G.R. No.

L-41420 July 10, 1992

CMS LOGGING, INC., petitioner,

vs.
THE COURT OF APPEALS and D.R. AGUINALDO
CORPORATION, respondents

Remedial Law; Evidence; Findings of fact made by the

Court of Appeals which are final and conclusive can not
be reviewed on appeal to the Supreme Court.—To
begin with, these arguments question the findings of
fact made by the Court of Appeals, which are final and
conclusive and can not be reviewed on appeal to the
Supreme Court.

Same; Same; An admission or declaration to be

competent must have been expressed in definite,
certain and unequivocal language.—As correctly
stated by the appellate court: “It is a rule that ‘a
statement is not competent as an admission where it
does not, under a reasonable construction, appear to
admit or acknowledge the fact which is sought to be
proved by it’. An admission or declaration to be
competent must have been expressed in definite,
certain and unequivocal language.

Civil Law; Agency; Principal may revoke a contract of

agency at will and such revocation may be express or
implied and may be availed of even if the period fixed
in the contract of agency as not yet expired.—The
principal may revoke a contract of agency at will, and
such revocation may be express, or implied, and may
be availed of even if the period fixed in the contract of
agency as not yet expired. As the principal has this
absolute right to revoke the agency, the agent can not
object thereto; neither may he claim damages arising
from such revocation, unless it is shown that such was
done in order to evade the payment of agent’s
commission.

Same; Same; Same; Act of CMS selling its logs directly

to several Japanese firms constituted an implied
revocation of the contract of agency under Article 1924
of the Civil Code.—In the case at bar, CMS appointed
DRACOR as its agent for the sale of its logs to
Japanese firms. Yet, during the existence of the
contract of agency, DRACOR admitted that CMS sold
its logs directly to several Japanese firms. This act
constituted an implied revocation of the contract of
agency under Article 1924 of the Civil Code.

Same; Same; Damages; Generally, damages are not

awarded to the agent for the revocation of the
agency.—Since the contract of agency was revoked by
CMS when its sold its logs to Japanese firms without
the intervention of DRACOR, the latter is no longer
entitled to its commission from the proceeds of such
sale and is not entitled to retain whatever moneys it
may have received as its commission for said
transactions. Neither would DRACOR be entitled to
collect damages from CMS, since damages are
generally not awarded to the agent for the revocation
of the agency, and the case at bar is not one falling
under the exception mentioned, which is to evade the
payment of the agent’s commission. CMS Logging, Inc.
vs. Court of Appeals, 211 SCRA 374, G.R. No. 41420
July 10, 1992
G.R. No. L-41420 July 10, 1992
CMS LOGGING, INC., petitioner,
vs.
THE COURT OF APPEALS and D.R. AGUINALDO
CORPORATION, respondents.
NOCON, J.:
This is a petition for review on certiorari from the
decision dated July 31, 1975 of the Court of Appeals
in CA-G.R. No. 47763-R which affirmed in toto the
decision of the Court of First Instance of Manila,
Branch VII, in Civil Case No. 56355 dismissing the
complaint filed by petitioner CMS Logging, Inc. (CMS,
for brevity) against private respondent D.R. Aguinaldo
Corporation (DRACOR, for brevity) and ordering the
former to pay the latter attorney's fees in the amount
of P1,000.00 and the costs.
The facts of the case are as follows: Petitioner CMS is
a forest concessionaire engaged in the logging
business, while private respondent DRACOR is
engaged in the business of exporting and selling logs
and lumber. On August 28, 1957, CMS and DRACOR
entered into a contract of agency 1 whereby the former
appointed the latter as its exclusive export and sales
agent for all logs that the former may produce, for a
period of five (5) years. The pertinent portions of the
agreement, which was drawn up by DRACOR, 2 are
as follows:
1. SISON [CMS] hereby appoints DRACOR as
his sole and exclusive export sales agent with full
authority, subject to the conditions and limitations
hereinafter set forth, to sell and export under a
firm sales contract acceptable to SISON, all logs
produced by SISON for a period of five (5) years
commencing upon the execution of the
agreement and upon the terms and conditions
hereinafter provided and DRACOR hereby
accepts such appointment;
xxx xxx xxx
3. It is expressly agreed that DRACOR shall
handle exclusively all negotiations of all export
sales of SISON with the buyers and arrange the
procurement and schedules of the vessel or
vessels for the shipment of SISON's logs in
accordance with SISON's written requests, but
DRACOR shall not in anyway [sic] be liable or
responsible for any delay, default or failure of the
vessel or vessels to comply with the schedules
agreed upon;
xxx xxx xxx
9. It is expressly agreed by the parties hereto that
DRACOR shall receive five (5%) per cent
commission of the gross sales of logs of SISON
based on F.O.B. invoice value which commission
shall be deducted from the proceeds of any
and/or all moneys received by DRACOR for and
in behalf and for the account of SISON;
By virtue of the aforesaid agreement, CMS was able
to sell through DRACOR a total of 77,264,672 board
feet of logs in Japan, from September 20, 1957 to
April 4, 1962.
About six months prior to the expiration of the
agreement, while on a trip to Tokyo, Japan, CMS's
president, Atty. Carlos Moran Sison, and general
manager and legal counsel, Atty. Teodoro R.
Dominguez, discovered that DRACOR had used
Shinko Trading Co., Ltd. (Shinko for brevity) as agent,
representative or liaison officer in selling CMS's logs
in Japan for which Shinko earned a commission of
U.S. $1.00 per 1,000 board feet from the buyer of the
logs. Under this arrangement, Shinko was able to
collect a total of U.S. $77,264.67. 3
CMS claimed that this commission paid to Shinko was
in violation of the agreement and that it (CMS) is
entitled to this amount as part of the proceeds of the
sale of the logs. CMS contended that since DRACOR
had been paid the 5% commission under the
agreement, it is no longer entitled to the additional
commission paid to Shinko as this tantamount to
DRACOR receiving double compensation for the
services it rendered.
After this discovery, CMS sold and shipped logs
valued at U.S. $739,321.13 or
P2,883,351.90, 4 directly to several firms in Japan
without the aid or intervention of DRACOR.
CMS sued DRACOR for the commission received by
Shinko and for moral and exemplary damages, while
DRACOR counterclaimed for its commission,
amounting to P144,167.59, from the sales made by
CMS of logs to Japanese firms. In its reply, CMS
averred as a defense to the counterclaim that
DRACOR had retained the sum of P101,167.59 as
part of its commission for the sales made by
CMS. 5 Thus, as its counterclaim to DRACOR's
counterclaim, CMS demanded DRACOR return the
amount it unlawfully retained. DRACOR later filed an
amended counterclaim, alleging that the balance of its
commission on the sales made by CMS was
P42,630.82, 6 thus impliedly admitting that it retained
the amount alleged by CMS.
In dismissing the complaint, the trial court ruled that
no evidence was presented to show that Shinko
received the commission of U.S. $77,264.67 arising
from the sale of CMS's logs in Japan, though the trial
court stated that "Shinko was able to collect the total
amount of $77,264.67 US Dollars (Exhs. M and M-
1)." 7 The counterclaim was likewise dismissed, as it
was shown that DRACOR had waived its rights to the
balance of its commission in a letter dated February 2,
1963 to Atty. Carlos Moran Sison, president of
CMS. 8 From said decision, only CMS appealed to the Court of Appeals.
The Court of Appeals, in a 3 to 2 decision, 9 affirmed
the dismissal of the complaint since "[t]he trial court
could not have made a categorical finding that Shinko
collected commissions from the buyers of Sison's logs
in Japan, and could not have held that Sison is
entitled to recover from Dracor the amount collected
by Shinko as commissions, plaintiff-appellant having
failed to prove by competent evidence its claims." 10
Moreover, the appellate court held:
 There is reason to believe that Shinko Trading
Co. Ltd., was paid by defendant-appellee out of
its own commission of 5%, as indicated in the
letter of its president to the president of Sison,
dated February 2, 1963 (Exhibit "N"), and in the
Agreement between Aguinaldo Development
Corporation (ADECOR) and Shinko Trading Co.,
Ltd. (Exhibit "9"). Daniel R. Aguinaldo stated in
his said letter:
. . . , I informed you that if you wanted to pay me
for the service, then it would be no more than at
the standard rate of 5% commission because in
our own case, we pay our Japanese agents 2-
1/2%. Accordingly, we would only add a similar
amount of 2-1/2% for the service which we would
render you in the Philippines. 11
Aggrieved, CMS appealed to this Court by way of a
petition for review on certiorari, alleging (1) that the
Court of Appeals erred in not making a complete
findings of fact; (2) that the testimony of Atty. Teodoro
R. Dominguez, regarding the admission by Shinko's
president and director that it collected a commission
of U.S. $1.00 per 1,000 board feet of logs from the
Japanese buyers, is admissible against DRACOR; (3)
that the statement of DRACOR's chief legal counsel in
his memorandum dated May 31, 1965, Exhibit "K", is
an admission that Shinko was able to collect the
commission in question; (4) that the fact that Shinko
received the questioned commissions is deemed
admitted by DRACOR by its silence under Section 23,
Rule 130 of the Rules of Court when it failed to reply
to Atty. Carlos Moran Sison's letter dated February 6,
1962; (5) that DRACOR is not entitled to its 5%
commission arising from the direct sales made by
CMS to buyers in Japan; and (6) that DRACOR is
guilty of fraud and bad faith in its dealings with CMS.
With regard to CMS's arguments concerning whether
or not Shinko received the commission in question,
We find the same unmeritorious.
To begin with, these arguments question the findings
of fact made by the Court of Appeals, which are final
and conclusive and can not be reviewed on appeal to
the Supreme Court. 12
Moreover, while it is true that the evidence adduced
establishes the fact that Shinko is DRACOR's agent
or liaison in Japan, 13 there is no evidence which
established the fact that Shinko did receive the
amount of U.S. $77,264.67 as commission arising
from the sale of CMS's logs to various Japanese
firms.
The fact that Shinko received the commissions in
question was not established by the testimony of Atty.
Teodoro R. Dominguez to the effect that Shinko's
president and director told him that Shinko received a
commission of U.S. $1.00 for every 1,000 board feet
of logs sold, since the same is hearsay. Similarly, the
letter of Mr. K. Shibata of Toyo Menka Kaisha,
Ltd. 14 is also hearsay since Mr. Shibata was not
presented to testify on his letter.
CMS's other evidence have little or no probative value
at all. The statements made in the memorandum of
Atty. Simplicio R. Ciocon to DRACOR dated May 31,
1965, 15 the letter dated February 2, 1963 of Daniel
R. Aguinaldo, 16 president of DRACOR, and the reply-
letter dated January 9, 1964 17 by DRACOR's counsel
Atty. V. E. Del Rosario to CMS's demand letter dated
September 25, 1963 can not be categorized as
admissions that Shinko did receive the commissions
in question.
The alleged admission made by Atty. Ciocon, to wit —
Furthermore, as per our records, our
shipment of logs to Toyo Menka Kaisha,
Ltd., is only for a net volume of 67,747,732
board feet which should enable Shinko to
collect a commission of US $67,747.73 only
can not be considered as such since the
statement was made in the context of questioning
CMS's tally of logs delivered to various Japanese
firms.
Similarly, the statement of Daniel R. Aguinaldo, to wit
—
. . . Knowing as we do that Toyo Menka is a
large and reputable company, it is obvious
that they paid Shinko for certain services
which Shinko must have satisfactorily
performed for them in Japan otherwise they
would not have paid Shinko
and that of Atty. V. E. Del Rosario,
. . . It does not seem proper, therefore, for
CMS Logging, Inc., as principal, to concern
itself with, much less question, the right of
Shinko Trading Co., Ltd. with which our
client debt directly, to whatever benefits it
might have derived form the ultimate
consumer/buyer of these logs, Toyo Menka
Kaisha, Ltd. There appears to be no
justification for your client's contention that
these benefits, whether they can be
considered as commissions paid by Toyo
Menka Kaisha to Shinko Trading, are to be
regarded part of the gross sales.
can not be considered admissions that Shinko
received the questioned commissions since
neither statements declared categorically that
Shinko did in fact receive the commissions and
that these arose from the sale of CMS's logs.
As correctly stated by the appellate court:
It is a rule that "a statement is not competent as
an admission where it does not, under a
reasonable construction, appear to admit or
acknowledge the fact which is sought to be
proved by it". An admission or declaration to be
competent must have been expressed in definite,
certain and unequivocal language (Bank of the
Philippine Islands vs. Fidelity & Surety Co., 51
Phil. 57, 64). 18
CMS's contention that DRACOR had admitted by its
silence the allegation that Shinko received the
commissions in question when it failed to respond to
Atty. Carlos Moran Sison's letter dated February 6,
1963, is not supported by the evidence. DRACOR did
in fact reply to the letter of Atty. Sison, through the
letter dated March 5, 1963 of F.A. Novenario, 19 which
stated:
This is to acknowledge receipt of your letter
dated February 6, 1963, and addressed to Mr. D.
R. Aguinaldo, who is at present out of the
country.
xxx xxx xxx
intervention of DRACOR, the latter is no longer
entitled to its commission from the proceeds of such
sale and is not entitled to retain whatever moneys it
may have received as its commission for said
transactions. Neither would DRACOR be entitled to
collect damages from CMS, since damages are
generally not awarded to the agent for the revocation
of the agency, and the case at bar is not one falling
under the exception mentioned, which is to evade the
payment of the agent's commission.

We have no record or knowledge of any such Regarding CMS's contention that the Court of
payment of commission made by Toyo Menka to Appeals erred in not finding that DRACOR had
Shinko. If the payment was made by Toyo Menka committed acts of fraud and bad faith, We find the
to Shinko, as stated in your letter, we knew same unmeritorious. Like the contention involving
nothing about it and had nothing to do with it. Shinko and the questioned commissions, the findings
of the Court of Appeals on the matter were based on
its appreciation of the evidence, and these findings
The finding of fact made by the trial court, i.e., that
are binding on this Court.
"Shinko was able to collect the total amount of
$77,264.67 US Dollars," can not be given weight
since this was based on the summary prepared by In fine, We affirm the ruling of the Court of Appeals
CMS itself, Exhibits "M" and "M-1". that there is no evidence to support CMS's contention
that Shinko earned a separate commission of U.S.
$1.00 for every 1,000 board feet of logs from the
Moreover, even if it was shown that Shinko did in fact
buyer of CMS's logs. However, We reverse the ruling
receive the commissions in question, CMS is not
of the Court of Appeals with regard to DRACOR's
entitled thereto since these were apparently paid by
right to retain the amount of P101,536.77 as part of its
the buyers to Shinko for arranging the sale. This is
commission from the sale of logs by CMS, and hold
therefore not part of the gross sales of CMS's logs.
that DRACOR has no right to its commission.
Consequently, DRACOR is hereby ordered to remit to
However, We find merit in CMS's contention that the CMS the amount of P101,536.77.
appellate court erred in holding that DRACOR was
entitled to its commission from the sales made by
WHEREFORE, the decision appealed from is hereby
CMS to Japanese firms.
MODIFIED as stated in the preceding paragraph.
Costs de officio.
The principal may revoke a contract of agency at will,
and such revocation may be express, or
SO ORDERED.
implied, 20 and may be availed of even if the period
fixed in the contract of agency as not yet expired. 21 As
the principal has this absolute right to revoke the
agency, the agent can not object thereto; neither may
he claim damages arising from such
revocation, 22 unless it is shown that such was done in
order to evade the payment of agent's commission. 23

In the case at bar, CMS appointed DRACOR as its

agent for the sale of its logs to Japanese firms. Yet,
during the existence of the contract of agency,
DRACOR admitted that CMS sold its logs directly to
several Japanese firms. This act constituted an
implied revocation of the contract of agency under
Article 1924 of the Civil Code, which provides:

Art. 1924 The agency is revoked if the principal

directly manages the business entrusted to the
agent, dealing directly with third persons.

In New Manila Lumber Company, Inc. vs. Republic of

the Philippines, 24 this Court ruled that the act of a
contractor, who, after executing powers of attorney in
favor of another empowering the latter to collect
whatever amounts may be due to him from the
Government, and thereafter demanded and collected
from the government the money the collection of
which he entrusted to his attorney-in-fact, constituted
revocation of the agency in favor of the attorney-in-
fact.

Since the contract of agency was revoked by CMS

when it sold its logs to Japanese firms without the
G.R. No. L-40681 October 2, 1934

DY BUNCIO & COMPANY, INC., plaintiff-appelle,

vs.
ONG GUAN CAN, ET AL., defendants.
JUAN TONG and PUA GIOK ENG, appellants.

PRINCIPAL AND AGENT; TERMINATION OP

POWEB OF ATTORNEY.—Article 1732 of the Civil
Code is silent over the partial termination of an agency.
The making and accepting of a new power of attorney,
whether it enlarges or decreases the power of the
agent under a prior power of attorney, must be held to
supplant and revoke the latter when the two are
inconsistent. If the new appointment with limited
powers does not revoke the general power of attorney,
the execution of the second power of attorney would be
a mere futile gesture. Dy Buncio & Co. vs. Ong Guan
Can, 60 Phil. 696, No. 40681 October 2, 1934
G.R. No. L-40681 October 2, 1934

DY BUNCIO & COMPANY, INC., plaintiff-appelle,

vs.
ONG GUAN CAN, ET AL., defendants.
JUAN TONG and PUA GIOK ENG, appellants.

Pedro Escolin for appellants.

G. Viola Fernando for appellee.

HULL, J.:

This is a suit over a rice mill and camarin situated at

Dao, Province of Capiz. Plaintiff claims that the
property belongs to its judgment debtor, Ong Guan
Can, while defendants Juan Tong and Pua Giok Eng
claim as owner and lessee of the owner by virtue of a
deed dated July 31, 1931, by Ong Guan Can, Jr.

After trial the Court of First Instance of Capiz held that

the deed was invalid and that the property was
subject to the execution which has been levied on
said properties by the judgment creditor of the owner.
Defendants Juan Tong and Pua Giok bring this
appeal and insist that the deed of the 31st of July,
1931, is valid.

The first recital of the deed is that Ong Guan Can, Jr.,
as agent of Ong Guan Can, the proprietor of the
commercial firm of Ong Guan Can & Sons, sells the
rice-mill and camarin for P13,000 and gives as his
authority the power of attorney dated the 23d of May,
1928, a copy of this public instrument being attached
to the deed and recorded with the deed in the office of
the register of deeds of Capiz. The receipt of the
money acknowledged in the deed was to the agent,
and the deed was signed by the agent in his own
name and without any words indicating that he was
signing it for the principal.

Leaving aside the irregularities of the deed and

coming to the power of attorney referred to in the
deed and registered therewith, it is at once seen that it
is not a general power of attorney but a limited one
and does not give the express power to alienate the
properties in question. (Article 1713 of the Civil Code.)

Appellants claim that this defect is cured by Exhibit 1,

which purports to be a general power of attorney
given to the same agent in 1920. Article 1732 of the
Civil Code is silent over the partial termination of an
agency. The making and accepting of a new power of
attorney, whether it enlarges or decreases the power
of the agent under a prior power of attorney, must be
held to supplant and revoke the latter when the two
are inconsistent. If the new appointment with limited
powers does not revoke the general power of
attorney, the execution of the second power of
attorney would be a mere futile gesture. lawphi 1.net

The title of Ong Guan Can not having been divested

by the so-called deed of July 31, 1931, his properties
are subject to attachment and execution.

The judgment appealed from is therefore affirmed.

Costs against appellants. So ordered.

Avanceña, C.J., Abad Santos, Vickers and Diaz, JJ.,

concur.
G.R. No. 156015. August 11, 2005
REPUBLIC OF THE PHILIPPINES, represented by
LT. GEN. JOSE M. CALIMLIM, in his capacity as
former Chief of the Intelligence Service, Armed
Forces of the Philippines (ISAFP), and former
Commanding General, Presidential Security
Group (PSG), and MAJ. DAVID B. DICIANO, in his
capacity as an Officer of ISAFP and former
member of the PSG, Petitioners,
vs.
HON. VICTORINO EVANGELISTA, in his capacity
as Presiding Judge, Regional Trial Court, Branch
223, Quezon City, and DANTE LEGASPI,
represented by his attorney-in-fact, Paul
Gutierrez, Respondent.
Agency; A contract of agency is generally revocable as
it is a personal contract of representation based on
trust and confidence reposed by the principal on his
agent.—Art. 1868 of the Civil Code provides that by the
contract of agency, an agent binds himself to render
some service or do something in representation or on
behalf of another, known as the principal, with the
consent or authority of the latter. A contract of agency
is generally revocable as it is a personal contract of
representation based on trust and confidence reposed
by the principal on his agent. As the power of the agent
to act depends on the will and license of the principal
he represents, the power of the agent ceases when the
will or permission is withdrawn by the principal. Thus,
generally, the agency may be revoked by the principal
at will.
Same; An exception to the revocability of a contract of
agency is when it is coupled with interest, i.e., if a
bilateral contract depends upon the agency.—An
exception to the revocability of a contract of agency is
when it is coupled with interest, i.e., if a bilateral
contract depends upon the agency. The reason for its
irrevocability is because the agency becomes part of
another obligation or agreement. It is not solely the
rights of the principal but also that of the agent and third
persons which are affected. Hence, the law provides
that in such cases, the agency cannot be revoked at
the sole will of the principal.
Same; When an agency is constituted as a clause in a
bilateral contract, that is, when the agency is inserted
in another agreement, the agency ceases to be
revocable at the pleasure of the principal as the agency
shall now follow the condition of the bilateral
agreement.—In the case at bar, we agree with the
finding of the trial and appellate courts that the agency
granted by Legaspi to Gutierrez is coupled with interest
as a bilateral contract depends on it. It is clear from the
records that Gutierrez was given by Legaspi, inter alia,
the power to manage the treasure hunting activities in
the subject land; to file any case against anyone who
enters the land without authority from Legaspi; to
engage the services of lawyers to carry out the agency;
and, to dig for any treasure within the land and enter
into agreements relative thereto. It was likewise agreed
upon that Gutierrez shall be entitled to 40% of whatever
treasure may be found in the land. Pursuant to this
authority and to protect Legaspi’s land from the alleged
illegal entry of petitioners, agent Gutierrez hired the
services of Atty. Adaza to prosecute the case for
damages and injunction against petitioners. As
payment for legal services, Gutierrez agreed to assign
to Atty. Adaza 30% of Legaspi’s share in whatever
treasure may be recovered in the subject land. It is
clear that the treasure that may be found in the land is
the subject matter of the agency; that under the SPA,
Gutierrez can enter into contract for the legal services
of Atty. Adaza; and, thus Gutierrez and Atty. Adaza
have an interest in the subject matter of the agency,
i.e., in the treasures that may be found in the land. This
bilateral contract depends on the agency and thus
renders it as one coupled with interest, irrevocable at
the sole will of the principal Legaspi. When an agency
is constituted as a clause in a bilateral contract, that is,
when the agency is inserted in another agreement, the
agency ceases to be revocable at the pleasure of the
principal as the agency shall now follow the condition
of the bilateral agreement. Consequently, the Deed of
Revocation executed by Legaspi has no effect. The
authority of Gutierrez to file and continue with the
prosecution of the case at bar is unaffected.
Injunction; Preliminary Injunction; Requisites; A writ of
preliminary injunction is an ancilliary or preventive
remedy that is resorted to by a litigant to protect or
preserve his rights or interests and for no other purpose
during the pendency of the principal action.—We hold
that the issuance of the writ of preliminary injunction is
justified. A writ of preliminary injunction is an ancilliary
or preventive remedy that is resorted to by a litigant to
protect or preserve his rights or interests and for no
other purpose during the pendency of the principal
action. It is issued by the court to prevent threatened or
continuous irremediable injury to the applicant before
his claim can be thoroughly studied and adjudicated.
Its aim is to preserve the status quo ante until the merits
of the case can be heard fully, upon the applicant’s
showing of two important conditions, viz.: (1) the right
to be protected prima facie exists; and, (2) the acts
sought to be enjoined are violative of that right.
Same; Same; Evidence; At the hearing for the issuance
of a writ of preliminary injunction, mere prima facie
evidence is needed to establish the applicant’s rights
or interests in the subject matter of the main action—
the applicant is required only to show that he has an
ostensible right to the final relief prayed for in his
complaint.—It is crystal clear that at the hearing for the
issuance of a writ of preliminary injunction, mere prima
facie evidence is needed to establish the applicant’s
rights or interests in the subject matter of the main
action. It is not required that the applicant should
conclusively show that there was a violation of his
rights as this issue will still be fully litigated in the main
case. Thus, an applicant for a writ is required only to
show that he has an ostensible right to the final relief
prayed for in his complaint.
Courts; Judges; Bias and Partiality; A judge’s
appreciation or misappreciation of the sufficiency of
evidence adduced by the parties, or the correctness of
a judge’s orders or rulings on the objections of
counsels during the hearing, without proof of malice on
the part of the judge, is not sufficient to show bias or
partiality; To be disqualifying, it must be shown that the
bias and prejudice stemmed from an extrajudicial
source and result in an opinion on the merits on some
basis other than what the judge learned from his
participation in the case.—We have carefully examined
the records and we find no sufficient basis to hold that
respondent judge should have recused himself from
hearing the case. There is no discernible pattern of bias
on the rulings of the respondent judge. Bias and
partiality can never be presumed. Bare allegations of
partiality will not suffice in an absence of a clear
showing that will overcome the presumption that the
judge dispensed justice without fear or favor. It bears
to stress again that a judge’s appreciation or
misappreciation of the sufficiency of evidence adduced
by the parties, or the correctness of a judge’s orders or
rulings on the objections of counsels during the
hearing, without proof of malice on the part of
respondent judge, is not sufficient to show bias or
partiality. As we held in the case of Webb vs. People,
the adverse and erroneous rulings of a judge on the
various motions of a party do not sufficiently prove bias
and prejudice to disqualify him. To be disqualifying, it
must be shown that the bias and prejudice stemmed
from an extrajudicial source and result in an opinion on
the merits on some basis other than what the judge
learned from his participation in the case. Opinions
formed in the course of judicial proceedings, although
erroneous, as long as based on the evidence adduced,
do not prove bias or prejudice. We also emphasized
that repeated rulings against a litigant, no matter how
erroneously, vigorously and consistently expressed, do
not amount to bias and prejudice which can be a bases
for the disqualification of a judge. Republic vs.
Evangelista, 466 SCRA 544, G.R. No. 156015 August
11, 2005
G.R. No. 156015. August 11, 2005
REPUBLIC OF THE PHILIPPINES, represented by
LT. GEN. JOSE M. CALIMLIM, in his capacity as
former Chief of the Intelligence Service, Armed
Forces of the Philippines (ISAFP), and former
Commanding General, Presidential Security
Group (PSG), and MAJ. DAVID B. DICIANO, in his
capacity as an Officer of ISAFP and former
member of the PSG, Petitioners,
vs.
HON. VICTORINO EVANGELISTA, in his capacity
as Presiding Judge, Regional Trial Court, Branch
223, Quezon City, and DANTE LEGASPI,
represented by his attorney-in-fact, Paul
Gutierrez, Respondent.
DECISION
PUNO, J.:
The case at bar stems from a complaint for damages,
with prayer for the issuance of a writ of preliminary
injunction, filed by private respondent Dante Legaspi,
through his attorney-in-fact Paul Gutierrez, against
petitioners Gen. Jose M. Calimlim, Ciriaco Reyes and
Maj. David Diciano before the Regional Trial Court
(RTC) of Quezon City.1
The Complaint alleged that private respondent
Legaspi is the owner of a land located in Bigte,
Norzagaray, Bulacan. In November 1999, petitioner
Calimlim, representing the Republic of the Philippines,
and as then head of the Intelligence Service of the
Armed Forces of the Philippines and the Presidential
Security Group, entered into a Memorandum of
Agreement (MOA) with one Ciriaco Reyes. The MOA
granted Reyes a permit to hunt for treasure in a land
in Bigte, Norzagaray, Bulacan. Petitioner Diciano
signed the MOA as a witness.2 It was further alleged
that thereafter, Reyes, together with petitioners,
started, digging, tunneling and blasting works on the
said land of Legaspi. The complaint also alleged that
petitioner Calimlim assigned about 80 military
personnel to guard the area and encamp thereon to
intimidate Legaspi and other occupants of the area
from going near the subject land.
On February 15, 2000, Legaspi executed a special
power of attorney (SPA) appointing his nephew,
private respondent Gutierrez, as his attorney-in-fact.
Gutierrez was given the power to deal with the
treasure hunting activities on Legaspi’s land and to file
charges against those who may enter it without the
latter’s authority.3 Legaspi agreed to give Gutierrez
40% of the treasure that may be found in the land.
On February 29, 2000, Gutierrez filed a case for
damages and injunction against petitioners for illegally
entering Legaspi’s land. He hired the legal services of
Atty. Homobono Adaza. Their contract provided that
as legal fees, Atty. Adaza shall be entitled to 30% of
Legaspi’s share in whatever treasure may be found in
the land. In addition, Gutierrez agreed to pay Atty.
Adaza ₱5,000.00 as appearance fee per court
hearing and defray all expenses for the cost of the
litigation.4 Upon the filing of the complaint, then
Executive Judge Perlita J. Tria Tirona issued a 72-
hour temporary restraining order (TRO) against
petitioners.
The case5 was subsequently raffled to the RTC of
Quezon City, Branch 223, then presided by public
respondent Judge Victorino P. Evangelista. On March
2, 2000, respondent judge issued another 72-hour
TRO and a summary hearing for its extension was set
on March 7, 2000.
On March 14, 2000, petitioners filed a Motion to
Dismiss6 contending: first, there is no real party-in-
interest as the SPA of Gutierrez to bring the suit was
already revoked by Legaspi on March 7, 2000, as
evidenced by a Deed of Revocation,7 and, second,
Gutierrez failed to establish that the alleged armed
men guarding the area were acting on orders of
petitioners. On March 17, 2000, petitioners also filed a
Motion for Inhibition8 of the respondent judge on the
ground of alleged partiality in favor of private
respondent.
On March 23, 2000, the trial court granted private
respondent’s application for a writ of preliminary
injunction on the following grounds: (1) the diggings
and blastings appear to have been made on the land
of Legaspi, hence, there is an urgent need to maintain
the status quo to prevent serious damage to Legaspi’s
land; and, (2) the SPA granted to Gutierrez continues
to be valid.9 The trial court ordered thus:
WHEREFORE, in view of all the foregoing, the Court
hereby resolves to GRANT plaintiff’s application for a
writ of preliminary injunction. Upon plaintiff’s filing of
an injunction bond in the amount of ONE HUNDRED
THOUSAND PESOS (₱100,000.00), let a Writ of
Preliminary Injunction issue enjoining the defendants
as well as their associates, agents or representatives
from continuing to occupy and encamp on the land of
the plaintiff LEGASPI as well as the vicinity thereof;
from digging, tunneling and blasting the said land of
plaintiff LEGASPI; from removing whatever treasure
may be found on the said land; from preventing and
threatening the plaintiffs and their representatives
from entering the said land and performing acts of
ownership; from threatening the plaintiffs and their
representatives as well as plaintiffs’ lawyer.
On even date, the trial court issued another
Order10 denying petitioners’ motion to dismiss and
requiring petitioners to answer the complaint. On April
4, 2000, it likewise denied petitioners’ motion for
inhibition.11
On appeal, the Court of Appeals affirmed the decision
of the trial court.12
Hence this petition, with the following assigned errors:
I
WHETHER THE CONTRACT OF AGENCY
BETWEEN LEGASPI AND PRIVATE RESPONDENT
GUTIERREZ HAS BEEN EFFECTIVELY REVOKED
BY LEGASPI.
II
WHETHER THE COMPLAINT AGAINST
PETITIONERS SHOULD BE DISMISSED.
III
WHETHER RESPONDENT JUDGE OUGHT TO
HAVE INHIBITED HIMSELF FROM FURTHER
PROCEEDING WITH THE CASE.
We find no merit in the petition.
On the first issue, petitioners claim that the special
power of attorney of Gutierrez to represent Legaspi
has already been revoked by the latter. Private
respondent Gutierrez, however, contends that the
unilateral revocation is invalid as his agency is
coupled with interest.
We agree with private respondent.
Art. 1868 of the Civil Code provides that by the
contract of agency, an agent binds himself to render
some service or do something in representation or on
behalf of another, known as the principal, with the
consent or authority of the latter.13
A contract of agency is generally revocable as it is a
personal contract of representation based on trust and
confidence reposed by the principal on his agent. As
the power of the agent to act depends on the will and
license of the principal he represents, the power of the
agent ceases when the will or permission is withdrawn
by the principal. Thus, generally, the agency may be
revoked by the principal at will.14
However, an exception to the revocability of a contract
of agency is when it is coupled with interest, i.e., if a
bilateral contract depends upon the agency.15 The
reason for its irrevocability is because the agency
becomes part of another obligation or agreement. It is
not solely the rights of the principal but also that of the
agent and third persons which are affected. Hence,
the law provides that in such cases, the agency
cannot be revoked at the sole will of the principal.
In the case at bar, we agree with the finding of the trial
and appellate courts that the agency granted by
Legaspi to Gutierrez is coupled with interest as a
bilateral contract depends on it. It is clear from the
records that Gutierrez was given by Legaspi, inter
alia, the power to manage the treasure hunting
activities in the subject land; to file any case
against anyone who enters the land without
authority from Legaspi; to engage the services of
lawyers to carry out the agency; and, to dig for
any treasure within the land and enter into
agreements relative thereto. It was likewise agreed
upon that Gutierrez shall be entitled to 40% of
whatever treasure may be found in the land.
Pursuant to this authority and to protect Legaspi’s
land from the alleged illegal entry of petitioners, agent
Gutierrez hired the services of Atty. Adaza to
prosecute the case for damages and injunction
against petitioners. As payment for legal services,
Gutierrez agreed to assign to Atty. Adaza 30% of
Legaspi’s share in whatever treasure may be
recovered in the subject land. It is clear that the
treasure that may be found in the land is the subject
matter of the agency; that under the SPA, Gutierrez
can enter into contract for the legal services of Atty.
Adaza; and, thus Gutierrez and Atty. Adaza have an
interest in the subject matter of the agency, i.e., in the
treasures that may be found in the land. This bilateral
contract depends on the agency and thus renders it
as one coupled with interest, irrevocable at the sole
will of the principal Legaspi.16 When an agency is
constituted as a clause in a bilateral contract, that is,
when the agency is inserted in another agreement,
the agency ceases to be revocable at the pleasure of
the principal as the agency shall now follow the
condition of the bilateral agreement.17Consequently,
the Deed of Revocation executed by Legaspi has no
effect. The authority of Gutierrez to file and continue
with the prosecution of the case at bar is unaffected.
On the second issue, we hold that the issuance of the
writ of preliminary injunction is justified. A writ of
preliminary injunction is an ancilliary or preventive
remedy that is resorted to by a litigant to protect or
preserve his rights or interests and for no other
purpose during the pendency of the principal
action.18 It is issued by the court to prevent threatened
or continuous irremediable injury to the applicant
before his claim can be thoroughly studied and
adjudicated.19 Its aim is to preserve the status quo
ante until the merits of the case can be heard fully,
upon the applicant’s showing of two important
conditions, viz.: (1) the right to be protected prima
facie exists; and, (2) the acts sought to be enjoined
are violative of that right.20
Section 3, Rule 58 of the 1997 Rules of Civil
Procedure provides that a writ of preliminary
injunction may be issued when it is established:
(a) that the applicant is entitled to the relief
demanded, 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 act 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.
It is crystal clear that at the hearing for the issuance of
a writ of preliminary injunction, mere prima
facie evidence is needed to establish the applicant’s
rights or interests in the subject matter of the main
action.21 It is not required that the applicant
should conclusively show that there was a violation
of his rights as this issue will still be fully litigated in
the main case.22 Thus, an applicant for a writ is
required only to show that he has an ostensible
right to the final relief prayed for in his
complaint. 23
In the case at bar, we find that respondent judge had
sufficient basis to issue the writ of preliminary
injunction. It was established, prima facie, that
Legaspi has a right to peaceful possession of his
land, pendente lite. Legaspi had title to the subject
land. It was likewise established that the diggings
were conducted by petitioners in the enclosed area of
Legaspi’s land. Whether the land fenced by
Gutierrez and claimed to be included in the land of
Legaspi covered an area beyond that which is
included in the title of Legaspi is a factual issue
still subject to litigation and proof by the parties in
the main case for damages. It was necessary for the
trial court to issue the writ of preliminary injunction
during the pendency of the main case in order to
preserve the rights and interests of private
respondents Legaspi and Gutierrez.

On the third issue, petitioners charge that the

respondent judge lacked the neutrality of an impartial
judge. They fault the respondent judge for not giving
credence to the testimony of their surveyor that the
diggings were conducted outside the land of Legaspi.
They also claim that respondent judge’s rulings on
objections raised by the parties were biased against
them.

We have carefully examined the records and we find

no sufficient basis to hold that respondent judge
should have recused himself from hearing the case.
There is no discernible pattern of bias on the rulings
of the respondent judge. Bias and partiality can never
be presumed. Bare allegations of partiality will not
suffice in an absence of a clear showing that will
overcome the presumption that the judge dispensed
justice without fear or favor.24 It bears to stress again
that a judge’s appreciation or misappreciation of the
sufficiency of evidence adduced by the parties, or the
correctness of a judge’s orders or rulings on the
objections of counsels during the hearing, without
proof of malice on the part of respondent judge, is not
sufficient to show bias or partiality. As we held in the
case of Webb vs. People,25 the adverse and
erroneous rulings of a judge on the various motions of
a party do not sufficiently prove bias and prejudice to
disqualify him. To be disqualifying, it must be shown
that the bias and prejudice stemmed from an
extrajudicial source and result in an opinion on the
merits on some basis other than what the judge
learned from his participation in the case. Opinions
formed in the course of judicial proceedings, although
erroneous, as long as based on the evidence
adduced, do not prove bias or prejudice. We also
emphasized that repeated rulings against a litigant, no
matter how erroneously, vigorously and consistently
expressed, do not amount to bias and prejudice which
can be a bases for the disqualification of a judge.

Finally, the inhibition of respondent judge in hearing

the case for damages has become moot and
academic in view of the latter’s death during the
pendency of the case. The main case for damages
shall now be heard and tried before another judge.

IN VIEW WHEREOF, the impugned Orders of the trial

court in Civil Case No. Q-00-40115, dated March 23
and April 4, 2000, are AFFIRMED. The presiding
judge of the Regional Trial Court of Quezon City to
whom Civil Case No. Q-00-40115 was assigned is
directed to proceed with dispatch in hearing the main
case for damages. No pronouncement as to costs.

SO ORDERED.
G.R. No. 175885 February 13, 2009
ZENAIDA G. MENDOZA, Petitioner,
vs.
ENGR. EDUARDO PAULE, ENGR. ALEXANDER
COLOMA and NATIONAL IRRIGATION
ADMINISTRATION (NIA MUÑOZ, NUEVA
ECIJA), Respondents.
Civil Law; Agency; Partnership; Under the Civil Code,
every partner is an agent of the partnership for the
purpose of its business, each one may separately
execute all acts of administration, unless a
specification of their respective duties has been agreed
upon, or else it is stipulated that any one of them shall
not act without the consent of all the others.—Although
the SPAs limit MENDOZA’s authority to such acts as
representing EMPCT in its business transactions with
NIA, participating in the bidding of the project, receiving
and collecting payment in behalf of EMPCT, and
performing other acts in furtherance thereof, the
evidence shows that when MENDOZA and CRUZ met
and discussed (at the EMPCT office in Bayuga, Muñoz,
Nueva Ecija) the lease of the latter’s heavy equipment
for use in the project, PAULE was present and
interposed no objection to MENDOZA’s actuations. In
his pleadings, PAULE does not even deny this. Quite
the contrary, MENDOZA’s actions were in accord with
what she and PAULE originally agreed upon, as to
division of labor and delineation of functions within their
partnership. Under the Civil Code, every partner is an
agent of the partnership for the purpose of its business;
each one may separately execute all acts of
administration, unless a specification of their
respective duties has been agreed upon, or else it is
stipulated that any one of them shall not act without the
consent of all the others. At any rate, PAULE does not
have any valid cause for opposition because his only
role in the partnership is to provide his contractor’s
license and expertise, while the sourcing of funds,
materials, labor and equipment has been relegated to
MENDOZA.
Same; Same; Same; Paule’s revocation of the Special
Power of Attorneys (SPAs) was done in evident bad
faith.—PAULE’s revocation of the SPAs was done in
evident bad faith. Admitting all throughout that his only
entitlement in the partnership with MENDOZA is his 3%
royalty for the use of his contractor’s license, he knew
that the rest of the amounts collected from NIA was
owing to MENDOZA and suppliers of materials and
services, as well as the laborers. Yet, he deliberately
revoked MENDOZA’s authority such that the latter
could no longer collect from NIA the amounts
necessary to proceed with the project and settle
outstanding obligations.
Same; Same; Same; Paule committed a willful and
deliberate breach of his contractual duty to his partner
and those with whom the partnership had contracted.—
From the way he conducted himself, PAULE committed
a willful and deliberate breach of his contractual duty to
his partner and those with whom the partnership had
contracted. Thus, PAULE should be made liable for
moral damages. Bad faith does not simply connote bad
judgment or negligence; it imputes a dishonest purpose
or some moral obliquity and conscious doing of a
wrong; a breach of a sworn duty through some motive
or intent or ill-will; it partakes of the nature of fraud
(Spiegel v. Beacon Participation, 8 NE 2nd Series, 895,
1007). It contemplates a state of mind affirmatively
operating with furtive design or some motive of self-
interest or ill will for ulterior purposes (Air France v.
Carrascoso, 18 SCRA 155, 166-167). Evident bad faith
connotes a manifest deliberate intent on the part of the
accused to do wrong or cause damage.
Remedial Law; Judgments; Conclusiveness of
Judgments; If a particular point or question is in issue
in the second action, and the judgment will depend on
the determination of that particular point or question, a
former judgment between the same parties or their
privies will be final and conclusive in the second if that
same point or question was in issue and adjudicated in
the first suit; Identity of cause of action is not required
but merely identity of issues.—Given the present
factual milieu, CRUZ has a cause of action against
PAULE and MENDOZA. Thus, the Court of Appeals
erred in dismissing CRUZ’s complaint on a finding of
exceeded agency. Besides, that PAULE could be held
liable under the SPAs for transactions entered into by
MENDOZA with laborers, suppliers of materials and
services for use in the NIA project, has been settled
with finality in G.R. No. 173275. What has been
adjudged in said case as regards the SPAs should be
made to apply to the instant case. Although the said
case involves different parties and transactions, it
finally disposed of the matter regarding the SPAs—
specifically their effect as among PAULE, MENDOZA
and third parties with whom MENDOZA had contracted
with by virtue of the SPAs—a disposition that should
apply to CRUZ as well. If a particular point or question
is in issue in the second action, and the judgment will
depend on the determination of that particular point or
question, a former judgment between the same parties
or their privies will be final and conclusive in the second
if that same point or question was in issue and
adjudicated in the first suit. Identity of cause of action
is not required but merely identity of issues.
Same; Pleadings and Practice; Counterclaim; Where
the defendant has interposed a counterclaim (whether
compulsory or permissive) or is seeking affirmative
relief by a cross-complaint, the plaintiff cannot dismiss
the action so as to affect the right of the defendant in
his counterclaim or prayer for affirmative relief.—
Where the defendant has interposed a counterclaim
(whether compulsory or permissive) or is seeking
affirmative relief by a cross-complaint, the plaintiff
cannot dismiss the action so as to affect the right of the
defendant in his counterclaim or prayer for affirmative
relief. The reason for that exception is clear. When the
answer sets up an independent action against the
plaintiff, it then becomes an action by the defendant
against the plaintiff, and, of course, the plaintiff has no
right to ask for a dismissal of the defendant’s action.
The present rule embodied in Sections 2 and 3 of Rule
17 of the 1997 Rules of Civil Procedure ordains a more
equitable disposition of the counterclaims by ensuring
that any judgment thereon is based on the merit of the
counterclaim itself and not on the survival of the main
complaint. Certainly, if the counterclaim is palpably
without merit or suffers jurisdictional flaws which stand
independent of the complaint, the trial court is not
precluded from dismissing it under the amended rules,
provided that the judgment or order dismissing the
counterclaim is premised on those defects. At the same
time, if the counterclaim is justified, the amended rules
now unequivocally protect such counterclaim from
peremptory dismissal by reason of the dismissal of the
complaint. Mendoza vs. Paule, 579 SCRA 341, G.R.
No. 175885 February 13, 2009
G.R. No. 175885 February 13, 2009
ZENAIDA G. MENDOZA, Petitioner,
vs.
ENGR. EDUARDO PAULE, ENGR. ALEXANDER
COLOMA and NATIONAL IRRIGATION
ADMINISTRATION (NIA MUÑOZ, NUEVA
ECIJA), Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 176271 February 13, 2009
MANUEL DELA CRUZ Petitioner,
vs.
ENGR. EDUARDO M. PAULE, ENGR. ALEXANDER
COLOMA and NATIONAL IRRIGATION
ADMINISTRATION (NIA MUÑOZ, NUEVA
ECIJA), Respondents.
DECISION
YNARES-SANTIAGO, J.:
These consolidated petitions assail the August 28,
2006 Decision1 of the Court of Appeals in CA-G.R. CV
No. 80819 dismissing the complaint in Civil Case No.
18-SD (2000),2 and its December 11, 2006
Resolution3 denying the herein petitioners’ motion for
reconsideration.
Engineer Eduardo M. Paule (PAULE) is the proprietor
of E.M. Paule Construction and Trading (EMPCT). On
May 24, 1999, PAULE executed a special power of
attorney (SPA) authorizing Zenaida G. Mendoza
(MENDOZA) to participate in the pre-qualification and
bidding of a National Irrigation Administration (NIA)
project and to represent him in all transactions related
thereto, to wit:
1. To represent E.M. PAULE
CONSTRUCTION & TRADING of which I
(PAULE) am the General Manager in all my
business transactions with National Irrigation
Authority, Muñoz, Nueva Ecija.
2. To participate in the bidding, to secure bid
bonds and other documents pre-requisite in
the bidding of Casicnan Multi-Purpose
Irrigation and Power Plant (CMIPPL 04-99),
National Irrigation Authority, Muñoz, Nueva
Ecija.
3. To receive and collect payment in check in
behalf of E.M. PAULE CONSTRUCTION &
TRADING.
4. To do and perform such acts and things
that may be necessary and/or required to
make the herein authority effective.4
On September 29, 1999, EMPCT, through
MENDOZA, participated in the bidding of the NIA-
Casecnan Multi-Purpose Irrigation and Power Project
(NIA-CMIPP) and was awarded Packages A-10 and
B-11 of the NIA-CMIPP Schedule A. On November
16, 1999, MENDOZA received the Notice of Award
which was signed by Engineer Alexander M. Coloma
(COLOMA), then Acting Project Manager for the NIA-
CMIPP. Packages A-10 and B-11 involved the
construction of a road system, canal structures and
drainage box culverts with a project cost of
P5,613,591.69.
When Manuel de la Cruz (CRUZ) learned that
MENDOZA is in need of heavy equipment for use in
the NIA project, he met up with MENDOZA in Bayuga,
Muñoz, Nueva Ecija, in an apartment where the latter
was holding office under an EMPCT signboard. A
series of meetings followed in said EMPCT office
among CRUZ, MENDOZA and PAULE.
On December 2 and 20, 1999, MENDOZA and CRUZ
signed two Job Orders/Agreements5 for the lease of
the latter’s heavy equipment (dump trucks for hauling
purposes) to EMPCT.
On April 27, 2000, PAULE revoked6 the SPA he
previously issued in favor of MENDOZA;
consequently, NIA refused to make payment to
MENDOZA on her billings. CRUZ, therefore, could not
be paid for the rent of the equipment. Upon advice of
MENDOZA, CRUZ addressed his demands for
payment of lease rentals directly to NIA but the latter
refused to acknowledge the same and informed
CRUZ that it would be remitting payment only to
EMPCT as the winning contractor for the project.
In a letter dated April 5, 2000, CRUZ demanded from
MENDOZA and/or EMPCT payment of the
outstanding rentals which amounted to P726,000.00
as of March 31, 2000.
On June 30, 2000, CRUZ filed Civil Case No. 18-SD
(2000) with Branch 37 of the Regional Trial Court of
Nueva Ecija, for collection of sum of money with
damages and a prayer for the issuance of a writ of
preliminary injunction against PAULE, COLOMA and
the NIA. PAULE in turn filed a third-party complaint
against MENDOZA, who filed her answer thereto, with
a cross-claim against PAULE.
MENDOZA alleged in her cross-claim that because of
PAULE’s "whimsical revocation" of the SPA, she was
barred from collecting payments from NIA, thus
resulting in her inability to fund her checks which she
had issued to suppliers of materials, equipment and
labor for the project. She claimed that estafa and B.P.
Blg. 22 cases were filed against her; that she could no
longer finance her children’s education; that she was
evicted from her home; that her vehicle was
foreclosed upon; and that her reputation was
destroyed, thus entitling her to actual and moral
damages in the respective amounts of P3 million and
P1 million.
Meanwhile, on August 23, 2000, PAULE again
constituted MENDOZA as his attorney-in-fact –
1. To represent me (PAULE), in my capacity
as General Manager of the E.M. PAULE
CONSTRUCTION AND TRADING, in all
meetings, conferences and transactions
exclusively for the construction of the projects
known as Package A-10 of Schedule A and
Package No. B-11 Schedule B, which are
38.61% and 63.18% finished as of June 21,
2000, per attached Accomplishment Reports x
x x;
 2. To implement, execute, administer and
supervise the said projects in whatever stage
they are in as of to date, to collect checks and
other payments due on said projects and act
as the Project Manager for E.M. PAULE
CONSTRUCTION AND TRADING;
3. To do and perform such acts and things
that may be necessary and required to make
the herein power and authority effective.7
At the pre-trial conference, the other parties were
declared as in default and CRUZ was allowed to
present his evidence ex parte. Among the witnesses
he presented was MENDOZA, who was impleaded as
defendant in PAULE’s third-party complaint.
On March 6, 2003, MENDOZA filed a motion to
declare third-party plaintiff PAULE non-suited with
prayer that she be allowed to present her
evidence ex parte.
However, without resolving MENDOZA’s motion to
declare PAULE non-suited, and without granting her
the opportunity to present her evidence ex parte, the
trial court rendered its decision dated August 7, 2003,
the dispositive portion of which states, as follows:
WHEREFORE, judgment is hereby rendered in favor
of the plaintiff as follows:
1. Ordering defendant Paule to pay the
plaintiff the sum of P726,000.00 by way of
actual damages or compensation for the
services rendered by him;
2. Ordering defendant Paule to pay plaintiff
the sum of P500,000.00 by way of moral
damages;
3. Ordering defendant Paule to pay plaintiff
the sum of P50,000.00 by way of reasonable
attorney’s fees;
4. Ordering defendant Paule to pay the costs
of suit; and
5. Ordering defendant National Irrigation
Administration (NIA) to withhold the balance
still due from it to defendant Paule/E.M. Paule
Construction and Trading under NIA-CMIPP
Contract Package A-10 and to pay plaintiff
therefrom to the extent of defendant Paule’s
liability herein adjudged.
SO ORDERED.8
In holding PAULE liable, the trial court found that
MENDOZA was duly constituted as EMPCT’s agent
for purposes of the NIA project and that MENDOZA
validly contracted with CRUZ for the rental of heavy
equipment that was to be used therefor. It found
unavailing PAULE’s assertion that MENDOZA merely
borrowed and used his contractor’s license in
exchange for a consideration of 3% of the aggregate
amount of the project. The trial court held that through
the SPAs he executed, PAULE clothed MENDOZA
with apparent authority and held her out to the public
as his agent; as principal, PAULE must comply with
the obligations which MENDOZA contracted within the
scope of her authority and for his benefit.
Furthermore, PAULE knew of the transactions which
MENDOZA entered into since at various times when
she and CRUZ met at the EMPCT office, PAULE was
present and offered no objections. The trial court
declared that it would be unfair to allow PAULE to
enrich himself and disown his acts at the expense of
CRUZ.
PAULE and MENDOZA both appealed the trial court’s
decision to the Court of Appeals.
PAULE claimed that he did not receive a copy of the
order of default; that it was improper for MENDOZA,
as third-party defendant, to have taken the stand as
plaintiff CRUZ’s witness; and that the trial court erred
in finding that an agency was created between him
and MENDOZA, and that he was liable as principal
thereunder.
On the other hand, MENDOZA argued that the trial
court erred in deciding the case without affording her
the opportunity to present evidence on her cross-
claim against PAULE; that, as a result, her cross-
claim against PAULE was not resolved, leaving her
unable to collect the amounts of P3,018,864.04,
P500,000.00, and P839,450.88 which allegedly
represent the unpaid costs of the project and the
amount PAULE received in excess of payments made
by NIA.
On August 28, 2006, the Court of Appeals rendered
the assailed Decision which dismissed CRUZ’s
complaint, as well as MENDOZA’s appeal. The
appellate court held that the SPAs issued in
MENDOZA’s favor did not grant the latter the authority
to enter into contract with CRUZ for hauling services;
the SPAs limit MENDOZA’s authority to only
represent EMPCT in its business transactions with
NIA, to participate in the bidding of the project, to
receive and collect payment in behalf of EMPCT, and
to perform such acts as may be necessary and/or
required to make the said authority effective. Thus,
the engagement of CRUZ’s hauling services was
done beyond the scope of MENDOZA’s authority.
As for CRUZ, the Court of Appeals held that he knew
the limits of MENDOZA’s authority under the SPAs
yet he still transacted with her. Citing Manila Memorial
Park Cemetery, Inc. v. Linsangan,9 the appellate court
declared that the principal (PAULE) may not be bound
by the acts of the agent (MENDOZA) where the third
person (CRUZ) transacting with the agent knew that
the latter was acting beyond the scope of her power
or authority under the agency.
With respect to MENDOZA’s appeal, the Court of
Appeals held that when the trial court rendered
judgment, not only did it rule on the plaintiff’s
complaint; in effect, it resolved the third-party
complaint as well;10 that the trial court correctly
dismissed the cross-claim and did not unduly ignore
or disregard it; that MENDOZA may not claim, on
appeal, the amounts of P3,018,864.04, P500,000.00,
and P839,450.88 which allegedly represent the
unpaid costs of the project and the amount PAULE
received in excess of payments made by NIA, as
these are not covered by her cross-claim in the
court a quo, which seeks reimbursement only of the
amounts of P3 million and P1 million, respectively, for
actual damages (debts to suppliers, laborers, lessors
of heavy equipment, lost personal property) and moral
damages she claims she suffered as a result of
PAULE’s revocation of the SPAs; and that the
revocation of the SPAs is a prerogative that is allowed
to PAULE under Article 192011 of the Civil Code.
CRUZ and MENDOZA’s motions for reconsideration
were denied; hence, these consolidated petitions:
G.R. No. 175885 (MENDOZA PETITION)
a) The Court of Appeals erred in sustaining
the trial court’s failure to resolve her motion
praying that PAULE be declared non-suited
on his third-party complaint, as well as her
motion seeking that she be allowed to present
evidence ex parte on her cross-claim;
b) The Court of Appeals erred when it
sanctioned the trial court’s failure to resolve
her cross-claim against PAULE; and,
c) The Court of Appeals erred in its application
of Article 1920 of the Civil Code, and in
adjudging that MENDOZA had no right to
claim actual damages from PAULE for debts
incurred on account of the SPAs issued to
her.
G.R. No. 176271 (CRUZ PETITION)
CRUZ argues that the decision of the Court of
Appeals is contrary to the provisions of law on
agency, and conflicts with the Resolution of the Court
in G.R. No. 173275, which affirmed the Court of
Appeals’ decision in CA-G.R. CV No. 81175, finding
the existence of an agency relation and where PAULE
was declared as MENDOZA’s principal under the
subject SPAs and, thus, liable for obligations (unpaid
construction materials, fuel and heavy equipment
rentals) incurred by the latter for the purpose of
implementing and carrying out the NIA project
awarded to EMPCT.
CRUZ argues that MENDOZA was acting within the
scope of her authority when she hired his services as
hauler of debris because the NIA project (both
Packages A-10 and B-11 of the NIA-CMIPP)
consisted of construction of canal structures, which
involved the clearing and disposal of waste, acts that
are necessary and incidental to PAULE’s obligation
under the NIA project; and that the decision in a civil
case involving the same SPAs, where PAULE was
found liable as MENDOZA’s principal already became
final and executory; that in Civil Case No. 90-SD filed
by MENDOZA against PAULE,12 the latter was
adjudged liable to the former for unpaid rentals of
heavy equipment and for construction materials which
MENDOZA obtained for use in the subject NIA
project. On September 15, 2003, judgment was
rendered in said civil case against PAULE, to wit:
WHEREFORE, judgment is hereby rendered in favor
of the plaintiff (MENDOZA) and against the defendant
(PAULE) as follows:
1. Ordering defendant Paule to pay plaintiff
the sum of P138,304.00 representing the
obligation incurred by the plaintiff with LGH
Construction;
2. Ordering defendant Paule to pay plaintiff
the sum of P200,000.00 representing the
balance of the obligation incurred by the
plaintiff with Artemio Alejandrino;
3. Ordering defendant Paule to pay plaintiff
the sum of P520,000.00 by way of moral
damages, and further sum of P100,000.00 by
way of exemplary damages;
4. Ordering defendant Paule to pay plaintiff
the sum of P25,000.00 as for attorney’s fees;
and
5. To pay the cost of suit.13
PAULE appealed14 the above decision, but it was
dismissed by the Court of Appeals in a
Decision15 which reads, in part:
As to the finding of the trial court that the principle of
agency is applicable in this case, this Court agrees
therewith. It must be emphasized that appellant
(PAULE) authorized appellee (MENDOZA) to perform
any and all acts necessary to make the business
transaction of EMPCT with NIA effective. Needless to
state, said business transaction pertained to the
construction of canal structures which necessitated
the utilization of construction materials and
equipments. Having given said authority, appellant
1avv phi1
cannot be allowed to turn its back on the transactions
entered into by appellee in behalf of EMPCT.
The amount of moral damages and attorney’s fees
awarded by the trial court being justifiable and
commensurate to the damage suffered by appellee,
this Court shall not disturb the same. It is well-settled
that the award of damages as well as attorney’s fees
lies upon the discretion of the court in the context of
the facts and circumstances of each case.
WHEREFORE, the appeal is DISMISSED and the
appealed Decision is AFFIRMED.
SO ORDERED.16
PAULE filed a petition to this Court docketed as G.R.
No. 173275 but it was denied with finality on
September 13, 2006.
MENDOZA, for her part, claims that she has a right to
be heard on her cause of action as stated in her
cross-claim against PAULE; that the trial court’s
failure to resolve the cross-claim was a violation of her
constitutional right to be apprised of the facts or the
law on which the trial court’s decision is based; that
PAULE may not revoke her appointment as attorney-
in-fact for and in behalf of EMPCT because, as
manager of their partnership in the NIA project, she
was obligated to collect from NIA the funds to be used
for the payment of suppliers and contractors with
whom she had earlier contracted for labor, materials
and equipment.
PAULE, on the other hand, argues in his Comment
that MENDOZA’s authority under the SPAs was for
the limited purpose of securing the NIA project; that
MENDOZA was not authorized to contract with other
parties with regard to the works and services required
for the project, such as CRUZ’s hauling services; that
MENDOZA acted beyond her authority in contracting
with CRUZ, and PAULE, as principal, should not be
made civilly liable to CRUZ under the SPAs; and that
MENDOZA has no cause of action against him for
actual and moral damages since the latter exceeded
her authority under the agency.
We grant the consolidated petitions.
Records show that PAULE (or, more appropriately,
EMPCT) and MENDOZA had entered into a
partnership in regard to the NIA project. PAULE‘s
contribution thereto is his contractor’s license and
expertise, while MENDOZA would provide and secure
the needed funds for labor, materials and services;
deal with the suppliers and sub-contractors; and in
general and together with PAULE, oversee the
effective implementation of the project. For this,
PAULE would receive as his share three per
cent (3%) of the project cost while the rest of the
profits shall go to MENDOZA. PAULE admits to this
arrangement in all his pleadings.17
Although the SPAs limit MENDOZA’s authority to
such acts as representing EMPCT in its business
transactions with NIA, participating in the bidding of
the project, receiving and collecting payment in behalf
of EMPCT, and performing other acts in furtherance
thereof, the evidence shows that when MENDOZA
and CRUZ met and discussed (at the EMPCT office in
Bayuga, Muñoz, Nueva Ecija) the lease of the latter’s
heavy equipment for use in the project, PAULE was
present and interposed no objection to MENDOZA’s
actuations. In his pleadings, PAULE does not even
deny this. Quite the contrary, MENDOZA’s actions
were in accord with what she and PAULE originally
agreed upon, as to division of labor and delineation of
functions within their partnership. Under the Civil
Code, every partner is an agent of the partnership for
the purpose of its business;18 each one may
separately execute all acts of administration, unless a
specification of their respective duties has been
agreed upon, or else it is stipulated that any one of
them shall not act without the consent of all the
others.19 At any rate, PAULE does not have any valid
cause for opposition because his only role in the
partnership is to provide his contractor’s license and
expertise, while the sourcing of funds, materials, labor
and equipment has been relegated to MENDOZA.
Moreover, it does not speak well for PAULE that he
reinstated MENDOZA as his attorney-in-fact, this time
with broader powers to implement, execute,
administer and supervise the NIA project, to collect
checks and other payments due on said project, and
act as the Project Manager for EMPCT, even after
CRUZ has already filed his complaint. Despite
knowledge that he was already being sued on the
SPAs, he proceeded to execute another in
MENDOZA’s favor, and even granted her broader
powers of administration than in those being sued
upon. If he truly believed that MENDOZA exceeded
her authority with respect to the initial SPA, then he
would not have issued another SPA. If he thought that
his trust had been violated, then he should not have
executed another SPA in favor of MENDOZA, much
less grant her broader authority.
Given the present factual milieu, CRUZ has a cause
of action against PAULE and MENDOZA. Thus, the
Court of Appeals erred in dismissing CRUZ’s
complaint on a finding of exceeded agency. Besides,
that PAULE could be held liable under the SPAs for
transactions entered into by MENDOZA with laborers,
suppliers of materials and services for use in the NIA
project, has been settled with finality in G.R. No.
173275. What has been adjudged in said case as
regards the SPAs should be made to apply to the
instant case. Although the said case involves different
parties and transactions, it finally disposed of the
matter regarding the SPAs – specifically their effect as
among PAULE, MENDOZA and third parties with
whom MENDOZA had contracted with by virtue of the
SPAs – a disposition that should apply to CRUZ as
well. If a particular point or question is in issue in the
second action, and the judgment will depend on the
determination of that particular point or question, a
former judgment between the same parties or their
privies will be final and conclusive in the second if that
same point or question was in issue and adjudicated
in the first suit. Identity of cause of action is not
required but merely identity of issues.20
There was no valid reason for PAULE to revoke
MENDOZA’s SPAs. Since MENDOZA took care of the
funding and sourcing of labor, materials and
equipment for the project, it is only logical that she
controls the finances, which means that the SPAs
issued to her were necessary for the proper
performance of her role in the partnership, and to
discharge the obligations she had already contracted
prior to revocation. Without the SPAs, she could not
collect from NIA, because as far as it is concerned,
EMPCT – and not the PAULE-MENDOZA partnership
– is the entity it had contracted with. Without these
payments from NIA, there would be no source of
funds to complete the project and to pay off
obligations incurred. As MENDOZA correctly argues,
an agency cannot be revoked if a bilateral contract
depends upon it, or if it is the means of fulfilling an
obligation already contracted, or if a partner is
appointed manager of a partnership in the contract of
partnership and his removal from the management is
unjustifiable.21
PAULE’s revocation of the SPAs was done in evident
bad faith. Admitting all throughout that his only
entitlement in the partnership with MENDOZA is his
3% royalty for the use of his contractor’s license, he
knew that the rest of the amounts collected from NIA
was owing to MENDOZA and suppliers of materials
and services, as well as the laborers. Yet, he
deliberately revoked MENDOZA’s authority such that
the latter could no longer collect from NIA the
amounts necessary to proceed with the project and
settle outstanding obligations.lawphil.net
From the way he conducted himself, PAULE
committed a willful and deliberate breach of his
contractual duty to his partner and those with whom
the partnership had contracted. Thus, PAULE should
be made liable for moral damages.
Bad faith does not simply connote bad judgment or
negligence; it imputes a dishonest purpose or some
moral obliquity and conscious doing of a wrong; a
breach of a sworn duty through some motive or intent
or ill-will; it partakes of the nature of fraud (Spiegel v.
Beacon Participation, 8 NE 2nd Series, 895, 1007). It
contemplates a state of mind affirmatively operating
with furtive design or some motive of self-interest or ill
will for ulterior purposes (Air France v. Carrascoso, 18
SCRA 155, 166-167). Evident bad faith connotes a
manifest deliberate intent on the part of the accused
to do wrong or cause damage.22
reconsideration are REVERSED and SET ASIDE.
The August 7, 2003 Decision of the Regional Trial
Court of Nueva Ecija, Branch 37 in Civil Case No. 18-
SD (2000) finding PAULE liable is REINSTATED, with
the MODIFICATION that the trial court is ORDERED
to receive evidence on the counterclaim of petitioner
Zenaida G. Mendoza.
SO ORDERED.

Moreover, PAULE should be made civilly liable for

abandoning the partnership, leaving MENDOZA to
fend for her own, and for unduly revoking her authority
to collect payments from NIA, payments which were
necessary for the settlement of obligations contracted
for and already owing to laborers and suppliers of
materials and equipment like CRUZ, not to mention
the agreed profits to be derived from the venture that
are owing to MENDOZA by reason of their partnership
agreement. Thus, the trial court erred in disregarding
and dismissing MENDOZA’s cross-claim – which is
properly a counterclaim, since it is a claim made by
her as defendant in a third-party complaint – against
PAULE, just as the appellate court erred in sustaining
it on the justification that PAULE’s revocation of the
SPAs was within the bounds of his discretion under
Article 1920 of the Civil Code.

Where the defendant has interposed a counterclaim

(whether compulsory or permissive) or is seeking
affirmative relief by a cross-complaint, the plaintiff
cannot dismiss the action so as to affect the right of
the defendant in his counterclaim or prayer for
affirmative relief. The reason for that exception is
clear. When the answer sets up an independent
action against the plaintiff, it then becomes an action
by the defendant against the plaintiff, and, of course,
the plaintiff has no right to ask for a dismissal of the
defendant’s action. The present rule embodied in
Sections 2 and 3 of Rule 17 of the 1997 Rules of Civil
Procedure ordains a more equitable disposition of the
counterclaims by ensuring that any judgment thereon
is based on the merit of the counterclaim itself and not
on the survival of the main complaint. Certainly, if the
counterclaim is palpably without merit or suffers
jurisdictional flaws which stand independent of the
complaint, the trial court is not precluded from
dismissing it under the amended rules, provided that
the judgment or order dismissing the counterclaim is
premised on those defects. At the same time, if the
counterclaim is justified, the amended rules now
unequivocally protect such counterclaim from
peremptory dismissal by reason of the dismissal of
the complaint.23

Notwithstanding the immutable character of PAULE’s

liability to MENDOZA, however, the exact amount
thereof is yet to be determined by the trial court, after
receiving evidence for and in behalf of MENDOZA on
her counterclaim, which must be considered pending
and unresolved.

WHEREFORE, the petitions are GRANTED. The

August 28, 2006 Decision of the Court of Appeals in
CA-G.R. CV No. 80819 dismissing the complaint in
Civil Case No. 18-SD (2000) and its December 11,
2006 Resolution denying the motion for
G.R. No. 151218 January 28, 2003

NATIONAL SUGAR TRADING and/or the SUGAR

REGULATORY ADMINISTRATION, petitioners,
vs.
PHILIPPINE NATIONAL BANK, respondent.

Civil Law; Contracts; Agency; The agency established

between the parties is one coupled with interest which
cannot be revoked or cancelled at will by any of the
parties.—The relationship between NASUTRA/SRA
and PNB when the former constituted the latter as its
attorney-in-fact is not a simple agency.
NASUTRA/SRA has assigned and practically
surrendered its rights in favor of PNB for a substantial
consideration. To reiterate, NASUTRA/SRA executed
promissory notes in favor of PNB every time it availed
of the credit; line. The agency established between the
parties is one coupled with interest, which cannot be
revoked or cancelled at will by any of the parties.

Same; Same; Parties may freely stipulate their duties

and obligations which perforce would be binding on
them.—Verily, parties may freely stipulate their duties
and obligations which perforce would be binding on
them. Not being repugnant to any legal proscription,
the agreement entered into by NASUTRA/SRA and
PNB must be respected and have the force of law
between them. National Sugar Trading vs. Philippine
National Bank, 396 SCRA 528, G.R. No. 151218
January 28, 2003
G.R. No. 151218 January 28, 2003
NATIONAL SUGAR TRADING and/or the SUGAR
REGULATORY ADMINISTRATION, petitioners,
vs.
PHILIPPINE NATIONAL BANK, respondent.
YNARES-SANTIAGO, J.:
This is a petition for review which seeks to set aside
the decision of the Court of Appeals dated August 10,
2001 in CA-G.R. SP. No. 58102, 1 upholding the
decision of the Office of the President dated
September 17, 1999, 2 as well as the resolution dated
December 12, 2001 denying petitioners' motion for
reconsideration.
The antecedent facts, as culled from the records, are
as follows:
Sometime in February 1974, then President
Ferdinand E. Marcos issued Presidential Decree No.
388 3 constituting the Philippine Sugar Commission
(PHILSUCOM), as the sole buying and selling agent
of sugar on the quedan permit level. In November of
the same year, PD 579 4 was issued, authorizing the
Philippine Exchange Company, Inc.
(PHILEXCHANGE), a wholly owned subsidiary of
Philippine National Bank (PNB) to serve as the
marketing agent of PHILSUCOM. Pursuant to PD
579, PHILEXCHANGE's purchases of sugar shall be
financed by PNB and the proceeds of sugar trading
operations of PHILEXCHANGE shall be used to pay
its liabilities with PNB. 5
Similarly, in February 1975, PD 659 was issued,
constituting PHILEXCHANGE and/or PNB as the
exclusive sugar trading agencies of the government
for buying sugar from planters or millers and selling or
exporting them. 6 PNB then extended loans to
PHILEXCHANGE for the latter's sugar trading
operations. At first, PHILEXCHANGE religiously paid
its obligations to PNB by depositing the proceeds of
the sale of sugar with the bank. Subsequently,
however, with the fall of sugar prices in the world
market, PHILEXCHANGE defaulted in the payments
of its loans amounting to P206,070,172.57. 7
In July 1977, the National Sugar Trading Corporation
(NASUTRA) replaced PHILEXCHANGE as the
marketing agent of PHILSUCOM. Accordingly,
PHILEXCHANGE sold and turned over all sugar
quedans to NASUTRA. However, no physical
inventory of the sugar covered by the quedans was
made. 8 Neither NASUTRA nor PHILSUCOM was
required to immediately pay PHILEXCHANGE.
Notwithstanding this concession, NASUTRA and
PHILSUCOM still failed to pay the sugar stocks
covered by quedans to PHILEXCHANGE which, as of
June 30, 1984, amounted to P498,828,845.03. As a
consequence, PHILEXCHANGE was not able to pay
its obligations to PNB.
To finance its sugar trading operations, NASUTRA
applied for and was granted 9 a P408 Million
Revolving Credit Line by PNB in 1981. Every time
NASUTRA availed of the credit line, 10 its Executive
Vice-President, Jose Unson, executed a promissory
note in favor of PNB.
In order to stabilize sugar liquidation prices at a
minimum of P300.00 per picul, PHILSUCOM issued
on March 15, 1985 Circular Letter No. EC-4-85,
considering all sugar produced during crop year
1984–1985 as domestic sugar. Furthermore,
PHILSUCOM's Chairman of Executive Committee,
Armando C. Gustillo proposed on May 14, 1985 the
following liquidation scheme of the sugar
quedans 11 assigned to PNB by the sugar planters:
Upon notice from NASUTRA, PNB shall credit the
individual producer and millers loan accounts for their
sugar proceeds and shall treat the same as loans of
NASUTRA.
Such loans shall be charged interest at the prevailing
rates and it shall commence five (5) days after receipt
by PNB of quedans from NASUTRA. 12
PNB, for its part, issued Resolution No. 353 dated
May 20, 1985 approving 13 the
PHILSUCOM/NASUTRA proposal for the payment of
the sugar quedans assigned to it. Pursuant to said
resolution, NASUTRA would assume the interest on
the planter/mill loan accounts. The pertinent portion of
the Resolution states:
Five (5) days after receipt of the quedans, NASUTRA
shall absorb the accruing interest on that portion of
the planter/mill loan with PNB commensurate to the
net liquidation value of the sugar delivered, or in other
words, NASUTRA proposes to assume interest that
will run on the planter/mill loan equivalent to the net
proceeds of the sugar quedans, reckoned five (5)
days after quedan delivery to PNB. 14
Despite such liquidation scheme,
NASUTRA/PHILSUCOM still failed to remit the
interest payments to PNB and its branches, which
interests amounted to P65,412,245.84 in 1986. 15 As a
result thereof, then President Marcos issued PD 2005
dissolving NASUTRA effective January 31, 1986.
NASUTRA's records of its sugar trading operations,
however, were destroyed during the Edsa Revolution
in February 1986.
On May 28, 1986, then President Corazon C. Aquino
issued Executive Order (EO) No. 18 creating the
Sugar Regulatory Administration (SRA) and
abolishing PHILSUCOM. All the assets and records of
PHILSUCOM 16including its beneficial interests over
the assets of NASUTRA were transferred to
SRA. 17 On January 24, 1989, before the completion
of the three-year winding up period, NASUTRA
established a trusteeship to liquidate and settle its
accounts. 18 This notwithstanding, NASUTRA still
defaulted in the payment of its loans amounting to
P389,246,324.60 (principal and accrued interest) to
PNB.
In the meantime, PNB received remittances from
foreign banks totaling US$36,564,558.90 or the
equivalent of P696,281,405.09 representing the
proceeds of NASUTRA's sugar exports. 19 Said
remittances were then applied by PNB to the unpaid
accounts of NASUTRA/PHILSUCOM with PNB and
PHILEXCHANGE. The schedule of remittances and
applications are as follows:
SCHEDULE OF REMITTANCES & APPLICATIONS
 Account of NASUTRA to outstanding account of NASUTRA
to PNB;
July 31, 1988
b) the amount of Sixty Five Billion Four
REMITTANCES Hundred Twelve Thousand Two
Date Remitting Bank Amount Hundred Forty Five and 84/100 Pesos
(P65,412,245.84) was validly applied
11-19- to claims of various PNB branches for
85 Bankers Trust-New York P259,253,573.46 interest on the unpaid CY 1984–85
11-26- sugar proceeds;
85 Bankers Trust-New York 144,459,242.84
03-06- Or a total of Four Hundred Fifty Four Million
86 Credit Lyonnais-Manila 209,880,477.07 Six Hundred Fifty Eight Thousand Five
Hundred Seventy and 44/100 Pesos
04-22- (P454,658,570.44).
86 Societé Generalé-Manila 82,151,953.10
06-09- 2. Ordering respondent PNB to pay petitioners
86 Credit Lyonnais-Manila 536,158.62 —
Total P696,281,405.09
APPLICATIONS a) the amount of Two Hundred Six
Million Seventy Thousand One
Date Applied to Amount Hundred Seventy Two and 57/100
NASUTRA account with Pesos (P206,070,172.57)
1986 PNB P389,246,324.60 representing the amount of remittance
applied to PHILSUCOM account
Claims of various CAB
carried in the books of Philexchange;
1986 planters 15,863,898.79
Claims of various PNB b) the amount of Fifteen Million Eight
branches for interest or Hundred Sixty Three Thousand Eight
the unpaid CY 1984–85 Hundred Ninety Eight and 79/100
1987 sugar proceeds 65,412,245.84 Pesos (P15,863,898.79) representing
1987& Philsucom account 206,070,172.57 the amount applied to settle Claims of
carried in the books of Various CAB Planters; and to pay
1988 Philexchange P676,592,641.80 interest on both items, at legal rate
from date of filing of this case.
Unapplied Remittance P19,688,763.29" 20
Costs of suit will be shared equally by the
Subsequently, PNB applied the P19,688,763.29 to parties.
PHILSUCOM's account with PHILEXCHANGE which
in turn was applied to PHILEXCHANGE's account
SO ORDERED. 25
with PNB. 21
Both parties appealed before the Office of the
Accordingly, NASUTRA requested 22 PNB to furnish it
President. On September 17, 1999, the Office of the
with the necessary documents and/or
President modified the decision of the Secretary of
explanation 23concerning the disposition/application,
Justice, to wit:
accounting and restitution of the remittances in
question. Dissatisfied, and believing that PNB failed to
provide them with said documents, NASUTRA and IN VIEW OF ALL THE FOREGOING, the
SRA filed a petition for arbitration 24with the decision of the Secretary of Justice is hereby
Department of Justice on August 13, 1991. AFFIRMED with the MODIFICATION that the
application by the Philippine National Bank of
the amounts of P225,758,935.86 and
After due proceedings, the Secretary of Justice
P15,863,898.79 as payment of the Philippine
rendered a decision, to wit:
Sugar Commission's account carried in the
books of Philippine Exchange Co., Inc. and
WHEREFORE, judgment is hereby rendered the claims of various CAB planters,
— respectively, is hereby declared legal and
valid.
1. Declaring that of the amount of Six Hundred
Ninety Six Million Two Hundred Eighty One SO ORDERED. 26
Thousand Four Hundred Five and 09/100
Pesos (P696,281,405.09) equivalent of
Petitioners' subsequent Motion for Reconsideration
US$36,564,558.90, foreign remittances
was denied by the Office of the
received by respondent PNB, for and in behalf
President. 27 Thereafter, petitioners filed a petition for
of petitioner NASUTRA—
review with the Court of Appeals, alleging, inter alia,
that the Office of the President erred when it relied
a) the amount of Three Hundred solely on the documents submitted by PNB to
Eighty Nine Million Two Hundred Forty determine the amount of the subject remittances and
Six Thousand Three Hundred Twenty in not ordering PNB to render an accounting of the
Four and 60/100 Pesos said remittances; in declaring as valid and legal PNB's
(P389,246,324.60) was validly applied
application of the subject remittances to alleged
NASUTRA's accounts with PNB and
PHILEXCHANGE without NASUTRA's knowledge,
consent and authority.
On August 10, 2001, Court of Appeals rendered
judgment dismissing the petition. 28 Petitioners filed a
Motion for Reconsideration, which was denied on
December 12, 2001.
Hence this petition, raising the lone issue:
THE CA DECIDED NOT IN ACCORD WITH
LAW AND WITH THE APPLICABLE
DECISION OF THIS HONORABLE COURT,
AND GRAVELY ABUSED ITS DISCRETION,
WHEN IT UPHELD THE LEGALITY AND
VALIDITY OF THE OFFSETTING OR
COMPENSATION OF THE SUBJECT
REMITTANCES TO ALLEGED ACCOUNTS
OF NASUTRA WITH PNB AND PHILEX
DESPITE THE FACT THAT NO CREDITOR-
DEBTOR RELATIONSHIP EXISTED
BETWEEN PNB AND NASUTRA WITH
RESPECT TO THE SAID REMITTANCES.
In essence, NASUTRA and SRA aver that no
compensation involving the subject remittances can
take effect by operation of law since the relationship
created between PNB and NASUTRA was one of
trustee-beneficiary and not one of creditor and debtor.
They also claim that no legal compensation can take
place in favor of PHILEXCHANGE since the subject
remittances were received by PNB and not
PHILEXCHANGE, a corporation clothed with a
separate and distinct corporate personality from PNB.
They added that PHILEXCHANGE's account had
already prescribed.
Moreover, NASUTRA and SRA contend that,
assuming arguendo that creditor-debtor relationship
existed between PNB and NASUTRA, compensation
was still illegal, since PNB has not proven the
existence of the P408 million revolving credit line and
the CAB Planters Account. Petitioners also assert that
the CAB Planters Account is an unliquidated account
considering that it still has to be recomputed pursuant
to the Sugar Reconstitution Law. 29
Respondent PNB counters that it can apply the
foreign remittances on the long-overdue obligations of
NASUTRA. They were entered into by NASUTRA with
the blessing, if not with express mandate, of the
National Government in the pursuit of national interest
and policy. PNB invokes also the Letter of Intent
submitted by the National Government to the
International Monetary Fund (IMF), wherein the
government made specific reference to the immediate
payment by NASUTRA and PHILSUCOM of their
outstanding obligations with PNB to buoy up the
country's sagging economy. 30
Petitioners' arguments are specious.
Article 1306 of the New Civil Code provides:
Contracting parties may establish such stipulations,
clauses terms and conditions as they may deem
convenient provided they are not contrary to law,
morals, good customs, public order or public policy.
In the instant case, NASUTRA applied for a P408
million credit line with PNB in order to finance its
trading operations. PNB, on the other hand, approved
said credit line in its Resolution No. 68. Thereafter,
NASUTRA availed of the credit and in fact drew
P389,246,324.60, in principal and accrued interest,
from the approved credit line. Evidence shows that
every time NASUTRA availed of the credit, its
Executive Vice President, Jose Unson, executed a
promissory note 31 in favor of PNB with the following
proviso:
In the event that this note is not paid at maturity or
when the same becomes due under any of the
provisions hereof, I/We hereby authorize the Bank, at
its option and without notice, to apply to the payment
of this note, any and all moneys, securities and things
of values which may be in the hands on deposit or
otherwise belonging to me/us and for this purpose,
I/We hereby, jointly and severally, irrevocably
constitute and appoint the Bank to be my/our true
Attorney-in-Fact with full power and authority for
me/us and in my/our name and behalf and without
prior notice to negotiate, sell and transfer any
moneys, securities and things of value which it may
hold, by public or private sale and apply the proceeds
thereof to the payment of this note. (Italics ours)
While we agree with petitioners that the application of
subject remittances cannot be justified under Article
1278 in relation to Article 1279 of the Civil Code,
considering that some elements of legal
compensation were lacking, application of the subject
remittances to NASUTRA's account with PNB and the
claims of various PNB branches for interest on the
unpaid CY 1984–1985 sugar proceeds is authorized
under the above-quoted stipulation. PNB correctly
treated the subject remittances for the account of
NASUTRA as moneys in its hands which may be
applied for the payment of the note.
Also, the relationship between NASUTRA/SRA and
PNB when the former constituted the latter as its
attorney-in-fact is not a simple agency.
NASUTRA/SRA has assigned and practically
surrendered its rights in favor of PNB for a substantial
consideration. 32 To reiterate, NASUTRA/SRA
executed promissory notes in favor of PNB every time
it availed of the credit line. The agency established
between the parties is one coupled with interest which
cannot be revoked or cancelled at will by any of the
parties. 33
Notwithstanding its availment of the approved credit,
NASUTRA, for reasons only known to itself, insisted
in claiming for refund of the remittances. NASUTRA's
posture is untenable. NASUTRA's actuation runs
counter to the good faith covenant in contractual
relations, required under Article 1159 of the Civil
Code, to wit:
Obligations arising from contract have the force of law
between the contracting parties and should be
complied with in good faith.
Verily, parties may freely stipulate their duties and
obligations which perforce would be binding on them.
Not being repugnant to any legal proscription, the
agreement entered into by NASUTRA/SRA and PNB
must be respected and have the force of law between
them.
With respect to the application of the sum of
P65,412,245.84, 34 the record shows that NASUTRA
failed to remit the interest payments to PNB despite
its obligation under the liquidation scheme proposed
by the Chairman of its Executive Committee,
Armando C. Gustillo, to stabilize sugar liquidation
prices. Certainly, the authority granted by NASUTRA
to Armando Gustillo to propose such liquidation
scheme was an authority to represent NASUTRA.
Undisputedly, any obligation or liability arising from
such agreement shall be binding on the parties.
NASUTRA, for its part, cannot now renege on its
duties, considering that it took advantage of the loan.
Having established that PNB validly applied the
subject remittances to the interest of NASUTRA's loan
in the amount of P65,412,245.84, the application of
the remainder of the remittance amounting to
P15,863,898.79 to the principal is proper.
With respect to the Central Azucarera de Bais (CAB)
Planters account, petitioners maintained that the
subject remittances cannot be applied to payment
thereof, considering that it is unliquidated and needs
recomputation, pursuant to Section 3 of Republic Act
No. 7202 or the Sugar Reconstitution Law, which
provides:
The Philippine National Bank of the Philippines and
other government-owned and controlled financial
institutions which have granted loans to the sugar
producers shall extend to accounts of said sugar
producers incurred from Crop Year 1974–1975 up to
and including Crop Year 1984–1985 the following:
(a) Condonation of interest charged by the
banks in excess of twelve percent (12%) per
annum and all penalties and surcharges:
(b) The recomputed loans shall be amortized
for a period of thirteen (13) years inclusive of
a three-year grace period on principal portion
of the loan will carry an interest rate of twelve
(12%) and on the outstanding balance
effective when the original promissory notes
were signed and funds released to the
producer.
Section 6 of Rules and Regulations implementing RA
No. 7202 also provides:
SECTION 2. In cases, however, where sugar
producers have no outstanding loan balance
with said financial institutions as of the date of
effectivity of RA No. 7202 (i.e. sugar
producers who have fully paid their loans
either through actual payment or foreclosure
of collateral, or who have partially paid their
loans and after the computation of the interest
charges, they end up with excess payment to
said financial institutions), said producers shall
be entitled to the benefits of recomputation in
accordance with Sections 3 and 4 of RA No.
7202, but the said financial institutions,
instead of refunding the interest in excess of
twelve (12%) percent per annum, interests,
penalties and surcharges apply the excess
payment as an offset and/or as payment for
the producers' outstanding loan obligations.
Applications of restructuring banks under
Section 6 of RA No. 7202 shall be filed with
the Central Monetary Authority of the
Philippines within one (1) year from
application of excess payment.
Although it appears from said provision that PNB was
directed to condone interest, penalties and
surcharges charged in excess of 12% per annum, the
passage of said law did not forestall legal
compensation that had taken place before its
effectivity. The loan had been definitely ascertained,
assessed and determined by PNB. Pursuant to
Section 4 35 of RA 7202, there would be condonation
of interest whether the accounts were fully or partially
paid.
With regard to the application of the amount of
P206,070,172.57 to the PHILSUCOM account carried
in the books of PHILEXCHANGE, petitioners maintain
that there could be no application of the subject
remittance, considering that the remittances were
received by PNB and not PHILEXCHANGE which has
a personality separate and distinct from PNB.
Petitioners' contention is not well-taken.
There exist clear indications that insofar as sugar
trading was concerned, PHILEXCHANGE and PNB
were treated as one entity. Purchases of sugar of
PHILEXCHANGE as the exclusive sugar trading arm
of PHILSUCOM were financed by PNB pursuant to
PD 579. More importantly, PNB, a wholly owned bank
of the government at that time, in turn wholly owned
and controlled PHILEXCHANGE. Also, Section 2 (a),
PD 659 declared as illegal the sale, transfer and
assignment of sugar by any planter, producer, miller,
central, or refinery to any person or entity other than
Philippine Exchange, Inc. and/or the PNB. To
reiterate, PHILEXCHANGE failed to pay its loans with
PNB because of the fall of the sugar prices in the
world market. When NASUTRA substituted
PHILEXCHANGE as marketing agent of
PHILSUCOM, 1,485,532.47 metric tons 36 of export
sugar were turned over by PHILEXCHANGE to
NASUTRA. To reiterate, the foreign remittances
constituted proceeds of the sale of the sugar covered
by quedans transferred by PHILEXCHANGE to
NASUTRA.
WHEREFORE, in view of the foregoing, the instant
petition for review is DENIED. The decision of the
Court of Appeals dated August 10, 2001
is AFFIRMED.
SO ORDERED.
G.R. No. 148187 April 16, 2008
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL
REVENUE, respondent.
Partnership; Joint Ventures; Under a contract of
partnership, two or more persons bind themselves to
contribute money, property, or industry to a common
fund, with the intention of dividing the profits among
themselves; While a corporation, like petitioner, cannot
generally enter into a contract of partnership unless
authorized by law or its charter, it has been held that it
may enter into a joint venture which is akin to a
particular partnership.—An examination of the “Power
of Attorney” reveals that a partnership or joint venture
was indeed intended by the parties. Under a contract
of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common
fund, with the intention of dividing the profits among
themselves. While a corporation, like petitioner, cannot
generally enter into a contract of partnership unless
authorized by law or its charter, it has been held that it
may enter into a joint venture which is akin to a
particular partnership: The legal concept of a joint
venture is of common law origin. It has no precise legal
definition, but it has been generally understood to
mean an organization formed for some temporary
purpose. x x x It is in fact hardly distinguishable from
the partnership, since their elements are similar—
community of interest in the business, sharing of profits
and losses, and a mutual right of control. x x x The
main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while
the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. x x x
This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership
may be particular or universal, and a particular
partnership may have for its object a specific
undertaking. x x x It would seem therefore that under
Philippine law, a joint venture is a form of partnership
and should be governed by the law of partnerships.
The Supreme Court has however recognized a
distinction between these two business forms, and has
held that although a corporation cannot enter into a
partnership contract, it may however engage in a joint
venture with others. x x x (Citations omitted)
Same; Agency; Words and Phrases; In an agency
coupled with interest, it is the agency that cannot be
revoked or withdrawn by the principal due to an interest
of a third party that depends upon it, or the mutual
interest of both principal and agent.—There is no merit
to petitioner’s claim that the prohibition in paragraph
5(c) against withdrawal of advances should not be
taken as an indication that it had entered into a
partnership with Baguio Gold; that the stipulation only
showed that what the parties entered into was actually
a contract of agency coupled with an interest which is
not revocable at will and not a partnership. In an
agency coupled with interest, it is the agency that
cannot be revoked or withdrawn by the principal due to
an interest of a third party that depends upon it, or the
mutual interest of both principal and agent. In this case,
the non-revocation or non-withdrawal under paragraph
5(c) applies to the advances made by petitioner who is
supposedly the agent and not the principal under the
contract. Thus, it cannot be inferred from the stipulation
that the parties’ relation under the agreement is one of
agency coupled with an interest and not a partnership.
Same; Same; The essence of an agency, even one
that is coupled with interest, is the agent’s ability to
represent his principal and bring about business
relations between the latter and third persons.—It
should be stressed that the main object of the “Power
of Attorney” was not to confer a power in favor of
petitioner to contract with third persons on behalf of
Baguio Gold but to create a business relationship
between petitioner and Baguio Gold, in which the
former was to manage and operate the latter’s mine
through the parties’ mutual contribution of material
resources and industry. The essence of an agency,
even one that is coupled with interest, is the agent’s
ability to represent his principal and bring about
business relations between the latter and third persons.
Where representation for and in behalf of the principal
is merely incidental or necessary for the proper
discharge of one’s paramount undertaking under a
contract, the latter may not necessarily be a contract of
agency, but some other agreement depending on the
ultimate undertaking of the parties. In this case, the
totality of the circumstances and the stipulations in the
parties’ agreement indubitably lead to the conclusion
that a partnership was formed between petitioner and
Baguio Gold.
Same; Article 1769 (4) of the Civil Code explicitly
provides that the “receipt by a person of a share in the
profits of a business is prima facie evidence that he is
a partner in the business.”—Article 1769 (4) of the Civil
Code explicitly provides that the “receipt by a person of
a share in the profits of a business is prima facie
evidence that he is a partner in the business.”
Petitioner asserts, however, that no such inference can
be drawn against it since its share in the profits of the
Sto Niño project was in the nature of compensation or
“wages of an employee,” under the exception provided
in Article 1769 (4) (b). On this score, the tax court
correctly noted that petitioner was not an employee of
Baguio Gold who will be paid “wages” pursuant to an
employer-employee relationship. To begin with,
petitioner was the manager of the project and had put
substantial sums into the venture in order to ensure its
viability and profitability. By pegging its compensation
to profits, petitioner also stood not to be remunerated
in case the mine had no income. It is hard to believe
that petitioner would take the risk of not being paid at
all for its services, if it were truly just an ordinary
employee. Consequently, we find that petitioner’s
“compensation” under paragraph 12 of the agreement
actually constitutes its share in the net profits of the
partnership. Indeed, petitioner would not be entitled to
an equal share in the income of the mine if it were just
an employee of Baguio Gold. It is not surprising that
petitioner was to receive a 50% share in the net profits,
considering that the “Power of Attorney” also provided
for an almost equal contribution of the parties to the St.
Nino mine. The “compensation” agreed upon only
serves to reinforce the notion that the parties’ relations
were indeed of partners and not employer-employee.
Same; Taxation; Bad Debt Deductions; Deductions for
income tax purposes partake of the nature of tax
exemptions and are strictly construed against the
taxpayer, who must prove by convincing evidence that
he is entitled to the deduction claimed.—The lower
courts did not err in treating petitioner’s advances as
investments in a partnership known as the Sto. Nino
mine. The advances were not “debts” of Baguio Gold
to petitioner inasmuch as the latter was under no
unconditional obligation to return the same to the
former under the “Power of Attorney.” As for the
amounts that petitioner paid as guarantor to Baguio
Gold’s creditors, we find no reason to depart from the
tax court’s factual finding that Baguio Gold’s debts
were not yet due and demandable at the time that
petitioner paid the same. Verily, petitioner pre-paid
Baguio Gold’s outstanding loans to its bank creditors
and this conclusion is supported by the evidence on
record. In sum, petitioner cannot claim the advances as
a bad debt deduction from its gross income.
Deductions for income tax purposes partake of the
nature of tax exemptions and are strictly construed
against the taxpayer, who must prove by convincing
evidence that he is entitled to the deduction claimed. In
this case, petitioner failed to substantiate its assertion
that the advances were subsisting debts of Baguio
Gold that could be deducted from its gross income.
Consequently, it could not claim the advances as a
valid bad debt deduction. Philex Mining Corporation vs.
Commissioner of Internal Revenue, 551 SCRA 428,
April 16, 2008
G.R. No. 148187 April 16, 2008
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL
REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June
30, 2000 Decision1 of the Court of Appeals in CA-G.R.
SP No. 49385, which affirmed the Decision2 of the
Court of Tax Appeals in C.T.A. Case No. 5200. Also
assailed is the April 3, 2001 Resolution3 denying the
motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining
Corporation (Philex Mining), entered into an
agreement4 with Baguio Gold Mining Company
("Baguio Gold") for the former to manage and operate
the latter’s mining claim, known as the Sto. Nino mine,
located in Atok and Tublay, Benguet Province. The
parties’ agreement was denominated as "Power of
Attorney" and provided for the following terms:
4. Within three (3) years from date thereof, the
PRINCIPAL (Baguio Gold) shall make available
to the MANAGERS (Philex Mining) up to
ELEVEN MILLION PESOS (P11,000,000.00), in
such amounts as from time to time may be
required by the MANAGERS within the said 3-
year period, for use in the MANAGEMENT of the
STO. NINO MINE. The said ELEVEN MILLION
PESOS (P11,000,000.00) shall be deemed, for
internal audit purposes, as the owner’s account in
the Sto. Nino PROJECT. Any part of any income
of the PRINCIPAL from the STO. NINO MINE,
which is left with the Sto. Nino PROJECT, shall
be added to such owner’s account.
5. Whenever the MANAGERS shall deem it
necessary and convenient in connection with the
MANAGEMENT of the STO. NINO MINE, they
may transfer their own funds or property to the
Sto. Nino PROJECT, in accordance with the
following arrangements:
(a) The properties shall be appraised and,
together with the cash, shall be carried by the
Sto. Nino PROJECT as a special fund to be
known as the MANAGERS’ account.
(b) The total of the MANAGERS’ account shall
not exceed P11,000,000.00, except with prior
approval of the PRINCIPAL; provided,
however, that if the compensation of the
MANAGERS as herein provided cannot be
paid in cash from the Sto. Nino PROJECT, the
amount not so paid in cash shall be added to
the MANAGERS’ account.
(c) The cash and property shall not thereafter
be withdrawn from the Sto. Nino PROJECT
until termination of this Agency.
(d) The MANAGERS’ account shall not accrue
interest. Since it is the desire of the
PRINCIPAL to extend to the MANAGERS the
benefit of subsequent appreciation of property,
upon a projected termination of this Agency,
the ratio which the MANAGERS’ account has
to the owner’s account will be determined, and
the corresponding proportion of the entire
assets of the STO. NINO MINE, excluding the
claims, shall be transferred to the
MANAGERS, except that such transferred
assets shall not include mine development,
roads, buildings, and similar property which
will be valueless, or of slight value, to the
MANAGERS. The MANAGERS can, on the
other hand, require at their option that
property originally transferred by them to the
Sto. Nino PROJECT be re-transferred to
them. Until such assets are transferred to the
MANAGERS, this Agency shall remain
subsisting.
xxxx
12. The compensation of the MANAGER shall be
fifty per cent (50%) of the net profit of the Sto.
Nino PROJECT before income tax. It is
understood that the MANAGERS shall pay
income tax on their compensation, while the
PRINCIPAL shall pay income tax on the net profit
of the Sto. Nino PROJECT after deduction
therefrom of the MANAGERS’ compensation.
xxxx
16. The PRINCIPAL has current pecuniary
obligation in favor of the MANAGERS and, in the
future, may incur other obligations in favor of the
MANAGERS. This Power of Attorney has been
executed as security for the payment and
satisfaction of all such obligations of the
PRINCIPAL in favor of the MANAGERS and as a
means to fulfill the same. Therefore, this Agency
shall be irrevocable while any obligation of the
PRINCIPAL in favor of the MANAGERS is
outstanding, inclusive of the MANAGERS’
account. After all obligations of the PRINCIPAL in
favor of the MANAGERS have been paid and
satisfied in full, this Agency shall be revocable by
the PRINCIPAL upon 36-month notice to the
MANAGERS.
17. Notwithstanding any agreement or
understanding between the PRINCIPAL and the
MANAGERS to the contrary, the MANAGERS
may withdraw from this Agency by giving 6-
month notice to the PRINCIPAL. The
MANAGERS shall not in any manner be held
liable to the PRINCIPAL by reason alone of such
withdrawal. Paragraph 5(d) hereof shall be
operative in case of the MANAGERS’ withdrawal.
x x x x5
In the course of managing and operating the project,
Philex Mining made advances of cash and property in
accordance with paragraph 5 of the agreement.
However, the mine suffered continuing losses over
the years which resulted to petitioner’s withdrawal as
manager of the mine on January 28, 1982 and in the
eventual cessation of mine operations on February
20, 1982.6
Thereafter, on September 27, 1982, the parties
executed a "Compromise with Dation in
Payment"7 wherein Baguio Gold admitted an
indebtedness to petitioner in the amount of
P179,394,000.00 and agreed to pay the same in three
segments by first assigning Baguio Gold’s tangible
assets to petitioner, transferring to the latter Baguio
Gold’s equitable title in its Philodrill assets and finally
settling the remaining liability through properties that
Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an
"Amendment to Compromise with Dation in
Payment"8 where the parties determined that Baguio
Gold’s indebtedness to petitioner actually amounted
to P259,137,245.00, which sum included liabilities of
Baguio Gold to other creditors that petitioner had
assumed as guarantor. These liabilities pertained to
long-term loans amounting to US$11,000,000.00
contracted by Baguio Gold from the Bank of America
NT & SA and Citibank N.A. This time, Baguio Gold
undertook to pay petitioner in two segments by first
assigning its tangible assets for P127,838,051.00 and
then transferring its equitable title in its Philodrill
assets for P16,302,426.00. The parties then
ascertained that Baguio Gold had a remaining
outstanding indebtedness to petitioner in the amount
of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of
account the remaining outstanding indebtedness of
Baguio Gold by charging P112,136,000.00 to
allowances and reserves that were set up in 1981 and
P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner
deducted from its gross income the amount of
P112,136,000.00 as "loss on settlement of
receivables from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal
Revenue (BIR) disallowed the amount as deduction
for bad debt and assessed petitioner a deficiency
income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the
deduction must be allowed since all requisites for a
bad debt deduction were satisfied, to wit: (a) there
was a valid and existing debt; (b) the debt was
ascertained to be worthless; and (c) it was charged off
within the taxable year when it was determined to be
worthless.
Petitioner emphasized that the debt arose out of a
valid management contract it entered into with Baguio
Gold. The bad debt deduction represented advances
made by petitioner which, pursuant to the
management contract, formed part of Baguio Gold’s
"pecuniary obligations" to petitioner. It also included
payments made by petitioner as guarantor of Baguio
Gold’s long-term loans which legally entitled petitioner
to be subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Gold’s
irreversible losses, it became evident that it would not
be able to recover the advances and payments it had
made in behalf of Baguio Gold. For a debt to be
considered worthless, petitioner claimed that it was
neither required to institute a judicial action for
collection against the debtor nor to sell or dispose of
collateral assets in satisfaction of the debt. It is
enough that a taxpayer exerted diligent efforts to
enforce collection and exhausted all reasonable
means to collect.
On October 28, 1994, the BIR denied petitioner’s
protest for lack of legal and factual basis. It held that
the alleged debt was not ascertained to be worthless
since Baguio Gold remained existing and had not filed
a petition for bankruptcy; and that the deduction did
not consist of a valid and subsisting debt considering
that, under the management contract, petitioner was
to be paid fifty percent (50%) of the project’s net
profit.10
Petitioner appealed before the Court of Tax Appeals
(CTA) which rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the
instant Petition for Review is hereby DENIED
for lack of merit. The assessment in question,
viz: FAS-1-82-88-003067 for deficiency
income tax in the amount of P62,811,161.39
is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining
Corporation is hereby ORDERED to PAY
respondent Commissioner of Internal
Revenue the amount of P62,811,161.39, plus,
20% delinquency interest due computed from
February 10, 1995, which is the date after the
20-day grace period given by the respondent
within which petitioner has to pay the
deficiency amount x x x up to actual date of
payment.
SO ORDERED.11
The CTA rejected petitioner’s assertion that the
advances it made for the Sto. Nino mine were in the
nature of a loan. It instead characterized the
advances as petitioner’s investment in a partnership
with Baguio Gold for the development and exploitation
of the Sto. Nino mine. The CTA held that the "Power
of Attorney" executed by petitioner and Baguio Gold
was actually a partnership agreement. Since the
advanced amount partook of the nature of an
investment, it could not be deducted as a bad debt
from petitioner’s gross income.
The CTA likewise held that the amount paid by
petitioner for the long-term loan obligations of Baguio
Gold could not be allowed as a bad debt deduction. At
the time the payments were made, Baguio Gold was
not in default since its loans were not yet due and
demandable. What petitioner did was to pre-pay the
loans as evidenced by the notice sent by Bank of
America showing that it was merely demanding
payment of the installment and interests due.
Moreover, Citibank imposed and collected a "pre-
termination penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the
CTA.12 Hence, upon denial of its motion for
reconsideration,13petitioner took this recourse under
Rule 45 of the Rules of Court, alleging that:
I.
 The Court of Appeals erred in construing that
the advances made by Philex in the
management of the Sto. Nino Mine pursuant
to the Power of Attorney partook of the nature
of an investment rather than a loan.
II.
The Court of Appeals erred in ruling that the
50%-50% sharing in the net profits of the Sto.
Nino Mine indicates that Philex is a partner of
Baguio Gold in the development of the Sto.
Nino Mine notwithstanding the clear absence
of any intent on the part of Philex and Baguio
Gold to form a partnership.
III.
The Court of Appeals erred in relying only on
the Power of Attorney and in completely
disregarding the Compromise Agreement and
the Amended Compromise Agreement when it
construed the nature of the advances made
by Philex.
IV.
The Court of Appeals erred in refusing to
delve upon the issue of the propriety of the
bad debts write-off.14
Petitioner insists that in determining the nature of its
business relationship with Baguio Gold, we should not
only rely on the "Power of Attorney", but also on the
subsequent "Compromise with Dation in Payment"
and "Amended Compromise with Dation in Payment"
that the parties executed in 1982. These documents,
allegedly evinced the parties’ intent to treat the
advances and payments as a loan and establish a
creditor-debtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of
Attorney" is the instrument that is material in
determining the true nature of the business
relationship between petitioner and Baguio Gold.
Before resort may be had to the two compromise
agreements, the parties’ contractual intent must first
be discovered from the expressed language of the
primary contract under which the parties’ business
relations were founded. It should be noted that the
compromise agreements were mere collateral
documents executed by the parties pursuant to the
termination of their business relationship created
under the "Power of Attorney". On the other hand, it is
the latter which established the juridical relation of the
parties and defined the parameters of their dealings
with one another.
The execution of the two compromise agreements
can hardly be considered as a subsequent or
contemporaneous act that is reflective of the parties’
true intent. The compromise agreements were
executed eleven years after the "Power of Attorney"
and merely laid out a plan or procedure by which
petitioner could recover the advances and payments it
made under the "Power of Attorney". The parties
entered into the compromise agreements as a
consequence of the dissolution of their business
relationship. It did not define that relationship or
indicate its real character.
An examination of the "Power of Attorney" reveals
that a partnership or joint venture was indeed
intended by the parties. Under a contract of
partnership, two or more persons bind themselves to
contribute money, property, or industry to a common
fund, with the intention of dividing the profits among
themselves.15 While a corporation, like petitioner,
cannot generally enter into a contract of partnership
unless authorized by law or its charter, it has been
held that it may enter into a joint venture which is akin
to a particular partnership:
The legal concept of a joint venture is of
common law origin. It has no precise legal
definition, but it has been generally
understood to mean an organization formed
for some temporary purpose. x x x It is in fact
hardly distinguishable from the partnership,
since their elements are similar – community
of interest in the business, sharing of profits
and losses, and a mutual right of control. x x x
The main distinction cited by most opinions in
common law jurisdictions is that the
partnership contemplates a general business
with some degree of continuity, while the joint
venture is formed for the execution of a single
transaction, and is thus of a temporary nature.
x x x This observation is not entirely accurate
in this jurisdiction, since under the Civil Code,
a partnership may be particular or universal,
and a particular partnership may have for its
object a specific undertaking. x x x It would
seem therefore that under Philippine law, a
joint venture is a form of partnership and
should be governed by the law of
partnerships. The Supreme Court has
however recognized a distinction between
these two business forms, and has held that
although a corporation cannot enter into a
partnership contract, it may however engage
in a joint venture with others. x x x (Citations
omitted) 16
Perusal of the agreement denominated as the "Power
of Attorney" indicates that the parties had intended to
create a partnership and establish a common fund for
the purpose. They also had a joint interest in the
profits of the business as shown by a 50-50 sharing in
the income of the mine.
Under the "Power of Attorney", petitioner and Baguio
Gold undertook to contribute money, property and
industry to the common fund known as the Sto. Niño
mine.17 In this regard, we note that there is a
substantive equivalence in the respective
contributions of the parties to the development and
operation of the mine. Pursuant to paragraphs 4 and 5
of the agreement, petitioner and Baguio Gold were to
contribute equally to the joint venture assets under
their respective accounts. Baguio Gold would
contribute P11M under its owner’s account plus any of
its income that is left in the project, in addition to
its actual mining claim. Meanwhile, petitioner’s
contribution would consist of its expertise in the
management and operation of mines, as well as the
manager’s account which is comprised of P11M in
funds and property and
petitioner’s "compensation" as manager that cannot
be paid in cash.
However, petitioner asserts that it could not have
entered into a partnership agreement with Baguio
Gold because it did not "bind" itself to contribute
money or property to the project; that under
paragraph 5 of the agreement, it was only optional for
petitioner to transfer funds or property to the Sto. Niño
project "(w)henever the MANAGERS shall deem it
necessary and convenient in connection with the
MANAGEMENT of the STO. NIÑO MINE."18
The wording of the parties’ agreement as to
petitioner’s contribution to the common fund does not
detract from the fact that petitioner transferred its
funds and property to the project as specified in
paragraph 5, thus rendering effective the other
stipulations of the contract, particularly paragraph 5(c)
which prohibits petitioner from withdrawing the
advances until termination of the parties’ business
relations. As can be seen, petitioner became bound
by its contributions once the transfers were made.
The contributions acquired an obligatory nature as
soon as petitioner had chosen to exercise its option
under paragraph 5.
There is no merit to petitioner’s claim that the
prohibition in paragraph 5(c) against withdrawal of
advances should not be taken as an indication that it
had entered into a partnership with Baguio Gold; that
the stipulation only showed that what the parties
entered into was actually a contract of agency
coupled with an interest which is not revocable at will
and not a partnership.
In an agency coupled with interest, it is
the agency that cannot be revoked or withdrawn by
the principal due to an interest of a third party that
depends upon it, or the mutual interest of both
principal and agent.19 In this case, the non-revocation
or non-withdrawal under paragraph 5(c) applies to
the advances made by petitioner who is supposedly
the agent and not the principal under the contract.
Thus, it cannot be inferred from the stipulation that the
parties’ relation under the agreement is one of agency
coupled with an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken
as an indication that the relationship of the parties
was one of agency and not a partnership. Although
the said provision states that "this Agency shall be
irrevocable while any obligation of the PRINCIPAL in
favor of the MANAGERS is outstanding, inclusive of
the MANAGERS’ account," it does not necessarily
follow that the parties entered into an agency contract
coupled with an interest that cannot be withdrawn by
Baguio Gold.
It should be stressed that the main object of the
"Power of Attorney" was not to confer a power in favor
of petitioner to contract with third persons on behalf of
Baguio Gold but to create a business relationship
between petitioner and Baguio Gold, in which the
former was to manage and operate the latter’s mine
through the parties’ mutual contribution of material
resources and industry. The essence of an agency,
even one that is coupled with interest, is the agent’s
ability to represent his principal and bring about
business relations between the latter and third
persons.20 Where representation for and in behalf of
the principal is merely incidental or necessary for the
proper discharge of one’s paramount undertaking
under a contract, the latter may not necessarily be a
contract of agency, but some other agreement
depending on the ultimate undertaking of the parties.21
In this case, the totality of the circumstances and the
stipulations in the parties’ agreement indubitably lead
to the conclusion that a partnership was formed
between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was
unconditionally obligated to return the advances made
by petitioner under the agreement. Paragraph 5 (d)
thereof provides that upon termination of the parties’
business relations, "the ratio which the MANAGER’S
account has to the owner’s account will be
determined, and the corresponding proportion of the
entire assets of the STO. NINO MINE, excluding the
claims" shall be transferred to petitioner.22 As pointed
out by the Court of Tax Appeals, petitioner was
merely entitled to a proportionate return of the mine’s
assets upon dissolution of the parties’ business
relations. There was nothing in the agreement that
would require Baguio Gold to make payments of the
advances to petitioner as would be recognized as an
item of obligation or "accounts payable" for Baguio
Gold.
Thus, the tax court correctly concluded that the
agreement provided for a distribution of assets of the
Sto. Niño mine upon termination, a provision that is
more consistent with a partnership than a creditor-
debtor relationship. It should be pointed out that in a
contract of loan, a person who receives a loan or
money or any fungible thing acquires ownership
thereof and is bound to pay the creditor an equal
amount of the same kind and quality.23 In this case,
however, there was no stipulation for Baguio Gold to
actually repay petitioner the cash and property that it
had advanced, but only the return of an amount
pegged at a ratio which the manager’s account had to
the owner’s account.
In this connection, we find no contractual basis for the
execution of the two compromise agreements in
which Baguio Gold recognized a debt in favor of
petitioner, which supposedly arose from the
termination of their business relations over the Sto.
Nino mine. The "Power of Attorney" clearly provides
that petitioner would only be entitled to the return of a
proportionate share of the mine assets to be
computed at a ratio that the manager’s account had to
the owner’s account. Except to provide a basis for
claiming the advances as a bad debt deduction, there
is no reason for Baguio Gold to hold itself liable to
petitioner under the compromise agreements, for any
amount over and above the proportion agreed upon in
the "Power of Attorney".
Next, the tax court correctly observed that it was
unlikely for a business corporation to lend hundreds of
millions of pesos to another corporation with neither
security, or collateral, nor a specific deed evidencing
the terms and conditions of such loans. The parties
also did not provide a specific maturity date for the
advances to become due and demandable, and the
manner of payment was unclear. All these point to the
inevitable conclusion that the advances were not
loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner
in the Sto Niño mine is the fact that it would receive
50% of the net profits as "compensation" under
paragraph 12 of the agreement. The entirety of the
parties’ contractual stipulations simply leads to no
other conclusion than that petitioner’s "compensation"
is actually its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides
that the "receipt by a person of a share in the profits
of a business is prima facie evidence that he is a
partner in the business." Petitioner asserts, however,
that no such inference can be drawn against it since
its share in the profits of the Sto Niño project was in
the nature of compensation or "wages of an
employee", under the exception provided in Article
1769 (4) (b).24
advances were subsisting debts of Baguio Gold that
could be deducted from its gross income.
Consequently, it could not claim the advances as a
valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision
of the Court of Appeals in CA-G.R. SP No. 49385
dated June 30, 2000, which affirmed the decision of
the Court of Tax Appeals in C.T.A. Case No. 5200
is AFFIRMED. Petitioner Philex Mining Corporation
is ORDERED to PAY the deficiency tax on its 1982
income in the amount of P62,811,161.31, with 20%
delinquency interest computed from February 10,
1995, which is the due date given for the payment of
the deficiency income tax, up to the actual date of
payment.
SO ORDERED.

On this score, the tax court correctly noted that

petitioner was not an employee of Baguio Gold who
will be paid "wages" pursuant to an employer-
employee relationship. To begin with, petitioner was
the manager of the project and had put substantial
sums into the venture in order to ensure its viability
and profitability. By pegging its compensation to
profits, petitioner also stood not to be remunerated in
case the mine had no income. It is hard to believe that
petitioner would take the risk of not being paid at all
for its services, if it were truly just an ordinary
employee.

Consequently, we find that petitioner’s

"compensation" under paragraph 12 of the agreement
actually constitutes its share in the net profits of the
partnership. Indeed, petitioner would not be entitled to
an equal share in the income of the mine if it were just
an employee of Baguio Gold.25 It is not surprising that
petitioner was to receive a 50% share in the net
profits, considering that the "Power of Attorney" also
provided for an almost equal contribution of the
parties to the St. Nino mine. The "compensation"
agreed upon only serves to reinforce the notion that
the parties’ relations were indeed of partners and not
employer-employee.

All told, the lower courts did not err in treating

petitioner’s advances as investments in a partnership
known as the Sto. Nino mine. The advances were not
"debts" of Baguio Gold to petitioner inasmuch as the
latter was under no unconditional obligation to return
the same to the former under the "Power of Attorney".
As for the amounts that petitioner paid as guarantor to
Baguio Gold’s creditors, we find no reason to depart
from the tax court’s factual finding that Baguio Gold’s
debts were not yet due and demandable at the time
that petitioner paid the same. Verily, petitioner pre-
paid Baguio Gold’s outstanding loans to its bank
creditors and this conclusion is supported by the
evidence on record.26

In sum, petitioner cannot claim the advances as a bad

debt deduction from its gross income. Deductions for
income tax purposes partake of the nature of tax
exemptions and are strictly construed against the
taxpayer, who must prove by convincing evidence that
he is entitled to the deduction claimed.27 In this case,
petitioner failed to substantiate its assertion that the
G.R. No. 111924 January 27, 1997
ADORACION LUSTAN, petitioner,
vs.
COURT OF APPEALS, NICOLAS PARANGAN and
SOLEDAD PARANGAN, PHILIPPINE NATIONAL
BANK, respondents.
Appeals; Evidence; Where the lower court and the
Court of Appeals arrived at different factual findings, a
review of the evidence on record by the Supreme Court
is necessitated.—Two main issues confront us in this
case, to wit: whether or not the Deed of Definite Sale is
in reality an equitable mortgage and whether or not
petitioner’s property is liable to PNB for the loans
contracted by Parangan by virtue of the special power
of attorney. The lower court and the CA arrived at
different factual findings thus necessitating a review of
the evidence on record. After a thorough examination,
we note some errors, both in fact and in law, committed
by public respondent CA.
Contracts; Sales; The meeting of the minds in a
contract speaks of the intent of the parties in entering
into the contract respecting the subject matter and the
consideration thereof, and if the words of the contract
appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former.—A
contract is perfected by mere consent. More
particularly, a contract of sale is perfected at the
moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.
This meeting of the minds speaks of the intent of the
parties in entering into the contract respecting the
subject matter and the consideration thereof. If the
words of the contract appear to be contrary to the
evident intention of the parties, the latter shall prevail
over the former.
Same; Same; Equitable Mortgage; Evidence; Parol
Evidence; Even when a document appears on its face
to be a sale, the owner of the property may prove that
the contract is really a loan with mortgage by raising as
an issue the fact that the document does not express
the true intent of the parties, in which case parol
evidence then becomes competent and admissible to
prove that the instrument was in truth and in fact given
merely as a security for the repayment of a loan.—In
the case at bench, the evidence is sufficient to warrant
a finding that petitioner and Parangan merely intended
to consolidate the former’s indebtedness to the latter in
a single instrument and to secure the same with the
subject property. Even when a document appears on
its face to be a sale, the owner of the property may
prove that the contract is really a loan with mortgage
by raising as an issue the fact that the document does
not express the true intent of the parties. In this case,
parol evidence then becomes competent and
admissible to prove that the instrument was in truth and
in fact given merely as a security for the repayment of
a loan. And upon proof of the truth of such allegations,
the court will enforce the agreement or understanding
in consonance with the true intent of the parties at the
time of the execution of the contract.
Same; Same; Same; For a presumption of an equitable
mortgage to arise, one must first satisfy two requisites,
namely: that the parties entered into a contract
denominated as a contract of sale and that their
intention was to secure an existing debt by way of
mortgage. The existence of any of the circumstances
in Art. 1602 of the Civil Code, not a concurrence nor an
overwhelming number of such circumstances, suffices
to give rise to the presumption that the contract is an
equitable mortgage.—From a reading of the
abovequoted provisions, for a presumption of an
equitable mortgage to arise, we must first satisfy two
requisites namely: that the parties entered into a
contract denominated as a contract of sale and that
their intention was to secure an existing debt by way of
mortgage. Under Art. 1604 of the Civil Code, a contract
purporting to be an absolute sale shall be presumed to
be an equitable mortgage should any of the conditions
in Art. 1602 be present. The existence of any of the
circumstances therein, not a concurrence nor an
overwhelming number of such circumstances, suffices
to give rise to the presumption that the contract is an
equitable mortgage.
Same; Same; When one of the contracting parties is
unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the
person enforcing the contract must show that the terms
thereof have been fully explained to the former.—
Petitioner had no knowledge that the contract she
signed is a deed of sale. The contents of the same were
not read nor explained to her so that she may
intelligibly formulate in her mind the consequences of
her conduct and the nature of the rights she was ceding
in favor of Parangan. Petitioner is illiterate and her
condition constrained her to merely rely on Parangan’s
assurance that the contract only evidences her
indebtedness to the latter. When one of the contracting
parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud
is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the
former. Settled is the rule that where a party to a
contract is illiterate or cannot read or cannot
understand the language in which the contract is
written, the burden is on the party interested in
enforcing the contract to prove that the terms thereof
are fully explained to the former in a language
understood by him. To our mind, this burden has not
been satisfactorily discharged.
Same; Same; Evidence; Witnesses; The assessment
by the trial court of the credibility of witnesses is entitled
to great respect and weight for having had the
opportunity of observing the conduct and demeanor of
the witnesses while testifying.—We do not find the
testimony of Parangan and Delia Cabial that the
contract was duly read and explained to petitioner
worthy of credit. The assessment by the trial court of
the credibility of witnesses is entitled to great respect
and weight for having had the opportunity of observing
the conduct and demeanor of the witnesses while
testifying. The lower court may not have categorically
declared Cabial’s testimony as doubtful but this fact is
readily apparent when it ruled on the basis of
petitioner’s evidence in total disregard of the positive
testimony on Parangan’s side. We have subjected the
records to a thorough examination, and a reading of the
transcript of stenographic notes would bear out that the
court a quo is correct in its assessment.
Same; Same; Same; Same; Notaries Public;
Contradiction between a witness and the Notary Public
who notarized the purported instrument casts doubt on
the credibility of the former as it is ostensible that his or
her version of the story is concocted.—The CA
committed a reversible error when it relied on the
testimony of Cabial in upholding the validity of the Deed
of Definite Sale. For one, there are noted major
contradictions between the testimonies of Cabial and
Judge Lebaquin, who notarized the purported Deed of
Definite Sale. While the former testified that receipts
were presented before Judge Lebaquin, who in turn
made an accounting to determine the price of the land,
the latter categorically denied the allegation. This
contradiction casts doubt on the credibility of Cabial as
it is ostensible that her version of the story is
concocted.
Same; Mortgages; Third persons who are not parties
to a loan may secure the latter by pledging or
mortgaging their own property.—Third persons who
are not parties to a loan may secure the latter by
pledging or mortgaging their own property. So long as
valid consent was given, the fact that the loans were
solely for the benefit of Parangan would not invalidate
the mortgage with respect to petitioner’s property. In
consenting thereto, even granting that petitioner may
not be assuming personal liability for the debt, her
property shall nevertheless secure and respond for the
performance of the principal obligation. It is admitted
that petitioner is the owner of the parcel of land
mortgaged to PNB on five (5) occasions by virtue of the
Special Powers of Attorney executed by petitioner in
favor of Parangan.
with the agent if the former allowed the latter to act as
though he had full powers.—The Special Power of
Attorney particularly provides that the same is good not
only for the principal loan but also for subsequent
commercial, industrial, agricultural loan or credit
accommodation that the attorney-in-fact may obtain
and until the power of attorney is revoked in a public
instrument and a copy of which is furnished to PNB.
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
(Article 1911, Civil Code). The mortgage directly and
immediately subjects the property upon which it is
imposed. The property of third persons which has been
expressly mortgaged to guarantee an obligation to
which the said persons are foreign, is directly and
jointly liable for the fulfillment thereof; it is therefore
subject to execution and sale for the purpose of paying
the amount of the debt for which it is liable. However,
petitioner has an unquestionable right to demand
proportional indemnification from Parangan with
respect to the sum paid to PNB from the proceeds of
the sale of her property in case the same is sold to
satisfy the unpaid debts. Lustan vs. Court of Appeals,
266 SCRA 663, G.R. No. 111924 January 27, 1997

Same; Same; Agency; Special Powers of Attorneys;

Absent a valid revocation duly furnished to the
mortgagee, Special Powers of Attorney continue to
have force and effect as against third persons who had
no knowledge of such lack of authority.—Petitioner
argues that the last three mortgages were void for lack
of authority. She totally failed to consider that said
Special Powers of Attorney are a continuing one and
absent a valid revocation duly furnished to the
mortgagee, the same continues to have force and
effect as against third persons who had no knowledge
of such lack of authority. Article 1921 of the Civil Code
provides: “Art. 1921. If the agency has been entrusted
for the purpose of contracting with specified persons,
its revocation shall not prejudice the latter if they were
not given notice thereof.”

Same; Same; Same; Same; As far as third persons are

concerned, an act is deemed to have been performed
within the scope of the agent’s authority if such is within
the terms of the power of attorney as written even if the
agent has in fact exceeded the limits of his authority
according to the understanding between the principal
and the agent.—The Special Power of Attorney
executed by petitioner in favor of Parangan duly
authorized the latter to represent and act on behalf of
the former. Having done so, petitioner clothed
Parangan with authority to deal with PNB on her behalf
and in the absence of any proof that the bank had
knowledge that the last three loans were without the
express authority of petitioner, it cannot be prejudiced
thereby. As far as third persons are concerned, an act
is deemed to have been performed within the scope of
the agent’s authority if such is within the terms of the
power of attorney as written even if the agent has in
fact exceeded the limits of his authority according to the
understanding between the principal and the agent.

Same; Same; Same; Same; Even when the agent has

exceeded his authority, the principal is solidarily liable
G.R. No. 111924 January 27, 1997
ADORACION LUSTAN, petitioner,
vs.
COURT OF APPEALS, NICOLAS PARANGAN and
SOLEDAD PARANGAN, PHILIPPINE NATIONAL
BANK, respondents.
FRANCISCO, J.:
Petitioner Adoracion Lustan is the registered owner of
a parcel of land otherwise known as Lot 8069 of the
Cadastral Survey of Calinog, Iloilo containing an area
of 10.0057 hectares and covered by TCT No. T-561.
On February 25, 1969, petitioner leased the above
described property to private respondent Nicolas
Parangan for a term of ten (10) years and an annual
rent of One Thousand (P1,000.00) Pesos. During the
period of lease, Parangan was regularly extending
loans in small amounts to petitioner to defray her daily
expenses and to finance her daughter's education. On
July 29, 1970, petitioner executed a Special Power of
Attorney in favor of Parangan to secure an agricultural
loan from private respondent Philippine National Bank
(PNB) with the aforesaid lot as collateral. On February
18, 1972, a second Special Power of Attorney was
executed by petitioner, by virtue of which, Parangan
was able to secure four (4) additional loans, to wit: the
sums of P24,000.00, P38,000.00, P38,600.00 and
P25,000.00 on December 15, 1975, September 6,
1976, July 2, 1979 and June 2, 1980, respectively.
The last three loans were without the knowledge of
herein petitioner and all the proceeds therefrom were
used by Parangan for his own benefit. 1 These
encumbrances were duly annotated on the certificate
of title. On April 16, 1973, petitioner signed a Deed
of Pacto de Retro Sale2 in favor of Parangan which
was superseded by the Deed of Definite Sale3dated
May 4, 1979 which petitioner signed upon Parangan's
representation that the same merely evidences the
loans extended by him unto the former.
For fear that her property might be prejudiced by the
continued borrowing of Parangan, petitioner
demanded the return of her certificate of title. Instead
of complying with the request, Parangan asserted his
rights over the property which allegedly had become
his by virtue of the aforementioned Deed of Definite
Sale. Under said document, petitioner conveyed the
subject property and all the improvements thereon
unto Parangan absolutely for and in consideration of
the sum of Seventy Five Thousand (P75,000.00)
Pesos.
Aggrieved, petitioner filed an action for cancellation of
liens, quieting of title, recovery of possession and
damages against Parangan and PNB in the Regional
Trial Court of Iloilo City. After trial, the lower court
rendered judgment, disposing as follows:
WHEREFORE and in view of the foregoing, a
decision is rendered as follows:
1. Ordering cancellation by the Register of Deeds
of the Province of Iloilo, of the unauthorized
loans, the liens and encumbrances appearing in
the Transfer Certificate of Title No. T-561,
especially entries nos. 286231; 338638; and
352794;
2. Declaring the Deed of Pacto de Retro Sale
dated April 25, 1978 and the Deed of Definite
Sale dated May 6, 1979, both documents
executed by Adoracion Lustan in favor of Nicolas
Parangan over Lot 8069 in TCT No. T-561 of the
Register of Deeds of Iloilo, as null and void,
declaring the same to be Deeds of Equitable
Mortgage;
3. Ordering defendant Nicolas Parangan to pay
all the loans he secured from defendant PNB
using thereto as security TCT No. T-561 of
plaintiff and defendant PNB to return TCT No. T-
561 to plaintiff;
4. Ordering defendant Nicolas Parangan to return
possession of the land in question, Lot 8069 of
the Calinog Cadastre, described in TCT No. T-
561 of the Register of Deeds of Iloilo, to plaintiff
upon payment of the sum of P75,000.00 by
plaintiff to defendant Parangan which payment by
plaintiff must be made within ninety (90) days
from receipt of this decision; otherwise, sale of
the land will be ordered by the court to satisfy
payment of the amount;
5. Ordering defendant Nicolas Parangan to pay
plaintiff attorney's fees in the sum of P15,000.00
and to pay the costs of the suit.
SO ORDERED.4
Upon appeal to the Court of Appeals (CA),
respondent court reversed the trial court's decision.
Hence this petition contending that the CA committed
the following errors:
IN ARRIVING AT THE CONCLUSION THAT
NONE OF THE CONDITIONS STATED IN ART.
1602 OF THE NEW CIVIL CODE HAS BEEN
PROVEN TO EXIST BY PREPONDERANCE OF
EVIDENCE;
IN CONCLUDING THAT PETITIONER SIGNED
THE DEED OF SALE WITH KNOWLEDGE AS
TO THE CONTENTS THEREOF;
IN ARRIVING AT THE CONCLUSION THAT
THE TESTIMONY OF WITNESS DELIA CABIAL
DESERVES FULL FAITH AND CREDIT;
IN FINDING THAT THE SPECIAL POWER OF
ATTORNEY AUTHORIZING MORTGAGE FOR
"UNLIMITED" LOANS AS RELEVANT.
Two main issues confront us in this case, to wit:
whether or not the Deed of Definite Sale is in reality
an equitable mortgage and whether or not petitioner's
property is liable to PNB for the loans contracted by
Parangan by virtue of the special power of attorney.
The lower court and the CA arrived at different factual
findings thus necessitating a review of the evidence
on record.5 After a thorough examination, we note
some errors, both in fact and in law, committed by
public respondent CA.
The court a quo ruled that the Deed of Definite Sale is
in reality an equitable mortgage as it was shown
beyond doubt that the intention of the parties was one
of a loan secured by petitioner's land.6 We agree.
A contract is perfected by mere consent.7 More
particularly, a contract of sale is perfected at the
moment there is a meeting of minds upon the thing
which is the object of the contract and upon the
price.8 This meeting of the minds speaks of the intent
of the parties in entering into the contract respecting
the subject matter and the consideration thereof. If the
words of the contract appear to be contrary to the
evident intention of the parties, the latter shall prevail
over the former.9 In the case at bench, the evidence is
sufficient to warrant a finding that petitioner and
Parangan merely intended to consolidate the former's
indebtedness to the latter in a single instrument and to
secure the same with the subject property. Even when
a document appears on its face to be a sale, the
owner of the property may prove that the contract is
really a loan with mortgage by raising as an issue the
fact that the document does not express the true
intent of the parties. In this case, parol evidence then
becomes competent and admissible to prove that the
instrument was in truth and in fact given merely as a
security for the repayment of a loan. And upon proof
of the truth of such allegations, the court will enforce
the agreement or understanding in consonance with
the true intent of the parties at the time of the
execution of the contract. 10
Articles 1602 and 1604 of the Civil Code respectively
provide:
The contract shall be presumed to be an
equitable mortgage in any of the following cases:
1) When the price of a sale with right to
repurchase is unusually inadequate;
2) When the vendor remains in possession as
lessor or otherwise;
3) When upon or after the expiration of the right
to repurchase, another instrument extending the
period of redemption or granting a new period is
executed;
4) When the vendor binds himself to pay the
taxes on the thing sold;
5) When the purchaser retains for himself a part
of the purchase price;
6) In any other case where it may be fairly
inferred that the real intention of the parties is
that the transaction shall secure the payment of a
debt or the performance of any other obligation.
Art. 1604. The provisions of Article 1602 shall
also apply to a contract purporting to be an
absolute sale.
From a reading of the above-quoted provisions, for a
presumption of an equitable mortgage to arise, we
must first satisfy two requisites namely: that the
parties entered into a contract denominated as a
contract of sale and that their intention was to secure
an existing debt by way of mortgage. Under Art. 1604
of the Civil Code, a contract purporting to be an
absolute sale shall be presumed to be an equitable
mortgage should any of the conditions in Art. 1602 be
present. The existence of any of the circumstances
therein, not a concurrence nor an overwhelming
number of such circumstances, suffices to give rise to
the presumption that the contract is an equitable
mortgage. 11
Art. 1602, (6), in relation to Art 1604 provides that a
contract of sale is presumed to be an equitable
mortgage in any other case where it may be fairly
inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the
performance of any other obligation. That the case
clearly falls under this category can be inferred from
the circumstances surrounding the transaction as
herein set forth:
Petitioner had no knowledge that the contract 12 she
signed is a deed of sale. The contents of the same
were not read nor explained to her so that she may
intelligibly formulate in her mind the consequences of
her conduct and the nature of the rights she was
ceding in favor of Parangan. Petitioner is illiterate and
her condition constrained her to merely rely on
Parangan's assurance that the contract only
evidences her indebtedness to the latter. When one of
the contracting parties is unable to read, or if the
contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been
fully explained to the former. 13 Settled is the rule that
where a party to a contract is illiterate or cannot read
or cannot understand the language in which the
contract is written, the burden is on the party
interested in enforcing the contract to prove that the
terms thereof are fully explained to the former in a
language understood by him.14 To our mind, this
burden has not been satisfactorily discharged.
We do not find the testimony of Parangan and Delia
Cabial that the contract was duly read and explained
to petitioner worthy of credit. The assessment by the
trial court of the credibility of witnesses is entitled to
great respect and weight for having had the
opportunity of observing the conduct and demeanor of
the witnesses while testifying. 15 The lower court may
not have categorically declared Cabial's testimony as
doubtful but this fact is readily apparent when it ruled
on the basis of petitioner's evidence in total disregard
of the positive testimony on Parangan's side. We
have subjected the records to a thorough
examination, and a reading of the transcript of
stenographic notes would bear out that the court a
quo is correct in its assessment. The CA committed a
reversible error when it relied on the testimony of
Cabial in upholding the validity of the Deed of Definite
Sale. For one, there are noted major contradictions
between the testimonies of Cabial and Judge
Lebaquin, who notarized the purported Deed of
Definite Sale. While the former testified that receipts
were presented before Judge Lebaquin, who in turn
made an accounting to determine the price of the
land 16, the latter categorically denied the
allegation. 17 This contradiction casts doubt on the
credibility of Cabial as it is ostensible that her version
of the story is concocted.
On the other hand, petitioner's witness Celso
Pamplona, testified that the contract was not read nor
explained to petitioner. We believe that this witness
gave a more accurate account of the circumstances
surrounding the transaction. He has no motive to
prevaricate or concoct a story as he witnessed the
execution of the document at the behest of Parangan
himself who, at the outset, informed him that he will
witness a document consolidating petitioner's debts.
He thus testified:
Q: In (sic) May 4, 1979, you remember having
went (sic) to the Municipality of Calinog?
A: Yes, sir.
Q: Who invited you to go there?
A: Parangan.
Q: You mean Nicolas Parangan?
A: Yes, sir.
Q: What did Nicolas tell you why he invited you to
go there?
A: He told me that I will witness on the
indebtedness of Adoracion to Parangan.
Q: Before Adoracion Lustan signed her name in
this Exh. "4", was this document read to her?
A: No, sir.
Q: Did Nicolas Parangan right in that very room
tell Adoracion what she was signing?
A: No, sir.
xxx xxx xxx
Q: What did you have in mind when you were
signing this document, Exh. "4"?
A: To show that Adoracion Lustan has debts with
Nicolas
Parangan. 18
Furthermore, we note the absence of any question
propounded to Judge Lebaquin to establish that the
deed of sale was read and explained by him to
petitioner. When asked if witness has any knowledge
whether petitioner knows how to read or write, he
answered in the negative. 19 This latter admission
impresses upon us that the contract was not at all
read or explained to petitioner for had he known that
petitioner is illiterate, his assistance would not have
been necessary.
The foregoing squares with the sixth instance when a
presumption of equitable mortgage prevails. The
contract of definite sale, where petitioner purportedly
ceded all her rights to the subject lot in favor of
Parangan, did not embody the true intention of the
parties. The evidence speaks clearly of the nature of
the agreement — it was one executed to secure some
loans.
Anent the issue of whether the outstanding mortgages
on the subject property can be enforced against
petitioner, we rule in the affirmative.
Third persons who are not parties to a loan may
secure the latter by pledging or mortgaging their own
property. 20So long as valid consent was given, the
fact that the loans were solely for the benefit of
Parangan would not invalidate the mortgage with
respect to petitioner's property. In consenting thereto,
even granting that petitioner may not be assuming
personal liability for the debt, her property shall
nevertheless secure and respond for the performance
of the principal obligation. 21 It is admitted that
petitioner is the owner of the parcel of land mortgaged
to PNB on five (5) occasions by virtue of the Special
Powers of Attorney executed by petitioner in favor of
Parangan. Petitioner argues that the last three
mortgages were void for lack of authority. She totally
failed to consider that said Special Powers of Attorney
are a continuing one and absent a valid revocation
duly furnished to the mortgagee, the same continues
to have force and effect as against third persons who
had no knowledge of such lack of authority. Article
1921 of the Civil Code provides:
Art. 1921. If the agency has been entrusted for
the purpose of contracting with specified persons,
its revocation shall not prejudice the latter if they
were not given notice thereof.
The Special Power of Attorney executed by petitioner
in favor of Parangan duly authorized the latter to
represent and act on behalf of the former. Having
done so, petitioner clothed Parangan with authority to
deal with PNB on her behalf and in the absence of
any proof that the bank had knowledge that the last
three loans were without the express authority of
petitioner, it cannot be prejudiced thereby. As far as
third persons are concerned, an act is deemed to
have been performed within the scope of the agent's
authority if such is within the terms of the power of
attorney as written even if the agent has in fact
exceeded the limits of his authority according to the
understanding between the principal and the
agent. 22 The Special Power of Attorney particularly
provides that the same is good not only for the
principal loan but also for subsequent commercial,
industrial, agricultural loan or credit accommodation
that the attorney-in-fact may obtain and until the
power of attorney is revoked in a public instrument
and a copy of which is furnished to PNB. 23 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 (Article
1911, Civil Code). 24 The mortgage directly and
immediately subjects the property upon which it is
imposed. 25 The property of third persons which has
been expressly mortgaged to guarantee an obligation
to which the said persons are foreign, is directly and
jointly liable for the fulfillment thereof; it is therefore
subject to execution and sale for the purpose of
paying the amount of the debt for which it is
liable. 26 However, petitioner has an unquestionable
right to demand proportional indemnification from
Parangan with respect to the sum paid to PNB from
the proceeds of the sale of her property 27 in case the
same is sold to satisfy the unpaid debts.
WHEREFORE, premises considered, the judgment of
the lower court is hereby REINSTATED with the
following MODIFICATIONS:
1. DECLARING THE DEED OF DEFINITE SALE AS
AN EQUITABLE MORTGAGE;
2. ORDERING PRIVATE RESPONDENT NICOLAS
PARANGAN TO RETURN THE POSSESSION OF
THE SUBJECT LAND UNTO PETITIONER UPON
THE LATTER'S PAYMENT OF THE SUM OF
P75,000.00 WITHIN NINETY (90) DAYS FROM
RECEIPT OF THIS DECISION;
3. DECLARING THE MORTGAGES IN FAVOR OF
PNB AS VALID AND SUBSISTING AND MAY
THEREFORE BE SUBJECTED TO EXECUTION
SALE.
4. ORDERING PRIVATE RESPONDENT
PARANGAN TO PAY PETITIONER THE AMOUNT
OF P15,000.00 BY WAY OF ATTORNEY'S FEES
AND TO PAY THE COSTS OF THE SUIT.
SO ORDERED.
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of
CONCEPCION RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION
and COURT OF APPEALS, respondents.
Agency, its concept, essential elements and
characteristics.—By the relationship of agency, one
party called the principal authorizes another called the
agent to act for and in his behalf in transactions with
third persons. The essential elements of agency are:(l)
there is consent, express or implied, of the parties to
establish the relationship: (2) the object is the
execution of a juridical act in relation to a third person;
(3) the agent acts as a representative and not for
himself; and (4) the agent acts within the scope of his
authority. Agency is basically personal, representative,
and derivative in nature. The authority of the agent to
act emanates from the powers granted to him by his
principal; his act is the act of the principal if done within
the scope of the authority. “He who acts through
another acts himself.”
Same: Same; Art. 1930 and Art. 1931 of the Civil Code
providing that death of principal or agent extinguishing
agency is only a general rule; Rationale for the
provision.—Reason of the very nature of the
relationship between principal and agent, agency is
extinguished by the death of the principal. Manresa
explains that the rationale for the law is found in the
juridical basis of agency which is representation.
Laurent says that the juridical tie between the principal
and the agent is severed ipso jure upon the death of
either without necessity for the heirs of the principal to
notify the agent of the fact of death of the former. 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. This is the prevalent rule in
American jurisprudence where it is well-settled that a
power without an interest conferred upon an agent is
dissolved by the principal’s death, and any attempted
execution of the power afterwards is not binding on the
heirs or representatives of the deceased.
Same; Same; Art. 1930 and Art. 1931 of the Civil Code
exceptions to general rule provided in Art. 1919 of the
Civil Code, that death of principal revokes ipso jure the
agency.—Is the general rule provided for in Art. 1919
that the death of the principal or of the agent
extinguishes the agency, subject to any exception, and
if so, is the instant case within that exception? That is
the determinative point in issue in this litigation x x x
Articles 1930 and 1931 of the Civil Code provide the
exceptions to the general rule aforementioned.
Same; Same; Same; Contention that despite death of
principal the act of attorney-in-fact in selling his
principal’s share of the disputed property is valid and
enforceable since the buyer acted in good faith is
untenable because of the established knowledge of the
attorney-in-fact of the death of his principal; Requisites
of Art. 1931 that despite death of principal and of agent
is valid not complied with.—Under Art. 1931 of the Civil
Code, an act done by the agent after the death of his
principal is valid and effective only under two
conditions, viz: (1) that the agent acted without
knowledge of the death of the principal, and (2) that the
third person who contracted with the agent himself
acted in good faith. Good faith here means that the
third person was not aware of the death of the principal
at the time he contracted with said agent. These two
requisites must concur: the absence of one will render
the act of the agent invalid and unenforceable. In the
instant case, it cannot be questioned that the agent
Simeon Rallos knew of the death of his principal at the
time he sold the latter’s share in Lot No. 5983 to
respondent corporation. x x x On the basis of the
established knowledge of Simeon Rallos concerning
the death of his principal, Concepcion Rallos, Article
1931 of the Civil Code is inapplicable. The law
expressly requires for its application lack of knowledge
on the part of the agent of the death of his principal; it
is not enough that the third person acted in good faith.
Same; Same; Same; Same; General rule is that an act
of agent after death of his principal is void ab initio
unless the same falls under exceptions in Arts. 1930
and 1931 of the Civil Code; Art 1931 being an
exception to the general rule is to be strictly
construed.—In sustaining the validity of the sale to
respondent corporation, the Court of Appeals reasoned
out that there is no provision in the Civil Code which
provides that whatever is done by an agent having
knowledge of the death of his principal is void even with
respect to third persons who may have contracted with
him in good faith and without knowledge of the death
of the principal. We cannot see the merits of the
foregoing argument as it ignores the existence of the
general rule enunciated in Art. 1919 that the death of
the principal extinguishes the agency. That being the
general rule it follows a fortiori that any act of an agent
after the death of his principal is void ab initio unless
the same falls under the exceptions provided for in the
aforementioned Articles 1930 and 1931. Article 1931,
being an exception to the general rule, is to be strictly
construed; it is not to be given an interpretation or
application beyond the clear import of its terms for
otherwise the courts will be involved in a process of
legislation outside of their judicial function.
Same; Same; Revocation by an act of the principal as
a mode of terminating agency distinguished from
revocation by operation of law such as death of
principal.—Revocation by an act of the principal as a
mode of terminating an agency is to be distinguished
from revocation by operation of law such as death of
the principal which obtains in this case. The decision
stressed that by reason of the very nature of the
relationship between principal and agent, agency is
extinguished ipso jure upon the death of either principal
or agent. Although a revocation of a power of attorney
to be effective must be communicated to the parties
concerned, yet a revocation by operation of law, such
as by death of the principal is, as a rule,
instantaneously effective inasmuch as “by legal fiction
the agent’s exercise of authority is regarded as an
execution of the principal’s continuing will.” With death,
the principal’s will ceases or is terminated; the source
of authority is extinguished.
Same; Same; Law does not impose a duty on the heirs
of principal to notify agent of death of principal; If agent
dies, his heirs must notify principal thereof.—The Civil
Code does not impose a duty on the heirs of the
principal to notify the agent of the death of said
principal. What the Code provides in Article 1932 is
that, if the agent dies, his heirs must notify the principal
thereof, and in the meantime adopt such measures as
the circumstances may demand in the interest of the principal. In the case before Us the agent Ramon
latter. Hence, the fact that no notice of the death of the Rallos executed the sale notwithstanding notice of the
principal was registered on the certificate of title of the death of his principal. Accordingly, the agent’s act is
property in the Office of the Register of Deeds, is not unenforceable against the estate of his principal. Rallos
fatal to the cause of the estate of the principal. vs. Felix Go Chan & Sons Realty Corporation, 81
SCRA 251, No. L-24332 January 31, 1978
Same; Same; No parallel can be drawn between the
case of attorney-in-fact who after death of his principal
sold the latter’s share in the land pursuant to a special
power of attorney which the principal had executed in
his favor and that of an innocent purchaser for value of
registered land.—Holding that the good faith of a third
person in dealing with an agent affords the former
sufficient protection, respondent court drew a “parallel”
between the instant case and that of an innocent
purchaser for value of a registered land, stating that if
a person purchases a registered land from one who
acquired it in bad faith—even to the extent of forging or
falsifying the deed of sale in his favor—the registered
owner has no recourse against such innocent
purchaser for value but only against the forger. To
support the correctness of this “parallelism”,
respondent corporation, in its brief, cites the case of
Blondeau, et al. vs. Nano and Vallejo, 61 Phil. 625. x x
x The Blondeau decision, however, is not on all fours
with the case before Us because here We are
confronted with one who admittedly was an agent of his
sister and who sold the property of the latter after her
death with full knowledge of such death. The situation
is expressly covered by a provision of law on agency
the terms of which are clear and unmistakable leaving
no room for an interpretation contrary to its tenor, in the
same manner that the ruling in Blondeau and the cases
cited therein found a basis in Section 55 of the Land
Registration Law.

Same; Same; Conflict of legal opinion in American

jurisprudence does not hold true in Philippine law; Civil
Code of the Philippines expressly provides for two
exceptions to general rule that death of the principal
revokes the agency; Agent’s act of executing the sale
of property despite notice of death of his principal is
unenforceable against the estate of the principal.—
One last point raised by respondent corporation in
support of the appealed decision is an 1842 ruling of
the

Supreme Court of Pennsylvania in Cassiday v.

McKenzie wherein payments made to an agent after
the death of the principal were held to be “good”, “the
parties being ignorant of the death.” Let us take note
that the Opinion of Justice Rogers was premised on the
statement that the parties were ignorant of the death of
the principal. x x x To avoid any wrong impression
which the Opinion in Cassiday v. McKenzie may evoke,
mention may be made that the above represents the
minority view in American jurisprudence. x x x
Whatever conflict of legal opinion was generated by
Cassiday v. McKenzie in American jurisprudence, no
such conflict exists in our own for the simple reason
that our statute, the Civil Code, expressly provides for
two exceptions to the general rule that death of the
principal revokes ipso jure the agency, to wit: (1) that
the agency is coupled with an interest (Art. 1930), and
(2) that the act of the agent was executed without
knowledge of the death of the principal and the third
person who contracted with the agent acted also in
good faith (Art. 1931). Exception No. 2 is the doctrine
followed in Cassiday, and again We stress the
indispensable requirement—that the agent acted
without knowledge or notice of the death of the
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of
CONCEPCION RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION
and COURT OF APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.
MUÑOZ PALMA, J.:
This is a case of an attorney-in-fact, Simeon Rallos,
who after of his death of his principal, Concepcion
Rallos, sold the latter's undivided share in a parcel of
land pursuant to a power of attorney which the
principal had executed in favor. The administrator of
the estate of the went to court to have the sale
declared uneanforceable and to recover the disposed
share. The trial court granted the relief prayed for, but
upon appeal the Court of Appeals uphold the validity
of the sale and the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and
Gerundia both surnamed Rallos were sisters and
registered co-owners of a parcel of land known as Lot
No. 5983 of the Cadastral Survey of Cebu covered by
Transfer Certificate of Title No. 11116 of the Registry
of Cebu. On April 21, 1954, the sisters executed a
special power of attorney in favor of their brother,
Simeon Rallos, authorizing him to sell for and in their
behalf lot 5983. On March 3, 1955, Concepcion Rallos
died. On September 12, 1955, Simeon Rallos sold the
undivided shares of his sisters Concepcion and
Gerundia in lot 5983 to Felix Go Chan & Sons Realty
Corporation for the sum of P10,686.90. The deed of
sale was registered in the Registry of Deeds of Cebu,
TCT No. 11118 was cancelled, and a new transfer
certificate of Title No. 12989 was issued in the named
of the vendee.
On May 18, 1956 Ramon Rallos as administrator of
the Intestate Estate of Concepcion Rallos filed a
complaint docketed as Civil Case No. R-4530 of the
Court of First Instance of Cebu, praying (1) that the
sale of the undivided share of the deceased
Concepcion Rallos in lot 5983 be d unenforceable,
and said share be reconveyed to her estate; (2) that
the Certificate of 'title issued in the name of Felix Go
Chan & Sons Realty Corporation be cancelled and
another title be issued in the names of the corporation
and the "Intestate estate of Concepcion Rallos" in
equal undivided and (3) that plaintiff be indemnified by
way of attorney's fees and payment of costs of suit.
Named party defendants were Felix Go Chan & Sons
Realty Corporation, Simeon Rallos, and the Register
of Deeds of Cebu, but subsequently, the latter was
dropped from the complaint. The complaint was
amended twice; defendant Corporation's Answer
contained a crossclaim against its co-defendant,
Simon Rallos while the latter filed third-party
complaint against his sister, Gerundia Rallos While
the case was pending in the trial court, both Simon
and his sister Gerundia died and they were
substituted by the respective administrators of their
estates.
After trial the court a quo rendered judgment with the
following dispositive portion:
A. On Plaintiffs Complaint —
(1) Declaring the deed of sale, Exh. "C", null
and void insofar as the one-half pro-indiviso
share of Concepcion Rallos in the property in
question, — Lot 5983 of the Cadastral Survey
of Cebu — is concerned;
(2) Ordering the Register of Deeds of Cebu City
to cancel Transfer Certificate of Title No. 12989
covering Lot 5983 and to issue in lieu thereof
another in the names of FELIX GO CHAN &
SONS REALTY CORPORATION and the
Estate of Concepcion Rallos in the proportion of
one-half (1/2) share each pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty
Corporation to deliver the possession of an
undivided one-half (1/2) share of Lot 5983 to
the herein plaintiff;
(4) Sentencing the defendant Juan T.
Borromeo, administrator of the Estate of
Simeon Rallos, to pay to plaintiff in concept of
reasonable attorney's fees the sum of
P1,000.00; and
(5) Ordering both defendants to pay the costs
jointly and severally.
B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T.
Borromeo, administrator of the Estate of
Simeon Rallos, to pay to defendant Felix Co
Chan & Sons Realty Corporation the sum of
P5,343.45, representing the price of one-half
(1/2) share of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to
pay in concept of reasonable attorney's fees to
Felix Go Chan & Sons Realty Corporation the
sum of P500.00.
C. On Third-Party Complaint of defendant Juan T.
Borromeo administrator of Estate of Simeon
Rallos, against Josefina Rallos special
administratrix of the Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without
prejudice to filing either a complaint against the
regular administrator of the Estate of Gerundia
Rallos or a claim in the Intestate-Estate of
Cerundia Rallos, covering the same subject-
matter of the third-party complaint, at bar. (pp.
98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in
due time to the Court of Appeals from the foregoing
judgment insofar as it set aside the sale of the one-
half (1/2) share of Concepcion Rallos. The appellate
tribunal, as adverted to earlier, resolved the appeal on
November 20, 1964 in favor of the appellant
corporation sustaining the sale in question. 1 The
appellee administrator, Ramon Rallos, moved for a
reconsider of the decision but the same was denied in
a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an
agent after the death of his principal? Applied more
particularly to the instant case, We have the query. is
the sale of the undivided share of Concepcion Rallos
in lot 5983 valid although it was executed by the agent
after the death of his principal? What is the law in this
jurisdiction as to the effect of the death of the principal
on the authority of the agent to act for and in behalf of
the latter? Is the fact of knowledge of the death of the
principal a material factor in determining the legal
effect of an act performed after such death?
Before proceedings to the issues, We shall briefly
restate certain principles of law relevant to the matter
tinder consideration.
1. It is a basic axiom in civil law embodied in our Civil
Code that no one may contract in the name of another
without being authorized by the latter, or unless he
has by law a right to represent him. 3 A contract
entered into in the name of another by one who has
no authority or the legal representation or who has
acted beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before
it is revoked by the other contracting party.4 Article
1403 (1) of the same Code also provides:
ART. 1403. The following contracts are
unenforceable, unless they are justified:
(1) Those entered into in the name of another
person by one who hi - been given no authority or
legal representation or who has acted beyond his
powers; ...
Out of the above given principles, sprung the creation
and acceptance of the relationship of agency whereby
one party, caged the principal (mandante), authorizes
another, called the agent (mandatario), to act for and
in his behalf in transactions with third persons. The
essential elements of agency are: (1) there is consent,
express or implied of the parties to establish the
relationship; (2) the object is the execution of a
juridical act in relation to a third person; (3) the agents
acts as a representative and not for himself, and (4)
the agent acts within the scope of his authority. 5
Agency is basically personal representative,
and derivative in nature. The authority of the agent to
act emanates from the powers granted to him by his
principal; his act is the act of the principal if done
within the scope of the authority. Qui facit per alium
facit se. "He who acts through another acts himself". 6
2. There are various ways of extinguishing
agency, 7 but her We are concerned only with one
cause — death of the principal Paragraph 3 of Art.
1919 of the Civil Code which was taken from Art.
1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or
insolvency of the principal or of the agent; ...
(Emphasis supplied)
By reason of the very nature of the relationship
between Principal and agent, agency is extinguished
by the death of the principal or the agent. This is the
law in this jurisdiction.8
Manresa commenting on Art. 1709 of the Spanish
Civil Code explains that the rationale for the law is
found in the juridical basis of agency which
is representation Them being an in. integration of the
personality of the principal integration that of the
agent it is not possible for the representation to
continue to exist once the death of either is
establish. Pothier agrees with Manresa that by reason
of the nature of agency, death is a necessary cause
for its extinction. Laurent says that the juridical tie
between the principal and the agent is severed ipso
jure upon the death of either without necessity for the
heirs of the fact to notify the agent of the fact of death
of the former. 9
The same rule prevails at common law — the death of
the principal effects instantaneous and absolute
revocation of the authority of the agent unless the
Power be coupled with an interest. 10 This is the
prevalent rule in American Jurisprudence where it is
well-settled that a power without an interest confer.
red upon an agent is dissolved by the principal's
death, and any attempted execution of the power
afterward is not binding on the heirs or
representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that
the death of the principal or of the agent extinguishes
the agency, subject to any exception, and if so, is the
instant case within that exception? That is the
determinative point in issue in this litigation. It is the
contention of respondent corporation which was
sustained by respondent court that notwithstanding
the death of the principal Concepcion Rallos the act of
the attorney-in-fact, Simeon Rallos in selling the
former's sham in the property is valid and enforceable
inasmuch as the corporation acted in good faith in
buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the
exceptions to the general rule afore-mentioned.
ART. 1930. The agency shall remain in full force
and effect even after the death of the principal, if
it has been constituted in the common interest of
the latter and of the agent, or in the interest of a
third person who has accepted the stipulation in
his favor.
ART. 1931. Anything done by the agent, without
knowledge of the death of the principal or of any
other cause which extinguishes the agency, is
valid and shall be fully effective with respect to
third persons who may have contracted with him
in good. faith.
Article 1930 is not involved because admittedly the
special power of attorney executed in favor of Simeon
Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this
provision, an act done by the agent after the death of
his principal is valid and effective only under two
conditions, viz: (1) that the agent acted without
knowledge of the death of the principal and (2) that
the third person who contracted with the agent himself
acted in good faith. Good faith here means that the
third person was not aware of the death of the
principal at the time he contracted with said agent.
These two requisites must concur the absence of one
will render the act of the agent invalid and
unenforceable.
In the instant case, it cannot be questioned that the
agent, Simeon Rallos, knew of the death of his
principal at the time he sold the latter's share in Lot
No. 5983 to respondent corporation. The knowledge
of the death is clearly to be inferred from the
pleadings filed by Simon Rallos before the trial
court. 12 That Simeon Rallos knew of the death of his
sister Concepcion is also a finding of fact of the court
a quo 13 and of respondent appellate court when the
latter stated that Simon Rallos 'must have known of
the death of his sister, and yet he proceeded with the
sale of the lot in the name of both his sisters
Concepcion and Gerundia Rallos without informing
appellant (the realty corporation) of the death of the
former. 14
On the basis of the established knowledge of Simon
Rallos concerning the death of his principal
Concepcion Rallos, Article 1931 of the Civil Code is
inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent
of the death of his principal; it is not enough that the
third person acted in good faith. Thus in Buason &
Reyes v. Panuyas, the Court applying Article 1738 of
the old Civil rode now Art. 1931 of the new Civil Code
sustained the validity , of a sale made after the death
of the principal because it was not shown that the
agent knew of his principal's demise. 15 To the same
effect is the case of Herrera, et al., v. Luy Kim Guan,
et al., 1961, where in the words of Justice Jesus
Barrera the Court stated:
... even granting arguemendo that Luis Herrera
did die in 1936, plaintiffs presented no proof and
there is no indication in the record, that the agent
Luy Kim Guan was aware of the death of his
principal at the time he sold the property. The
death 6f the principal does not render the act of
an agent unenforceable, where the latter had no
knowledge of such extinguishment of the agency.
(1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent
consideration the Court of Appeals reasoned out that
there is no provision in the Code which provides that
whatever is done by an agent having knowledge of
the death of his principal is void even with respect to
third persons who may have contracted with him in
good faith and without knowledge of the death of the
principal. 16
We cannot see the merits of the foregoing argument
as it ignores the existence of the general rule
enunciated in Article 1919 that the death of the
principal extinguishes the agency. That being the
general rule it follows a fortiorithat any act of an agent
after the death of his principal is void ab initio unless
the same fags under the exception provided for in the
aforementioned Articles 1930 and 1931. Article 1931,
being an exception to the general rule, is to be strictly
construed, it is not to be given an interpretation or
application beyond the clear import of its terms for
otherwise the courts will be involved in a process of
legislation outside of their judicial function.
5. Another argument advanced by respondent court is
that the vendee acting in good faith relied on the
power of attorney which was duly registered on the
original certificate of title recorded in the Register of
Deeds of the province of Cebu, that no notice of the
death was aver annotated on said certificate of title by
the heirs of the principal and accordingly they must
suffer the consequences of such omission. 17
To support such argument reference is made to a
portion in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of
contracting with certain persons, the revocation
must be made known to them. But if the agency
is general iii nature, without reference to
particular person with whom the agent is to
contract, it is sufficient that the principal exercise
due diligence to make the revocation of the
agency publicity known.
In case of a general power which does not
specify the persons to whom represents' on
should be made, it is the general opinion that all
acts, executed with third persons who contracted
in good faith, Without knowledge of the
revocation, are valid. In such case, the principal
may exercise his right against the agent, who,
knowing of the revocation, continued to assume a
personality which he no longer had. (Manresa
Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by
an act of the principal as a mode of terminating an
agency which is to be distinguished from revocation
by operation of law such as death of the principal
which obtains in this case. On page six of this Opinion
We stressed that by reason of the very nature of the
relationship between principal and agent, agency is
extinguished ipso jure upon the death of either
principal or agent. Although a revocation of a power of
attorney to be effective must be communicated to the
parties concerned, 18 yet a revocation by operation of
law, such as by death of the principal is, as a rule,
instantaneously effective inasmuch as "by legal fiction
the agent's exercise of authority is regarded as an
execution of the principal's continuing will. 19 With
death, the principal's will ceases or is the of authority
is extinguished.
The Civil Code does not impose a duty on the heirs to
notify the agent of the death of the principal What the
Code provides in Article 1932 is that, if the agent die
his heirs must notify the principal thereof, and in the
meantime adopt such measures as the circumstances
may demand in the interest of the latter. Hence, the
fact that no notice of the death of the principal was
registered on the certificate of title of the property in
the Office of the Register of Deeds, is not fatal to the
cause of the estate of the principal
6. Holding that the good faith of a third person in said
with an agent affords the former sufficient protection,
respondent court drew a "parallel" between the instant
case and that of an innocent purchaser for value of a
land, stating that if a person purchases a registered
land from one who acquired it in bad faith — even to
the extent of foregoing or falsifying the deed of sale in
his favor — the registered owner has no recourse
against such innocent purchaser for value but only
against the forger. 20
To support the correctness of this respondent
corporation, in its brief, cites the case of Blondeau, et
al., v. Nano and Vallejo, 61 Phil. 625. We quote from
the brief:
In the case of Angel Blondeau et al. v. Agustin
Nano et al., 61 Phil. 630, one Vallejo was a co-
owner of lands with Agustin Nano. The latter had
a power of attorney supposedly executed by
Vallejo Nano in his favor. Vallejo delivered to
Nano his land titles. The power was registered in
the Office of the Register of Deeds. When the
lawyer-husband of Angela Blondeau went to that
Office, he found all in order including the power
of attorney. But Vallejo denied having executed
the power The lower court sustained Vallejo and
the plaintiff Blondeau appealed. Reversing the
decision of the court a quo, the Supreme Court,
quoting the ruling in the case of Eliason v.
Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the
defenses of the defendant- appellee must be
overruled. Agustin Nano had possession of
Jose Vallejo's title papers. Without those title
papers handed over to Nano with the
acquiescence of Vallejo, a fraud could not
have been perpetuated. When Fernando de la
Canters, a member of the Philippine Bar and
the husband of Angela Blondeau, the principal
plaintiff, searched the registration record, he
found them in due form including the power of
attorney of Vallajo in favor of Nano. If this had
not been so and if thereafter the proper
notation of the encumbrance could not have
been made, Angela Blondeau would not have
sent P12,000.00 to the defendant Vallejo.' An
executed transfer of registered lands placed
by the registered owner thereof in the hands
of another operates as a representation to a
third party that the holder of the transfer is
authorized to deal with the land.
As between two innocent persons, one of
whom must suffer the consequence of a
breach of trust, the one who made it possible
by his act of coincidence bear the loss. (pp.
19-21)
The Blondeau decision, however, is not on all fours
with the case before Us because here We are
confronted with one who admittedly was an agent of
his sister and who sold the property of the latter after
her death with full knowledge of such death. The
situation is expressly covered by a provision of law on
agency the terms of which are clear and unmistakable
leaving no room for an interpretation contrary to its
tenor, in the same manner that the ruling in Blondeau
and the cases cited therein found a basis in Section
55 of the Land Registration Law which in part
provides:
xxx xxx xxx
The production of the owner's duplicate certificate
whenever any voluntary instrument is presented
for registration shall be conclusive authority from
the registered owner to the register of deeds to
enter a new certificate or to make a
memorandum of registration in accordance with
such instruments, and the new certificate or
memorandum Shall be binding upon the
registered owner and upon all persons claiming
under him in favor of every purchaser for value
and in good faith: Provided however, That in all
cases of registration provided by fraud, the owner
may pursue all his legal and equitable remedies
against the parties to such fraud without
prejudice, however, to the right, of any innocent
holder for value of a certificate of title. ... (Act No.
496 as amended)
7. One last point raised by respondent corporation in
support of the appealed decision is an 1842 ruling of
the Supreme Court of Pennsylvania in Cassiday v.
McKenzie wherein payments made to an agent after
the death of the principal were held to be "good", "the
parties being ignorant of the death". Let us take note
that the Opinion of Justice Rogers was premised on
the statement that the parties were ignorant of the
death of the principal. We quote from that decision the
following:
... Here the precise point is, whether a payment
to an agent when the Parties are ignorant of the
death is a good payment. in addition to the case
in Campbell before cited, the same judge Lord
Ellenboruogh, has decided in 5 Esp. 117, the
general question that a payment after the death
of principal is not good. Thus, a payment of
sailor's wages to a person having a power of
attorney to receive them, has been held void
when the principal was dead at the time of the
payment. If, by this case, it is meant merely to
decide the general proposition that by operation
of law the death of the principal is a revocation of
the powers of the attorney, no objection can be
taken to it. But if it intended to say that his
principle applies where there was 110 notice of
death, or opportunity of twice I must be permitted
to dissent from it.
... That a payment may be good today, or bad
tomorrow, from the accident circumstance of the
death of the principal, which he did not know, and
which by no possibility could he know? It would
be unjust to the agent and unjust to the debtor. In
the civil law, the acts of the agent, done bona fide
in ignorance of the death of his principal are held
valid and binding upon the heirs of the latter. The
same rule holds in the Scottish law, and I cannot
believe the common law is so unreasonable... (39
Am. Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion
in Cassiday v. McKenzie may evoke, mention may be
made that the above represents the minority view in
American jurisprudence. Thus in Clayton v. Merrett,
the Court said.—
 There are several cases which seem to hold that
although, as a general principle, death revokes
an agency and renders null every act of the agent
thereafter performed, yet that where a payment
has been made in ignorance of the death, such
payment will be good. The leading case so
holding is that of Cassiday v. McKenzie, 4 Watts
& S. (Pa) 282, 39 Am. 76, where, in an elaborate
opinion, this view ii broadly announced. It is
referred to, and seems to have been followed, in
the case of Dick v. Page, 17 Mo. 234, 57 AmD
267; but in this latter case it appeared that the
estate of the deceased principal had received the
benefit of the money paid, and therefore the
representative of the estate might well have been
held to be estopped from suing for it again. . . .
These cases, in so far, at least, as they
announce the doctrine under discussion, are
exceptional. The Pennsylvania
Case, supra (Cassiday v. McKenzie 4 Watts & S.
282, 39 AmD 76), is believed to stand almost, if
not quite, alone in announcing the principle in its
broadest scope. (52, Misc. 353, 357, cited in 2
C.J. 549)

So also in Travers v. Crane, speaking of Cassiday v.

McKenzie, and pointing out that the opinion, except so
far as it related to the particular facts, was a
mere dictum, Baldwin J. said:

The opinion, therefore, of the learned Judge may

be regarded more as an extrajudicial indication of
his views on the general subject, than as the
adjudication of the Court upon the point in
question. But accordingly all power weight to this
opinion, as the judgment of a of great
respectability, it stands alone among common
law authorities and is opposed by an array too
formidable to permit us to following it. (15 Cal.
12,17, cited in 2 C.J. 549)

Whatever conflict of legal opinion was generated

by Cassiday v. McKenzie in American jurisprudence,
no such conflict exists in our own for the simple
reason that our statute, the Civil Code, expressly
provides for two exceptions to the general rule that
death of the principal revokes ipso jure the agency, to
wit: (1) that the agency is coupled with an interest (Art
1930), and (2) that the act of the agent was executed
without knowledge of the death of the principal and
the third person who contracted with the agent acted
also in good faith (Art. 1931). Exception No. 2 is the
doctrine followed in Cassiday, and again We stress
the indispensable requirement that the agent acted
without knowledge or notice of the death of the
principal In the case before Us the agent Ramon
Rallos executed the sale notwithstanding notice of the
death of his principal Accordingly, the agent's act is
unenforceable against the estate of his principal.

IN VIEW OF ALL THE FOREGOING, We set aside

the ecision of respondent appellate court, and We
affirm en toto the judgment rendered by then Hon.
Amador E. Gomez of the Court of First Instance of
Cebu, quoted in pages 2 and 3 of this Opinion, with
costs against respondent realty corporation at all
instances.

So Ordered.
G.R. No. 175910 July 30, 2009
ATTY. ROGELIO E. SARSABA, Petitioner,
vs.
FE VDA. DE TE, represented by her Attorney-in-
Fact, FAUSTINO CASTAÑEDA, Respondents.
Courts; Judgments; Hierarchy of Courts; An appeal
may be taken from the Regional Trial Court (RTC)
which exercised its original jurisdiction, before the
Court of Appeals or directly before this Court, provided
that the subject of the same is a judgment or final order
that completely disposes of the case or of a particular
matter therein when declared by the Rules to be
appealable.—An appeal may be taken from the RTC
which exercised its original jurisdiction, before the
Court of Appeals or directly before this Court, provided
that the subject of the same is a judgment or final order
that completely disposes of the case, or of a particular
matter therein when declared by the Rules to be
appealable. The first mode of appeal, to be filed before
the Court of Appeals, pertains to a writ of error under
Section 2(a), Rule 41 of the Rules of Court, if questions
of fact or questions of fact and law are raised or
involved. On the other hand, the second mode is by
way of an appeal by certiorari before the Supreme
Court under Section 2(c), Rule 41, in relation to Rule
45, where only questions of law are raised or involved.
An order or judgment of the RTC is deemed final when
it finally disposes of a pending action, so that nothing
more can be done with it in the trial court. In other
words, the order or judgment ends the litigation in the
lower court. On the other hand, an order which does
not dispose of the case completely and indicates that
other things remain to be done by the court as regards
the merits, is interlocutory. Interlocutory refers to
something between the commencement and the end of
the suit which decides some point or matter, but is not
a final decision on the whole controversy.
Same; Same; Interlocutory Orders; Under Section 1(c),
Rule 41 of the Rules of Court, an interlocutory order is
not appealable.—We have said time and again that an
order denying a motion to dismiss is interlocutory.
Under Section 1(c), Rule 41 of the Rules of Court, an
interlocutory order is not appealable. As a remedy for
the denial, a party has to file an answer and interpose
as a defense the objections raised in the motion, and
then to proceed to trial; or, a party may immediately
avail of the remedy available to the aggrieved party by
filing an appropriate special civil action for certiorari
under Rule 65 of the Revised Rules of Court. Let it be
stressed though that a petition for certiorari is
appropriate only when an order has been issued
without or in excess of jurisdiction, or with grave abuse
of discretion amounting to lack or excess of jurisdiction.
Same; Same; Same; Not being a proper subject of an
appeal, the order of the Regional Trial Court (RTC) is
considered interlocutory.—Not being a proper subject
of an appeal, the Order of the RTC is considered
interlocutory. Petitioner should have proceeded with
the trial of the case and, should the RTC eventually
render an unfavorable verdict, petitioner should assail
the said Order as part of an appeal that may be taken
from the final judgment to be rendered in this case.
Such rule is founded on considerations of orderly
procedure, to forestall useless appeals and avoid
undue inconvenience to the appealing party by having
to assail orders as they are promulgated by the court,
when all such orders may be contested in a single
appeal. In one case, the Court adverted to the hazards
of interlocutory appeals: It is axiomatic that an
interlocutory order cannot be challenged by an appeal.
Thus, it has been held that “the proper remedy in such
cases is an ordinary appeal from an adverse judgment
on the merits, incorporating in said appeal the grounds
for assailing the interlocutory order. Allowing appeals
from interlocutory orders would result in the ‘sorry
spectacle’ of a case being subject of a
counterproductive ping-pong to and from the appellate
court as often as a trial court is perceived to have made
an error in any of its interlocutory rulings.
Same; Hierarchy of Courts; The judicial hierarchy of
courts is not an iron-clad rule. A strict application of the
rule is not necessary when cases brought before the
appellate courts do not involve factual but legal
questions.—We treat the petition to have been filed
under Rule 65, the same is still dismissible for violating
the principle on hierarchy of courts. Generally, a direct
resort to us in a petition for certiorari is highly improper,
for it violates the established policy of strict observance
of the judicial hierarchy of courts. This principle, as a
rule, requires that recourse must first be made to the
lower-ranked court exercising concurrent jurisdiction
with a higher court. However, the judicial hierarchy of
courts is not an iron-clad rule. A strict application of the
rule is not necessary when cases brought before the
appellate courts do not involve factual but legal
questions.
Same; Jurisdiction; Summons; Jurisdiction over a party
is acquired by service of summons by the sheriff, his
deputy or other proper court officer, either personally
by handing a copy thereof to the defendant or by
substituted service.—Jurisdiction over a party is
acquired by service of summons by the sheriff, his
deputy or other proper court officer, either personally
by handing a copy thereof to the defendant or by
substituted service. On the other hand, summons is a
writ by which the defendant is notified of the action
brought against him. Service of such writ is the means
by which the court may acquire jurisdiction over his
person.
Pleadings and Practice; As a rule, all defenses and
objections not pleaded, either in a motion to dismiss or
in an answer, are deemed waived.—As a rule, all
defenses and objections not pleaded, either in a motion
to dismiss or in an answer, are deemed waived. The
exceptions to this rule are: (1) when the court has no
jurisdiction over the subject matter, (2) when there is
another action pending between the parties for the
same cause, or (3) when the action is barred by prior
judgment or by statute of limitations, in which cases,
the court may dismiss the claim.
Jurisdictions; Summons; Failure to serve summons on
Sereno’s person will not be a cause for the dismissal of
the complaint against the other defendant, considering
that they have been served with copies of the
summons and complaints and have long submitted
their respective responsive pleadings.—We cannot
countenance petitioner’s argument that the complaint
against the other defendants should have been
dismissed, considering that the RTC never acquired
jurisdiction over the person of Sereno. The court’s
failure to acquire jurisdiction over one’s person is a
defense which is personal to the person claiming it.
Obviously, it is now impossible for Sereno to invoke the
same in view of his death. Neither can petitioner invoke
such ground, on behalf of Sereno, so as to reap the
benefit of having the case dismissed against all of the
defendants. Failure to serve summons on Sereno’s
person will not be a cause for the dismissal of the
complaint against the other defendants, considering
that they have been served with copies of the
summons and complaints and have long submitted
their respective responsive pleadings. In fact, the other
defendants in the complaint were given the chance to
raise all possible defenses and objections personal to
them in their respective motions to dismiss and their
subsequent answers.
Civil Procedure; Substitution of Parties; When a party
to a pending action dies and the claim is not
extinguished, the Rules of Court require a substitution
of the deceases.—When a party to a pending action
dies and the claim is not extinguished, the Rules of
Court require a substitution of the deceased. Section 1,
Rule 87 of the Rules of Court enumerates the actions
that survived and may be filed against the decedent’s
representatives as follows: (1) actions to recover real
or personal property or an interest thereon, (2) actions
to enforce liens thereon, and (3) actions to recover
damages for an injury to a person or a property. In such
cases, a counsel is obliged to inform the court of the
death of his client and give the name and address of
the latter’s legal representative.
Same; Same; The rule on substitution by heirs is not a
matter of jurisdiction, but a requirement of due
process.—The rule on substitution by heirs is not a
matter of jurisdiction, but a requirement of due process.
The rule on substitution was crafted to protect every
party’s right to due process. It was designed to ensure
that the deceased party would continue to be properly
represented in the suit through his heirs or the duly
appointed legal representative of his estate. Moreover,
non-compliance with the Rules results in the denial of
the right to due process for the heirs who, though not
duly notified of the proceedings, would be substantially
affected by the decision rendered therein. Thus, it is
only when there is a denial of due process, as when
the deceased is not represented by any legal
representative or heir, that the court nullifies the trial
proceedings and the resulting judgment therein.
Same; Pleadings and Practice; Attorneys; The Court
has repeatedly declared that failure of the counsel to
comply with his duty to inform the court of the death of
his client, such that no substitution is effected, will not
invalidate the proceedings and the judgment rendered
thereon if the action survives the death of such party.—
Such failure of counsel would not lead Us to invalidate
the proceedings that have long taken place before the
RTC. The Court has repeatedly declared that failure of
the counsel to comply with his duty to inform the court
of the death of his client, such that no substitution is
effected, will not invalidate the proceedings and the
judgment rendered thereon if the action survives the
death of such party. The trial court’s jurisdiction over
the case subsists despite the death of the party. The
purpose behind this rule is the protection of the right to
due process of every party to the litigation who may be
affected by the intervening death. The deceased
litigants are themselves protected as they continue to
be properly represented in the suit through the duly
appointed legal representative of their estate.
Same; Agency; Agency is extinguished by the death of
the principal.—Agency is extinguished by the death of
the principal. The only exception where the agency
shall remain in full force and effect even after the death
of the principal is when 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.
Same; Judgments; If the petition is to be treated as a
petition for certiorari as a relaxation of the judicial
hierarchy of courts, the same is also dismissible for
being substantially insufficient to warrant the Court the
nullification of the Order of the Regional Trial Court
(RTC).—We hold that the petition should be denied as
the RTC Order is interlocutory; hence, not a proper
subject of an appeal before the Court. In the same
breath, We also hold that, if the petition is to be treated
as a petition for certiorari as a relaxation of the judicial
hierarchy of courts, the same is also dismissible for
being substantially insufficient to warrant the Court the
nullification of the Order of the RTC.
Courts; The Supreme Court is a court of last resort, and
must so remain if it is to satisfactorily perform the
functions assigned to it by the fundamental character
and immemorial tradition.—Let this be an occasion for
Us to reiterate that the rules are there to aid litigants in
prosecuting or defending their cases before the courts.
However, these very rules should not be abused so as
to advance one’s personal purposes, to the detriment
of orderly administration of justice. We can surmise
from the present case herein petitioner’s manipulation
in order to circumvent the rule on modes of appeal and
the hierarchy of courts so that the issues presented
herein could be settled without going through the
established procedures. In Vergara, Sr. v. Suelto, 156
SCRA 753 (1987), We stressed that this should be the
constant policy that must be observed strictly by the
courts and lawyers, thus: x x x. The Supreme Court is
a court of last resort, and must so remain if it is to
satisfactorily perform the functions assigned to it by the
fundamental charter and immemorial tradition. It
cannot and should not be burdened with the task of
dealing with causes in the first instance. Its original
jurisdiction to issue the so-called extraordinary writs
should be exercised only where absolutely necessary
or where serious and important reasons exist therefor.
Hence, that jurisdiction should generally be exercised
relative to actions or proceedings before the Court of
Appeals, or before constitutional or other tribunals,
bodies or agencies whose acts for some reason or
another are not controllable by the Court of Appeals.
Where the issuance of an extraordinary writ is also
within the competence of the Court of Appeals or a
Regional Trial Court, it is in either of these courts that
the specific action for the writ’s procurement must be
presented. This is and should continue to be the policy
in this regard, a policy that courts and lawyers must
strictly observe. Sarsaba vs. De Te, 594 SCRA 410,
G.R. No. 175910 July 30, 2009
G.R. No. 175910 July 30, 2009
ATTY. ROGELIO E. SARSABA, Petitioner,
vs.
FE VDA. DE TE, represented by her Attorney-in-
Fact, FAUSTINO CASTAÑEDA, Respondents.
DECISION
DEL CASTILLO, J.:
Before us is a petition for review on certiorari1 with
prayer for preliminary injunction assailing the
Order2 dated March 22, 2006 of the Regional Trial
Court (RTC), Branch 19, Digos City, Davao del Sur, in
Civil Case No. 3488.
The facts, as culled from the records, follow.
On February 14, 1995, a Decision was rendered in
NLRC Case No. RAB-11-07-00608-93
entitled, Patricio Sereno v. Teodoro Gasing/Truck
Operator, finding Sereno to have been illegally
dismissed and ordering Gasing to pay him his
monetary claims in the amount of ₱43,606.47. After
the Writ of Execution was returned unsatisfied, Labor
Arbiter Newton R. Sancho issued an Alias Writ of
Execution3 on June 10, 1996, directing Fulgencio R.
Lavarez, Sheriff II of the National Labor Relations
Commission (NLRC), to satisfy the judgment award.
On July 23, 1996, Lavarez, accompanied by Sereno
and his counsel, petitioner Atty. Rogelio E. Sarsaba,
levied a Fuso Truck bearing License Plate No. LBR-
514, which at that time was in the possession of
Gasing. On July 30, 1996, the truck was sold at public
auction, with Sereno appearing as the highest bidder.4
Meanwhile, respondent Fe Vda. de Te, represented
by her attorney-in-fact, Faustino Castañeda, filed with
the RTC, Branch 18, Digos, Davao del Sur, a
Complaint5 for recovery of motor vehicle, damages
with prayer for the delivery of the truck pendente lite
against petitioner, Sereno, Lavarez and the NLRC of
Davao City, docketed as Civil Case No. 3488.
Respondent alleged that: (1) she is the wife of the late
Pedro Te, the registered owner of the truck, as
evidenced by the Official Receipt6 and Certificate of
Registration;7 (2) Gasing merely rented the truck from
her; (3) Lavarez erroneously assumed that Gasing
owned the truck because he was, at the time of the
"taking,"8 in possession of the same; and (4) since
neither she nor her husband were parties to the labor
case between Sereno and Gasing, she should not be
made to answer for the judgment award, much less
be deprived of the truck as a consequence of the levy
in execution.
Petitioner filed a Motion to Dismiss9 on the following
grounds: (1) respondent has no legal personality to
sue, having no real interests over the property subject
of the instant complaint; (2) the allegations in the
complaint do not sufficiently state that the respondent
has cause of action; (3) the allegations in the
complaint do not contain sufficient cause of action as
against him; and (4) the complaint is not accompanied
by an Affidavit of Merit and Bond that would entitle the
respondent to the delivery of the tuck pendente lite.
The NLRC also filed a Motion to Dismiss10 on the
grounds of lack of jurisdiction and lack of cause of
action.
Meanwhile, Lavarez filed an Answer with Compulsory
Counterclaim and Third-Party Complaint.11 By way of
special and affirmative defenses, he asserted that the
RTC does not have jurisdiction over the subject
matter and that the complaint does not state a cause
of action.
On January 21, 2000, the RTC issued an
Order12 denying petitioner's Motion to Dismiss for lack
of merit.
In his Answer,13 petitioner denied the material
allegations in the complaint. Specifically, he cited as
affirmative defenses that: respondent had no legal
personality to sue, as she had no interest over the
motor vehicle; that there was no showing that the
heirs have filed an intestate estate proceedings of the
estate of Pedro Te, or that respondent was duly
authorized by her co-heirs to file the case; and that
the truck was already sold to Gasing on March 11,
1986 by one Jesus Matias, who bought the same from
the Spouses Te. Corollarily, Gasing was already the
lawful owner of the truck when it was levied on
execution and, later on, sold at public auction.
Incidentally, Lavarez filed a Motion for
Inhibition,14 which was opposed15 by respondent.
On October 13, 2000, RTC Branch 18 issued an
Order16 of inhibition and directed the transfer of the
records to Branch 19. RTC Branch 19, however,
returned the records back to Branch 18 in view of the
appointment of a new judge in place of Judge-
designate Rodolfo A. Escovilla. Yet, Branch 19 issued
another Order17 dated November 22, 2000 retaining
the case in said branch.
Eventually, the RTC issued an Order18 dated May 19,
2003 denying the separate motions to dismiss filed by
the NLRC and Lavarez, and setting the Pre-Trial
Conference on July 25, 2003.
On October 17, 2005, petitioner filed an Omnibus
Motion to Dismiss the Case on the following
grounds:19 (1) lack of jurisdiction over one of the
principal defendants; and (2) to discharge
respondent's attorney-in-fact for lack of legal
personality to sue.
It appeared that the respondent, Fe Vda. de Te, died
on April 12, 2005.20
Respondent, through her lawyer, Atty. William G.
Carpentero, filed an Opposition,21 contending that the
failure to serve summons upon Sereno is not a
ground for dismissing the complaint, because the
other defendants have already submitted their
respective responsive pleadings. He also contended
that the defendants, including herein petitioner, had
previously filed separate motions to dismiss the
complaint, which the RTC denied for lack of merit.
Moreover, respondent's death did not render functus
officio her right to sue since her attorney-in-fact,
Faustino Castañeda, had long testified on the
complaint on March 13, 1998 for and on her behalf
and, accordingly, submitted documentary exhibits in
support of the complaint.
On March 22, 2006, the RTC issued the assailed
Order22 denying petitioner's aforesaid motion.
Petitioner then filed a Motion for Reconsideration with
Motion for Inhibition,23 in which he claimed that the
judge who issued the Order was biased and partial.
He went on to state that the judge's husband was the
defendant in a petition for judicial recognition of which
he was the counsel, docketed as Civil Case No. C-
XXI-100, before the RTC, Branch 21, Bansalan,
Davao del Sur. Thus, propriety dictates that the judge
should inhibit herself from the case.
Acting on the motion for inhibition, Judge Carmelita
Sarno-Davin granted the same24 and ordered that the
case be re-raffled to Branch 18. Eventually, the said
RTC issued an Order25 on October 16, 2006 denying
petitioner's motion for reconsideration for lack of
merit.
Hence, petitioner directly sought recourse from the
Court via the present petition involving pure questions
of law, which he claimed were resolved by the RTC
contrary to law, rules and existing jurisprudence.26
There is a "question of law" when the doubt or
difference arises as to what the law is on certain state
of facts, and which does not call for an examination of
the probative value of the evidence presented by the
parties-litigants. On the other hand, there is a
"question of fact" when the doubt or controversy
arises as to the truth or falsity of the alleged facts.
Simply put, when there is no dispute as to fact, the
question of whether or not the conclusion drawn
therefrom is correct, is a question of law.27
Verily, the issues raised by herein petitioner are
"questions of law," as their resolution rest solely on
what the law provides given the set of circumstances
availing. The first issue involves the jurisdiction of the
court over the person of one of the defendants, who
was not served with summons on account of his
death. The second issue, on the other hand, pertains
to the legal effect of death of the plaintiff during the
pendency of the case.
At first brush, it may appear that since pure questions
of law were raised, petitioner's resort to this Court was
justified and the resolution of the aforementioned
issues will necessarily follow. However, a perusal of
the petition requires that certain procedural issues
must initially be resolved before We delve into the
merits of the case.
Notably, the petition was filed directly from the RTC
which issued the Order in the exercise of its original
jurisdiction. The question before Us then is: whether
or not petitioner correctly availed of the mode of
appeal under Rule 45 of the Rules of Court.
Significantly, the rule on appeals is outlined below, to
wit:28
(1) In all cases decided by the RTC in the
exercise of its original jurisdiction, appeal
may be made to the Court of Appeals by mere
notice of appeal where the appellant raises
questions of fact or mixed questions of fact
and law;
(2) In all cases decided by the RTC in the
exercise of its original jurisdiction where
the appellant raises only questions of law,
the appeal must be taken to the Supreme
Court on a petition for review
on certiorariunder Rule 45.
(3) All appeals from judgments rendered by
the RTC in the exercise of its appellate
jurisdiction, regardless of whether the
appellant raises questions of fact, questions of
law, or mixed questions of fact and law, shall
be brought to the Court of Appeals by filing a
petition for review under Rule 42.
Accordingly, an appeal may be taken from the RTC
which exercised its original jurisdiction, before the
Court of Appeals or directly before this Court,
provided that the subject of the same is a judgment
or final order that completely disposes of the case, or
of a particular matter therein when declared by the
Rules to be appealable.29The first mode of appeal, to
be filed before the Court of Appeals, pertains to a writ
of error under Section 2(a), Rule 41 of the Rules of
Court, if questions of fact or questions of fact and law
are raised or involved. On the other hand, the second
mode is by way of an appeal by certiorari before the
Supreme Court under Section 2(c), Rule 41, in
relation to Rule 45, where only questions of law are
raised or involved.30
An order or judgment of the RTC is
deemed final when it finally disposes of a pending
action, so that nothing more can be done with it in the
trial court. In other words, the order or judgment ends
the litigation in the lower court.31 On the other hand,
an order which does not dispose of the case
completely and indicates that other things remain to
be done by the court as regards the merits,
is interlocutory. Interlocutory refers to something
between the commencement and the end of the suit
which decides some point or matter, but is not a final
decision on the whole controversy.32
The subject of the present petition is an Order of the
RTC, which denied petitioner's Omnibus Motion to
Dismiss, for lack of merit.
We have said time and again that an order denying a
motion to dismiss is interlocutory.33 Under Section
1(c), Rule 41 of the Rules of Court, an interlocutory
order is not appealable. As a remedy for the denial, a
party has to file an answer and interpose as a defense
the objections raised in the motion, and then to
proceed to trial; or, a party may immediately avail of
the remedy available to the aggrieved party by filing
an appropriate special civil action for certiorari under
Rule 65 of the Revised Rules of Court. Let it be
stressed though that a petition for certiorari is
appropriate only when an order has been issued
without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack or excess of
jurisdiction.
Based on the foregoing, the Order of the RTC denying
petitioner's Omnibus Motion to Dismiss is not
appealable even on pure questions of law. It is worth
mentioning that the proper procedure in this case, as
enunciated by this Court, is to cite such interlocutory
order as an error in the appeal of the case -- in the
event that the RTC rules in favor of respondent -- and
not to appeal such interlocutory order. On the other
hand, if the petition is to be treated as a petition for
review under Rule 45, it would likewise fail because
the proper subject would only be judgments or final
orders that completely dispose of the case.34
Not being a proper subject of an appeal, the Order of
the RTC is considered interlocutory. Petitioner should
have proceeded with the trial of the case and, should
the RTC eventually render an unfavorable verdict,
petitioner should assail the said Order as part of an
appeal that may be taken from the final judgment to
be rendered in this case. Such rule is founded on
considerations of orderly procedure, to forestall
useless appeals and avoid
undue inconvenience to the appealing party by having
to assail orders as they are promulgated by the court,
when all such orders may be contested in a single
appeal.
In one case,35 the Court adverted to the hazards of
interlocutory appeals:
It is axiomatic that an interlocutory order cannot be
challenged by an appeal. Thus, it has been held that
"the proper remedy in such cases is an ordinary
appeal from an adverse judgment on the merits,
incorporating in said appeal the grounds for assailing
the interlocutory order. Allowing appeals from
interlocutory orders would result in the `sorry
spectacle’ of a case being subject of a
counterproductive ping-pong to and from the appellate
court as often as a trial court is perceived to have
made an error in any of its interlocutory rulings. x x x.
Another recognized reason of the law in permitting
appeal only from a final order or judgment, and not
from an interlocutory or incidental one, is to avoid
multiplicity of appeals in a single action, which must
necessarily suspend the hearing and decision on the
merits of the case during the pendency of the appeal.
If such appeal were allowed, trial on the merits of the
case would necessarily be delayed for a considerable
length of time and compel the adverse party to incur
unnecessary expenses, for one of the parties may
interpose as many appeals as incidental questions
may be raised by him, and interlocutory orders
rendered or issued by the lower court.36
And, even if We treat the petition to have been filed
under Rule 65, the same is still dismissible for
violating the principle on hierarchy of courts.
Generally, a direct resort to us in a petition
for certiorari is highly improper, for it violates the
established policy of strict observance of the judicial
hierarchy of courts.37 This principle, as a rule, requires
that recourse must first be made to the lower-ranked
court exercising concurrent jurisdiction with a higher
court. However, the judicial hierarchy of courts is not
an iron-clad rule. A strict application of the rule is not
necessary when cases brought before the appellate
courts do not involve factual but legal questions.38
In the present case, petitioner submits pure questions
of law involving the effect of non-service of summons
following the death of the person to whom it should be
served, and the effect of the death of the complainant
during the pendency of the case. We deem it best to
rule on these issues, not only for the benefit of the
bench and bar, but in order to prevent further delay in
the trial of the case. Resultantly, our relaxation of the
policy of strict observance of the judicial hierarchy of
courts is warranted.
Anent the first issue, petitioner argues that, since
Sereno died before summons was served on him, the
RTC should have dismissed the complaint against all
the defendants and that the same should be filed
against his estate.
The Sheriff's Return of Service39 dated May 19, 1997
states that Sereno could not be served with copy of
the summons, together with a copy of the complaint,
because he was already dead.
In view of Sereno's death, petitioner asks that the
complaint should be dismissed, not only against
Sereno, but as to all the defendants, considering that
the RTC did not acquire jurisdiction over the person of
Sereno. 1avv ph!1
Jurisdiction over a party is acquired by service of
summons by the sheriff, his deputy or other proper
court officer, either personally by handing a copy
thereof to the defendant or by substituted
service.40 On the other
hand, summons is a writ by which the defendant is
notified of the action brought against him. Service of
such writ is the means by which the court may acquire
jurisdiction over his person.41
Records show that petitioner had filed a Motion to
Dismiss on the grounds of lack of legal personality of
respondent; the allegations in the complaint did not
sufficiently state that respondent has a cause of
action or a cause of action against the defendants;
and, the complaint was not accompanied by an
affidavit of merit and bond. The RTC denied the
motion and held therein that, on the basis of the
allegations of fact in the complaint, it can render a
valid judgment. Petitioner, subsequently, filed his
answer by denying all the material allegations of the
complaint. And by way of special and affirmative
defenses, he reiterated that respondent had no legal
personality to sue as she had no real interest over the
property and that while the truck was still registered in
Pedro Te's name, the same was already sold to
Gasing.
Significantly, a motion to dismiss may be filed within
the time for but before the filing of an answer to the
complaint or pleading asserting a claim.42 Among the
grounds mentioned is the court's lack of jurisdiction
over the person of the defending party.
As a rule, all defenses and objections not pleaded,
either in a motion to dismiss or in an answer, are
deemed waived.43 The exceptions to this rule are: (1)
when the court has no jurisdiction over the subject
matter, (2) when there is another action pending
between the parties for the same cause, or (3) when
the action is barred by prior judgment or by statute of
limitations, in which cases, the court may dismiss the
claim.
In the case before Us, petitioner raises the issue of
lack of jurisdiction over the person of Sereno, not in
his Motion to Dismiss or in his Answer but only in his
Omnibus Motion to Dismiss. Having failed to invoke
this ground at the proper time, that is, in a motion to
dismiss, petitioner cannot raise it now for the first time
on appeal.
In fine, We cannot countenance petitioner's argument
that the complaint against the other defendants
should have been dismissed, considering that the
RTC never acquired jurisdiction over the person of
Sereno. The court's failure to acquire jurisdiction over
one's person is a defense which is personal to the
person claiming it. Obviously, it is now impossible for
Sereno to invoke the same in view of his death.
Neither can petitioner invoke such ground, on behalf
of Sereno, so as to reap the benefit of having the case
dismissed against all of the defendants. Failure to
serve summons on Sereno's person will not be a
cause for the dismissal of the complaint against the
other defendants, considering that they have been
served with copies of the summons and complaints
and have long submitted their respective responsive
pleadings. In fact, the other defendants in the
complaint were given the chance to raise all possible
defenses and objections personal to them in their
respective motions to dismiss and their subsequent
answers.
We agree with the RTC in its Order when it resolved
the issue in this wise:
As correctly pointed by defendants, the Honorable
Court has not acquired jurisdiction over the person of
Patricio Sereno since there was indeed no valid
service of summons insofar as Patricio Sereno is
concerned. Patricio Sereno died before the summons,
together with a copy of the complaint and its annexes,
could be served upon him.
However, the failure to effect service of summons
unto Patricio Sereno, one of the defendants herein
does not render the action DISMISSIBLE, considering
that the three (3) other defendants, namely, Atty.
Rogelio E. Sarsaba, Fulgencio Lavares and the
NLRC, were validly served with summons and the
case with respect to the answering defendants may
still proceed independently. Be it recalled that the
three (3) answering defendants have previously filed a
Motion to Dismiss the Complaint which was denied by
the Court.
Hence, only the case against Patricio Sereno will be
DISMISSED and the same may be filed as a claim
against the estate of Patricio Sereno, but the case
with respect to the three (3) other accused will
proceed.
Anent the second issue, petitioner moves that
respondent's attorney-in-fact, Faustino Castañeda, be
discharged as he has no more legal personality to sue
on behalf of Fe Vda. de Te, who passed away on April
12, 2005, during the pendency of the case before the
RTC.
When a party to a pending action dies and the claim is
not extinguished, the Rules of Court require a
substitution of the deceased.44 Section 1, Rule 87 of
the Rules of Court enumerates the actions that
survived and may be filed against the decedent's
representatives as follows: (1) actions to recover real
or personal property or an interest thereon, (2) actions
to enforce liens thereon, and (3) actions to recover
damages for an injury to a person or a property. In
such cases, a counsel is obliged to inform the court of
the death of his client and give the name and address
of the latter's legal representative.45
The rule on substitution of parties is governed by
Section 16,46 Rule 3 of the 1997 Rules of Civil
Procedure, as amended.
Strictly speaking, the rule on substitution by heirs is
not a matter of jurisdiction, but a requirement of due
process. The rule on substitution was crafted to
protect every party's right to due process. It was
designed to ensure that the deceased party would
continue to be properly represented in the suit through
his heirs or the duly appointed legal representative of
his estate. Moreover, non-compliance with the Rules
results in the denial of the right to due process for the
heirs who, though not duly notified of the proceedings,
would be substantially affected by the decision
rendered therein. Thus, it is only when there is a
denial of due process, as when the deceased is not
represented by any legal representative or heir, that
the court nullifies the trial proceedings and the
resulting judgment therein.47
In the case before Us, it appears that respondent's
counsel did not make any manifestation before the
RTC as to her death. In fact, he had actively
participated in the proceedings. Neither had he shown
any proof that he had been retained by respondent's
legal representative or any one who succeeded her.
However, such failure of counsel would not lead Us to
invalidate the proceedings that have long taken place
before the RTC. The Court has repeatedly declared
that failure of the counsel to comply with his duty to
inform the court of the death of his client, such that no
substitution is effected, will not invalidate the
proceedings and the judgment rendered thereon if the
action survives the death of such party. The trial
court's jurisdiction over the case subsists despite the
death of the party.48
The purpose behind this rule is the protection of the
right to due process of every party to the litigation who
may be affected by the intervening death. The
deceased litigants are themselves protected as they
continue to be properly represented in the suit through
the duly appointed legal representative of their
estate.49
Anent the claim of petitioner that the special power of
attorney50 dated March 4, 1997 executed by
respondent in favor of Faustino has become functus
officio and that the agency constituted between them
has been extinguished upon the death of respondent,
corollarily, he had no more personality to appear and
prosecute the case on her behalf.
Agency is extinguished by the death of the
principal.51 The only exception where the agency shall
remain in full force and effect even after the death of
the principal is when 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.52
A perusal of the special power of attorney leads us to
conclude that it was constituted for the benefit solely
of the principal or for respondent Fe Vda. de Te.
Nowhere can we infer from the stipulations therein
that it was created for the common interest of
respondent and her attorney-in-fact. Neither was there
any mention that it was to benefit a third person who
has accepted the stipulation in his favor.
On this ground, We agree with petitioner. However,
We do not believe that such ground would cause the
dismissal of the complaint. For as We have said, Civil
Case No. 3488, which is an action for the recovery of
a personal property, a motor vehicle, is an action that
survives pursuant to Section 1, Rule 87 of the Rules
of Court. As such, it is not extinguished by the death
of a party.
In Gonzalez v. Philippine Amusement and Gaming
Corporation,53 We have laid down the criteria for
determining whether an action survives the death of a
plaintiff or petitioner, to wit:
x x x The question as to whether an action survives or
not depends on the nature of the action and the
damage sued for. If the causes of action which
survive the wrong complained [of] affects primarily
and principally property and property rights, the
injuries to the person being merely incidental, while in
the causes of action which do not survive the injury
complained of is to the person the property and rights
of property affected being incidental. x x x
Thus, the RTC aptly resolved the second issue with
the following ratiocination:
While it may be true as alleged by defendants that
with the death of Plaintiff, Fe Vda. de Te, the Special
Power of Attorney she executed empowering the
Attorney-in-fact, Faustino Castañeda to sue in her
behalf has been rendered functus officio, however,
this Court believes that the Attorney-in-fact had not
lost his personality to prosecute this case.
It bears stressing that when this case was
initiated/filed by the Attorney-in-fact, the plaintiff was
still very much alive.
Records reveal that the Attorney-in-fact has testified
long before in behalf of the said plaintiff and more
particularly during the state when the plaintiff was
vehemently opposing the dismissal of the
complainant. Subsequently thereto, he even offered
documentary evidence in support of the complaint,
and this court admitted the same. When this case was
initiated, jurisdiction was vested upon this Court to try
and hear the same to the end. Well-settled is the rule
to the point of being elementary that once jurisdiction
is acquired by this Court, it attaches until the case is
decided.
Thus, the proper remedy here is the Substitution of
Heirs and not the dismissal of this case which would
work injustice to the plaintiff.
SEC. 16, RULE 3 provides for the substitution of the
plaintiff who dies pending hearing of the case by
his/her legal heirs. As to whether or not the heirs will
still continue to engage the services of the Attorney-
in-fact is another matter, which lies within the sole
discretion of the heirs.
In fine, We hold that the petition should be denied as
the RTC Order is interlocutory; hence, not a proper
subject of an appeal before the Court. In the same
breath, We also hold that, if the petition is to be
treated as a petition for certiorari as a relaxation of the
judicial hierarchy of courts, the same is also
dismissible for being substantially insufficient to
warrant the Court the nullification of the Order of the
RTC.
Let this be an occasion for Us to reiterate that the
rules are there to aid litigants in prosecuting or
defending their cases before the courts. However,
these very rules should not be abused so as to
advance one's personal purposes, to the detriment of
orderly administration of justice. We can surmise from
the present case herein petitioner's manipulation in
order to circumvent the rule on modes of appeal and
the hierarchy of courts so that the issues presented
herein could be settled without going through the
established procedures. In Vergara, Sr. v.
Suelto,54 We stressed that this should be the constant
policy that must be observed strictly by the courts and
lawyers, thus:
x x x. The Supreme Court is a court of last resort, and
must so remain if it is to satisfactorily perform the
functions assigned to it by the fundamental charter
and immemorial tradition. It cannot and should not be
burdened with the task of dealing with causes in the
first instance. Its original jurisdiction to issue the so-
called extraordinary writs should be exercised only
where absolutely necessary or where serious and
important reasons exist therefor. Hence, that
jurisdiction should generally be exercised relative to
actions or proceedings before the Court of Appeals, or
before constitutional or other tribunals, bodies or
agencies whose acts for some reason or another are
not controllable by the Court of Appeals. Where the
issuance of an extraordinary writ is also within the
competence of the Court of Appeals or a Regional
Trial Court, it is in either of these courts that the
specific action for the writ’s procurement must be
presented. This is and should continue to be the
policy in this regard, a policy that courts and lawyers
must strictly observe.55
WHEREFORE, premises considered, the Petition is
DENIED. The Order dated March 22, 2006 of the
Regional Trial Court, Branch 19, Digos, Davao del Sur
in Civil Case No. 3488, is hereby AFFIRMED. Costs
against the petitioner.
SO ORDERED.
G.R. No. L-21813 July 30, 1966

AMPARO G. PEREZ, ET AL., plaintiffs and

appellees,
vs.
PHILIPPINE NATIONAL BANK, Binalbagan
Branch, ET AL., defendants and appellants.

Mortgages; Mortgagee’s remedies in case the

mortgagor dies; Extrajudicial foreclosure.—Section 7,
Rule 87 (now Rule 86) of the Rules of Court, offers the
mortgage creditor three alternative courses, in case the
mortgagor dies, to wit: (1) to waive the mortgage and
claim the entire debt f rom the estate of the mortgagor
as an ordinary claim; (2) to foreclose the mortgage
judicially and prove any deficiency as an ordinary
claim; and (3) to rely on the mortgage exclusively,
foreclosing the same at any time before it is barred by
prescription, without right to file a claim for any
deficiency. The majority opinion in Pasno vs. Ravina,
54 Phil. 378, in requiring a judicial foreclosure, virtually
wipes out the third alternative, which would include
extrajudicial foreclosure. This result is not warranted by
the text of the Rules. In addition, the recognition of the
creditor’s right to foreclose extrajudicially presents
undoubted advantages for the estate of the mortgagor,
as pointed out by the dissenting opinion in the
aforementioned case. The majority opinion in that case
should therefore, be overruled and the right of the
mortgage creditor to foreclose extrajudicially should be
upheld.

Same; Nature of power to foreclose.—The power to

foreclose is not an ordinary agency that contemplates
exclusively the representation of the principal by the
agent, but is primarily an authority conferred upon the
mortgagee for the latter’s own protection. It is an
ancillary stipulation supported by the same cause or
consideration for the mortgage and forms an essential
and. inseparable part of that bilateral agreement. That
power survives the death of the mortgagor.

Same; Effect of failure of mortgagee to give notice of

foreclosure to the mortgagor’s heirs.—Where the
mortgagee failed to give notice of the foreclosure to the
debtor’s widow and heirs, thus preventing them from
blocking the foreclosure through seasonable payment
and impeding their effectuating a seasonable
redemption, justice and equity would be served by
permitting them to redeem the foreclosed property
within a reasonable time, by paying the capital and
interest of the indebtedness up to the time of
redemption, plus foreclosure and useful expenses, less
any rents and profits obtained by the mortgagee from
and after the same entered into its possession. Perez,
et al. vs. Philippine National Bank, et al., 17 SCRA 833,
No. L-21813 July 30, 1966
G.R. No. L-21813 July 30, 1966
AMPARO G. PEREZ, ET AL., plaintiffs and
appellees,
vs.
PHILIPPINE NATIONAL BANK, Binalbagan
Branch, ET AL., defendants and appellants.
Tomas Besa and A. Galang for defendants and
appellants.
Jose U. Carbonell and Celso B. Zamora for plaintiffs
and appellees.
REYES, J.B.L., J.:
Appeal from a decision, in Civil Case No. 100 of the
Court of First Instance of Negros Occidental, annulling
the extra-judicial foreclosure sale of Lot No. 286-E of
the Kabankalan Cadastre, standing in the name of
Vicente Perez, in favor of the Philippine National
Bank, as well as the cancellation of the mortgagor's
Original Certificate of Title No. 29530 and the
issuance of a new Certificate T-32066 in the Bank's
name; and ordering the said Bank to pay the heirs of
Vicente Perez P3,000 damages and P2,000
attorney's fees, and costs.
The antecedents of the case were as follows:
On August 29, 1939, Vicente Perez mortgaged Lot
No. 286-E of the Kabankalan Cadastre, with Transfer
certificate of Title No. 29530, to the appellant
Philippine National Bank, Bacolod Branch, in order to
secure payment of a loan of P2,500, plus interest,
payable in yearly installments. On October 7, 1942,
Vicente Perez, mortgagor, died intestate, survived by
his widow and children (appellees herein). At that
time, there was an outstanding balance of P1,917.00,
and corresponding interest, on the mortgage
indebtedness.
On October 18, 1956, the widow of Perez instituted
Special Proceedings No. 512 of the Court of First
Instance of Occidental Negros for the settlement of
the estate of Vicente Perez. The widow was
appointed Administratrix and notice to creditors was
duly published. The Bank did not file a claim. The
project of partition was submitted on July 18, 1956; it
was approved and the properties distributed
accordingly. Special Proceedings No. 512 was then
closed.
It appears also that, as early as March of 1947, the
widow of the late Vicente Perez inquired by letter from
the Bank the status of her husband's account; and
she was informed that there was an outstanding
balance thereon of P2,758.84 earning a daily interest
of P0.4488. She was furnished a copy of the
mortgage and, on April 2, 1947, a copy of the Tax
Declaration (Rec. App. pp. 45-48).
On January 2, 1963, the Bank, pursuant to authority
granted it in the mortgage deed, caused the
mortgaged properties to be extrajudicially foreclosed.
The Provincial Sheriff accordingly sold Lot No. 286-E
at auction, and it was purchased by the Bank. In the
ordinary course after the lapse of the year of
redemption, Certificate of Title No. T-29530 in the
name of Vicente Perez was cancelled, and Certificate
T-32066, dated May 11, 1962, was issued in the
name of the Bank. The widow and heirs were not
notified.
1äwphï1.ñët
Three months later, on August 15, 1962, the widow
and heirs of Vicente Perez instituted this case against
the Bank in the court below, seeking to annul the
extra-judicial foreclosure sale and the transfer of the
Certificate of Title as well as to recover damages,
claiming that the Bank had acted illegally and in bad
faith. The Bank answered, denying the charges. After
trial, the court a quo, on December 15, 1962,
rendered judgment holding that, according to the
doctrine of this Supreme Court in Pasno vs.
Ravina 54 Phil. 382, the Bank should have foreclosed
its mortgage in court; that the power to sell contained
in the deed of mortgage had terminated upon the
death of the mortgagor, Vicente Perez. Wherefore,
the trial court declared null and void the extra-judicial
foreclosure sale to the Bank, as well as the
cancellation of the Certificate of Title of Vicente Perez
and issuance in it's stead of a new certificate in the
name of the Bank, and ordered the latter to pay the
plaintiffs P3,000 damages and P2,000 attorney's fees
and cost.
The Bank appealed to this Supreme Court.
The main issue in this appeal is the application of
section 7, Rule 87, of the original Rules of Court
adopted in 1941 (now Section 7, Rule 68, of the 1964
Revised Rules), and which was, in turn, a
reproduction of section 708 of the Code of Civil
Procedure (Act 190). The text is as follows:
SEC. 7. Mortgage debt due from estate. — A
creditor holding a claim against the deceased
secured by mortgage or other, collateral
security, may abandon the security and
prosecute his claim in the manner provided in
this rule, and share in the general distribution
of the assets of the estate; or he may
foreclose his mortgage or realize upon his
security, by action in court, making the
executor or administrator a party defendant,
and if there is a judgment for a deficiency,
after the sale of the mortgaged premises, or
the property pledged, in the foreclosure or
other proceeding to realize upon the security,
he may claim his deficiency judgment in the
manner provided in the preceding section; or
he may rely upon his mortgage other security
alone, and foreclose the same at any time
within the period of the statute of limitations,
and in that event he shall not be admitted as a
creditor and shall receive no share in the
distribution of the other assets of the estate,
but nothing herein contained shall prohibit the
executor or administrator from redeeming the
property mortgaged or pledged, by paying the
debt for which it is held as security, under the
direction of the court, if the court shall adjudge
it to be for the best interest of the estate that
such redemption shall be made.
The lower court held that the Rule inhibits any
extrajudicial foreclosure of the mortgage constituted
by a deceased debtor-mortgagor, following the
majority opinion of five justices in Pasno vs.
Ravina, 54 Phil. 382 said the Court in that case (382):
 The power of sale given in a mortgage is a
power coupled with an interest which survives
the death of the grantor. One case, that
of Carter vs. Slocomb ([1898], 122 N.C., 475),
has gone so far as to hold that a sale after the
death of the mortgagor is valid without notice
to the heirs of the mortgagor. However that
may be, conceding that the power of sale is
not revoked by the death of the mortgagor,
nevertheless in view of the silence of Act No.
3135 and in view of what is found in section
708 of the Code of Civil Procedure, it would
be preferable to reach the conclusion that the
mortgage with a power of sale should be
made to foreclose the mortgage in conformity
with the procedure pointed out in section 708
of the Code of Civil Procedure. That would
safeguard the interests of the estate by putting
the estate on notice while it would not
jeopardize any rights of the mortgagee. The
only result is to suspend temporarily the
power to sell so as not to interfere with the
orderly administration of the estate of a
decedent. A contrary holding would be
inconsistent with the portion of the settlement
of estates of deceased persons.
A vigorous and able dissenting opinion, subscribed by
Justices Street, Villamor and Ostrand, held that an
extrajudicial foreclosure was authorized (cas. cit. pp.
383-385).
The dissent argues:
The opinion of the Court refers to section 708
of the Code of Civil Procedure as determining
the proposition that, after the death of the
mortgagor, foreclosure can be effected only
by an ordinary action in court; but if this
section be attentively examined, it will be seen
that the bringing of an action to foreclose is
necessary only when the mortgagee wishes to
obtain a judgment over for the deficiency
remaining unpaid after foreclosure is effected.
In fact this section gives to the mortgagee
three distinct alternatives, which are first, to
waive his security and prove his credit as an
ordinary debt against the estate of the
deceased; secondly to foreclose the mortgage
by ordinary action in court and recover any
deficiency against the estate in administration;
and, thirdly, to foreclose without action at any
time within the period allowed by the statute of
limitations.
The third mode of procedure is indicated in
that part of section 708 which is expressed in
these words:
"Or he may rely upon his mortgage or other
security alone, and foreclose the same at any
time, within the period of the statute of
limitations, and in that event he shall not be
admitted as a creditor, and shall receive no
share in the distribution of the other assets of
the estate."
The alternative here contemplated is,
evidently, foreclosure under power of sale
contained in the mortgage. It must be so,
since there are no other modes of foreclosure
known to the law than by ordinary action and
foreclosure under power, and the procedure
by action is covered in that part of section 708
which immediately precedes the words which
we have quoted above. It will be noted that
the result of adopting the last mode of
foreclosure is that the creditor waives his right
to recover any deficiency from the estate.
In addition to what is said above, we submit
that the policy of the court in requiring
foreclosure by action in case of the death of a
mortgagor, where a power of sale is inserted
in the mortgage, will prove highly prejudicial to
the estates of deceased mortgagors.
Nowadays nearly every mortgage executed in
this country contains a stipulation for the
payment of attorney's fees and expenses of
foreclosure, usually in an amount not less
than 20 or 25 per cent of the mortgage debt.
This means, in practical effect, that the
creditor can recover, for attorney's fee and
expenses, whatever the Court will allow a
reasonable, within the stipulated limit. On the
other hand, if an extra-judicial foreclosure is
effected under the power of sale, the
expenses of foreclosure are limited to the cost
of advertising and other actual expenses of
the sale, not including the attorney's fee.
Again, if foreclosure is effected extrajudicially,
under the power, in conformity with the
provisions of Act No. 3135, the mortgagor or
his representative has a full year, from the
date of the sale, within which to redeem the
property, this being the same period of time
that is allowed to judgment debtors for
redeeming after sale under execution. On the
other hand, the provisions of the Code of Civil
Procedure relative to the foreclosure of
mortgages by action allows no fixed period for
redemption after sale; and although, in the
closing words of section 708 of the Code of
Civil Procedure the court is authorized to
permit the administrator to redeem mortgaged
property, this evidently refers to redemption to
be effected before the foreclosure becomes
final.
When account is further taken of the fact that
a creditor who elects to foreclose by
extrajudicial sale waives all right to recover
against the estate of the deceased debtor for
any deficiency remaining unpaid after the
sale, it will be readily seen that the decision in
this case will impose a burden upon the
estates of deceased persons who have
mortgaged real property for the security debts,
without any compensatory advantage.
The ruling in Pasno vs. Ravina not having been
reiterated in any other case, We have carefully
reexamined the same after mature deliberation have
reached the conclusion that the dissenting opinion is
more in conformity with reason and law. Of the three
alternative courses that section 7, Rule 87 (now Rule
86), offers the mortgage creditor, to wit, (1) to waive
the mortgage and claim the entire debt from the
estate of the mortgagor as an ordinary claim; (2) to
foreclose the mortgage judicially and prove any name of the late Vicente Perez, as well as its
deficiency as an ordinary claim; and (3) to rely on the replacement by Certificate of Title T-32066 of
mortgage exclusively, foreclosing the same at any the same Registry in the name of appellant
time before it is barred by prescription, without right to Philippine National Bank;
file a claim for any deficiency, the majority opinion
in Pasno vs. Ravina, in requiring a judicial foreclosure, (3) Declaring the appellees herein, widow and
virtually wipes out the third alternative conceded by other heirs of Vicente Perez entitled to
the Rules to the mortgage creditor, and which would redeem the property in question by paying or
precisely include extra-judicial foreclosures by tendering to the Bank the capital of the debt of
contrast with the second alternative. This result we do Vicente Perez, with the stipulated interest to
not consider warranted by the text of the Rules; and, the date of foreclosure, plus interest thereafter
in addition, the recognition of creditor's right to at 12% per annum; and reimbursing the Bank
foreclose extra-judicially presents undoubted the value of any useful expenditures on the
advantages for the estate of the mortgagor, as said property but deducting from the amounts
pointed out by the dissenting opinion in Pasno vs. thus payable the value of any rents and profits
Ravina, supra. In the light of these considerations, we derived by the appellee National Bank from
have decided to overrule the majority decision in said the property in question. Such payment to be
case, and uphold the right of the mortgage creditor to made within sixty (60) days after the balance
foreclose extra-judicially in accordance with section 7, is determined by the court of origin.
Rule 86, of the Revised Rules (old Rule 87).
Neither party to recover damages or costs.
The argument that foreclosure by the Bank under its
power of sale is barred upon death of the debtor, Let the records be returned to the court of origin for
because agency is extinguished by the death of the further proceedings in conformity with this decision.
principal, under Article 1732 of the Civil Code of 1889 So ordered.
and Article 1919 of the Civil Code of the Philippines,
neglects to take into account that the power to
Concepcion, C.J., Barrera, Dizon, Regala, Makalintal,
foreclose is not an ordinary agency that contemplates
Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ.,
exclusively the representation of the principal by the
concur.
agent but is primarily an authority conferred upon the
mortgagee for the latter's own protection. It is, in fact,
an ancillary stipulation supported by the
same causaor consideration for the mortgage and
forms an essential and inseparable part of that
bilateral agreement. As can be seen in the preceding
quotations from Pasno vs. Ravina, 54 Phil. 382, both
the majority and the dissenting opinions conceded
that the power to foreclose extrajudicially survived the
death of the mortgagor, even under the law prior to
the Civil Code of the Philippines now in force.

Nevertheless, while upholding the validity of the

appellant Bank's foreclosure, We can not close our
eyes to the fact that the Bank was apprised since
1947 of the death of its debtor, Vicente Perez, yet it
failed and neglected to give notice of the foreclosure
to the latter's widow and heirs as expressly found by
the court a quo. Such failure, in effect, prevented
them from blocking the foreclosure through
seasonable payment, as well as impeded their
effectuating a seasonable redemption. In view of
these circumstances, it is our view that both justice
and equity would be served by permitting herein
appellees to redeem the foreclosed property within a
reasonable time, by paying the capital and interest of
the indebtedness up to the time of redemption, plus
foreclosure and useful expenses, less any rents and
profits obtained by the Bank from and after the same
entered into its possession.

Wherefore, the judgment appealed from is hereby

modified, as follows:

(1) Declaring valid and effective the extra-

judicial foreclosure of the mortgage over Lot
286-E of the Kabankalan Cadastre;

(2) Upholding and confirming the cancellation

of Transfer Certificate of Title No. 29350 of the
Registry of Deeds of Occidental Negros in the