents to file a comment. Respondents filed the same on August 5,
1997 [24] and petitioners filed their reply to said comment on August 15, 1997. [25] The SO ORDERED.
Eleventh Division of said court issued the questioned resolution denying petitioners
motion for reconsideration on August 18, 1997.[26]
It is ironic that while some litigants malign the judiciary for being supposedly
slothful in disposing of cases, petitioners are making a show of calling out for justice
because the Court of Appeals issued a resolution disposing of a case sooner than expected
of it. They would even deny the exercise of discretion by the appellate court to prioritize
its action on cases in line with the procedure it has adopted in disposing thereof and in
declogging its dockets. It is definitely not for the parties to determine and dictate when and
how a tribunal should act upon those cases since they are not even aware of the status of
the dockets and the internal rules and policies for acting thereon.
G.R. No. L-24332 January 31, 1978 twice; defendant Corporation's Answer contained a crossclaim against its co-defendant,
Simon Rallos while the latter filed third-party complaint against his sister, Gerundia Rallos
RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner, While the case was pending in the trial court, both Simon and his sister Gerundia died and
vs. they were substituted by the respective administrators of their estates.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF
APPEALS, respondents. After trial the court a quo rendered judgment with the following dispositive portion:
Ramon Duterte for private respondent. (1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-indiviso
share of Concepcion Rallos in the property in question, Lot 5983 of the Cadastral Survey
of Cebu is concerned;
MUOZ PALMA, J.: (2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title No.
12989 covering Lot 5983 and to issue in lieu thereof another in the names of FELIX GO
CHAN & SONS REALTY CORPORATION and the Estate of Concepcion Rallos in the
This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal,
proportion of one-half (1/2) share each pro-indiviso;
Concepcion Rallos, sold the latter's undivided share in a parcel of land pursuant to a power
of attorney which the principal had executed in favor. The administrator of the estate of
the went to court to have the sale declared uneanforceable and to recover the disposed (3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an
share. The trial court granted the relief prayed for, but upon appeal the Court of Appeals undivided one-half (1/2) share of Lot 5983 to the herein plaintiff;
uphold the validity of the sale and the complaint.
(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon
Hence, this Petition for Review on certiorari. Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00; and
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were (5) Ordering both defendants to pay the costs jointly and severally.
sisters and registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral
Survey of Cebu covered by Transfer Certificate of Title No. 11116 of the Registry of Cebu. B. On GO CHANTS Cross-Claim:
On April 21, 1954, the sisters executed a special power of attorney in favor of their brother,
Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. On March 3, 1955, (1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon
Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the undivided shares Rallos, to pay to defendant Felix Co Chan & Sons Realty Corporation the sum of P5,343.45,
of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty representing the price of one-half (1/2) share of lot 5983;
Corporation for the sum of P10,686.90. The deed of sale was registered in the Registry of
Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of Title No.
(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos,
12989 was issued in the named of the vendee.
to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons Realty Corporation
the sum of P500.00.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion
Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court of First Instance of
C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of
Cebu, praying (1) that the sale of the undivided share of the deceased Concepcion Rallos in
Simeon Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia
lot 5983 be d unenforceable, and said share be reconveyed to her estate; (2) that the
Rallos:
Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be
cancelled and another title be issued in the names of the corporation and the "Intestate
estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by (1) Dismissing the third-party complaint without prejudice to filing either a complaint
way of attorney's fees and payment of costs of suit. Named party defendants were Felix Go against the regular administrator of the Estate of Gerundia Rallos or a claim in the
Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but Intestate-Estate of Cerundia Rallos, covering the same subject-matter of the third-party
subsequently, the latter was dropped from the complaint. The complaint was amended complaint, at bar. (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from 2. There are various ways of extinguishing agency, 7 but her We are concerned only with
the foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of one cause death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was
Concepcion Rallos. The appellate tribunal, as adverted to earlier, resolved the appeal on taken from Art. 1709 of the Spanish Civil Code provides:
November 20, 1964 in favor of the appellant corporation sustaining the sale in
question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the ART. 1919. Agency is extinguished.
decision but the same was denied in a resolution of March 4, 1965. 2
xxx xxx xxx
What is the legal effect of an act performed by an agent after the death of his principal?
Applied more particularly to the instant case, We have the query. is the sale of the
3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ...
undivided share of Concepcion Rallos in lot 5983 valid although it was executed by the
(Emphasis supplied)
agent after the death of his principal? What is the law in this jurisdiction as to the effect of
the death of the principal on the authority of the agent to act for and in behalf of the latter?
Is the fact of knowledge of the death of the principal a material factor in determining the By reason of the very nature of the relationship between Principal and agent, agency is
legal effect of an act performed after such death? extinguished by the death of the principal or the agent. This is the law in this jurisdiction. 8
Before proceedings to the issues, We shall briefly restate certain principles of law relevant Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for
to the matter tinder consideration. the law is found in the juridical basis of agency which is representation Them being an in.
integration of the personality of the principal integration that of the agent it is not possible
for the representation to continue to exist once the death of either is
1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the
establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a
name of another without being authorized by the latter, or unless he has by law a right to
necessary cause for its extinction. Laurent says that the juridical tie between the principal
represent him. 3 A contract entered into in the name of another by one who has no
and the agent is severed ipso jure upon the death of either without necessity for the heirs
authority or the legal representation or who has acted beyond his powers, shall be
of the fact to notify the agent of the fact of death of the former. 9
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it
has been executed, before it is revoked by the other contracting party. 4 Article 1403 (1) of
the same Code also provides: The same rule prevails at common law the death of the principal effects instantaneous
and absolute revocation of the authority of the agent unless the Power be coupled with an
interest. 10 This is the prevalent rule in American Jurisprudence where it is well-settled
ART. 1403. The following contracts are unenforceable, unless they are justified:
that a power without an interest confer. red upon an agent is dissolved by the principal's
death, and any attempted execution of the power afterward is not binding on the heirs or
(1) Those entered into in the name of another person by one who hi - been given no representatives of the deceased. 11
authority or legal representation or who has acted beyond his powers; ...
3. Is the general rule provided for in Article 1919 that the death of the principal or of the
Out of the above given principles, sprung the creation and acceptance of the relationship of agent extinguishes the agency, subject to any exception, and if so, is the instant case within
agency whereby one party, caged the principal (mandante), authorizes another, called the that exception? That is the determinative point in issue in this litigation. It is the
agent (mandatario), to act for and in his behalf in transactions with third persons. The contention of respondent corporation which was sustained by respondent court that
essential elements of agency are: (1) there is consent, express or implied of the parties to notwithstanding the death of the principal Concepcion Rallos the act of the attorney-in-fact,
establish the relationship; (2) the object is the execution of a juridical act in relation to a Simeon Rallos in selling the former's sham in the property is valid and enforceable
third person; (3) the agents acts as a representative and not for himself, and (4) the agent inasmuch as the corporation acted in good faith in buying the property in question.
acts within the scope of his authority. 5
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule
Agency is basically personal representative, and derivative in nature. The authority of the afore-mentioned.
agent to act emanates from the powers granted to him by his principal; his act is the act of
the principal if done within the scope of the authority. Qui facit per alium facit se. "He who
ART. 1930. The agency shall remain in full force and effect even after the death of the
acts through another acts himself". 6
principal, if it has been constituted in the common interest of the latter and of the agent, or
in the interest of a third person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the principal or third persons who may have contracted with him in good faith and without knowledge of
of any other cause which extinguishes the agency, is valid and shall be fully effective with the death of the principal. 16
respect to third persons who may have contracted with him in good. faith.
We cannot see the merits of the foregoing argument as it ignores the existence of the
Article 1930 is not involved because admittedly the special power of attorney executed in general rule enunciated in Article 1919 that the death of the principal extinguishes the
favor of Simeon Rallos was not coupled with an interest. agency. That being the general rule it follows a fortiorithat any act of an agent after the
death of his principal is void ab initio unless the same fags under the exception provided
Article 1931 is the applicable law. Under this provision, an act done by the agent after the for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the
death of his principal is valid and effective only under two conditions, viz: (1) that the general rule, is to be strictly construed, it is not to be given an interpretation or application
agent acted without knowledge of the death of the principal and (2) that the third person beyond the clear import of its terms for otherwise the courts will be involved in a process
who contracted with the agent himself acted in good faith. Good faith here means that the of legislation outside of their judicial function.
third person was not aware of the death of the principal at the time he contracted with
said agent. These two requisites must concur the absence of one will render the act of the 5. Another argument advanced by respondent court is that the vendee acting in good faith
agent invalid and unenforceable. relied on the power of attorney which was duly registered on the original certificate of title
recorded in the Register of Deeds of the province of Cebu, that no notice of the death was
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the aver annotated on said certificate of title by the heirs of the principal and accordingly they
death of his principal at the time he sold the latter's share in Lot No. 5983 to respondent must suffer the consequences of such omission. 17
corporation. The knowledge of the death is clearly to be inferred from the pleadings filed
by Simon Rallos before the trial court. 12 That Simeon Rallos knew of the death of his sister To support such argument reference is made to a portion in Manresa's Commentaries
Concepcion is also a finding of fact of the court a quo 13 and of respondent appellate court which We quote:
when the latter stated that Simon Rallos 'must have known of the death of his sister, and
yet he proceeded with the sale of the lot in the name of both his sisters Concepcion and If the agency has been granted for the purpose of contracting with certain persons, the
Gerundia Rallos without informing appellant (the realty corporation) of the death of the revocation must be made known to them. But if the agency is general iii nature, without
former. 14 reference to particular person with whom the agent is to contract, it is sufficient that the
principal exercise due diligence to make the revocation of the agency publicity known.
On the basis of the established knowledge of Simon Rallos concerning the death of his
principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly In case of a general power which does not specify the persons to whom represents' on
requires for its application lack of knowledge on the part of the agent of the death of his should be made, it is the general opinion that all acts, executed with third persons who
principal; it is not enough that the third person acted in good faith. Thus in Buason & Reyes contracted in good faith, Without knowledge of the revocation, are valid. In such case, the
v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art. 1931 of the new principal may exercise his right against the agent, who, knowing of the revocation,
Civil Code sustained the validity , of a sale made after the death of the principal because it continued to assume a personality which he no longer had. (Manresa Vol. 11, pp. 561 and
was not shown that the agent knew of his principal's demise. 15 To the same effect is the case 575; pp. 15-16, rollo)
of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera
the Court stated:
The above discourse however, treats of revocation by an act of the principal as a mode of
terminating an agency which is to be distinguished from revocation by operation of
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no law such as death of the principal which obtains in this case. On page six of this Opinion
proof and there is no indication in the record, that the agent Luy Kim Guan was aware of We stressed that by reason of the very nature of the relationship between principal and
the death of his principal at the time he sold the property. The death 6f the principal does agent, agency is extinguished ipso jure upon the death of either principal or agent.
not render the act of an agent unenforceable, where the latter had no knowledge of such Although a revocation of a power of attorney to be effective must be communicated to the
extinguishment of the agency. (1 SCRA 406, 412) parties concerned, 18 yet a revocation by operation of law, such as by death of the principal
is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals authority is regarded as an execution of the principal's continuing will. 19 With death, the
reasoned out that there is no provision in the Code which provides that whatever is done principal's will ceases or is the of authority is extinguished.
by an agent having knowledge of the death of his principal is void even with respect to
The Civil Code does not impose a duty on the heirs to notify the agent of the death of the unmistakable leaving no room for an interpretation contrary to its tenor, in the same
principal What the Code provides in Article 1932 is that, if the agent die his heirs must manner that the ruling in Blondeau and the cases cited therein found a basis in Section 55
notify the principal thereof, and in the meantime adopt such measures as the circumstances of the Land Registration Law which in part provides:
may demand in the interest of the latter. Hence, the fact that no notice of the death of the
principal was registered on the certificate of title of the property in the Office of the xxx xxx xxx
Register of Deeds, is not fatal to the cause of the estate of the principal
The production of the owner's duplicate certificate whenever any voluntary instrument is
6. Holding that the good faith of a third person in said with an agent affords the former presented for registration shall be conclusive authority from the registered owner to the
sufficient protection, respondent court drew a "parallel" between the instant case and that register of deeds to enter a new certificate or to make a memorandum of registration in
of an innocent purchaser for value of a land, stating that if a person purchases a registered accordance with such instruments, and the new certificate or memorandum Shall be
land from one who acquired it in bad faith even to the extent of foregoing or falsifying binding upon the registered owner and upon all persons claiming under him in favor of
the deed of sale in his favor the registered owner has no recourse against such innocent every purchaser for value and in good faith: Provided however, That in all cases of
purchaser for value but only against the forger. 20 registration provided by fraud, the owner may pursue all his legal and equitable remedies
against the parties to such fraud without prejudice, however, to the right, of any innocent
To support the correctness of this respondent corporation, in its brief, cites the case holder for value of a certificate of title. ... (Act No. 496 as amended)
of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:
7. One last point raised by respondent corporation in support of the appealed decision is
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein
co-owner of lands with Agustin Nano. The latter had a power of attorney supposedly payments made to an agent after the death of the principal were held to be "good", "the
executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land titles. The power parties being ignorant of the death". Let us take note that the Opinion of Justice Rogers was
was registered in the Office of the Register of Deeds. When the lawyer-husband of Angela premised on the statement that the parties were ignorant of the death of the principal. We
Blondeau went to that Office, he found all in order including the power of attorney. But quote from that decision the following:
Vallejo denied having executed the power The lower court sustained Vallejo and the
plaintiff Blondeau appealed. Reversing the decision of the court a quo, the Supreme Court, ... Here the precise point is, whether a payment to an agent when the Parties are ignorant
quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held: of the death is a good payment. in addition to the case in Campbell before cited, the same
judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general question that a payment
But there is a narrower ground on which the defenses of the defendant- appellee must be after the death of principal is not good. Thus, a payment of sailor's wages to a person
overruled. Agustin Nano had possession of Jose Vallejo's title papers. Without those title having a power of attorney to receive them, has been held void when the principal was
papers handed over to Nano with the acquiescence of Vallejo, a fraud could not have been dead at the time of the payment. If, by this case, it is meant merely to decide the general
perpetuated. When Fernando de la Canters, a member of the Philippine Bar and the proposition that by operation of law the death of the principal is a revocation of the
husband of Angela Blondeau, the principal plaintiff, searched the registration record, he powers of the attorney, no objection can be taken to it. But if it intended to say that his
found them in due form including the power of attorney of Vallajo in favor of Nano. If this principle applies where there was 110 notice of death, or opportunity of twice I must be
had not been so and if thereafter the proper notation of the encumbrance could not have permitted to dissent from it.
been made, Angela Blondeau would not have sent P12,000.00 to the defendant Vallejo.' An
executed transfer of registered lands placed by the registered owner thereof in the hands ... That a payment may be good today, or bad tomorrow, from the accident circumstance of
of another operates as a representation to a third party that the holder of the transfer is the death of the principal, which he did not know, and which by no possibility could he
authorized to deal with the land. know? It would be unjust to the agent and unjust to the debtor. In the civil law, the acts of
the agent, done bona fide in ignorance of the death of his principal are held valid and
As between two innocent persons, one of whom must suffer the consequence of a breach binding upon the heirs of the latter. The same rule holds in the Scottish law, and I cannot
of trust, the one who made it possible by his act of coincidence bear the loss. (pp. 19-21) believe the common law is so unreasonable... (39 Am. Dec. 76, 80, 81; emphasis supplied)
The Blondeau decision, however, is not on all fours with the case before Us because here To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke,
We are confronted with one who admittedly was an agent of his sister and who sold the mention may be made that the above represents the minority view in American
property of the latter after her death with full knowledge of such death. The situation is jurisprudence. Thus in Clayton v. Merrett, the Court said.
expressly covered by a provision of law on agency the terms of which are clear and
There are several cases which seem to hold that although, as a general principle, death
revokes an agency and renders null every act of the agent thereafter performed, yet that
where a payment has been made in ignorance of the death, such payment will be good. The
leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76,
where, in an elaborate opinion, this view ii broadly announced. It is referred to, and seems
to have been followed, in the case of Dick v. Page, 17 Mo. 234, 57 AmD 267; but in this
latter case it appeared that the estate of the deceased principal had received the benefit of
the money paid, and therefore the representative of the estate might well have been held
to be estopped from suing for it again. . . . These cases, in so far, at least, as they announce
the doctrine under discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v.
McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite, alone in
announcing the principle in its broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the
opinion, except so far as it related to the particular facts, was a mere dictum, Baldwin J.
said:
The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial
indication of his views on the general subject, than as the adjudication of the Court upon
the point in question. But accordingly all power weight to this opinion, as the judgment of
a of great respectability, it stands alone among common law authorities and is opposed by
an array too formidable to permit us to following it. (15 Cal. 12,17, cited in 2 C.J. 549)
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court,
and We affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the Court
of First Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs against
respondent realty corporation at all instances.
So Ordered.
G.R. No. 76931 May 29, 1991 Orient Air Services 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
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner, serviced by an Air Carrier Representation Office (ACRO), for the sale of air passenger
vs. transportation. The services to be performed by Orient Air Services shall include:
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
(a) soliciting and promoting passenger traffic for the services of American and, if necessary,
G.R. No. 76933 May 29, 1991 employing staff competent and sufficient to do so;
AMERICAN AIRLINES, INCORPORATED, petitioner, (b) providing and maintaining a suitable area in its place of business to be used exclusively
vs. for the transaction of the business of American;
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED,respondents. (c) arranging for distribution of American's timetables, tariffs and promotional material to
sales agents and the general public in the assigned territory;
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel
Representatives, Inc. (d) servicing and supervising of sales agents (including such sub-agents as may be
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc. 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.: (e) holding out a passenger reservation facility to sales agents and the general public in the
assigned territory.
This case is a consolidation of two (2) petitions for review on certiorari of a decision1 of
the Court of Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient In connection with scheduled or non-scheduled air passenger transportation within the
Air Services and Hotel Representatives, Inc." which affirmed, with modification, the United States, neither Orient Air Services nor its sub-agents will perform services for any
decision2 of the Regional Trial Court of Manila, Branch IV, which dismissed the complaint other air carrier similar to those to be performed hereunder for American without the
and granted therein defendant's counterclaim for agent's overriding commission and prior written consent of American. Subject to periodic instructions and continued consent
damages. 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:
American will pay Orient Air Services commission on transportation sold hereunder by 13. Termination
Orient Air Services or its sub-agents as follows:
American may terminate the Agreement on two days' notice in the event Orient Air
(a) Sales agency commission 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
American will pay Orient Air Services a sales agency commission for all sales of cause by giving the other 30 days' notice by letter, telegram or cable.
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 xxx xxx x x x3
following percentages of the tariff fares and charges:
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the
(i) For transportation solely between points within the United States and between such Agreement by failing to promptly remit the net proceeds of sales for the months of January
points and Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic to March 1981 in the amount of US $254,400.40, American Air by itself undertook the
Conference of America. 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,
(ii) For transportation included in a through ticket covering transportation between points or on 15 May 1981, American Air instituted suit against Orient Air with the Court of First
other than those described above: 8% or such other rate(s) as may be prescribed by the Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or
International Air Transport Association. Garnishment, Mandatory Injunction and Restraining Order4 averring the aforesaid basis
for the termination of the Agreement as well as therein defendant's previous record of
failures "to promptly settle past outstanding refunds of which there were available funds
(b) Overriding commission
in the possession of the defendant, . . . to the damage and prejudice of plaintiff." 5
In addition to the above commission American will pay Orient Air Services an overriding
In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied the
commission of 3% of the tariff fares and charges for all sales of transportation over
material allegations of the complaint with respect to plaintiff's entitlement to alleged
American's service by Orient Air Service or its sub-agents.
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
xxx xxx xxx 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,
10. Default Orient Air claiming that American Air's precipitous conduct had occasioned prejudice to its
business interests.
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 Finding that the record and the evidence substantiated the allegations of the defendant,
benefit of or enter into any agreement or promise with its creditors or go into liquidation, the trial court ruled in its favor, rendering a decision dated 16 July 1984, the dispositive
or suffer any of its goods to be taken in execution, or if it ceases to be in business, this portion of which reads:
Agreement may, at the option of American, be terminated forthwith and American may,
without prejudice to any of its rights under this Agreement, take possession of any ticket WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor
forms, exchange orders, traffic material or other property or funds belonging to American. 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
11. IATA and ATC Rules 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 provisions of this Agreement are subject to any applicable rules or resolutions of the the balance of the overriding commission on total flown revenue covering the period from
International Air Transport Association and the Air Traffic Conference of America, and March 16, 1977 to December 31, 1980 in the amount of US$84,821.31 plus the additional
such rules or resolutions shall control in the event of any conflict with the provisions amount of US$8,000.00 by way of proper 3% overriding commission per month
hereof. 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 Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of
commence from the filing of the counterclaim up to the time of payment. Further, plaintiff the trial court's award of exemplary damages and attorney's fees, but granted insofar as
is directed to pay defendant the amount of One Million Five Hundred Thousand the rate of exchange is concerned. The decision of January 27, 1986 is modified in
(Pl,500,000.00) pesos as and for exemplary damages; and the amount of Three Hundred paragraphs (1) and (2) of the dispositive part so that the payment of the sums mentioned
Thousand (P300,000.00) pesos as and by way of attorney's fees. 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
Costs against plaintiff.7
Both parties appealed the aforesaid resolution and decision of the respondent court,
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933.
promulgated on 27 January 1986, affirmed the findings of the court a quo on their material By resolution10 of this Court dated 25 March 1987 both petitions were consolidated, hence,
points but with some modifications with respect to the monetary awards granted. The the case at bar.
dispositive portion of the appellate court's decision is as follows:
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3%
WHEREFORE, with the following modifications 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
1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of
the Agreement which, in reiteration, is quoted as follows:
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; 5. Commissions
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding a) . . .
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 b) Overriding Commission
on July 10, 1981, the date the counterclaim was filed
In addition to the above commission, American will pay Orient Air Services an overriding
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date commission of 3% of the tariff fees and charges for all sales of transportation over
the answer with counterclaim was filed, until full payment; American's services by Orient Air Services or itssub-agents. (Emphasis supplied)
4) American is ordered to pay Orient exemplary damages of P200,000.00; 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
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees. 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
the rest of the appealed decision is affirmed.
be made by Orient Air and the sale must be done with the use of American Air's ticket
stocks.
Costs against American.8
On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding
American Air moved for reconsideration of the aforementioned decision, assailing the commission covers the total revenue of American Air and not merely that derived from
substance thereof and arguing for its reversal. The appellate court's decision was also the ticketed sales undertaken by Orient Air. The latter, in justification of its submission,
subject of a Motion for Partial Reconsideration by Orient Air which prayed for the invokes its designation as the exclusive General Sales Agent of American Air, with the
restoration of the trial court's ruling with respect to the monetary awards. The Court of corresponding obligations arising from such agency, such as, the promotion and
Appeals, by resolution promulgated on 17 December 1986, denied American Air's motion solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all sales
and with respect to that of Orient Air, ruled thus: of transportation over American Air's services are necessarily by Orient Air."11
It is a well settled legal principle that in the interpretation of a contract, the entirety Orient to retain the full amount of its commissions. Since, as stated ante, Orient is entitled
thereof must be taken into consideration to ascertain the meaning of its provisions. 12 The to the 3% override. American's premise, therefore, for the cancellation of the Agreement
various stipulations in the contract must be read together to give effect to all.13 After a did not exist. . . ."
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 We agree with the findings of the respondent appellate court. As earlier established, Orient
it to the 3% overriding commission based on total revenue, or as referred to by the parties, Air was entitled to an overriding commission based on total flown revenue. American Air's
"total flown revenue." 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
As the designated exclusive General Sales Agent of American Air, Orient Air was retaining from the sales proceeds its accrued commissions before remitting the balance to
responsible for the promotion and marketing of American Air's services for air passenger American Air. Since the latter was still obligated to Orient Air by way of such commissions.
transportation, and the solicitation of sales therefor. In return for such efforts and services, Orient Air was clearly justified in retaining and refusing to remit the sums claimed by
Orient Air was to be paid commissions of two (2) kinds: first, a sales agency commission, American Air. The latter's termination of the Agreement was, therefore, without cause and
ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on basis, for which it should be held liable to Orient Air.
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 On the matter of damages, the respondent appellate court modified by reduction the trial
immediately observed that the precondition attached to the first type of commission does court's award of exemplary damages and attorney's fees. This Court sees no error in such
not obtain for the second type of commissions. The latter type of commissions would modification and, thus, affirms the same.
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
It is believed, however, that respondent appellate court erred in affirming the rest of the
travel agents. To rule otherwise, i.e., to limit the basis of such overriding commissions to
decision of the trial court.1wphi1We refer particularly to the lower court's decision
sales from American Air ticket stock would erase any distinction between the two (2)
ordering American Air to "reinstate defendant as its general sales agent for passenger
types of commissions and would lead to the absurd conclusion that the parties had entered
transportation in the Philippines in accordance with said GSA Agreement."
into a contract with meaningless provisions. Such an interpretation must at all times be
avoided with every effort exerted to harmonize the entire Agreement.
By affirming this ruling of the trial court, respondent appellate court, in effect, compels
American Air to extend its personality to Orient Air. Such would be violative of the
An additional point before finally disposing of this issue. It is clear from the records that
principles and essence of agency, defined by law as a contract whereby "a person binds
American Air was the party responsible for the preparation of the Agreement.
himself to render some service or to do something in representation or on behalf of
Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra
another, WITH THE CONSENT OR AUTHORITY OF THE LATTER .17 (emphasis supplied) In
proferentem", i.e., construed against the party who caused the ambiguity and could have
an agent-principal relationship, the personality of the principal is extended through the
avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code provides
facility of the agent. In so doing, the agent, by legal fiction, becomes the principal,
that the interpretation of obscure words or stipulations in a contract shall not favor the
authorized to perform all acts which the latter would have him do. Such a relationship can
party who caused the obscurity.14 To put it differently, when several interpretations of a
only be effected with the consent of the principal, which must not, in any way, be
provision are otherwise equally proper, that interpretation or construction is to be
compelled by law or by any court. The Agreement itself between the parties states that
adopted which is most favorable to the party in whose favor the provision was made and
"either party may terminate the Agreementwithout cause by giving the other 30 days'
who did not cause the ambiguity.15 We therefore agree with the respondent appellate
notice by letter, telegram or cable." (emphasis supplied) We, therefore, set aside the
court's declaration that:
portion of the ruling of the respondent appellate court reinstating Orient Air as general
sales agent of American Air.
Any ambiguity in a contract, whose terms are susceptible of different interpretations, must
be read against the party who drafted it.16
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
We now turn to the propriety of American Air's termination of the Agreement. The 1986, respectively. Costs against petitioner American Air.
respondent appellate court, on this issue, ruled thus:
SO ORDERED.
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
[G.R. No. 120465. September 9, 1999] 1175) because the rule is that every action must be prosecuted in the name of the real
parties-in-interest (Section 2, Rule 3, Rules of Court).
When plaintiffs Uy and Roxas sought payment of damages in their favor in view of the
WILLIAM UY and RODEL ROXAS, petitioners, vs. COURT OF APPEALS, HON. ROBERT partial rescission of Resolution No. 1632 and the Deed of Absolute Sale covering TCT Nos.
BALAO and NATIONAL HOUSING AUTHORITY, respondents. 10998, 10999 and 11292 (Prayer complaint, page 5, RTC records), it becomes obviously
indispensable that the lot owners be included, mentioned and named as party-plaintiffs,
DECISION being the real party-in-interest. Uy and Roxas, as attorneys-in-fact or apoderados, cannot
by themselves lawfully commence this action, more so, when the supposed special power
KAPUNAN, J.: of attorney, in their favor, was never presented as an evidence in this case.Besides, even if
herein plaintiffs Uy and Roxas were authorized by the lot owners to commence this action,
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of the same must still be filed in the name of the pricipal, (Filipino Industrial
land by the owners thereof. By virtue of such authority, petitioners offered to sell the lands, Corporation vs. San Diego, 23 SCRA 706 [1968]). As such indispensable party, their joinder
located in Tuba, Tadiangan, Benguet to respondent National Housing Authority (NHA) to in the action is mandatory and the complaint may be dismissed if not so impleaded
be utilized and developed as a housing project. (NDC vs. CA, 211 SCRA 422 [1992]).[2]
On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the
Their motion for reconsideration having been denied, petitioners seek relief from
acquisition of said lands, with an area of 31.8231 hectares, at the cost of P23.867 million,
this Court contending that:
pursuant to which the parties executed a series of Deeds of Absolute Sale covering the
subject lands. Of the eight parcels of land, however, only five were paid for by the NHA
because of the report[1] it received from the Land Geosciences Bureau of the Department of I. COMPLAINT FINDING THE RESPONDENT CA ERRED IN DECLARING THAT
Environment and Natural Resources (DENR) that the remaining area is located at an active RESPONDENT NHA HAD ANY LEGAL BASIS FOR RESCINDING THE SALE INVOLVING THE
landslide area and therefore, not suitable for development into a housing project. LAST THREE (3) PARCELS COVERED BY NHA RESOLUTION NO. 1632.
On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale over II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL BASIS TO RESCIND
the three parcels of land. The NHA, through Resolution No. 2394, subsequently offered the THE SUBJECT SALE, THE RESPONDENT CA NONETHELESS ERRED IN DENYING HEREIN
amount of P1.225 million to the landowners as daos perjuicios. PETITIONERS CLAIM TO DAMAGES, CONTRARY TO THE PROVISIONS OF ART. 1191 OF
On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon THE CIVIL CODE.
City a Complaint for Damages against NHA and its General Manager Robert Balao.
III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT COMPLAINT FINDING
After trial, the RTC rendered a decision declaring the cancellation of the contract to THAT THE PETITIONERS FAILED TO JOIN AS INDISPENSABLE PARTY PLAINTIFF THE
be justified. The trial court nevertheless awarded damages to plaintiffs in the sum of SELLING LOT-OWNERS.[3]
P1.255 million, the same amount initially offered by NHA to petitioners as damages.
Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial We first resolve the issue raised in the third assignment of error.
court and entered a new one dismissing the complaint. It held that since there was
Petitioners claim that they lodged the complaint not in behalf of their principles but
sufficient justifiable basis in cancelling the sale, it saw no reason for the award of
in their own name as agents directly damaged by the termination of the contract. The
damages. The Court of Appeals also noted that petitioners were mere attorneys-in-fact and,
damages prayed for were intended not for the benefit of their principals but to indemnify
therefore, not the real parties-in-interest in the action before the trial court.
petitioners for the losses they themselves allegedly incurred as a result of such
termination. These damages consist mainly of unearned income and
xxx In paragraph 4 of the complaint, plaintiffs alleged themselves to be sellers agents for advances.[4] Petitioners, thus, attempt to distinguish the case at bar from those involving
several owners of the 8 lots subject matter of the case. Obviously, William Uy and Rodel agents or apoderados instituting actions in their own name but in behalf of their
Roxas in filing this case acted as attorneys-in-fact of the lot owners who are the real parties principals.[5] Petitioners in this case purportedly brought the action for damages in their
in interest but who were omitted to be pleaded as party-plaintiffs in the case. This own name and in their own behalf.
omission is fatal. Where the action is brought by an attorney-in-fact of a land owner in his
name, (as in our present action) and not in the name of his principal, the action was We find this contention unmeritorious.
properly dismissed (Ferrer vs. Villamor, 60 SCRA 406 [1974]; Marcelo vs. de Leon, 105 Phil.
Section 2, Rule 3 of the Rules of Court requires that every action must be prosecuted of the action shall belong, and to prevent actions by persons who have no interest in the
and defended in the name of the real party-in-interest. The real party-in-interest is the result of the same. xxx
party who stands to be benefited or injured by the judgment or the party entitled to the
avails of the suit. Interest, within the meaning of the rule, means material interest, an Thus, an agent, in his own behalf, may bring an action founded on a contract made for
interest in the issue and to be affected by the decree, as distinguished from mere interest his principal, as an assignee of such contract. We find the following declaration in Section
in the question involved, or a mere incidental interest.[6] Cases construing the real 372 (1) of the Restatement of the Law on Agency (Second):[11]
party-in-interest provision can be more easily understood if it is borne in mind that the
true meaning of real party-in-interest may be summarized as follows: An action shall be Section 372. Agent as Owner of Contract Right
prosecuted in the name of the party who, by the substantive law, has the right sought to be
enforced.[7] (1) Unless otherwise agreed, an agent who has or who acquires an interest in a contract
which he makes on behalf of his principal can, although not a promisee, maintain such
Do petitioners, under substantive law, possess the right they seek to enforce? We
action thereon as might a transferee having a similar interest.
rule in the negative.
The applicable substantive law in this case is Article 1311 of the Civil Code, which The Comment on subsection (1) states:
states:
a. Agent a transferee. One who has made a contract on behalf of another may become an
Contracts take effect only between the parties, their assigns, and heirs, except in case assignee of the contract and bring suit against the other party to it, as any other
where the rights and obligations arising from the contract are not transmissible by their transferee. The customs of business or the course of conduct between the principal and the
nature, or by stipulation, or by provision of law. x x x. agent may indicate that an agent who ordinarily has merely a security interest is a
transferee of the principals rights under the contract and as such is permitted to bring
If a contract should contain some stipulation in favor of a third person, he may demand its suit. If the agent has settled with his principal with the understanding that he is to collect
fulfillment provided he communicated his acceptance to the obligor before its the claim against the obligor by way of reimbursing himself for his advances and
revocation. A mere incidental benefit or interest of a person is not sufficient. The commissions, the agent is in the position of an assignee who is the beneficial owner of the
contracting parties must have clearly and deliberately conferred a favor upon a third chose in action. He has an irrevocable power to sue in his principals name. x x x. And,
person. (Underscoring supplied.) under the statutes which permit the real party in interest to sue, he can maintain an action
in his own name. This power to sue is not affected by a settlement between the principal
and the obligor if the latter has notice of the agents interest. x x x. Even though the agent
Petitioners are not parties to the contract of sale between their principals and
has not settled with his principal, he may, by agreement with the principal, have a right to
NHA. They are mere agents of the owners of the land subject of the sale. As agents, they
receive payment and out of the proceeds to reimburse himself for advances and
only render some service or do something in representation or on behalf of their
commissions before turning the balance over to the principal. In such a case, although
principals.[8] The rendering of such service did not make them parties to the contracts of
there is no formal assignment, the agent is in the position of a transferee of the whole
sale executed in behalf of the latter. Since a contract may be violated only by the parties
claim for security; he has an irrevocable power to sue in his principals name and, under
thereto as against each other, the real parties-in-interest, either as plaintiff or defendant, in
statutes which permit the real party in interest to sue, he can maintain an action in his own
an action upon that contract must, generally, either be parties to said contract.[9]
name.
Neither has there been any allegation, much less proof, that petitioners are
the heirs of their principals. Petitioners, however, have not shown that they are assignees of their principals to
the subject contracts. While they alleged that they made advances and that they suffered
Are petitioners assignees to the rights under the contracts of sale? In McMicking vs.
loss of commissions, they have not established any agreement granting them the right to
Banco Espaol-Filipino,[10] we held that the rule requiring every action to be prosecuted in
receive payment and out of the proceeds to reimburse [themselves] for advances and
the name of the real party-in-interest
commissions before turning the balance over to the principal[s].
x x x recognizes the assignments of rights of action and also recognizes that when one has Finally, it does not appear that petitioners are beneficiaries of a stipulation pour
a right of action assigned to him he is then the real party in interest and may maintain an autrui under the second paragraph of Article 1311 of the Civil Code. Indeed, there is no
action upon such claim or right. The purpose of [this rule] is to require the plaintiff to be stipulation in any of the Deeds of Absolute Sale clearly and deliberately conferring a favor
the real party in interest, or, in other words, he must be the person to whom the proceeds to any third person.
That petitioners did not obtain their commissions or recoup their advances because resolution, of a party to an obligation under Article 1191 is predicated on a breach of faith
of the non-performance of the contract did not entitle them to file the action below against by the other party that violates the reciprocity between them.[16] The power to rescind,
respondent NHA. Section 372 (2) of the Restatement of the Law on Agency (Second) states: therefore, is given to the injured party.[17] Article 1191 states:
(2) An agent does not have such an interest in a contract as to entitle him to maintain an The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
action at law upon it in his own name merely because he is entilted to a portion of the should not comply with what is incumbent upon him.
proceeds as compensation for making it or because he is liable for its breach.
The injured party may choose between the fulfillment and the rescission of the obligation,
The following Comment on the above subsection is illuminating: with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The fact that an agent who makes a contract for his principal will gain or suffer loss by the
performance or nonperformance of the contract by the principal or by the other party In this case, the NHA did not rescind the contract. Indeed, it did not have the right to
thereto does not entitle him to maintain an action on his own behalf against the other do so for the other parties to the contract, the vendors, did not commit any breach, much
party for its breach. An agent entitled to receive a commission from his principal upon the less a substantial breach,[18]of their obligation. Their obligation was merely to deliver the
performance of a contract which he has made on his principals account does not, from this parcels of land to the NHA, an obligation that they fulfilled. The NHA did not suffer any
fact alone, have any claim against the other party for breach of the contract, either in an injury by the performance thereof.
action on the contract or otherwise. An agent who is not a promisee cannot maintain an
action at law against a purchaser merely because he is entitled to have his compensation The cancellation, therefore, was not a rescission under Article 1191. Rather, the
or advances paid out of the purchase price before payment to the principal. x x x. cancellation was based on the negation of the cause arising from the realization that the
lands, which were the object of the sale, were not suitable for housing.
Thus, in Hopkins vs. Ives,[12] the Supreme Court of Arkansas, citing Section 372 (2) Cause is the essential reason which moves the contracting parties to enter into
above, denied the claim of a real estate broker to recover his alleged commission against it.[19] In other words, the cause is the immediate, direct and proximate reason which
the purchaser in an agreement to purchase property. justifies the creation of an obligation through the will of the contracting parties. [20] Cause,
which is the essential reason for the contract, should be distinguished from motive, which
In Goduco vs. Court of Appeals,[13] this Court held that:
is the particular reason of a contracting party which does not affect the other party. [21]
x x x granting that appellant had the authority to sell the property, the same did not make For example, in a contract of sale of a piece of land, such as in this case, the cause of
the buyer liable for the commission she claimed. At most, the owner of the property and the vendor (petitioners principals) in entering into the contract is to obtain the price. For
the one who promised to give her a commission should be the one liable to pay the same the vendee, NHA, it is the acquisition of the land.[22] The motive of the NHA, on the other
and to whom the claim should have been directed. xxx hand, is to use said lands for housing. This is apparent from the portion of the Deeds of
Absolute Sale[23] stating:
As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour
autrui under the contracts of sale, they do not, under substantive law, possess the right WHEREAS, under the Executive Order No. 90 dated December 17, 1986, the VENDEE is
they seek to enforce. Therefore, they are not the real parties-in-interest in this case. mandated to focus and concentrate its efforts and resources in providing housing
assistance to the lowest thirty percent (30%) of urban income earners, thru slum
Petitioners not being the real parties-in-interest, any decision rendered herein would upgrading and development of sites and services projects;
be pointless since the same would not bind the real parties-in-interest.[14]
Nevertheless, to forestall further litigation on the substantive aspects of this case, we WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by Letter of Instruction
shall proceed to rule on the merits.[15] No. 630, prescribed slum improvement and upgrading, as well as the development of sites
and services as the principal housing strategy for dealing with slum, squatter and other
Petitioners submit that respondent NHA had no legal basis to rescind the sale of the blighted communities;
subject three parcels of land. The existence of such legal basis, notwithstanding,
petitioners argue that they are still entitled to an award of damages. xxx
Petitioners confuse the cancellation of the contract by the NHA as a rescission of the
contract under Article 1191 of the Civil Code. The right of rescission or, more accurately,
WHEREAS, the VENDEE, in pursuit of and in compliance with the above-stated purposes TO: EDWIN G. DOMINGO
offers to buy and the VENDORS, in a gesture of their willing to cooperate with the above
policy and commitments, agree to sell the aforesaid property together with all the existing Chief, Lands Geology Division
improvements there or belonging to the VENDORS;
FROM: ARISTOTLE A. RILLON
NOW, THEREFORE, for and in consideration of the foregoing premises and the terms and
conditions hereinbelow stipulated, the VENDORS hereby, sell, transfer, cede and convey
Geologist II
unto the VENDEE, its assigns, or successors-in-interest, a parcel of land located at Bo.
Tadiangan, Tuba, Benguet containing a total area of FIFTY SIX THOUSAND EIGHT
HUNDRED NINETEEN (56,819) SQUARE METERS, more or less x x x. SUBJECT: Preliminary Assessment of Tadiangan Housing Project in Tuba, Benguet[26]
Ordinarily, a partys motives for entering into the contract do not affect the Thus, page 2 of the report states in part:
contract. However, when the motive predetermines the cause, the motive may be regarded
as the cause. In Liguez vs. Court of Appeals,[24] this Court, speaking through Justice J.B.L. xxx
Reyes, held:
Actually there is a need to conduct further geottechnical [sic] studies in the NHA
xxx It is well to note, however, that Manresa himself (Vol. 8, pp. 641-642) while property. Standard Penetration Test (SPT) must be carried out to give an estimate of the
maintaining the distinction and upholding the inoperativeness of the motives of the parties degree of compaction (the relative density) of the slide deposit and also the bearing
to determine the validity of the contract, expressly excepts from the rule those contracts capacity of the soil materials. Another thing to consider is the vulnerability of the area to
that are conditioned upon the attainment of the motives of either party. landslides and other mass movements due to thick soil cover.Preventive physical
mitigation methods such as surface and subsurface drainage and regrading of the slope
The same view is held by the Supreme Court of Spain, in its decisions of February 4, 1941, must be done in the area.[27]
and December 4, 1946, holding that the motive may be regarded as causa when it
predetermines the purpose of the contract. We read the quoted portion, however, to mean only that further tests are required to
determine the degree of compaction, the bearing capacity of the soil materials, and
In this case, it is clear, and petitioners do not dispute, that NHA would not have vulnerability of the area to landslides, since the tests already conducted were inadequate
entered into the contract were the lands not suitable for housing. In other words, the to ascertain such geological attributes. It is only in this sense that the assessment was
quality of the land was an implied condition for the NHA to enter into the contract. On the preliminary.
part of the NHA, therefore, the motive was the cause for its being a party to the sale. Accordingly, we hold that the NHA was justified in cancelling the contract. The
Were the lands indeed unsuitable for the housing as NHA claimed? realization of the mistake as regards the quality of the land resulted in the negation of the
motive/cause thus rendering the contract inexistent.[28] Article 1318 of the Civil Code
We deem the findings contained in the report of the Land Geosciences Bureau dated states that:
15 July 1991 sufficient basis for the cancellation of the sale, thus:
Art. 1318. There is no contract unless the following requisites concur:
In Tadiangan, Tuba, the housing site is situated in an area of moderate topography. There
[are] more areas of less sloping ground apparently habitable. The site is underlain by x x x (1) Consent of the contracting parties;
thick slide deposits (4-45m) consisting of huge conglomerate boulders (see Photo No. 2)
mix[ed] with silty clay materials. These clay particles when saturated have some swelling (2) Object certain which is the subject matter of the contract;
characteristics which is dangerous for any civil structures especially mass housing
development.[25] (3) Cause of the obligation which is established. (Underscoring supplied.)
Petitioners content that the report was merely preliminary, and not conclusive, as Therefore, assuming that petitioners are parties, assignees or beneficiaries to the
indicated in its title: contract of sale, they would not be entitled to any award of damages.
The Eternit Corporation (EC) is a corporation duly organized and registered under Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux.
Philippine laws. Since 1950, it had been engaged in the manufacture of roofing materials Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville,
and pipe products. Its manufacturing operations were conducted on eight parcels of land and in a Letter dated February 26, 1987, confirmed that the Litonjua siblings had accepted
with a total area of 47,233 square meters. The properties, located in Mandaluyong City, the counter-proposal of Delsaux. He also stated that the Litonjua siblings would confirm
Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119, full payment within 90 days after execution and preparation of all documents of sale,
451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust together with the necessary governmental clearances.[6]
Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were owned by The Litonjua brothers deposited the amount of US$1,000,000.00 with the
Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the Security Bank & Trust Company, Ermita Branch, and drafted an Escrow Agreement to
laws of Belgium.[3] Jack Glanville, an Australian citizen, was the General Manager and expedite the sale.[7]
We regret that we could not make a deal with you this time,
Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale
but in case the policy would change at a later state, we would consult
would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he you again.
had met with the buyer, which had given him the impression that he is prepared to press
for a satisfactory conclusion to the sale.[8] He also emphasized to Delsaux that the buyers xxx
were concerned because they would incur expenses in bank commitment fees as a Yours sincerely,
consequence of prolonged period of inaction.[9] (Sgd.)
C.F. DELSAUX
Meanwhile, with the assumption of Corazon C. Aquino as President of the cc. To: J. GLANVILLE (Eternit Corp.)[11]
Republic of the Philippines, the political situation in the Philippines had improved.
Marquez received a telephone call from Glanville, advising that the sale would no longer
When apprised of this development, the Litonjuas, through counsel, wrote EC,
proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that he had
demanding payment for damages they had suffered on account of the aborted sale. EC,
been instructed by his principal to inform Marquez that the decision has been taken at a
however, rejected their demand.
Board Meeting not to sell the properties on which Eternit Corporation is situated. [10]
The Litonjuas then filed a complaint for specific performance and damages
Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC
against EC (now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust
Regional Office had decided not to proceed with the sale of the subject land, to wit:
Company, and ESAC in the RTC of Pasig City. An amended complaint was filed, in which
defendant EC was substituted by Eterton Multi-Resources Corporation; Benito C. Tan,
May 22, 1987
Mr. L.G. Marquez Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional
L.G. Marquez, Inc. defendants on account of their purchase of ESAC shares of stocks and were the controlling
stockholders of EC.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila In their answer to the complaint, EC and ESAC alleged that since Eteroutremer
Philippines
was not doing business in the Philippines, it cannot be subject to the jurisdiction of
Dear Sir: Philippine courts; the Board and stockholders of EC never approved any resolution to sell
subject properties nor authorized Marquez to sell the same; and the telex dated October 28,
Re: Land of Eternit Corporation
1986 of Jack Glanville was his own personal making which did not bind EC.
The Litonjuas appealed the decision to the CA, alleging that (1) the lower court II
erred in concluding that the real estate broker in the instant case needed a written
authority from appellee corporation and/or that said broker had no such written authority; THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN
HOLDING THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM
and (2) the lower court committed grave error of law in holding that appellee corporation RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.
is not legally bound for specific performance and/or damages in the absence of an enabling
resolution of the board of directors.[15] They averred that Marquez acted merely as a
III
broker or go-between and not as agent of the corporation; hence, it was not necessary for
him to be empowered as such by any written authority. They further claimed that an THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE
agency by estoppel was created when the corporation clothed Marquez with apparent AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE
SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY
authority to negotiate for the sale of the properties. However, since it was a bilateral
PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE
contract to buy and sell, it was equivalent to a perfected contract of sale, which the SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO
corporation was obliged to consummate. THE PUBLIC AS POSSESSING POWER TO SELL THE SAID
PROPERTIES.[17]
In reply, EC alleged that Marquez had no written authority from the Board of
Petitioners maintain that, based on the facts of the case, there was a perfected contract of
Directors to bind it; neither were Glanville and Delsaux authorized by its board of
sale of the parcels of land and the improvements thereon for US$1,000,000.00
directors to offer the property for sale. Since the sale involved substantially all of the
plus P2,500,000.00 to cover obligations prior to final liquidation. Petitioners insist that
corporations assets, it would necessarily need the authority from the stockholders.
they had accepted the counter-offer of respondent EC and that before the counter-offer
was withdrawn by respondents, the acceptance was made known to them through real
On June 16, 2000, the CA rendered judgment affirming the decision of the
estate broker Marquez.
RTC. [16] The Litonjuas filed a motion for reconsideration, which was also denied by the
appellate court.
Petitioners assert that there was no need for a written authority from the Board of
Directors of EC for Marquez to validly act as broker/middleman/intermediary. As broker,
Marquez was not an ordinary agent because his authority was of a special and limited
character in most respects. His only job as a broker was to look for a buyer and to bring Petitioners insist that it is incongruous for Glanville and Delsaux to make a
together the parties to the transaction. He was not authorized to sell the properties or to counter-offer to petitioners offer and thereafter reject such offer unless they were
make a binding contract to respondent EC; hence, petitioners argue, Article 1874 of the authorized to do so by respondent EC. Petitioners insist that Delsaux confirmed his
New Civil Code does not apply. authority to sell the properties in his letter to Marquez, to wit:
Dear Sir,
In any event, petitioners aver, what is important and decisive was that Marquez
was able to communicate both the offer and counter-offer and their acceptance of Re: Land of Eternit Corporation
respondent ECs counter-offer, resulting in a perfected contract of sale.
I would like to confirm officially that our Group has decided not to
Petitioners posit that the testimonial and documentary evidence on record amply proceed with the sale of the land which was proposed to you.
shows that Glanville, who was the President and General Manager of respondent EC, and
The Committee for Asia of our Group met recently (meeting every six
Delsaux, who was the Managing Director for ESAC Asia, had the necessary authority to sell months) and examined the position as far as the Philippines are (sic)
the subject property or, at least, had been allowed by respondent EC to hold themselves concerned. Considering the new political situation since the departure
out in the public as having the power to sell the subject properties. Petitioners identified of MR. MARCOS and a certain stabilization in the Philippines, the
Committee has decided not to stop our operations in Manila[.] [I]n fact
such evidence, thus:
production started again last week, and (sic) to reorganize the
participation in the Corporation.
1. The testimony of Marquez that he was chosen by Glanville
as the then President and General Manager of Eternit, to sell the
We regret that we could not make a deal with you this time, but in
properties of said corporation to any interested party, which authority,
case the policy would change at a later stage we would consult you
as hereinabove discussed, need not be in writing.
again.
2. The fact that the NEGOTIATIONS for the sale of the subject
properties spanned SEVERAL MONTHS, from 1986 to 1987;
In the meantime, I remain
3. The COUNTER-OFFER made by Eternit through GLANVILLE
to sell its properties to the Petitioners; Yours sincerely,
xxxx
An agency may be expressed or implied from the act of the principal, from his silence or
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, lack of action, or his failure to repudiate the agency knowing that another person is acting
mortgage and otherwise deal with such real and personal property,
including securities and bonds of other corporations, as the transaction on his behalf without authority. Acceptance by the agent may be expressed, or implied
of a lawful business of the corporation may reasonably and necessarily from his acts which carry out the agency, or from his silence or inaction according to the
require, subject to the limitations prescribed by the law and the circumstances.[34] Agency may be oral unless the law requires a specific form.[35] However,
Constitution.
to create or convey real rights over immovable property, a special power of attorney is
necessary.[36] Thus, when a sale of a piece of land or any portion thereof is through an agent,
The property of a corporation, however, is not the property of the stockholders or the authority of the latter shall be in writing, otherwise, the sale shall be void.[37]
members, and as such, may not be sold without express authority from the board of
directors.[27] Physical acts, like the offering of the properties of the corporation for sale, or In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution
the acceptance of a counter-offer of prospective buyers of such properties and the of the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as
execution of the deed of sale covering such property, can be performed by the corporation its agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land
only by officers or agents duly authorized for the purpose by corporate by-laws or by owned by respondent EC including the improvements thereon. The bare fact that Delsaux
specific acts of the board of directors.[28] Absent such valid delegation/authorization, the may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC,
rule is that the declarations of an individual director relating to the affairs of the on June 1, 1997, cannot be used as basis for petitioners claim that he had likewise been
corporation, but not in the course of, or authorized by respondent EC to sell the parcels of land.
connected with, the performance of authorized duties of such director, are not binding on
the corporation.[29] Moreover, the evidence of petitioners shows that Adams and Glanville acted on the
authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its
Committee for Asia,[38] the Board of Directors of respondent ESAC,[39] and the The petitioners cannot feign ignorance of the absence of any regular and valid authority of
Belgian/Swiss component of the management of respondent ESAC.[40] As such, Adams and respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale
Glanville engaged the services of Marquez to offer to sell the properties to prospective and to sell the said properties to the petitioners. A person dealing with a known agent is
buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he was not authorized, under any circumstances, blindly to trust the agents; statements as to the
authorized to offer for sale the property for P27,000,000.00 and the other terms of the sale extent of his powers; such person must not act negligently but must use reasonable
subject to negotiations. When petitioners offered to purchase the property diligence and prudence to ascertain whether the agent acts within the scope of his
for P20,000,000.00, through Marquez, the latter relayed petitioners offer to Glanville; authority.[45] The settled rule is that, persons dealing with an assumed agent are bound at
Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to their peril, and if they would hold the principal liable, to ascertain not only the fact of
petitioners offer.However, as admitted by petitioners in their Memorandum, Delsaux was agency but also the nature and extent of authority, and in case either is controverted, the
unable to reply immediately to the telex of Glanville because Delsaux had to wait for burden of proof is upon them to prove it.[46] In this case, the petitioners failed to discharge
confirmation from respondent ESAC.[41] When Delsaux finally responded to Glanville on their burden; hence, petitioners are not entitled to damages from respondent EC.
February 12, 1987, he made it clear that, based on the Belgian/Swiss decision the final
offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing It appears that Marquez acted not only as real estate broker for the petitioners but also as
obligations prior to final liquidation.[42] The offer of Delsaux emanated only from the their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he
Belgian/Swiss decision, and not the entire management or Board of Directors of confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell
respondent ESAC. While it is true that petitioners accepted the counter-offer of respondent the land and the improvements thereon. However, we agree with the ruling of the
ESAC, respondent EC was not a party to the transaction between them; hence, EC was not appellate court that Marquez had no authority to bind respondent EC to sell the subject
bound by such acceptance. properties. A real estate broker is one who negotiates the sale of real properties. His
business, generally speaking, is only to find a purchaser who is willing to buy the land
While Glanville was the President and General Manager of respondent EC, and Adams and upon terms fixed by the owner. He has no authority to bind the principal by signing a
Delsaux were members of its Board of Directors, the three acted for and in behalf of contract of sale. Indeed, an authority to find a purchaser of real property does not include
respondent ESAC, and not as duly authorized agents of respondent EC; a board resolution an authority to sell.[47]
evincing the grant of such authority is needed to bind EC to any agreement regarding the Equally barren of merit is petitioners contention that respondent EC is estopped
sale of the subject properties. Such board resolution is not a mere formality but is a to deny the existence of a principal-agency relationship between it and Glanville or
condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90% of Delsaux. For an agency by estoppel to exist, the following must be established: (1) the
the shares of stocks of respondent EC; however, the mere fact that a corporation owns a principal manifested a representation of the agents authority or knowlingly allowed the
majority of the shares of stocks of another, or even all of such shares of stocks, taken alone, agent to assume such
It bears stressing that in an agent-principal relationship, the personality of the principal is upon such representation, such third person has changed his position to his
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes detriment.[48]An agency by estoppel, which is similar to the doctrine of apparent authority,
the principal, authorized to perform all acts which the latter would have him do. Such a requires proof of reliance upon the representations, and that, in turn, needs proof that the
relationship can only be effected with the consent of the principal, which must not, in any representations predated the action taken in reliance.[49] Such proof is lacking in this case.
way, be compelled by law or by any court.[44] In their communications to the petitioners, Glanville and Delsaux positively and
unequivocally declared that they were acting for and in behalf of respondent ESAC.
Neither may respondent EC be deemed to have ratified the transactions between the
petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The
transactions and the various communications inter se were never submitted to the Board
of Directors of respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against
the petitioners.
SO ORDERED.
G.R. No. 2962 February 27, 1907 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)
B. H. MACKE, ET AL., plaintiffs-appellees, immediately following his name.
vs.
JOSE CAMPS, defendant-appellant. 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
Manuel G. Gavieres for appellant. not tell whether Flores was working for himself or for some one else that it to say,
Gibbs & Gale for appellees. whether Flores was managing the business as agent or sublessee.
CARSON, J.: 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.
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, they sold to the defendant and delivered at his place of business, known In the absence of proof of the contrary we think that this evidence is sufficient to sustain a
as the "Washington Cafe," various bills of goods amounting to P351.50; that the defendant finding that Flores was the agent of the defendant in the management of the bar of the
has only paid on account of said accounts the sum of P174; that there is still due them on Washington Cafe with authority to bind the defendant, his principal, for the payment of the
account of said goods the sum of P177.50; that before instituting this action they made goods mentioned in the complaint.
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 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
B. H. Macke, one of the plaintiffs, testified that on the order of one Ricardo Flores, who signature of Flores which appears on that contract, together with the fact that, at the time
represented himself to be agent of the defendant, he shipped the said goods to the the purchases in question were made, Flores was apparently in charge of the business,
defendants at the Washington Cafe; that Flores later acknowledged the receipt of said performing the duties usually entrusted to managing agent, leave little room for doubt that
goods and made various payments thereon amounting in all to P174; that on demand for he was there as authorized agent of the defendant. One who clothes another apparent
payment of balance of the account Flores informed him that he did not have the necessary authority as his agent, and holds him out to the public as such, can not be permitted to
funds on hand, and that he would have to wait the return of his principal, the defendant, deny the authority of such person to act as his agent, to the prejudice of innocent third
who was at that time visiting in the provinces; that Flores acknowledged the bill for the parties dealing with such person in good faith and in the following preassumptions or
goods furnished and the credits being the amount set out in the complaint; that when the deductions, which the law expressly directs to be made from particular facts, are deemed
goods were ordered they were ordered on the credit of the defendant and that they were conclusive:
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 (1) "Whenever a party has, by his own declaration, act, or omission, intentionally and
believed and still believes that Flores was the agent of the defendant; and that when he deliberately led another to believe a particular thing true, and to act upon such belief, he
went to the Washington Cafe for the purpose of collecting his bill he found Flores, in the can not, in any litigation arising out such declaration, act, or omission, be permitted to
absence of the defendant in the provinces, apparently in charge of the business and falsify it" (subsec. 1, sec. 333, Act no. 190); and unless the contrary appears, the authority
claiming to be the business manager of the defendant, said business being that of a hotel of an agent must be presumed to include all the necessary and usual means of carrying his
with a bar and restaurant annexed. 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," That Flores, as managing agent of the Washington Cafe, had authority to buy such
subrented the building wherein the business was conducted, to the defendant for a period reasonable quantities of supplies as might from time to time be necessary in carrying on
of one year, for the purpose of carrying on that business, the defendant obligating himself the business of hotel bar may fairly be presumed from the nature of the business,
not to sublet or subrent the building or the business without the consent of the said especially in view of the fact that his principal appears to have left him in charge during
Galmes. This contract was signed by the defendant and the name of Ricardo Flores appears more or less prolonged periods of absence; from an examination of the items of the
thereon as a witness, and attached thereto is an inventory of the furniture and fittings account attached to the complaint, we are of opinion that he was acting within the scope of
which also is signed by the defendant with the word "sublessee" (subarrendatario) below 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.
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.
G.R. No. 108957 June 14, 1993 Shocked by this information, Cruz became hysterical and burst into tears. The branch
manager, Roman Santos, assured her that he would look into the matter.9
PRUDENTIAL BANK, petitioner,
vs. Every day thereafter, Cruz went to the bank to inquire about her request to withdraw her
THE COURT OF APPEALS, AURORA CRUZ, respondents. investment. She received no definite answer, not even to the letter she wrote the bank
which was received by Santos himself. 10 Finally, Cruz sent the bank a demand letter dated
Monique Q. Ignacio for petitioner. November 12, 1986 for the amount of P200,000.00 plus interest. 11 In a reply dated
November 20, 1986, the bank's Vice President Lauro J. Jocson said that there appeared to
be an anomaly
Eduardo C. Tutaan for private respondent.
and requested Cruz to defer court action as they hoped to settle the matter
amicably. 12 Increasingly worried, Cruz sent another letter reiterating her demand. 13 This
time the reply of the bank was unequivocal and negative. She was told that her request had
to be denied because she had already withdrawn the amount she was claiming. 14
CRUZ, J.:
Cruz's reaction was to file a complaint for breach of contract against Prudential Bank in the
We deal here with another controversy involving the integrity of a bank. Regional Trial Court of Quezon City. She demanded the return of her money with interest,
plus damages and attorney's fees. In its answer, the bank denied liability, insisting that
The complaint in this case arose when private respondent Aurora F. Cruz had withdrawn her investment. The bank also instituted a third-party complaint
Cruz, * with her sister as co-depositor, invested P200,000.00 in Central Bank bills with the against Quimbo, who did not file an answer and was declared in default. 15 The bank,
Prudential Bank at its branch in Quezon Avenue, Quezon City, on June 23, 1986. The however, did not present any evidence against her.
placement was for 63 days at 13.75% annual interest. For this purpose, the amount of
P196,122.88 was withdrawn from the depositors' Savings Account No. 2546 and applied to After trial, Judge Rodolfo A. Ortiz rendered judgment in favor of the plaintiffs and disposed
the investment. The difference of P3,877.07 represented the pre-paid interest. as follows:
The transaction was evidenced by a Confirmation of Sale 1 delivered to Cruz two days later, ACCORDINGLY, judgment is hereby rendered ordering the defendant/third-party plaintiff
together with a Debit Memo2 in the amount withdrawn and applied to the confirmed sale. to pay to the plaintiffs the following amounts:
These documents were issued by Susan Quimbo, the employee of the bank to whom Cruz
was referred and who was apparently in charge of such transactions.3 1. P200,000.00, plus interest thereon at the rate of 13.75% per annum from October 27,
1986, until fully paid;
Upon maturity of the placement on August 25, 1986, Cruz returned to the bank to
"roll-over" or renew her investment. Quimbo, who again attended to her, prepared a Credit 2. P30,000.00, as moral damages;
Memo4 crediting the amount of P200,000.00 in Cruz's savings account passbook. She also
prepared a Debit Memo for the amount of P196,122.88 to cover the re-investment of
3. P20,000.00, as exemplary damages; and
P200,000.00 minus the prepaid interest of P3,877.02.5
On October 27, 1986, Cruz returned to the bank and sought to withdraw her P200,000.00. With costs against the defendant/third-party plaintiff.
After verification of her records, however, she was informed that the investment appeared
to have been already withdrawn by her on August 25, 1986. There was no copy on file of The decision was affirmed in toto on appeal to the respondent court.
the Confirmation of Sale and the Debit Memo allegedly issued to her by Quimbo. Quimbo
herself was not available for questioning as she had not been reporting for the past week.
The judgment of the Court of Appeals 16 is now faulted in this petition, mainly on the Even assuming that they were not signed by its authorized officials, as it claims, there was
ground that the bank should not have been found liable for a quasi-delict when it was sued no obligation on the part of Cruz to verify their authority because she had the right to
for breach of contract. presume it. The documents had been issued in the office of the bank itself and by its own
employees with whom she had previously dealt. Such dealings had not been questioned
The petition shall fail. The petitioner is quibbling. It appears to be merely temporizing to before, much leas invalidated. There was absolutely no reason why she should not have
delay enforcement of the liability clearly established against it. accepted their authority to act on behalf of their employer.
The basic issues are factual. The private respondent claims she has not yet collected her It is also worthy of note and wonder that although the bank impleaded Quimbo in a
investment of P200,000.00 and has submitted in proof of their contention the third-party complaint, it did not pursue its suit even when she failed to answer and was
Confirmation of Sale and the Debit Memo issued to her by Quimbo on the official forms of declared in default. The bank did not introduce evidence against her although it could have
the bank. The petitioner denies her claim and points to the Withdrawal Slip, which it says done so under the rules. No less remarkably, it did not call on her to testify on its behalf,
Cruz has not denied having signed. It also contends that the Confirmation of Sale and the considering that under the circumstances claimed by it, she would have been the best
Debit Memo are fake and should not have been given credence by the lower courts. witness to show that Cruz had actually withdrawn her P200,000.00 placement. Instead,
the bank chose to rely on its other employees whose testimony was less direct and
categorical than the testimony Quimbo could have given.
The findings of the trial court on these issues have been affirmed by the respondent court
and we see no reason to disturb them. The petitioner has not shown that they have been
reached arbitrarily or in disregard of the evidence of record. On the contrary, we find We do not find that the Court of Appeals held the bank liable on a quasi-delict. The
substantial basis for the conclusion that the private respondents signed the Withdrawal argument of the petitioner on this issue is pallid, to say the least, consisting as it does only
Slip only as part of the bank's new procedure of re-investment. She did not actually receive of the observation that the article cited by the respondent court on the agent's liability falls
the amount indicated therein, which she was made to understand was being re-invested in under the heading in the Civil Code on quasi-delicts. On the other hand, the respondent
her name. The bank itself so assured her in the Confirmation of Sale and the Debit Memo court clearly declared that:
later issued to her by Quimbo.
The defendant/third-party plaintiff being liable for the return of the P200,000.00
Especially persuasive are the following observations of the trial court: 17 placement of the plaintiffs, the extent of the liability of the defendant/third-party plaintiff
for damages resultant thereof, which is contractual, is for all damages which may be
reasonably attributed to the non-performance of the obligation, . . .
What is more, it could not be that plaintiff Aurora F. Cruz withdrew only the amount of
P196,122.98 from their savings account, if her only intention was to make such a
withdrawal. For, if, indeed, it was the desire of the plaintiffs to withdraw their money from xxx xxx xxx
the defendant/third-party plaintiff, they could have withdrawn an amount in round figures.
Certainly, it is unbelievable that their withdrawal was in the irregular amount of Because of the bad faith of the defendant/third-party plaintiff in its breach of its
P196,122.98 if they really received it. On the contrary, this amount, which is the price of contract with the plaintiffs, the latter are, therefore, entitled to an award of moral
the Central Bank bills rolled over, indicates that, as claimed by plaintiff Aurora F. Cruz, she damages . . . (Emphasis supplied)
did not receive this money, but it was left by her with the defendant/third-party plaintiff in
order to buy Central Bank bills placement for another sixty-three (63) days, for which she There is no question that the petitioner was made liable for its failure or refusal to deliver
signed a withdrawal slip at the instance of third-party defendant Susan Quimbo who told to Cruz the amount she had deposited with it and which she had a right to withdraw upon
her that it was a new bank requirement for the roll-over of a matured placement which she its maturity. That investment was acknowledged by its own employees, who had the
trustingly believed. apparent authority to do so and so could legally bind it by its acts vis-a-vis Cruz. Whatever
might have happened to the investment whether it was lost or stolen by whoever
Indeed, the bank has not explained the remarkable coincidence that the amount indicated was not the concern of the depositor. It was the concern of the bank.
in the withdrawal slip is exactly the same amount Cruz was re-investing after deducting
therefrom the pre-paid interest. As far as Cruz was concerned, she had the right to withdraw her P200,000.00 placement
when it matured pursuant to the terms of her investment as acknowledged and reflected
The bank has also not, succeeded in impugning the authenticity of the Confirmation of Sale in the Confirmation of Sale. The failure of the bank to deliver the amount to her pursuant
and the Debit Memo which were made on its official, forms. These are admittedly not to the Confirmation of Sale constituted its breach of their contract, for which it should be
available to the general public or even its depositors and are handled only by its personnel. held liable.
The liability of the principal for the acts of the agent is not even debatable. Law and We agree with the lower courts that the petitioner acted in bad faith in denying Cruz the
jurisprudence are clearly and absolutely against the petitioner. obligation she was claiming against it. It was obvious that an irregularity had been
committed by the bank's personnel, but instead of repairing the injury to Cruz by
Such liability dates back to the Roman Law maxim, Qui per alium facit per seipsum facere immediately restoring her money to her, it sought to gloss over the anomaly in its own
videtur. "He who does a thing by an agent is considered as doing it himself." This rule is operations.
affirmed by the Civil Code thus:
Cruz naturally suffered anxious moments and mental anguish over the loss of the
Art. 1910. The principal must comply with all the obligations which the agent may have investment. The amount of P200,000.00 is not small even by present standards. By
contracted within the scope of his authority. unjustly withholding it from her on the unproved defense that she had already withdrawn
it, the bank violated the trust she had reposed in it and thus subjected itself to further
liability for moral and exemplary damages.
Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable
with the agent if the former allowed the latter to act as though he had full powers.
If a person dealing with a bank does not read the fine print in the contract, it is because
he trusts the bank and relies on its integrity. The ordinary customer applying for a loan or
Conformably, we have declared in countless decisions that the principal is liable for
even making a deposit (and so himself extending the loan to the bank) does not bother
obligations contracted by the agent. The agent's apparent representation yields to the
with the red tape requirements and the finicky conditions in the documents he signs. His
principal's true representation and the contract is considered as entered into between the
feeling is that he does not have to be wary of the bank because it will deal with him fairly
principal and the third person. 18
and there is no reason to suspect its motives. This is an attitude the bank must justify.
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the
While this is not to say that bank regulations are meaningless or have no binding effect,
course of dealings of the officers in their representative capacity but not for acts outside
they should, however, not be used for covering up the fault of bank employees when they
the scope of their authority. (9 c.q.s. p. 417) A bank holding out its officers and agent as
blunder or, worse, intentionally cheat him. The misdeeds of such employees must be
worthy of confidence will not be permitted to profit by the frauds they may thus be
readily acknowledged and rectified without delay. The bank must always act in good faith.
enabled to perpetrate in the apparent scope of their employment; nor will it be permitted
The ordinary customer does not feel the need for a lawyer by his side every time he deals
to shirk its responsibility for such frauds, even though no benefit may accrue to the bank
with a bank because he is certain that it is not a predator or a potential adversary. The
therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent
bank should show that there is really no reason for any apprehension because it truly
third persons where the representation is made in the course of its business by an agent
deserves his faith in it.
acting within the general scope of his authority even though, in the particular case, the
agent is secretly abusing his authority and attempting to perpetrate a fraud upon his
principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., WHEREFORE, the petition is DENIED and the appealed decision is AFFIRMED, with costs
52 ND 752, 204 NW 818, 40 ALR 1021.) against the petitioner. It is so ordered.
It would appear from the facts established in the case before us that the petitioner was less
than eager to present Quimbo at the trial or even to establish her liability although it made
the initial effort which it did not pursue to hold her answerable in the third-party
complaint. What ever happened to her does not appear in the record. Her absence from the
proceedings feeds the suspicion of her possible misdeed, which the bank seems to have
studiously ignored by its insistence that the missing money had been actually withdrawn
by Cruz. By such insistence, the bank is absolving not only itself but also, in effect and by
extension, the disappeared Quimbo who apparently has much to explain.
EUROTECH INDUSTRIAL TECHNOLOGIES, G.R. No. 167552
valued at P250,000.00 with respondents making a down payment of fifty thousand pesos
INC.,
Petitioner, Present: (P50,000.00).[4] When the sludge pump arrived from the United Kingdom, petitioner
refused to deliver the same to respondents without their having fully settled their
YNARES-SANTIAGO, J.,
Chairperson, indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de
- versus - AUSTRIA-MARTINEZ, Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in favor
CALLEJO, SR., of petitioner, the pertinent part of which states:
CHICO-NAZARIO, and
NACHURA, JJ.
1.) That ASSIGNOR[5] has an outstanding receivables from
Toledo Power Corporation in the amount of THREE HUNDRED SIXTY
EDWIN CUIZON and ERWIN CUIZON, Promulgated:
FIVE THOUSAND (P365,000.00) PESOS as payment for the purchase of
Respondents. one unit of Selwood Spate 100D Sludge Pump;
April 23, 2007
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
CONVEY unto the ASSIGNEE[6] the said receivables from Toledo Power
Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND
(P365,000.00) PESOS which receivables the ASSIGNOR is the lawful
recipient;
DECISION
3.) That the ASSIGNEE does hereby accept this assignment.[7]
CHICO-NAZARIO, J.: Following the execution of the Deed of Assignment, petitioner delivered to respondents
the sludge pump as shown by Invoice No. 12034 dated 30 June 1995.[8]
Before Us is a petition for review by certiorari assailing the Decision[1] of the Court of
Allegedly unbeknownst to petitioner, respondents, despite the existence of the
Appeals dated 10 August 2004 and its Resolution[2] dated 17 March 2005 in CA-G.R. SP No.
Deed of Assignment, proceeded to collect from Toledo Power Company the amount
71397 entitled, Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez. The
of P365,135.29 as evidenced by Check Voucher No. 0933[9] prepared by said power
assailed Decision and Resolution affirmed the Order[3] dated 29 January 2002rendered by
company and an official receipt dated 15 August 1995 issued by Impact
Judge Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as
Systems.[10] Alarmed by this development, petitioner made several demands upon
a party defendant in Civil Case No. CEB-19672.
respondents to pay their obligations. As a result, respondents were able to make partial
payments to petitioner. On 7 October 1996, petitioners counsel sent respondents a final
The generative facts of the case are as follows:
demand letter wherein it was stated that as of 11 June 1996, respondents total obligations
stood at P295,000.00 excluding interests and attorneys fees.[11] Because of respondents
Petitioner is engaged in the business of importation and distribution of various European
failure to abide by said final demand letter, petitioner instituted a complaint for sum of
industrial equipment for customers here in the Philippines. It has as one of its customers
money, damages, with application for preliminary attachment against herein respondents
Impact Systems Sales (Impact Systems) which is a sole proprietorship owned by
before the Regional Trial Court of Cebu City.[12]
respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact
Systems and was impleaded in the court a quo in said capacity.
On 8 January 1997, the trial court granted petitioners prayer for the issuance of
writ of preliminary attachment.[13]
From January to April 1995, petitioner sold to Impact Systems various products allegedly
amounting to ninety-one thousand three hundred thirty-eight (P91,338.00)
pesos.Subsequently, respondents sought to buy from petitioner one unit of sludge pump
represented [Impact] Systems Sales; that [Impact] Systems Sale is a
On 25 June 1997, respondent EDWIN filed his Answer[14] wherein he admitted
single proprietorship entity and the complaint shows that defendant
petitioners allegations with respect to the sale transactions entered into by Impact Erwin H. Cuizon is the proprietor; that plaintiff corporation is
Systems and petitioner between January and April 1995.[15] He, however, disputed the represented by its general manager Alberto de Jesus in the contract
total amount of Impact Systems indebtedness to petitioner which, according to him, which is dated June 28, 1995. A study of Annex H to the complaint
reveals that [Impact] Systems Sales which is owned solely by defendant
amounted to only P220,000.00.[16] Erwin H. Cuizon, made a down payment of P50,000.00 that Annex H is
dated June 30, 1995 or two days after the execution of Annex G, thereby
By way of special and affirmative defenses, respondent EDWIN alleged that he is showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon;
the records further show that plaintiff knew that [Impact] Systems Sales,
not a real party in interest in this case. According to him, he was acting as mere agent of his the principal, ratified the act of Edwin B. Cuizon, the agent, when it
principal, which was the Impact Systems, in his transaction with petitioner and the latter accepted the down payment of P50,000.00. Plaintiff, therefore, cannot
was very much aware of this fact. In support of this argument, petitioner points to say that it was deceived by defendant Edwin B. Cuizon, since in the
instant case the principal has ratified the act of its agent and plaintiff
paragraphs 1.2 and 1.3 of petitioners Complaint stating
knew about said ratification. Plaintiff could not say that the subject
contract was entered into by Edwin B. Cuizon in excess of his powers
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident since [Impact] Systems Sales made a down payment of P50,000.00 two
of Cebu City. He is the proprietor of a single proprietorship business days later.
known as Impact Systems Sales (Impact Systems for brevity), with
office located at 46-A del Rosario Street, Cebu City, where he may be In view of the Foregoing, the Court directs that defendant
served summons and other processes of the Honorable Court. Edwin B. Cuizon be dropped as party defendant.[23]
In his Comment,[28] respondent EDWIN again posits the argument that he is not a real We disagree.
party in interest in this case and it was proper for the trial court to have him dropped as a Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not
defendant. He insists that he was a mere agent of Impact Systems which is owned by personally liable to the party with whom he contracts. The same provision, however,
ERWIN and that his status as such is known even to petitioner as it is alleged in the presents two instances when an agent becomes personally liable to a third person. The
Complaint that he is being sued in his capacity as the sales manager of the said business first is when he expressly binds himself to the obligation and the second is when he
venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly exceeds his authority. In the last instance, the agent can be held liable if he does not give
states that he was acting as a representative of Impact Systems in said transaction. the third party sufficient notice of his powers. We hold that respondent EDWIN does not
fall within any of the exceptions contained in this provision.
We do not find merit in the petition.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales
In a contract of agency, a person binds himself to render some service or to do something manager of Impact Systems. As discussed elsewhere, the position of manager is unique in
in representation or on behalf of another with the latters consent.[29] The underlying that it presupposes the grant of broad powers with which to conduct the business of the
principle of the contract of agency is to accomplish results by using the services of others principal, thus:
that in case of excess of authority by the agent, like what petitioner claims exists here, the
The powers of an agent are particularly broad in the case of
law does not say that a third person can recover from both the principal and the agent. [40]
one acting as a general agent or manager; such a position presupposes a
degree of confidence reposed and investiture with liberal powers for
the exercise of judgment and discretion in transactions and concerns As we declare that respondent EDWIN acted within his authority as an agent, who did not
which are incidental or appurtenant to the business entrusted to his acquire any right nor incur any liability arising from the Deed of Assignment, it follows
care and management. In the absence of an agreement to the contrary, a
managing agent may enter into any contracts that he deems reasonably that he is not a real party in interest who should be impleaded in this case. A real party in
necessary or requisite for the protection of the interests of his principal interest is one who stands to be benefited or injured by the judgment in the suit, or the
entrusted to his management. x x x.[35] party entitled to the avails of the suit.[41] In this respect, we sustain his exclusion as a
defendant in the suit before the court a quo.
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within
his authority when he signed the Deed of Assignment. To recall, petitioner refused to WHEREFORE, premises considered, the present petition is DENIED and the Decision
deliver the one unit of sludge pump unless it received, in full, the payment for Impact dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in
Systems indebtedness.[36] We may very well assume that Impact Systems desperately CA-G.R. SP No. 71397, affirming the Order dated 29 January 2002 of the Regional Trial
needed the sludge pump for its business since after it paid the amount of fifty thousand Court, Branch 8, Cebu City, is AFFIRMED.
pesos (P50,000.00) as down payment on 3 March 1995,[37] it still persisted in negotiating
with petitioner which culminated in the execution of the Deed of Assignment of its Let the records of this case be remanded to the Regional Trial Court, Branch
receivables from Toledo Power Company on 28 June 1995.[38] The significant amount of 8, Cebu City, for the continuation of the proceedings against respondent ERWIN CUIZON.
time spent on the negotiation for the sale of the sludge pump underscores Impact
Systems perseverance to get hold of the said equipment. There is, therefore, no doubt in SO ORDERED.
our mind that respondent EDWINs participation in the Deed of Assignment was
reasonably necessary or was required in order for him to protect the business of his
principal. Had he not acted in the way he did, the business of his principal would have
been adversely affected and he would have violated his fiduciary relation with his
principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both
from respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here that
Article 1897 of the New Civil Code upon which petitioner anchors its claim against
respondent EDWIN does not hold that in case of excess of authority, both the agent and the
principal are liable to the other contracting party.[39] To reiterate, the first part of Article
1897 declares that the principal is liable in cases when the agent acted within the bounds
of his authority. Under this, the agent is completely absolved of any liability. The second
part of the said provision presents the situations when the agent himself becomes liable to
a third party when he expressly binds himself or he exceeds the limits of his authority
without giving notice of his powers to the third person. However, it must be pointed out
LAUREANO T. ANGELES, G.R. No. 150128
Petitioner, The facts:
Present:
PUNO, J., Chairperson, On May 5, 1980, the respondent Philippine National Railways (PNR) informed a certain
SANDOVAL-GUTIERREZ,
Gaudencio Romualdez (Romualdez, hereinafter) that it has accepted the latters offer to
- versus - CORONA,
AZCUNA, and buy, on an AS IS, WHERE IS basis, the PNRs scrap/unserviceable rails located in Del
GARCIA, JJ.
Carmen and Lubao, Pampanga at P1,300.00 and P2,100.00 per metric ton, respectively, for
Promulgated: the total amount of P96,600.00. After paying the stated purchase
PHILIPPINE NATIONAL RAILWAYS (PNR) AND price, Romualdez addressed a letter to Atty. Cipriano Dizon, PNRs Acting Purchasing
RODOLFO FLORES,[1] August 31, 2006 Agent. Bearing date May 26, 1980, the letter reads:
Respondents.
assailing and seeking to set aside the following issuances of the Court of Appeals (CA)
The Lizette R. Wijanco mentioned in the letter was Lizette Wijanco- Angeles, petitioner's
in CA-G.R. CV No. 54062, to wit:
now deceased wife. That very same day May 26, 1980 Lizette requested the PNR to
1. Decision[2] dated June 4, 2001, affirming an earlier decision of transfer the location of withdrawal for the reason that the scrap/unserviceable rails
the Regional Trial Court (RTC) of Quezon City, Branch located in Del Carmen and Lubao, Pampanga were not ready for hauling. The PNR granted
79, which dismissed the complaint for specific performance
and damages thereat commenced by the petitioner against the said request and allowed Lizette to withdraw scrap/unserviceable rails in Murcia, Capas
herein respondents; and
and San Miguel, Tarlac instead. However, the PNR subsequently suspended the withdrawal
2. Resolution[3] dated September 17,
2001, denying the petitioner's motion for reconsideration. in view of what it considered as documentary discrepancies coupled by reported pilferages
Consequently, the spouses Angeles demanded the refund of the amount of P96,000.00. The the trial court's holding that petitioner and his spouse, as plaintiffs a quo, had no cause of
PNR, however, refused to pay, alleging that as per delivery receipt duly signed action as they were not the real parties-in-interest in this case.
by Lizette, 54.658 metric tons of unserviceable rails had already been withdrawn which,
at P2,100.00 per metric ton, were worth P114,781.80, an amount that exceeds the claim We DENY the petition.
for refund.
At the crux of the issue is the matter of how the aforequoted May 26, 1980 letter of
On August 10, 1988, the spouses Angeles filed suit against the PNR and its corporate Romualdez to Atty. Dizon of the PNR should be taken: was it meant to designate, or has it
secretary, Rodolfo Flores, among others, for specific performance and damages before the the effect of designating, Lizette W. Angeles as a mere agent or as an assignee of his
Regional Trial Court of Quezon City. In it, they prayed that PNR be directed to deliver 46 m (Romualdez's) interest in the scrap rails awarded to San Juanico Enterprises? The CAs
etric tons of scrap/unserviceable rails and to pay them damages and attorney's fees. conclusion, affirmatory of that of the trial court, is that Lizette was not an assignee, but
merely an agent whose authority was limited to the withdrawal of the scrap rails, hence,
Issues having been joined following the filing by PNR, et al., of their answer, trial ensued. without personality to sue.
Meanwhile, Lizette W. Angeles passed away and was substituted by her heirs, among
whom is her husband, herein petitioner Laureno T. Angeles. Where agency exists, the third party's (in this case, PNR's) liability on a contract is to the
principal and not to the agent and the relationship of the third party to the principal is the
On April 16, 1996, the trial court, on the postulate that the spouses Angeles are not the real same as that in a contract in which there is no agent. Normally, the agent has neither rights
parties-in-interest, rendered judgment dismissing their complaint for lack of cause of nor liabilities as against the third party. He cannot thus sue or be sued on the
action. As held by the court, Lizette was merely a representative of Romualdez in the contract.Since a contract may be violated only by the parties thereto as against each other,
withdrawal of scrap or unserviceable rails awarded to him and not an assignee to the the real party-in-interest, either as plaintiff or defendant in an action upon that contract
latter's rights with respect to the award. must, generally, be a contracting party.
Aggrieved, the petitioner interposed an appeal with the CA, which, as stated at the The legal situation is, however, different where an agent is constituted as an assignee. In
threshold hereof, in its decision of June 4, 2001, dismissed the appeal and affirmed that of such a case, the agent may, in his own behalf, sue on a
the trial court. The affirmatory decision was reiterated by the CA in its resolution contract made for his principal, as an assignee of such contract. The rule
real party-in-interest recognizes the assignment of rights of action and also recognizes
that when one has a right assigned to him, he is then the real party-in-interest and may Petitioner submits that the second paragraph of the Romualdez letter, stating - I have
maintain an action upon such claim or right.[4] given [Lizette] the original copy of the award x x x which will indicate my waiver of rights,
interests and participation in favor of Lizette R. Wijanco - clarifies that Lizette was
Upon scrutiny of the subject Romualdez's letter to Atty. Cipriano Dizon dated May 26, intended to be an assignee, and not a mere agent.
1980, it is at once apparent that Lizette was to act just as a representative of Romualdez in
the withdrawal of rails, and not an assignee. For perspective, we reproduce the contents of We are not persuaded. As it were, the petitioner conveniently omitted an important phrase
said letter: preceding the paragraph which would have put the whole matter in context. The
phraseis For this reason, and the antecedent thereof is his (Romualdez) having
This is to inform you as President of San Juanico Enterprises, that I
have authorized the bearer, LIZETTE R. WIJANCO x x x to be my appointed Lizette as his representative in the matter of the withdrawal of the scrap
lawful representative in the withdrawal of the items. In fine, the key phrase clearly conveys the idea that Lizette was given the original
scrap/unserviceable rails awarded to me.
copy of the contract award to enable her to withdraw the rails as Romualdezs authorized
For this reason, I have given her the ORIGINAL COPY of the AWARD,
representative.
dated May 5, 1980 and O.R. No. 8706855 dated May 20, 1980 which will
indicate my waiver of rights, interests and participation in favor of
LIZETTE R. WIJANCO. (Emphasis added)
Article 1374 of the Civil Code provides that the various stipulations of a contract shall be
read and interpreted together, attributing to the doubtful ones that sense which may result
If Lizette was without legal standing to sue and appear in this case, there is more reason to
from all of them taken jointly. In fine, the real intention of the parties is primarily to be
hold that her petitioner husband, either as her conjugal partner or her heir, is also without
determined from the language used and gathered from the whole instrument. When put
such standing.
into the context of the letter as a whole, it is abundantly clear that the rights which
Romualdez waived or ceded in favor of Lizette were those in furtherance of the agency
Petitioner makes much of the fact that the terms agent or attorney-in-fact were not used in
relation that he had established for the withdrawal of the rails.
the Romualdez letter aforestated. It bears to stress, however, that the words principal and
agent, are not the only terms used to designate the parties in an agency relation. The agent
At any rate, any doubt as to the intent of Romualdez generated by the way his letter was
may also be called an attorney, proxy, delegate or, as here, representative.
couched could be clarified by the acts of the main players themselves. Article 1371 of the
Civil Code provides that to judge the intention of the contracting parties, their
It cannot be over emphasized that Romualdez's use of the active verb authorized, instead
contemporaneous and subsequent acts shall be principally considered. In other words, in
of assigned, indicated an intent on his part to keep and retain his interest in the subject
case of doubt, resort may be made to the situation, surroundings, and relations of the
matter. Stated a bit differently, he intended to limit Lizettes role in the scrap
parties.
transaction to being the representative of his interest therein.
The fact of agency was, as the trial court aptly observed,[5] confirmed in subsequent letters agent deals.[8] The letter under consideration is sufficient to constitute a power of
from the Angeles spouses in which they themselves refer to Lizette as authorized attorney. Except as may be required by statute, a power of attorney is valid although no
representative of San Juanico Enterprises. Mention may also be made that the withdrawal notary public intervened in its execution.[9]
receipt which Lizette had signed indicated that she was doing so in a representative
capacity. One professing to act as agent for another is estopped to deny his agency both as A power of attorney must be strictly construed and pursued. The instrument will be held
against his asserted principal and third persons interested in the transaction which he to grant only those powers which are specified therein, and the agent may neither go
engaged in. beyond nor deviate from the power of attorney.[10] Contextually, all that Lizette was
Whether or not an agency has been created is a question to be determined by the fact that to sue therefor, especially in her own name, would be to read something not intended, let
one represents and is acting for another. The appellate court, and before it, the trial court, alone written in the Romualdez letter.
had peremptorily determined that Lizette, with respect to the withdrawal of the scrap in
question, was acting for Romualdez. And with the view we take of this case, there were Finally, the petitioner's claim that Lizette paid the amount of P96,000.00 to the PNR
substantial pieces of evidence adduced to support this determination. The desired reversal appears to be a mere afterthought; it ought to be dismissed outright under the estoppel
urged by the petitioner cannot, accordingly, be granted. For, factual findings of the trial principle. In earlier proceedings, petitioner himself admitted in his complaint that it
court, adopted and confirmed by the CA, are, as a rule, final and conclusive and may not was Romualdez who paid this amount.
WHEREFORE, the petition is DENIED and the assailed decision of the CA is AFFIRMED.
Petitioner maintains that the Romualdez letter in question was not in the form of a special
power of attorney, implying that the latter had not intended to merely authorize his Costs against the petitioner.
wife, Lizette, to perform an act for him (Romualdez). The contention is specious. In the
absence of statute, no form or method of execution is required for a valid power of SO ORDERED.
attorney; it may be in any form clearly showing on its face the agents authority.[7]
specified acts on behalf of the principal. The written authorization itself is the power of
attorney, and this is clearly indicated by the fact that it has also been called a letter of
attorney. Its primary purpose is not to define the authority of the agent as between himself
and his principal but to evidence the authority of the agent to third parties with whom the
G.R. No. 119858 April 29, 2003 Assistant City Prosecutor Dina P. Teves of the City of Manila charged petitioner and Benito
Ong with two counts of estafa under separate Informations dated 11 October 1991.
EDWARD C. ONG, petitioner,
vs. In Criminal Case No. 92-101989, the Information indicts petitioner and Benito Ong of the
THE COURT OF APPEALS AND THE PEOPLE OF THE PHILIPPINES, respondents. crime of estafa committed as follows:
CARPIO, J.: That on or about July 23, 1990, in the City of Manila, Philippines, the said accused,
representing ARMAGRI International Corporation, conspiring and confederating together
The Case did then and there willfully, unlawfully and feloniously defraud the SOLIDBANK
Corporation represented by its Accountant, DEMETRIO LAZARO, a corporation duly
organized and existing under the laws of the Philippines located at Juan Luna Street,
Petitioner Edward C. Ong ("petitioner") filed this petition for review on certiorari1 to
Binondo, this City, in the following manner, to wit: the said accused received in trust from
nullify the Decision2 dated 27 October 1994 of the Court of Appeals in CA-G.R. C.R. No.
said SOLIDBANK Corporation the following, to wit:
14031, and its Resolution3 dated 18 April 1995, denying petitioner's motion for
reconsideration. The assailed Decision affirmed in toto petitioner's conviction4 by the
Regional Trial Court of Manila, Branch 35,5 on two counts of estafa for violation of the 10,000 bags of urea
Trust Receipts Law,6 as follows:
valued at P2,050,000.00 specified in a Trust Receipt Agreement and covered by a Letter of
WHEREFORE, judgment is rendered: (1) pronouncing accused EDWARD C. ONG guilty Credit No. DOM GD 90-009 in favor of the Fertiphil Corporation; under the express
beyond reasonable doubt on two counts, as principal on both counts, of ESTAFA defined obligation on the part of the said accused to account for said goods to Solidbank
under No. 1 (b) of Article 315 of the Revised Penal Code in relation to Section 13 of Corporation and/or remit the proceeds of the sale thereof within the period specified in
Presidential Decree No. 115, and penalized under the 1st paragraph of the same Article the Agreement or return the goods, if unsold immediately or upon demand; but said
315, and sentenced said accused in each count to TEN (10) YEARS of prision mayor, as accused, once in possession of said goods, far from complying with the aforesaid obligation
minimum, to TWENTY (20) YEARS of reclusion temporal, as maximum; failed and refused and still fails and refuses to do so despite repeated demands made upon
him to that effect and with intent to defraud, willfully, unlawfully and feloniously
misapplied, misappropriated and converted the same or the value thereof to his own
(2) ACQUITTING accused BENITO ONG of the crime charged against him, his guilt thereof
personal use and benefit, to the damage and prejudice of the said Solidbank Corporation in
not having been established by the People beyond reasonable doubt;
the aforesaid amount of P2,050,000.00 Philippine Currency.
(3) Ordering accused Edward C. Ong to pay private complainant Solid Bank Corporation
Contrary to law.
the aggregate sum of P2,976,576.37 as reparation for the damages said accused caused to
the private complainant, plus the interest thereon at the legal rate and the penalty of 1%
per month, both interest and penalty computed from July 15, 1991, until the principal In Criminal Case No. 92-101990, the Information likewise charges petitioner of the crime
obligation is fully paid; of estafa committed as follows:
(4) Ordering Benito Ong to pay, jointly and severally with Edward C. Ong, the private That on or about July 6, 1990, in the City of Manila, Philippines, the said accused,
complainant the legal interest and the penalty of 1% per month due and accruing on the representing ARMAGRI International Corporation, did then and there willfully, unlawfully
unpaid amount of P1,449,395.71, still owing to the private offended under the trust receipt and feloniously defraud the SOLIDBANK Corporation represented by its Accountant,
Exhibit C, computed from July 15, 1991, until the said unpaid obligation is fully paid; DEMETRIO LAZARO, a corporation duly organized and existing under the laws of the
Philippines located at Juan Luna Street, Binondo, this City, in the following manner, to wit:
the said accused received in trust from said SOLIDBANK Corporation the following goods,
(5) Ordering accused Edward C. Ong to pay the costs of these two actions.
to wit:
SO ORDERED.7
125 pcs. Rear diff. assy RNZO 49"
The Charge
50 pcs. Front & Rear diff assy. Isuzu Elof
85 units 1-Beam assy. Isuzu Spz I/We jointly and severally agreed to any increase or decrease in the interest rate which
may occur after July 1, 1981, when the Central Bank floated the interest rates, and to pay
all valued at P2,532,500.00 specified in a Trust Receipt Agreement and covered by a additionally the penalty of 1% per month until the amount/s or installment/s due and
Domestic Letter of Credit No. DOM GD 90-006 in favor of the Metropole Industrial Sales unpaid under the trust receipt on the reverse side hereof is/are fully paid.11
with address at P.O. Box AC 219, Quezon City; under the express obligation on the part of
the said accused to account for said goods to Solidbank Corporation and/or remit the Petitioner signed alone the foregoing additional undertaking in the Trust Receipt for
proceeds of the sale thereof within the period specified in the Agreement or return the P2,253,500.00, while both petitioner and Benito Ong signed the additional undertaking in
goods, if unsold immediately or upon demand; but said accused, once in possession of said the Trust Receipt for P2,050,000.00.
goods, far from complying with the aforesaid obligation failed and refused and still fails
and refuses to do so despite repeated demands made upon him to that effect and with When the trust receipts became due and demandable, ARMAGRI failed to pay or deliver
intent to defraud, willfully, unlawfully and feloniously misapplied, misappropriated and the goods to the Bank despite several demand letters.12 Consequently, as of 31 May 1991,
converted the same or the value thereof to his own personal use and benefit, to the the unpaid account under the first trust receipt amounted to P1,527,180.66, 13 while the
damage and prejudice of the said Solidbank Corporation in the aforesaid amount of unpaid account under the second trust receipt amounted to P1,449,395.71.14
P2,532,500.00 Philippine Currency.
Version of the Defense
Contrary to law.
After the prosecution rested its case, petitioner and Benito Ong, through counsel,
Arraignment and Plea manifested in open court that they were waiving their right to present evidence. The trial
court then considered the case submitted for decision.15
With the assistance of counsel, petitioner and Benito Ong both pleaded not guilty when
arraigned. Thereafter, trial ensued. The Ruling of the Court of Appeals
Version of the Prosecution Petitioner appealed his conviction to the Court of Appeals. On 27 October 1994, the Court
of Appeals affirmed the trial court's decision in toto. Petitioner filed a motion for
The prosecution's evidence disclosed that on 22 June 1990, petitioner, representing reconsideration but the same was denied by the Court of Appeals in the Resolution dated
ARMAGRI International Corporation8 ("ARMAGRI"), applied for a letter of credit for 18 April 1995.
P2,532,500.00 with SOLIDBANK Corporation ("Bank") to finance the purchase of
differential assemblies from Metropole Industrial Sales. On 6 July 1990, petitioner, The Court of Appeals held that although petitioner is neither a director nor an officer of
representing ARMAGRI, executed a trust receipt9 acknowledging receipt from the Bank of ARMAGRI, he certainly comes within the term "employees or other x x x persons therein
the goods valued at P2,532,500.00. responsible for the offense" in Section 13 of the Trust Receipts Law. The Court of Appeals
explained as follows:
On 12 July 1990, petitioner and Benito Ong, representing ARMAGRI, applied for another
letter of credit for P2,050,000.00 to finance the purchase of merchandise from Fertiphil It is not disputed that appellant transacted with the Solid Bank on behalf of ARMAGRI. This
Corporation. The Bank approved the application, opened the letter of credit and paid to is because the Corporation cannot by itself transact business or sign documents it being an
Fertiphil Corporation the amount of P2,050,000.00. On 23 July 1990, petitioner, signing for artificial person. It has to accomplish these through its agents. A corporation has a
ARMAGRI, executed another trust receipt10 in favor of the Bank acknowledging receipt of personality distinct and separate from those acting on its behalf. In the fulfillment of its
the merchandise. purpose, the corporation by necessity has to employ persons to act on its behalf.
Both trust receipts contained the same stipulations. Under the trust receipts, ARMAGRI Being a mere artificial person, the law (Section 13, P.D. 115) recognizes the impossibility of
undertook to account for the goods held in trust for the Bank, or if the goods are sold, to imposing the penalty of imprisonment on the corporation itself. For this reason, it is the
turn over the proceeds to the Bank. ARMAGRI also undertook the obligation to keep the officers or employees or other persons whom the law holds responsible.16
proceeds in the form of money, bills or receivables as the separate property of the Bank or
to return the goods upon demand by the Bank, if not sold. In addition, petitioner executed
The Court of Appeals ruled that what made petitioner liable was his failure to account to
the following additional undertaking stamped on the dorsal portion of both trust receipts:
the entruster Bank what he undertook to perform under the trust receipts. The Court of
Appeals held that ARMAGRI, which petitioner represented, could not itself negotiate the Petitioner contends that the Court of Appeals erred in finding him liable for the default of
execution of the trust receipts, go to the Bank to receive, return or account for the ARMAGRI, arguing that in signing the trust receipts, he merely acted as an agent of
entrusted goods. Based on the representations of petitioner, the Bank accepted the trust ARMAGRI. Petitioner asserts that nowhere in the trust receipts did he assume personal
receipts and, consequently, expected petitioner to return or account for the goods responsibility for the undertakings of ARMAGRI which was the entrustee.
entrusted.17
Petitioner's arguments fail to persuade us.
The Court of Appeals also ruled that the prosecution need not prove that petitioner is
occupying a position in ARMAGRI in the nature of an officer or similar position to hold him The pivotal issue for resolution is whether petitioner comes within the purview of Section
the "person(s) therein responsible for the offense." The Court of Appeals held that 13 of the Trust Receipts Law which provides:
petitioner's admission that his participation was merely incidental still makes him fall
within the purview of the law as one of the corporation's "employees or other officials or
x x x . If the violation is committed by a corporation, partnership, association or other
persons therein responsible for the offense." Incidental or not, petitioner was then acting
juridical entities, the penalty provided for in this Decree shall be imposed upon the
on behalf of ARMAGRI, carrying out the corporation's decision when he signed the trust
directors, officers, employees or other officials or persons therein responsible for the offense,
receipts.
without prejudice to the civil liabilities arising from the offense. (Emphasis supplied)
The Court of Appeals further ruled that the prosecution need not prove that petitioner
We hold that petitioner is a person responsible for violation of the Trust Receipts Law.
personally received and misappropriated the goods subject of the trust receipts. Evidence
of misappropriation is not required under the Trust Receipts Law. To establish the crime
of estafa, it is sufficient to show failure by the entrustee to turn over the goods or the The relevant penal provision of the Trust Receipts Law reads:
proceeds of the sale of the goods covered by a trust receipt. Moreover, the bank is not
obliged to determine if the goods came into the actual possession of the entrustee. Trust SEC. 13. Penalty Clause. - The failure of the entrustee to turn over the proceeds of the sale
receipts are issued to facilitate the purchase of merchandise. To obligate the bank to of the goods, documents or instruments covered by a trust receipt to the extent of the
examine the fact of actual possession by the entrustee of the goods subject of every trust amount owing to the entruster or as appears in the trust receipt or to return said goods,
receipt will greatly impede commercial transactions. documents or instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable under the
Hence, this petition. provisions of Article Three Hundred and Fifteen, Paragraph One (b), of Act Numbered
Three Thousand Eight Hundred and Fifteen, as amended, otherwise known as the Revised
Penal Code. If the violation or offense is committed by a corporation, partnership,
The Issues
association or other juridical entities, the penalty provided for in this Decree shall be
imposed upon the directors, officers, employees or other officials or persons therein
Petitioner seeks to reverse his conviction by contending that the Court of Appeals erred: responsible for the offense, without prejudice to the civil liabilities arising from the criminal
offense. (Emphasis supplied)
1. IN RULING THAT, BY THE MERE CIRCUMSTANCE THAT PETITIONER ACTED AS AGENT
AND SIGNED FOR THE ENTRUSTEE CORPORATION, PETITIONER WAS NECESSARILY THE The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the
ONE RESPONSIBLE FOR THE OFFENSE; AND proceeds of the sale of the goods, or (2) return the goods covered by the trust receipts if
the goods are not sold.18 The mere failure to account or return gives rise to the crime
2. IN CONVICTING PETITIONER UNDER SPECIFICATIONS NOT ALLEGED IN THE which is malum prohibitum.19 There is no requirement to prove intent to defraud.20
INFORMATION.
The Trust Receipts Law recognizes the impossibility of imposing the penalty of
The Ruling of the Court imprisonment on a corporation. Hence, if the entrustee is a corporation, the law makes the
officers or employees or other persons responsible for the offense liable to suffer the penalty
The Court sustains the conviction of petitioner. of imprisonment. The reason is obvious: corporations, partnerships, associations and
other juridical entities cannot be put to jail. Hence, the criminal liability falls on the human
agent responsible for the violation of the Trust Receipts Law.
First Assigned Error: Petitioner comes
within the purview of Section 13 of the Trust Receipts Law.
In the instant case, the Bank was the entruster while ARMAGRI was the entrustee. Being xxx xxx xxx.
the entrustee, ARMAGRI was the one responsible to account for the goods or its proceeds
in case of sale. However, the criminal liability for violation of the Trust Receipts Law falls I/we agree to keep said goods, manufactured products, or proceeds thereof, whether in the
on the human agent responsible for the violation. Petitioner, who admits being the agent of form of money or bills, receivables, or accounts, separate and capable of identification as
ARMAGRI, is the person responsible for the offense for two reasons. First, petitioner is the the property of the BANK.
signatory to the trust receipts, the loan applications and the letters of credit. Second,
despite being the signatory to the trust receipts and the other documents, petitioner did
I/we further agree to return the goods, documents, or instruments in the event of their
not explain or show why he is not responsible for the failure to turn over the proceeds of
non-sale, upon demand or within ____ days, at the option of the BANK.
the sale or account for the goods covered by the trust receipts.
SO ORDERED.
[G.R. No. 120465. September 9, 1999] 1175) because the rule is that every action must be prosecuted in the name of the real
parties-in-interest (Section 2, Rule 3, Rules of Court).
When plaintiffs Uy and Roxas sought payment of damages in their favor in view of the
WILLIAM UY and RODEL ROXAS, petitioners, vs. COURT OF APPEALS, HON. ROBERT partial rescission of Resolution No. 1632 and the Deed of Absolute Sale covering TCT Nos.
BALAO and NATIONAL HOUSING AUTHORITY, respondents. 10998, 10999 and 11292 (Prayer complaint, page 5, RTC records), it becomes obviously
indispensable that the lot owners be included, mentioned and named as party-plaintiffs,
DECISION being the real party-in-interest. Uy and Roxas, as attorneys-in-fact or apoderados, cannot
by themselves lawfully commence this action, more so, when the supposed special power
KAPUNAN, J.: of attorney, in their favor, was never presented as an evidence in this case.Besides, even if
herein plaintiffs Uy and Roxas were authorized by the lot owners to commence this action,
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of the same must still be filed in the name of the pricipal, (Filipino Industrial
land by the owners thereof. By virtue of such authority, petitioners offered to sell the lands, Corporation vs. San Diego, 23 SCRA 706 [1968]). As such indispensable party, their joinder
located in Tuba, Tadiangan, Benguet to respondent National Housing Authority (NHA) to in the action is mandatory and the complaint may be dismissed if not so impleaded
be utilized and developed as a housing project. (NDC vs. CA, 211 SCRA 422 [1992]).[2]
On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the
Their motion for reconsideration having been denied, petitioners seek relief from
acquisition of said lands, with an area of 31.8231 hectares, at the cost of P23.867 million,
this Court contending that:
pursuant to which the parties executed a series of Deeds of Absolute Sale covering the
subject lands. Of the eight parcels of land, however, only five were paid for by the NHA
because of the report[1] it received from the Land Geosciences Bureau of the Department of I. COMPLAINT FINDING THE RESPONDENT CA ERRED IN DECLARING THAT
Environment and Natural Resources (DENR) that the remaining area is located at an active RESPONDENT NHA HAD ANY LEGAL BASIS FOR RESCINDING THE SALE INVOLVING THE
landslide area and therefore, not suitable for development into a housing project. LAST THREE (3) PARCELS COVERED BY NHA RESOLUTION NO. 1632.
On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale over II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL BASIS TO RESCIND
the three parcels of land. The NHA, through Resolution No. 2394, subsequently offered the THE SUBJECT SALE, THE RESPONDENT CA NONETHELESS ERRED IN DENYING HEREIN
amount of P1.225 million to the landowners as daos perjuicios. PETITIONERS CLAIM TO DAMAGES, CONTRARY TO THE PROVISIONS OF ART. 1191 OF
On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon THE CIVIL CODE.
City a Complaint for Damages against NHA and its General Manager Robert Balao.
III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT COMPLAINT FINDING
After trial, the RTC rendered a decision declaring the cancellation of the contract to THAT THE PETITIONERS FAILED TO JOIN AS INDISPENSABLE PARTY PLAINTIFF THE
be justified. The trial court nevertheless awarded damages to plaintiffs in the sum of SELLING LOT-OWNERS.[3]
P1.255 million, the same amount initially offered by NHA to petitioners as damages.
Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial We first resolve the issue raised in the third assignment of error.
court and entered a new one dismissing the complaint. It held that since there was
Petitioners claim that they lodged the complaint not in behalf of their principles but
sufficient justifiable basis in cancelling the sale, it saw no reason for the award of
in their own name as agents directly damaged by the termination of the contract. The
damages. The Court of Appeals also noted that petitioners were mere attorneys-in-fact and,
damages prayed for were intended not for the benefit of their principals but to indemnify
therefore, not the real parties-in-interest in the action before the trial court.
petitioners for the losses they themselves allegedly incurred as a result of such
termination. These damages consist mainly of unearned income and
xxx In paragraph 4 of the complaint, plaintiffs alleged themselves to be sellers agents for advances.[4] Petitioners, thus, attempt to distinguish the case at bar from those involving
several owners of the 8 lots subject matter of the case. Obviously, William Uy and Rodel agents or apoderados instituting actions in their own name but in behalf of their
Roxas in filing this case acted as attorneys-in-fact of the lot owners who are the real parties principals.[5] Petitioners in this case purportedly brought the action for damages in their
in interest but who were omitted to be pleaded as party-plaintiffs in the case. This own name and in their own behalf.
omission is fatal. Where the action is brought by an attorney-in-fact of a land owner in his
name, (as in our present action) and not in the name of his principal, the action was We find this contention unmeritorious.
properly dismissed (Ferrer vs. Villamor, 60 SCRA 406 [1974]; Marcelo vs. de Leon, 105 Phil.
Section 2, Rule 3 of the Rules of Court requires that every action must be prosecuted of the action shall belong, and to prevent actions by persons who have no interest in the
and defended in the name of the real party-in-interest. The real party-in-interest is the result of the same. xxx
party who stands to be benefited or injured by the judgment or the party entitled to the
avails of the suit. Interest, within the meaning of the rule, means material interest, an Thus, an agent, in his own behalf, may bring an action founded on a contract made for
interest in the issue and to be affected by the decree, as distinguished from mere interest his principal, as an assignee of such contract. We find the following declaration in Section
in the question involved, or a mere incidental interest.[6] Cases construing the real 372 (1) of the Restatement of the Law on Agency (Second):[11]
party-in-interest provision can be more easily understood if it is borne in mind that the
true meaning of real party-in-interest may be summarized as follows: An action shall be Section 372. Agent as Owner of Contract Right
prosecuted in the name of the party who, by the substantive law, has the right sought to be
enforced.[7] (1) Unless otherwise agreed, an agent who has or who acquires an interest in a contract
which he makes on behalf of his principal can, although not a promisee, maintain such
Do petitioners, under substantive law, possess the right they seek to enforce? We
action thereon as might a transferee having a similar interest.
rule in the negative.
The applicable substantive law in this case is Article 1311 of the Civil Code, which The Comment on subsection (1) states:
states:
a. Agent a transferee. One who has made a contract on behalf of another may become an
Contracts take effect only between the parties, their assigns, and heirs, except in case assignee of the contract and bring suit against the other party to it, as any other
where the rights and obligations arising from the contract are not transmissible by their transferee. The customs of business or the course of conduct between the principal and the
nature, or by stipulation, or by provision of law. x x x. agent may indicate that an agent who ordinarily has merely a security interest is a
transferee of the principals rights under the contract and as such is permitted to bring
If a contract should contain some stipulation in favor of a third person, he may demand its suit. If the agent has settled with his principal with the understanding that he is to collect
fulfillment provided he communicated his acceptance to the obligor before its the claim against the obligor by way of reimbursing himself for his advances and
revocation. A mere incidental benefit or interest of a person is not sufficient. The commissions, the agent is in the position of an assignee who is the beneficial owner of the
contracting parties must have clearly and deliberately conferred a favor upon a third chose in action. He has an irrevocable power to sue in his principals name. x x x. And,
person. (Underscoring supplied.) under the statutes which permit the real party in interest to sue, he can maintain an action
in his own name. This power to sue is not affected by a settlement between the principal
and the obligor if the latter has notice of the agents interest. x x x. Even though the agent
Petitioners are not parties to the contract of sale between their principals and
has not settled with his principal, he may, by agreement with the principal, have a right to
NHA. They are mere agents of the owners of the land subject of the sale. As agents, they
receive payment and out of the proceeds to reimburse himself for advances and
only render some service or do something in representation or on behalf of their
commissions before turning the balance over to the principal. In such a case, although
principals.[8] The rendering of such service did not make them parties to the contracts of
there is no formal assignment, the agent is in the position of a transferee of the whole
sale executed in behalf of the latter. Since a contract may be violated only by the parties
claim for security; he has an irrevocable power to sue in his principals name and, under
thereto as against each other, the real parties-in-interest, either as plaintiff or defendant, in
statutes which permit the real party in interest to sue, he can maintain an action in his own
an action upon that contract must, generally, either be parties to said contract.[9]
name.
Neither has there been any allegation, much less proof, that petitioners are
the heirs of their principals. Petitioners, however, have not shown that they are assignees of their principals to
the subject contracts. While they alleged that they made advances and that they suffered
Are petitioners assignees to the rights under the contracts of sale? In McMicking vs.
loss of commissions, they have not established any agreement granting them the right to
Banco Espaol-Filipino,[10] we held that the rule requiring every action to be prosecuted in
receive payment and out of the proceeds to reimburse [themselves] for advances and
the name of the real party-in-interest
commissions before turning the balance over to the principal[s].
x x x recognizes the assignments of rights of action and also recognizes that when one has Finally, it does not appear that petitioners are beneficiaries of a stipulation pour
a right of action assigned to him he is then the real party in interest and may maintain an autrui under the second paragraph of Article 1311 of the Civil Code. Indeed, there is no
action upon such claim or right. The purpose of [this rule] is to require the plaintiff to be stipulation in any of the Deeds of Absolute Sale clearly and deliberately conferring a favor
the real party in interest, or, in other words, he must be the person to whom the proceeds to any third person.
That petitioners did not obtain their commissions or recoup their advances because resolution, of a party to an obligation under Article 1191 is predicated on a breach of faith
of the non-performance of the contract did not entitle them to file the action below against by the other party that violates the reciprocity between them.[16] The power to rescind,
respondent NHA. Section 372 (2) of the Restatement of the Law on Agency (Second) states: therefore, is given to the injured party.[17] Article 1191 states:
(2) An agent does not have such an interest in a contract as to entitle him to maintain an The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
action at law upon it in his own name merely because he is entilted to a portion of the should not comply with what is incumbent upon him.
proceeds as compensation for making it or because he is liable for its breach.
The injured party may choose between the fulfillment and the rescission of the obligation,
The following Comment on the above subsection is illuminating: with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The fact that an agent who makes a contract for his principal will gain or suffer loss by the
performance or nonperformance of the contract by the principal or by the other party In this case, the NHA did not rescind the contract. Indeed, it did not have the right to
thereto does not entitle him to maintain an action on his own behalf against the other do so for the other parties to the contract, the vendors, did not commit any breach, much
party for its breach. An agent entitled to receive a commission from his principal upon the less a substantial breach,[18]of their obligation. Their obligation was merely to deliver the
performance of a contract which he has made on his principals account does not, from this parcels of land to the NHA, an obligation that they fulfilled. The NHA did not suffer any
fact alone, have any claim against the other party for breach of the contract, either in an injury by the performance thereof.
action on the contract or otherwise. An agent who is not a promisee cannot maintain an
action at law against a purchaser merely because he is entitled to have his compensation The cancellation, therefore, was not a rescission under Article 1191. Rather, the
or advances paid out of the purchase price before payment to the principal. x x x. cancellation was based on the negation of the cause arising from the realization that the
lands, which were the object of the sale, were not suitable for housing.
Thus, in Hopkins vs. Ives,[12] the Supreme Court of Arkansas, citing Section 372 (2) Cause is the essential reason which moves the contracting parties to enter into
above, denied the claim of a real estate broker to recover his alleged commission against it.[19] In other words, the cause is the immediate, direct and proximate reason which
the purchaser in an agreement to purchase property. justifies the creation of an obligation through the will of the contracting parties. [20] Cause,
which is the essential reason for the contract, should be distinguished from motive, which
In Goduco vs. Court of Appeals,[13] this Court held that:
is the particular reason of a contracting party which does not affect the other party.[21]
x x x granting that appellant had the authority to sell the property, the same did not make For example, in a contract of sale of a piece of land, such as in this case, the cause of
the buyer liable for the commission she claimed. At most, the owner of the property and the vendor (petitioners principals) in entering into the contract is to obtain the price. For
the one who promised to give her a commission should be the one liable to pay the same the vendee, NHA, it is the acquisition of the land.[22] The motive of the NHA, on the other
and to whom the claim should have been directed. xxx hand, is to use said lands for housing. This is apparent from the portion of the Deeds of
Absolute Sale[23] stating:
As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour
autrui under the contracts of sale, they do not, under substantive law, possess the right WHEREAS, under the Executive Order No. 90 dated December 17, 1986, the VENDEE is
they seek to enforce. Therefore, they are not the real parties-in-interest in this case. mandated to focus and concentrate its efforts and resources in providing housing
assistance to the lowest thirty percent (30%) of urban income earners, thru slum
Petitioners not being the real parties-in-interest, any decision rendered herein would upgrading and development of sites and services projects;
be pointless since the same would not bind the real parties-in-interest.[14]
Nevertheless, to forestall further litigation on the substantive aspects of this case, we WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by Letter of Instruction
shall proceed to rule on the merits.[15] No. 630, prescribed slum improvement and upgrading, as well as the development of sites
and services as the principal housing strategy for dealing with slum, squatter and other
Petitioners submit that respondent NHA had no legal basis to rescind the sale of the blighted communities;
subject three parcels of land. The existence of such legal basis, notwithstanding,
petitioners argue that they are still entitled to an award of damages. xxx
Petitioners confuse the cancellation of the contract by the NHA as a rescission of the
contract under Article 1191 of the Civil Code. The right of rescission or, more accurately,
WHEREAS, the VENDEE, in pursuit of and in compliance with the above-stated purposes TO: EDWIN G. DOMINGO
offers to buy and the VENDORS, in a gesture of their willing to cooperate with the above
policy and commitments, agree to sell the aforesaid property together with all the existing Chief, Lands Geology Division
improvements there or belonging to the VENDORS;
FROM: ARISTOTLE A. RILLON
NOW, THEREFORE, for and in consideration of the foregoing premises and the terms and
conditions hereinbelow stipulated, the VENDORS hereby, sell, transfer, cede and convey
Geologist II
unto the VENDEE, its assigns, or successors-in-interest, a parcel of land located at Bo.
Tadiangan, Tuba, Benguet containing a total area of FIFTY SIX THOUSAND EIGHT
HUNDRED NINETEEN (56,819) SQUARE METERS, more or less x x x. SUBJECT: Preliminary Assessment of Tadiangan Housing Project in Tuba, Benguet[26]
Ordinarily, a partys motives for entering into the contract do not affect the Thus, page 2 of the report states in part:
contract. However, when the motive predetermines the cause, the motive may be regarded
as the cause. In Liguez vs. Court of Appeals,[24] this Court, speaking through Justice J.B.L. xxx
Reyes, held:
Actually there is a need to conduct further geottechnical [sic] studies in the NHA
xxx It is well to note, however, that Manresa himself (Vol. 8, pp. 641-642) while property. Standard Penetration Test (SPT) must be carried out to give an estimate of the
maintaining the distinction and upholding the inoperativeness of the motives of the parties degree of compaction (the relative density) of the slide deposit and also the bearing
to determine the validity of the contract, expressly excepts from the rule those contracts capacity of the soil materials. Another thing to consider is the vulnerability of the area to
that are conditioned upon the attainment of the motives of either party. landslides and other mass movements due to thick soil cover.Preventive physical
mitigation methods such as surface and subsurface drainage and regrading of the slope
The same view is held by the Supreme Court of Spain, in its decisions of February 4, 1941, must be done in the area.[27]
and December 4, 1946, holding that the motive may be regarded as causa when it
predetermines the purpose of the contract. We read the quoted portion, however, to mean only that further tests are required to
determine the degree of compaction, the bearing capacity of the soil materials, and
In this case, it is clear, and petitioners do not dispute, that NHA would not have vulnerability of the area to landslides, since the tests already conducted were inadequate
entered into the contract were the lands not suitable for housing. In other words, the to ascertain such geological attributes. It is only in this sense that the assessment was
quality of the land was an implied condition for the NHA to enter into the contract. On the preliminary.
part of the NHA, therefore, the motive was the cause for its being a party to the sale. Accordingly, we hold that the NHA was justified in cancelling the contract. The
Were the lands indeed unsuitable for the housing as NHA claimed? realization of the mistake as regards the quality of the land resulted in the negation of the
motive/cause thus rendering the contract inexistent.[28] Article 1318 of the Civil Code
We deem the findings contained in the report of the Land Geosciences Bureau dated states that:
15 July 1991 sufficient basis for the cancellation of the sale, thus:
Art. 1318. There is no contract unless the following requisites concur:
In Tadiangan, Tuba, the housing site is situated in an area of moderate topography. There
[are] more areas of less sloping ground apparently habitable. The site is underlain by x x x (1) Consent of the contracting parties;
thick slide deposits (4-45m) consisting of huge conglomerate boulders (see Photo No. 2)
mix[ed] with silty clay materials. These clay particles when saturated have some swelling (2) Object certain which is the subject matter of the contract;
characteristics which is dangerous for any civil structures especially mass housing
development.[25] (3) Cause of the obligation which is established. (Underscoring supplied.)
Petitioners content that the report was merely preliminary, and not conclusive, as Therefore, assuming that petitioners are parties, assignees or beneficiaries to the
indicated in its title: contract of sale, they would not be entitled to any award of damages.
KAPUNAN, J.: Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of
the writ of preliminary injunction before the Court of Appeals. In the impugned
decision,1 the appellate court dismissed the petition. Petitioner thus seeks recourse to this
In a petition for review on certiorari under Rule 45 of the Revised Rules of Court,
Court and raises the following errors:
petitioner seeks to annul and set aside the Court of Appeals' decision in C.A. CV G.R. S.P. No.
55374 dated March 27, 2000, affirming the Order issuing a writ of preliminary injunction
of the Regional Trial Court of Makati, Branch 147 dated June 30, 1999, and its Order dated 1.
October 4, 1999, which denied petitioner's motion to dismiss.
THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO,
The antecedents of this case are as follows: CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION
EXISTS AGAINST PETITIONER, WHICH IS NOT A REAL PARTY IN INTEREST BEING A
MERE ATTORNEY-IN-FACT AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.
Petitioner Philippine National Bank is a domestic corporation organized and existing
under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto International,
Inc. and Dadasan General Merchandise are domestic corporations, likewise, organized and 2.
existing under Philippine law.
THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, IN EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND
organized and doing business in Hong Kong, extended a letter of credit in favor of the BEYOND WHAT WAS PRAYED FOR IN THE COMPLAINT A QUO CONTRARY TO CHIEF OF
respondents in the amount of US$300,000.00 secured by real estate mortgages constituted STAFF, AFP VS. GUADIZ JR., 101 SCRA 827.2
over four (4) parcels of land in Makati City. This credit facility was later increased
successively to US$1,140,000.00 in September 1996; to US$1,290,000.00 in November Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and
1996; to US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April the trial court's Orders dated June 30, 1999 and October 4, 1999 be set aside and the
1998. Respondents made repayments of the loan incurred by remitting those amounts to dismissal of the complaint in the instant case.3
their loan account with PNB-IFL in Hong Kong.
In their Comment, respondents argue that even assuming arguendo that petitioner and
However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. PNB-IFL are two separate entities, petitioner is still the party-in-interest in the application
Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact for preliminary injunction because it is tasked to commit acts of foreclosing respondents'
PNB, notified the respondents of the foreclosure of all the real estate mortgages and that properties.4 Respondents maintain that the entire credit facility is void as it contains
the properties subject thereof were to be sold at a public auction on May 27, 1999 at the stipulations in violation of the principle of mutuality of contracts.5 In addition, respondents
Makati City Hall. justified the act of the court a quo in applying the doctrine of "Piercing the Veil of
Corporate Identity" by stating that petitioner is merely an alter ego or a business conduit
On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of PNB-IFL.6
of a writ of preliminary injunction and/or temporary restraining order before the Regional
Trial Court of Makati. The Executive Judge of the Regional Trial Court of Makati issued a The petition is impressed with merit.
72-hour temporary restraining order. On May 28, 1999, the case was raffled to Branch 147
of the Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999. At Respondents, in their complaint, anchor their prayer for injunction on alleged invalid
the hearing of the application for preliminary injunction, petitioner was given a period of provisions of the contract:
seven days to file its written opposition to the application. On June 15, 1999, petitioner
filed an opposition to the application for a writ of preliminary injunction to which the
GROUNDS corporation is so organized and controlled and its affairs are so conducted, as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation.12
I
We disagree.
THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION
OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF MUTUALITY OF The general rule is that as a legal entity, a corporation has a personality distinct and
CONTRACTS. separate from its individual stockholders or members, and is not affected by the personal
rights, obligations and transactions of the latter.13 The mere fact that a corporation owns
II all of the stocks of another corporation, taken alone is not sufficient to justify their being
treated as one entity. If used to perform legitimate functions, a subsidiary's separate
existence may be respected, and the liability of the parent corporation as well as the
THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST
subsidiary will be confined to those arising in their respective business. The courts may in
AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO
the exercise of judicial discretion step in to prevent the abuses of separate entity privilege
STIPULATION THAT THE RATE OF INTEREST SHALL BE REDUCED IN THE EVENT THAT
and pierce the veil of corporate entity.
THE APPLICABLE MAXIMUM RATE OF INTEREST IS REDUCED BY LAW OR BY THE
MONETARY BOARD.7
We find, however, that the ruling in Koppel finds no application in the case at bar. In said
case, this Court disregarded the separate existence of the parent and the subsidiary on the
Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB
ground that the latter was formed merely for the purpose of evading the payment of higher
from the foreclosure and eventual sale of the property in order to protect their rights to
taxes. In the case at bar, respondents fail to show any cogent reason why the separate
said property by reason of void credit facilities as bases for the real estate mortgage over
entities of the PNB and PNB-IFL should be disregarded.
the said property.8
While there exists no definite test of general application in determining when a subsidiary
The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In
may be treated as a mere instrumentality of the parent corporation, some factors have
their complaint, respondents admit that petitioner is a mere attorney-in-fact for the
been identified that will justify the application of the treatment of the doctrine of the
PNB-IFL with full power and authority to, inter alia, foreclose on the properties mortgaged
piercing of the corporate veil. The case of Garrett vs. Southern Railway Co.14 is enlightening.
to secure their loan obligations with PNB-IFL. In other words, herein petitioner is an agent
The case involved a suit against the Southern Railway Company. Plaintiff was employed by
with limited authority and specific duties under a special power of attorney incorporated
Lenoir Car Works and alleged that he sustained injuries while working for Lenoir. He,
in the real estate mortgage. It is not privy to the loan contracts entered into by
however, filed a suit against Southern Railway Company on the ground that Southern had
respondents and PNB-IFL.
acquired the entire capital stock of Lenoir Car Works, hence, the latter corporation was but
a mere instrumentality of the former. The Tennessee Supreme Court stated that as a
The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's general rule the stock ownership alone by one corporation of the stock of another does not
principal and the party to the loan contracts, and the respondents. Yet, despite the thereby render the dominant corporation liable for the torts of the subsidiary unless the
recognition that petitioner is a mere agent, the respondents in their complaint prayed that separate corporate existence of the subsidiary is a mere sham, or unless the control of the
the petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation.
them in accordance with the terms and conditions in the documents evidencing the credit Said Court then outlined the circumstances which may be useful in the determination of
facilities, and crediting the amount previously paid to PNB by herein respondents.9 whether the subsidiary is but a mere instrumentality of the parent-corporation:
Clearly, petitioner not being a part to the contract has no power to re-compute the interest The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible to
rates set forth in the contract. Respondents, therefore, do not have any cause of action catalogue the infinite variations of fact that can arise but there are certain common
against petitioner. circumstances which are important and which, if present in the proper combination, are
controlling.
The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a
wholly owned subsidiary of defendant Philippine National Bank, the suit against the These are as follows:
defendant PNB is a suit against PNB-IFL.10 In justifying its ruling, the trial court, citing the
case of Koppel Phil. Inc. vs. Yatco,11 reasoned that the corporate entity may be disregarded
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
where a corporation is the mere alter ego, or business conduit of a person or where the
(b) The parent and subsidiary corporations have common directors or officers. 1. Control, not mere majority or complete control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that
(c) The parent corporation finances the subsidiary. the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation. 2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and, unjust
act in contravention of plaintiffs legal rights; and,
(e) The subsidiary has grossly inadequate capital.
3. The aforesaid control and breach of duty must proximately cause the injury or unjust
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
loss complained of.
(g) The subsidiary has substantially no business except with the parent corporation or no
The absence of any one of these elements prevents "piercing the corporate veil." In
assets except those conveyed to or by the parent corporation.
applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with
reality and not form, with how the corporation operated and the individual defendant's
(h) In the papers of the parent corporation or in the statements of its officers, the relationship to the operation.17
subsidiary is described as a department or division of the parent corporation, or its
business or financial responsibility is referred to as the parent corporation's own.
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is
no showing of the indicative factors that the former corporation is a mere instrumentality
(i) The parent corporation uses the property of the subsidiary as its own. of the latter are present. Neither is there a demonstration that any of the evils sought to be
prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the
(j) The directors or executives of the subsidiary do not act independently in the interest of doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine
the subsidiary but take their orders from the parent corporation. finds no application in the case at bar.
(k) The formal legal requirements of the subsidiary are not observed. In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the
significant legal relationship involved in this case since the petitioner was not sued
The Tennessee Supreme Court thus ruled: because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it
acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit
In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most against an agent cannot without compelling reasons be considered a suit against the
of the capital stock of Lenoir by Southern, and possibly subscription to the capital stock of principal. Under the Rules of Court, every action must be prosecuted or defended in the
Lenoir. . . The complaint must be dismissed. name of the real party-in-interest, unless otherwise authorized by law or these Rules.18 In
mandatory terms, the Rules require that "parties-in-interest without whom no final
determination can be had, an action shall be joined either as plaintiffs or defendants." 19 In
Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil the case at bar, the injunction suit is directed only against the agent, not the principal.
is an equitable doctrine developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful purposes. The doctrine applies
when the corporate fiction is used to defeat public convenience, justify wrong, protect Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere
fraud or defend crime, or when it is made as a shield to confuse the legitimate issues, or provisional remedy but adjunct to the main suit.20 A writ of preliminary injunction is an
where a corporation is the mere alter ego or business conduit of a person, or where the ancillary or preventive remedy that may only be resorted to by a litigant to protect or
corporation is so organized and controlled and its affairs are so conducted as to make it preserve his rights or interests and for no other purpose during the pendency of the
merely an instrumentality, agency, conduit or adjunct of another corporation.15 principal action. The dismissal of the principal action thus results in the denial of the
prayer for the issuance of the writ. Further, there is no showing that respondents are
entitled to the issuance of the writ. Section 3, Rule 58, of the 1997 Rules of Civil Procedure
In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the applicability of provides:
the doctrine of piercing the veil of corporate fiction, to wit:
SECTION 3. Grounds for issuance of preliminary injunction. A preliminary injunction may
be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such
relief consists in restraining the commission or continuance of the act or acts complained
of, or in requiring the performance of an act or acts, either for a limited period or
perpetually,
(b) That the commission, continuance or non-performance of the acts or acts complained
of during the litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is
procuring or suffering to be done, some act or acts probably in violation of the rights of the
applicant respecting the subject of the action or proceeding, and tending to render the
judgment ineffectual.
Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to
avoid injurious consequences which cannot be remedied under any standard
compensation.21 Respondents do not deny their indebtedness. Their properties are by
their own choice encumbered by real estate mortgages. Upon the non-payment of the
loans, which were secured by the mortgages sought to be foreclosed, the mortgaged
properties are properly subject to a foreclosure sale. Moreover, respondents questioned
the alleged void stipulations in the contract only when petitioner initiated the foreclosure
proceedings. Clearly, respondents have failed to prove that they have a right protected and
that the acts against which the writ is to be directed are violative of said right.22 The Court
is not unmindful of the findings of both the trial court and the appellate court that there
may be serious grounds to nullify the provisions of the loan agreement. However, as
earlier discussed, respondents committed the mistake of filing the case against the wrong
party, thus, they must suffer the consequences of their error.
All told, respondents do not have a cause of action against the petitioner as the latter is not
privy to the contract the provisions of which respondents seek to declare void. Accordingly,
the case before the Regional Trial Court must be dismissed and the preliminary injunction
issued in connection therewith, must be lifted.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of
the Court of Appeals is hereby REVERSED. The Orders dated June 30, 1999 and October 4,
1999 of the Regional Trial Court of Makati, Branch 147 in Civil Case No. 99-1037 are
hereby ANNULLED and SET ASIDE and the complaint in said case DISMISSED.
SO ORDERED.