Republic of the Philippines was very much aware of this fact.

In support of this argument, petitioner points to

SUPREME COURT paragraphs 1.2 and 1.3 of petitioner’s Complaint stating –
Manila
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the
THIRD DIVISION proprietor of a single proprietorship business known as Impact Systems Sales ("Impact
Systems" for brevity), with office located at 46-A del Rosario Street, Cebu City, where he
G.R. No. 167552 April 23, 2007 may be served summons and other processes of the Honorable Court.

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner, 1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City.
vs. He is the Sales Manager of Impact Systems and is sued in this action in such capacity. 17
EDWIN CUIZON and ERWIN CUIZON, Respondents.
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with
DECISION Motion for Summary Judgment. The trial court granted petitioner’s motion to declare
respondent ERWIN in default "for his failure to answer within the prescribed period
CHICO-NAZARIO, J.: despite the opportunity granted"18 but it denied petitioner’s motion for summary
judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16
Before Us is a petition for review by certiorari assailing the Decision1 of the Court of
October 2001.19 However, the conduct of the pre-trial conference was deferred pending
Appeals dated 10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No.
the resolution by the trial court of the special and affirmative defenses raised by
71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The
respondent EDWIN.20
assailed Decision and Resolution affirmed the Order 3 dated 29 January 2002 rendered by
Judge Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as After the filing of respondent EDWIN’s Memorandum21 in support of his special and
a party defendant in Civil Case No. CEB-19672. affirmative defenses and petitioner’s opposition22 thereto, the trial court rendered its
assailed Order dated 29 January 2002 dropping respondent EDWIN as a party defendant
The generative facts of the case are as follows:
in this case. According to the trial court –
Petitioner is engaged in the business of importation and distribution of various European
A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant
industrial equipment for customers here in the Philippines. It has as one of its customers
Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact]
Impact Systems Sales ("Impact Systems") which is a sole proprietorship owned by
Systems Sale is a single proprietorship entity and the complaint shows that defendant
respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact
Erwin H. Cuizon is the proprietor; that plaintiff corporation is represented by its general
Systems and was impleaded in the court a quo in said capacity.
manager Alberto de Jesus in the contract which is dated June 28, 1995. A study of Annex
"H" to the complaint reveals that [Impact] Systems Sales which is owned solely by
From January to April 1995, petitioner sold to Impact Systems various products allegedly
defendant Erwin H. Cuizon, made a down payment of ₱50,000.00 that Annex "H" is dated
amounting to ninety-one thousand three hundred thirty-eight (₱91,338.00) pesos.
June 30, 1995 or two days after the execution of Annex "G", thereby showing that
Subsequently, respondents sought to buy from petitioner one unit of sludge pump valued
[Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further show that
at ₱250,000.00 with respondents making a down payment of fifty thousand pesos
plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B.
(₱50,000.00).4 When the sludge pump arrived from the United Kingdom, petitioner
Cuizon, the agent, when it accepted the down payment of ₱50,000.00. Plaintiff, therefore,
refused to deliver the same to respondents without their having fully settled their
cannot say that it was deceived by defendant Edwin B. Cuizon, since in the instant case
indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de
the principal has ratified the act of its agent and plaintiff knew about said ratification.
Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in
Plaintiff could not say that the subject contract was entered into by Edwin B. Cuizon in
favor of petitioner, the pertinent part of which states:
excess of his powers since [Impact] Systems Sales made a down payment of ₱50,000.00
1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the two days later.
amount of THREE HUNDRED SIXTY FIVE THOUSAND (₱365,000.00) PESOS as payment for
In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as
the purchase of one unit of Selwood Spate 100D Sludge Pump;
party defendant.23
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the
Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the
ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE
Court of Appeals which, however, affirmed the 29 January 2002 Order of the court a quo.
HUNDRED SIXTY FIVE THOUSAND (₱365,000.00) PESOS which receivables the ASSIGNOR
The dispositive portion of the now assailed Decision of the Court of Appeals states:
is the lawful recipient;
WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached
3.) That the ASSIGNEE does hereby accept this assignment. 7
by the public respondent in his Order dated January 29, 2002, it is hereby AFFIRMED. 24
Following the execution of the Deed of Assignment, petitioner delivered to respondents
Petitioner’s motion for reconsideration was denied by the appellate court in its Resolution
the sludge pump as shown by Invoice No. 12034 dated 30 June 1995. 8
promulgated on 17 March 2005. Hence, the present petition raising, as sole ground for its
Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of allowance, the following:
Assignment, proceeded to collect from Toledo Power Company the amount of
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT
₱365,135.29 as evidenced by Check Voucher No. 09339prepared by said power company
RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS
and an official receipt dated 15 August 1995 issued by Impact Systems. 10Alarmed by this
NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS
development, petitioner made several demands upon respondents to pay their
AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD. 25
obligations. As a result, respondents were able to make partial payments to petitioner.
On 7 October 1996, petitioner’s counsel sent respondents a final demand letter wherein
To support its argument, petitioner points to Article 1897 of the New Civil Code which
it was stated that as of 11 June 1996, respondents’ total obligations stood at ₱295,000.00
states:
excluding interests and attorney’s fees.11 Because of respondents’ failure to abide by said
final demand letter, petitioner instituted a complaint for sum of money, damages, with Art. 1897. The agent who acts as such is not personally liable to the party with whom he
application for preliminary attachment against herein respondents before the Regional contracts, unless he expressly binds himself or exceeds the limits of his authority without
Trial Court of Cebu City.12 giving such party sufficient notice of his powers.

On 8 January 1997, the trial court granted petitioner’s prayer for the issuance of writ of Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWIN’s
preliminary attachment.13 act of collecting the receivables from the Toledo Power Corporation notwithstanding the
existence of the Deed of Assignment signed by EDWIN on behalf of Impact Systems. While
On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioner’s
said collection did not revoke the agency relations of respondents, petitioner insists that
allegations with respect to the sale transactions entered into by Impact Systems and
ERWIN’s action repudiated EDWIN’s power to sign the Deed of Assignment. As EDWIN did
petitioner between January and April 1995. 15 He, however, disputed the total amount of
not sufficiently notify it of the extent of his powers as an agent, petitioner claims that he
Impact Systems’ indebtedness to petitioner which, according to him, amounted to only
should be made personally liable for the obligations of his principal. 26
₱220,000.00.16
Petitioner also contends that it fell victim to the fraudulent scheme of respondents who
By way of special and affirmative defenses, respondent EDWIN alleged that he is not a
induced it into selling the one unit of sludge pump to Impact Systems and signing the
real party in interest in this case. According to him, he was acting as mere agent of his
Deed of Assignment. Petitioner directs the attention of this Court to the fact that
principal, which was the Impact Systems, in his transaction with petitioner and the latter
respondents are bound not only by their principal and agent relationship but are in fact
full-blooded brothers whose successive contravening acts bore the obvious signs of
conspiracy to defraud petitioner.27
In his Comment,28 respondent EDWIN again posits the argument that he is not a real party
in interest in this case and it was proper for the trial court to have him dropped as a
defendant. He insists that he was a mere agent of Impact Systems which is owned by
ERWIN and that his status as such is known even to petitioner as it is alleged in the
Complaint that he is being sued in his capacity as the sales manager of the said business
venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly
states that he was acting as a representative of Impact Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or to do something
in representation or on behalf of another with the latter’s consent. 29 The underlying
principle of the contract of agency is to accomplish results by using the services of others
– to do a great variety of things like selling, buying, manufacturing, and transporting. 30 Its
purpose is to extend the personality of the principal or the party for whom another acts
and from whom he or she derives the authority to act. 31 It is said that the basis of agency
is representation, that is, the agent acts for and on behalf of the principal on matters
within the scope of his authority and said acts have the same legal effect as if they were
personally executed by the principal.32 By this legal fiction, the actual or real absence of
the principal is converted into his legal or juridical presence – qui facit per alium facit per
se.33
The elements of the contract of agency are: (1) consent, express or implied, of the parties
to establish the relationship; (2) the object is the execution of a juridical act in relation to
a third person; (3) the agent acts as a representative and not for himself; (4) the agent
acts within the scope of his authority.34
Article 1897 of the New Civil Code upon which petitioner anchors its claim against
respondent EDWIN "does not hold that in case of excess of authority, both the agent and
the principal are liable to the other contracting party." 39 To reiterate, the first part of
Article 1897 declares that the principal is liable in cases when the agent acted within the
bounds of his authority. Under this, the agent is completely absolved of any liability. The
second part of the said provision presents the situations when the agent himself becomes
liable to a third party when he expressly binds himself or he exceeds the limits of his
authority without giving notice of his powers to the third person. However, it must be
pointed out that in case of excess of authority by the agent, like what petitioner claims
exists here, the law does not say that a third person can recover from both the principal
and the agent.40
As we declare that respondent EDWIN acted within his authority as an agent, who did not
acquire any right nor incur any liability arising from the Deed of Assignment, it follows
that he is not a real party in interest who should be impleaded in this case. A real party in
interest is one who "stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit."41 In this respect, we sustain his exclusion as a
defendant in the suit before the court a quo.
WHEREFORE, premises considered, the present petition is DENIED and the Decision dated
10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R.
SP No. 71397, affirming the Order dated 29 January 2002 of the Regional Trial Court,
Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City,
for the continuation of the proceedings against respondent Erwin Cuizon.
SO ORDERED.

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

We disagree.

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

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales
manager of Impact Systems. As discussed elsewhere, the position of manager is unique
in that it presupposes the grant of broad powers with which to conduct the business of
the principal, thus:

The powers of an agent are particularly broad in the case of one acting as a general agent
or manager; such a position presupposes a degree of confidence reposed and investiture
with liberal powers for the exercise of judgment and discretion in transactions and
concerns which are incidental or appurtenant to the business entrusted to his care and
management. In the absence of an agreement to the contrary, a managing agent may
enter into any contracts that he deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted to his management. x x x. 35

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within
his authority when he signed the Deed of Assignment. To recall, petitioner refused to
deliver the one unit of sludge pump unless it received, in full, the payment for Impact
Systems’ indebtedness.36 We may very well assume that Impact Systems desperately
needed the sludge pump for its business since after it paid the amount of fifty thousand
pesos (₱50,000.00) as down payment on 3 March 1995, 37 it still persisted in negotiating
with petitioner which culminated in the execution of the Deed of Assignment of its
receivables from Toledo Power Company on 28 June 1995. 38 The significant amount of
time spent on the negotiation for the sale of the sludge pump underscores Impact
Systems’ perseverance to get hold of the said equipment. There is, therefore, no doubt in
our mind that respondent EDWIN’s participation in the Deed of Assignment was
"reasonably necessary" or was required in order for him to protect the business of his
principal. Had he not acted in the way he did, the business of his principal would have
been adversely affected and he would have violated his fiduciary relation with his
principal.

We likewise take note of the fact that in this case, petitioner is seeking to recover both
from respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here that
Republic of the Philippines
SUPREME COURT
Manila
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.
MUÑOZ PALMA, J.:
This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal,
Concepcion Rallos, sold the latter's undivided share in a parcel of land pursuant to a
power of attorney which the principal had executed in favor. The administrator of the
estate of the went to court to have the sale declared uneanforceable and to recover the
disposed share. The trial court granted the relief prayed for, but upon appeal the Court
of Appeals uphold the validity of the sale and the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos
were sisters and registered co-owners of a parcel of land known as Lot No. 5983 of the
Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11116 of the Registry
of Cebu. On April 21, 1954, the sisters executed a special power of attorney in favor of
their brother, Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. On
March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the
undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan &
Sons Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the
Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of
Title No. 12989 was issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion
Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court of First Instance of
Cebu, praying (1) that the sale of the undivided share of the deceased Concepcion Rallos
in lot 5983 be d unenforceable, and said share be reconveyed to her estate; (2) that the
Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be
cancelled and another title be issued in the names of the corporation and the "Intestate
estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by
way of attorney's fees and payment of costs of suit. Named party defendants were Felix
Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu,
but subsequently, the latter was dropped from the complaint. The complaint was
amended twice; defendant Corporation's Answer contained a crossclaim against its co-
defendant, Simon Rallos while the latter filed third-party complaint against his sister,
Gerundia Rallos While the case was pending in the trial court, both Simon and his sister
Gerundia died and they were substituted by the respective administrators of their
estates.
After trial the court a quo rendered judgment with the following dispositive portion:
A. On Plaintiffs Complaint —
(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-indiviso
share of Concepcion Rallos in the property in question, — Lot 5983 of the Cadastral Survey
of Cebu — is concerned;
(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title No.
12989 covering Lot 5983 and to issue in lieu thereof another in the names of FELIX GO
CHAN & SONS REALTY CORPORATION and the Estate of Concepcion Rallos in the
proportion of one-half (1/2) share each pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an
undivided one-half (1/2) share of Lot 5983 to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon
Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00;
and
(5) Ordering both defendants to pay the costs jointly and severally.
B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon
Rallos, to pay to defendant Felix Co Chan & Sons Realty Corporation the sum of P5,343.45,
representing the price of one-half (1/2) share of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos,
to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons Realty Corporation
the sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of
Simeon Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia
Rallos:
(1) Dismissing the third-party complaint without prejudice to filing either a complaint
against the regular administrator of the Estate of Gerundia Rallos or a claim in the
Intestate-Estate of Cerundia Rallos, covering the same subject-matter of the third-party
complaint, at bar. (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals
from the foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of
Concepcion Rallos. The appellate tribunal, as adverted to earlier, resolved the appeal on
November 20, 1964 in favor of the appellant corporation sustaining the sale in
question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the
decision but the same was denied in a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his principal?
Applied more particularly to the instant case, We have the query. is the sale of the
undivided share of Concepcion Rallos in lot 5983 valid although it was executed by the
agent after the death of his principal? What is the law in this jurisdiction as to the effect
of the death of the principal on the authority of the agent to act for and in behalf of the
latter? Is the fact of knowledge of the death of the principal a material factor in
determining the legal effect of an act performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of law relevant
to the matter tinder consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in
the name of another without being authorized by the latter, or unless he has by law a
right to represent him. 3 A contract entered into in the name of another by one who has
no authority or the legal representation or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf
it has been executed, before it is revoked by the other contracting party. 4 Article 1403 (1)
of the same Code also provides:
ART. 1403. The following contracts are unenforceable, unless they are justified:
(1) Those entered into in the name of another person by one who hi - been given no
authority or legal representation or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship
of agency whereby one party, caged the principal (mandante), authorizes another, called
the agent (mandatario), to act for and in his behalf in transactions with third persons. The
essential elements of agency are: (1) there is consent, express or implied of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a
third person; (3) the agents acts as a representative and not for himself, and (4) the agent
acts within the scope of his authority. 5
Agency is basically personal representative, and derivative in nature. The authority of the
agent to act emanates from the powers granted to him by his principal; his act is the act
of the principal if done within the scope of the authority. Qui facit per alium facit se. "He
who acts through another acts himself". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned only with
one cause — death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was
taken from Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ...
(Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent, agency is
extinguished by the death of the principal or the agent. This is the law in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale
for the law is found in the juridical basis of agency which is representation Them being an
in. integration of the personality of the principal integration that of the agent it is not
possible for the representation to continue to exist once the death of either is
establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a
necessary cause for its extinction. Laurent says that the juridical tie between the principal
and the agent is severed ipso jure upon the death of either without necessity for the heirs
of the fact to notify the agent of the fact of death of the former. 9
The same rule prevails at common law — the death of the principal effects instantaneous
and absolute revocation of the authority of the agent unless the Power be coupled with
an interest. 10 This is the prevalent rule in American Jurisprudence where it is well-settled
that a power without an interest confer. red upon an agent is dissolved by the principal's
death, and any attempted execution of the power afterward is not binding on the heirs
or representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of the
agent extinguishes the agency, subject to any exception, and if so, is the instant case
within that exception? That is the determinative point in issue in this litigation. It is the
contention of respondent corporation which was sustained by respondent court that
notwithstanding the death of the principal Concepcion Rallos the act of the attorney-in-
fact, Simeon Rallos in selling the former's sham in the property is valid and enforceable
inasmuch as the corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-
mentioned.
ART. 1930. The agency shall remain in full force and effect even after the death of the
principal, if it has been constituted in the common interest of the latter and of the agent,
or in the interest of a third person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the principal
or of any other cause which extinguishes the agency, is valid and shall be fully effective
with respect to third persons who may have contracted with him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed
in favor of Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the
death of his principal is valid and effective only under two conditions, viz: (1) that the
agent acted without knowledge of the death of the principal and (2) that the third person
who contracted with the agent himself acted in good faith. Good faith here means that
the third person was not aware of the death of the principal at the time he contracted
with said agent. These two requisites must concur the absence of one will render the act
of the agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the
death of his principal at the time he sold the latter's share in Lot No. 5983 to respondent
corporation. The knowledge of the death is clearly to be inferred from the pleadings filed
by Simon Rallos before the trial court. 12 That Simeon Rallos knew of the death of his sister
Concepcion is also a finding of fact of the court a quo 13 and of respondent appellate court
when the latter stated that Simon Rallos 'must have known of the death of his sister, and
yet he proceeded with the sale of the lot in the name of both his sisters Concepcion and
Gerundia Rallos without informing appellant (the realty corporation) of the death of the
former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his
principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law
expressly requires for its application lack of knowledge on the part of the agent of the
death of his principal; it is not enough that the third person acted in good faith. Thus in
Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art.
1931 of the new Civil Code sustained the validity , of a sale made after the death of the
principal because it was not shown that the agent knew of his principal's demise. 15 To the
same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words
of Justice Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no
proof and there is no indication in the record, that the agent Luy Kim Guan was aware of
the death of his principal at the time he sold the property. The death 6f the principal does
not render the act of an agent unenforceable, where the latter had no knowledge of such
extinguishment of the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals
reasoned out that there is no provision in the Code which provides that whatever is done
by an agent having knowledge of the death of his principal is void even with respect to
third persons who may have contracted with him in good faith and without knowledge of
the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the
general rule enunciated in Article 1919 that the death of the principal extinguishes the
agency. That being the general rule it follows a 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 IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court,
55 of the Land Registration Law which in part provides: 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
xxx xxx xxx respondent realty corporation at all instances.

The production of the owner's duplicate certificate whenever any voluntary instrument is So Ordered.
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 Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.
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.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18058 January 16, 1923
FABIOLA SEVERINO, plaintiff-appellee,
vs.
GUILLERMO SEVERINO, defendant-appellant.
FELICITAS VILLANUEVA, intervenor-appellee.
Serafin P. Hilado and A. P. Seva for appellant.
Jose Ma. Arroyo, Jose Lopez Vito, and Fisher and DeWitt for appellees.
OSTRAND, J.:
This is an action brought by the plaintiff as the alleged natural daughter and sole heir of
one Melecio Severino, deceased, to compel the defendant Guillermo Severino to convey
to her four parcels of land described in the complaint, or in default thereof to pay her the
sum of P800,000 in damages for wrongfully causing said land to be registered in his own
name. Felicitas Villanueva, in her capacity as administratrix of the estate of Melecio
Severino, has filed a complaint in intervention claiming in the same relief as the original
plaintiff, except in so far as she prays that the conveyance be made, or damages paid, to
the estate instead of to the plaintiff Fabiola Severino. The defendant answered both
complaints with a general denial.
The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as the
acknowledged natural child of the said Melecio Severino and ordering the defendant to
convey 428 hectares of the land in question to the intervenor as administratrix of the
estate of the said Melecio Severino, to deliver to her the proceeds in his possession of a
certain mortgage placed thereon by him and to pay the costs. From this judgment only
the defendant appeals.
The land described in the complaint forms one continuous tract and consists of lots Nos.
827, 828, 834, and 874 of the cadaster of Silay, Province of Occidental Negros, which
measure, respectively, 61 hectares, 74 ares, and 79 centiares; 76 hectares, 34 ares, and
79 centiares; 52 hectares, 86 ares, and 60 centiares and 608 hectares, 77 ares and 28
centiares, or a total of 799 hectares, 75 ares, and 46 centiares.
The evidence shows that Melecio Severino died on the 25th day of May, 1915; that some
428 hectares of the land were recorded in the Mortgage Law Register in his name in the
year 1901 by virtue of possessory information proceedings instituted on the 9th day of
May of that year by his brother Agapito Severino in his behalf; that during the lifetime of
Melecio Severino the land was worked by the defendant, Guillermo Severino, his brother,
as administrator for and on behalf of the said Melecio Severino; that after Melecio's
death, the defendant Guillermo Severino continued to occupy the land; that in 1916 a
parcel survey was made of the lands in the municipality of Silay, including the land here
in question, and cadastral proceedings were instituted for the registration of the lands
titles within the surveyed area; that in the cadastral proceedings the land here in question
was described as four separate lots numbered as above stated; that Roque Hofileña, as
lawyer for Guillermo Severino, filed answers in behalf of the latter in said proceedings
claiming the lots mentioned as the property of his client; that no opposition was
presented in the proceedings to the claims of Guillermo Severino and the court therefore
decreed the title in his favor, in pursuance of which decree certificates of title were issued
to him in the month of March, 1917.
It may be further observed that at the time of the cadastral proceedings the plaintiff
Fabiola Severino was a minor; that Guillermo Severino did not appear personally in the
proceedings and did not there testify; that the only testimony in support of his claims was
that of his attorney Hofileña, who swore that he knew the land and that he also knew that
Guillermo Severino inherited the land from his father and that he, by himself, and through
his predecessors in interest, had possessed the land for thirty years.
The appellant presents the following nine assignments of error:
1. The trial court erred in admitting the evidence that was offered by plaintiff in order to
establish the fact that said plaintiff was the legally acknowledged natural child of the
deceased Melecio Severino.
2. The trial court erred in finding that, under the evidence presented, plaintiff was the
legally acknowledged natural child of Melecio Severino.
3. The trial court erred in rejecting the evidence offered by defendant to establish the
absence of fraud on his part in securing title to the lands in Nacayao.
4. The trial court erred in concluding that the evidence adduced by plaintiff and intervenor
established that defendant was guilty of fraud in procuring title to the lands in question
in his name.
5. The trial court erred in declaring that the land that was formerly placed in the name of
Melecio Severino had an extent of either 434 or 428 hectares at the time of his death.
6. The trial court erred in declaring that the value of the land in litigation is P500 per
hectare.
7. The trial court erred in granting the petition of the plaintiff for an attachment without
first giving the defendant an opportunity to be heard.
8. The trial court erred in ordering the conveyance of 428 hectares of land by defendant
to the administratrix.
9. The trial court erred in failing or refusing to make any finding as to the defendant's
contention that the petition for attachment was utterly devoid of any reasonable ground.
In regard to the first two assignments of error, we agree with the appellant that the trial
court erred in making a declaration in the present case as to the recognition of Fabiola
Severino as the natural child of Melecio Severino. We have held in the case of Briz vs. Briz
and Remigio (43 Phil., 763), that "The legitimate heirs or kin of a deceased person who
would be prejudiced by a declaration that another person is entitled to recognition as the
natural child of such decedent, are necessary and indispensable parties to any action in
which a judgment declaring the right to recognition is sought." In the present action only
the widow, the alleged natural child, and one of the brothers of the deceased are parties;
the other potential heirs have not been included. But, inasmuch as the judgment
appealed from is in favor of the intervenor and not of the plaintiff, except to the extent
of holding that the latter is a recognized natural child of the deceased, this question is,
from the view we take of the case, of no importance in its final disposition. We may say,
however, in this connection, that the point urged in appellant's brief that it does not
appear affirmatively from the evidence that, at the time of the conception of Fabiola, her
mother was a single woman, may be sufficiently disposed of by a reference to article 130
of the Civil Code and subsection 1 of section 334 of the Code of Civil Procedure which
create the presumption that a child born out of wedlock is natural rather than illegitimate.
The question of the status of the plaintiff Fabiola Severino and her right to share in the
inheritance may, upon notice to all the interested parties, be determined in the probate
proceedings for the settlement of the estate of the deceased.
The fifth assignment of error relates to the finding of the trial court that the land
belonging to Melecio Severino had an area of 428 hectares. The appellant contends that
the court should have found that there were only 324 hectares inasmuch as one hundred
hectares of the original area were given to Melecio's brother Donato during the lifetime
of the father Ramon Severino. As it appears that Ramon Severino died in 1896 and that
the possessory information proceedings, upon which the finding of the trial court as to
the area of the land is principally based, were not instituted until the year 1901, we are
not disposed to disturb the conclusions of the trial court on this point. Moreover, in the
year 1913, the defendant Guillermo Severino testified under oath, in the case
of Montelibano vs. Severino, that the area of the land owned by Melecio Severino and of
which he (Guillermo) was the administrator, embraced an area of 424 hectares. The fact
that Melecio Severino, in declaring the land for taxation in 1906, stated that the area was
only 324 hectares and 60 ares while entitled to some weight is not conclusive and is not
sufficient to overcome the positive statement of the defendant and the recitals in the
record of the possessory information proceedings.
The sixth assignment of error is also of minor importance in view of the fact that in the
dispositive part of the decision of the trial court, the only relief given is an order requiring
the appellant to convey to the administratrix the land in question, together with such
parts of the proceeds of the mortgage thereon as remain in his hands. We may say further
that the court's estimate of the value of the land does not appear unreasonable and that,
upon the evidence before us, it will not be disturbed.
The seventh and within assignments of error relate to the ex parte granting by the trial
court of a preliminary attachment in the case and the refusal of the court to dissolve the
same. We find no merit whatever in these assignments and a detailed discussion of them
is unnecessary.
The third, fourth, and eight assignments of error involve the vital points in the case, are
inter-related and may be conveniently considered together.
The defendant argues that the gist of the instant action is the alleged fraud on his part in
causing the land in question to be registered in his name; that the trial court therefore
erred in rejecting his offer of evidence to the effect that the land was owned in common
by all the heirs of Ramon Severino and did not belong to Melecio Severino exclusively;
that such evidence, if admitted, would have shown that he did not act with fraudulent
intent in taking title to the land; that the trial court erred in holding him estopped from
denying Melecio's title; that more than a year having elapsed since the entry of the final
decree adjudicating the land to the defendant, said decree cannot now be reopened; that
the ordering of the defendant to convey the decreed land to the administratrix is, for all
practical purposes, equivalent to the reopening of the decree of registration; that under
section 38 of the Land Registration Act the defendant has an indefeasible title to the land;
and that the question of ownership of the land being thus judicially settled, the question
as to the previous relations between the parties cannot now be inquired into.
Upon no point can the defendant's contentions be sustained. It may first be observed that
this is not an action under section 38 of the Land Registration Act to reopen or set aside
a decree; it is an action in personam against an agent to compel him to return, or
retransfer, to the heirs or the estate of its principal, the property committed to his custody
as such agent, to execute the necessary documents of conveyance to effect such
retransfer or, in default thereof, to pay damages.
That the defendant came into the possession of the property here in question as the agent
of the deceased Melecio Severino in the administration of the property, cannot be
successfully disputed. His testimony in the case of Montelibano vs. Severino (civil case No.
902 of the Court of First Instance of Occidental Negros and which forms a part of the
evidence in the present case) is, in fact, conclusive in this respect. He there stated under
oath that from the year 1902 up to the time the testimony was given, in the year 1913,
he had been continuously in charge and occupation of the land as the encargado or
administrator of Melecio Severino; that he had always known the land as the property of
Melecio Severino; and that the possession of the latter had been peaceful, continuous,
and exclusive. In his answer filed in the same case, the same defendant, through his
attorney, disclaimed all personal interest in the land and averred that it was wholly the
property of his brother Melecio.
Neither is it disputed that the possession enjoyed by the defendant at the time of
obtaining his decree was of the same character as that held during the lifetime of his
brother, except in so far as shortly before the trial of the cadastral case the defendant
had secured from his brothers and sisters a relinguishment in his favor of such rights as
they might have in the land.
The relations of an agent to his principal are fiduciary and it is an elementary and very old
rule that in regard to property forming the subject-matter of the agency, he is estopped
from acquiring or asserting a title adverse to that of the principal. His position is analogous
to that of a trustee and he cannot consistently, with the principles of good faith, be
allowed to create in himself an interest in opposition to that of his principal or cestui que
trust. Upon this ground, and substantially in harmony with the principles of the Civil Law
(see sentence of the supreme court of Spain of May 1, 1900), the English Chancellors held
that in general whatever a trustee does for the advantage of the trust estate inures to the
benefit of the cestui que trust. (Greenlaw vs. King, 5 Jur., 18; Ex parte Burnell, 7 Jur.,
116; Ex parte Hughes, 6 Ves., 617; Ex parte James, 8 Ves., 337; Oliver vs. Court, 8 Price,
127.) The same principle has been consistently adhered to in so many American cases and
is so well established that exhaustive citations of authorities are superfluous and we shall
therefore limit ourselves to quoting a few of the numerous judicial expressions upon the
subject. The principle is well stated in the case of Gilbert vs. Hewetson (79 Minn., 326):
A receiver, trustee, attorney, agent, or any other person occupying fiduciary relations
respecting property or persons, is utterly disabled from acquiring for his own benefit the
property committed to his custody for management. This rule is entirely independent of
the fact whether any fraud has intervened. No fraud in fact need be shown, and no excuse
will be heard from the trustee. It is to avoid the necessity of any such inquiry that the rule
takes so general a form. The rule stands on the moral obligation to refrain from placing
one's self in positions which ordinarily excite conflicts between self-interest and integrity.
It seeks to remove the temptation that might arise out of such a relation to serve one's
self-interest at the expense of one's integrity and duty to another, by making it impossible
to profit by yielding to temptation. It applies universally to all who come within its
principle.
In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme Court,
speaking through Chief Justice Marshall, said:
But Massie, the agent of Oneale, has entered and surveyed a portion of that land for
himself and obtained a patent for it in his own name. According to the clearest and best
established principles of equity, the agent who so acts becomes a trustee for his principal.
He cannot hold the land under an entry for himself otherwise than as trustee for his
principal.
In the case of Felix vs. Patrick (145 U. S., 317), the United States Supreme Court, after
examining the authorities, said:
The substance of these authorities is that, wherever a person obtains the legal title to
land by any artifice or concealment, or by making use of facilities intended for the benefit
of another, a court of equity will impress upon the land so held by him a trust in favor of
the party who is justly entitled to them, and will order the trust executed by decreeing
their conveyance to the party in whose favor the trust was created. (Citing Bank of
Metropolis vs. Guttschlick, 14 Pet., 19, 31; Moses vs. Murgatroyd, 1 Johns. Ch., 119;
Cumberland vs.Codrington, 3 Johns. Ch., 229, 261; Neilson vs. Blight, 1 Johns. Cas., 205;
Weston vs. Barker, 12 Johns., 276.)
The same doctrine has also been adopted in the Philippines. In the case of Uy Aloc vs. Cho
Jan Ling (19 Phil., 202), the facts are stated by the court as follows:
From the facts proven at the trial it appears that a number of Chinese merchants raised a
fund by voluntary subscription with which they purchased a valuable tract of land and
erected a large building to be used as a sort of club house for the mutual benefit of the
subscribers to the fund. The subscribers organized themselves into an irregular
association, which had no regular articles of association, and was not incorporated or
registered in the commercial registry or elsewhere. The association not having any
existence as a legal entity, it was agreed to have the title to the property placed in the
name of one of the members, the defendant, Cho Jan Ling, who on his part accepted the
trust, and agreed to hold the property as the agent of the members of the association.
After the club building was completed with the funds of the members of the association,
Cho Jan Ling collected some P25,000 in rents for which he failed and refused to account,
and upon proceedings being instituted to compel him to do so, he set up title in himself
to the club property as well as to the rents accruing therefrom, falsely alleging that he
had bought the real estate and constructed the building with his own funds, and denying
the claims of the members of the association that it was their funds which had been used
for that purpose.
The decree of the court provided, among other things, for the conveyance of the club
house and the land on which it stood from the defendant, Cho Jan Ling, in whose name it
was registered, to the members of the association. In affirming the decree, this court said:
In the case at bar the legal title of the holder of the registered title is not questioned; it is
admitted that the members of the association voluntarily obtained the inscription in the
name of Cho Jan Ling, and that they had no right to have that inscription cancelled; they
do not seek such cancellation, and on the contrary they allege and prove that the duly
registered legal title to the property is in Cho Jan Ling, but they maintain, and we think
that they rightly maintain, that he holds it under an obligation, both express and implied,
to deal with it exclusively for the benefit of the members of the association, and subject
to their will.
In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the plaintiff, Camacho,
took title to the land in his own name, while acting as agent for the municipality. The court
said:
There have been a number of cases before this court in which a title to real property was
acquired by a person in his own name, while acting under a fiduciary capacity, and who
afterwards sought to take advantage of the confidence reposed in him by claiming the
ownership of the property for himself. This court has invariably held such evidence
competent as between the fiduciary and the cestui que trust.
xxx xxx xxx
What judgment ought to be entered in this case? The court below simply absolved the
defendant from the complaint. The defendant municipality does not ask for a cancellation
of the deed. On the contrary, the deed is relied upon the supplement the oral evidence
showing that the title to the land is in the defendant. As we have indicated in Consunji vs.
Tison, 15 Phil., 81, and Uy Aloc vs. Cho Jan Ling, 19 Phil., 202, the proper procedure in
such a case, so long as the rights of innocent third persons have not intervened, is to
compel a conveyance to the rightful owner. This ought and can be done under the issues
raised and the proof presented in the case at bar.
The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in point.
As will be seen from the authorities quoted, and agent is not only estopped from denying
his principal's title to the property, but he is also disable from acquiring interests therein
adverse to those of his principal during the term of the agency. But the defendant argues
that his title has become res adjudicata through the decree of registration and cannot
now be disturbed.
This contention may, at first sight, appear to possess some force, but on closer
examination it proves untenable. The decree of registration determined the legal title to
the land as the date of the decree; as to that there is no question. That, under section 38
of the Land Registration Act, this decree became conclusive after one year from the date
of the entry is not disputed and no one attempts to disturb the decree or the proceedings
upon which it is based; the plaintiff in intervention merely contends that in equity
the legal title so acquired inured to the benefit of the estate of Melecio Severino, the
defendant's principal and cestui que trust and asks that this superior equitable right be
made effective by compelling the defendant, as the holder of the legal title, to transfer it
to the estate.
We have already shown that before the issuance of the decree of registration it was the
undoubted duty of the defendant to restore the property committed to his custody to his
principal, or to the latter's estate, and that the principal had a right of action in
personam to enforce the performance of this duty and to compel the defendant to
execute the necessary conveyance to that effect. The only question remaining for
consideration is, therefore, whether the decree of registration extinguishing this personal
right of action.
In Australia and New Zealand, under statutes in this respect similar to ours, courts of
equity exercise general jurisdiction in matters of fraud and error with reference to Torrens
registered lands, and giving attention to the special provisions of the Torrens acts, will
issue such orders and direction to all the parties to the proceedings as may seem just and
proper under the circumstances. They may order parties to make deeds of conveyance
and if the order is disobeyed, they may cause proper conveyances to be made by a Master
in Chancery or Commissioner in accordance with the practice in equity (Hogg, Australian
Torrens System, p. 847).
In the Untied States courts have even gone so far in the exercise of their equity jurisdiction
as to set aside final decrees after the expiration of the statutory period of limitation for
the reopening of such decrees (Baart vs. Martin, 99 Minn., 197). But, considering that
equity follows the law and that our statutes expressly prohibit the reopening of a decree
after one year from the date of its entry, this practice would probably be out of question
here, especially so as the ends of justice may be attained by other equally effective, and
less objectionable means.
Turning to our own Land Registration Act, we find no indication there of an intention to
cut off, through the issuance of a decree of registration, equitable rights or remedies such
as those here in question. On the contrary, section 70 of the Act provides:
The judgment of the trial court is in accordance with the facts and the law. In order to
prevent unnecessary delay and further litigation it may, however, be well to attach some
additional directions to its dipositive clauses. It will be observed that lots Nos. 827, 828,
and 834 of a total area of approximately 191 hectares, lie wholly within the area to be
conveyed to the plaintiff in intervention and these lots may, therefore, be so conveyed
without subdivision. The remaining 237 hectares to be conveyed lie within the western
part of lot No. 874 and before a conveyance of this portion can be effected a subdivision
of that lot must be made and a technical description of the portion to be conveyed, as
well as of the remaining portion of the lot, must be prepared. The subdivision shall be
made by an authorized surveyor and in accordance with the provisions of Circular No. 31
of the General Land Registration Office, and the subdivision and technical descriptions
shall be submitted to the Chief of that office for his approval. Within thirty days after
being notified of the approval of said subdivision and technical descriptions, the
defendant Guillermo Severino shall execute good and sufficient deed or deeds of
conveyance in favor of the administratrix of the estate of the deceased Melecio Severino
for said lots Nos. 827, 828, 834, and the 237 hectares segregated from the western part
of lot No. 874 and shall deliver to the register of deeds his duplicate certificates of title
for all of the four lots in order that said certificates may be cancelled and new certificates
issued. The cost of the subdivision and the fees of the register of deeds will be paid by the
plaintiff in intervention. It is so ordered

Registered lands and ownership therein, shall in all respects be subject to the same With these additional directions the judgment appealed from is affirmed, with the costs
burdens and incidents attached by law to unregistered land. Nothing contained in this Act against the appellant. The right of the plaintiff Fabiola Severino to establish in the probate
shall in any way be construed to relieve registered land or the owners thereof from any proceedings of the estate of Melecio Severino her status as his recognized natural child is
rights incident to the relation of husband and wife, or from liability to attachment on reserved.
mesne process or levy on execution, or from liability to any lien of any description
established by law on land and the buildings thereon, or the interest of the owner in such Araullo, C. J., Johnson, Street, Malcolm, Avanceña, Villamor, Johns, and Romualdez, JJ.,
land or buildings, or to change the laws of descent, or the rights of partition between concur.
coparceners, joint tenants and other cotenants, or the right to take the same by eminent
domain, or to relieve such land from liability to be appropriated in any lawful manner for
the payment of debts, or to change or affect in any other way any other rights or liabilities
created by law and applicable to unregistered land, except as otherwise expressly
provided in this Act or in the amendments hereof.

Section 102 of the Act, after providing for actions for damages in which the Insular
Treasurer, as the Custodian of the Assurance Fund is a party, contains the following
proviso:

Provided, however, That nothing in this Act shall be construed to deprive the plaintiff
of any action which he may have against any person for such loss or damage or
deprivation of land or of any estate or interest therein without joining the Treasurer of
the Philippine Archipelago as a defendant therein.

That an action such as the present one is covered by this proviso can hardly admit of
doubt. Such was also the view taken by this court in the case of Medina Ong-Quingco vs.
Imaz and Warner, Barnes & Co. (27 Phil., 314), in which the plaintiff was seeking to take
advantage of his possession of a certificate of title to deprive the defendant of land
included in that certificate and sold to him by the former owner before the land was
registered. The court decided adversely to plaintiff and in so doing said:

As between them no question as to the indefeasibility of a Torrens title could arise. Such
an action could have been maintained at any time while the property remained in the
hands of the purchaser. The peculiar force of a Torrens title would have been brought
into play only when the purchaser had sold to an innocent third person for value the lands
described in his conveyance. . . . Generally speaking, as between the vendor and the
purchaser the same rights and remedies exist with reference to land registered under Act
No. 496, as exist in relation to land not so registered.

In Cabanos vs. Register of Deeds of Laguna and Obiñana (40 Phil., 620), it was held that,
while a purchaser of land under a pacto de retro cannot institute a real action for the
recovery thereof where the vendor under said sale has caused such lands to be registered
in his name without said vendee's consent, yet he may have his personal action based on
the contract of sale to compel the execution of an unconditional deed for the said lands
when the period for repurchase has passed.

Torrens titles being on judicial decrees there is, of course, a strong presumption in favor
of their regularity or validity, and in order to maintain an action such as the present the
proof as to the fiduciary relation of the parties and of the breach of trust must be clear
and convincing. Such proof is, as we have seen, not lacking in this case.

But once the relation and the breach of trust on the part of the fiduciary in thus
established, there is no reason, neither practical nor legal, why he should not be
compelled to make such reparation as may lie within his power for the injury caused by
his wrong, and as long as the land stands registered in the name of the party who is guilty
of the breach of trust and no rights of innocent third parties are adversely affected, there
can be no reason why such reparation should not, in the proper case, take the form of a
conveyance or transfer of the title to the cestui que trust. No reasons of public policy
demand that a person guilty of fraud or breach of trust be permitted to use his certificate
of title as a shield against the consequences of his own wrong.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 76931 May 29, 1991
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933 May 29, 1991
AMERICAN AIRLINES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED,respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.
PADILLA, J.:
1
This case is a consolidation of two (2) petitions for review on certiorari of a decision of the Court of
Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel
Representatives, Inc." which affirmed, with modification, the decision2 of the Regional Trial Court of
Manila, Branch IV, which dismissed the complaint and granted therein defendant's counterclaim for
agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier
offering passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel
Representatives (hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), whereby the former authorized the latter to act as its
exclusive general sales agent within the Philippines for the sale of air passenger transportation.
Pertinent provisions of the agreement are reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the
Philippines, including any United States military installation therein which are not serviced by an Air
Carrier Representation Office (ACRO), for the sale of air passenger transportation. The services to be
performed by Orient Air Services shall include:
(a) soliciting and promoting passenger traffic for the services of American and, if necessary, employing
staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be used exclusively for the
transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and promotional material to sales agents
and the general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may be appointed by Orient
Air Services with the prior written consent of American) in the assigned territory including if required
by American the control of remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public in the assigned
territory.
In connection with scheduled or non-scheduled air passenger transportation within the United States,
neither Orient Air Services nor its sub-agents will perform services for any other air carrier similar to
those to be performed hereunder for American without the prior written consent of American. Subject
to periodic instructions and continued consent from American, Orient Air Services may sell air
passenger transportation to be performed within the United States by other scheduled air carriers
provided American does not provide substantially equivalent schedules between the points involved.
xxx xxx xxx
4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders,
less commissions to which Orient Air Services is entitled hereunder, not less frequently than semi-
monthly, on the 15th and last days of each month for sales made during the preceding half month.
All monies collected by Orient Air Services for transportation sold hereunder on American's ticket stock
or on exchange orders, less applicable commissions to which Orient Air Services is entitled hereunder,
are the property of American and shall be held in trust by Orient Air Services until satisfactorily
accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder by Orient Air
Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient
Air Services or its sub-agents over American's services and any connecting through air transportation,
when made on American's ticket stock, equal to the following percentages of the tariff fares and
charges:
(i) For transportation solely between points within the United States and between such points and
Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America.
(ii) For transportation included in a through ticket covering transportation between points other than
those described above: 8% or such other rate(s) as may be prescribed by the International Air
Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an overriding commission of
3% of the tariff fares and charges for all sales of transportation over American's service by Orient Air
Service or its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing or performing any of the provisions of this
Agreement or shall become bankrupt or make any assignment for the benefit of or enter into any
agreement or promise with its creditors or go into liquidation, or suffer any of its goods to be taken in
execution, or if it ceases to be in business, this Agreement may, at the option of American, be
terminated forthwith and American may, without prejudice to any of its rights under this Agreement,
take possession of any ticket forms, exchange orders, traffic material or other property or funds
belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions of the International
Air Transport Association and the Air Traffic Conference of America, and such rules or resolutions shall
control in the event of any conflict with the provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in the event Orient Air Services is unable
to transfer to the United States the funds payable by Orient Air Services to American under this
Agreement. Either party may terminate the Agreement without cause by giving the other 30 days'
notice by letter, telegram or cable.
xxx xxx x x x3
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing
to promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of
US $254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold
originally by Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13
thereof (Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against
Orient Air with the Court of First Instance of Manila, Branch 24, for Accounting with Preliminary
Attachment or Garnishment, Mandatory Injunction and Restraining Order4 averring the aforesaid basis
for the termination of the Agreement as well as therein defendant's previous record of failures "to
promptly settle past outstanding refunds of which there were available funds in the possession of the
defendant, . . . to the damage and prejudice of plaintiff."5
In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material
allegations of the complaint with respect to plaintiff's entitlement to alleged unremitted amounts,
contending that after application thereof to the commissions due it under the Agreement, plaintiff in
fact still owed Orient Air a balance in unpaid overriding commissions. Further, the defendant
contended that the actions taken by American Air in the course of terminating the Agreement as well
as the termination itself were untenable, Orient Air claiming that American Air's precipitous conduct
had occasioned prejudice to its business interests.
Finding that the record and the evidence substantiated the allegations of the defendant, the trial court
ruled in its favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of
defendant and against plaintiff dismissing the complaint and holding the termination made by the
latter as affecting the GSA agreement illegal and improper and order the plaintiff to reinstate
defendant as its general sales agent for passenger tranportation in the Philippines in accordance with
said GSA agreement; plaintiff is ordered to pay defendant the balance of the overriding commission on
total flown revenue covering the period from March 16, 1977 to December 31, 1980 in the amount of
US$84,821.31 plus the additional amount of US$8,000.00 by way of proper 3% overriding commission
per month commencing from January 1, 1981 until such reinstatement or said amounts in its Philippine
peso equivalent legally prevailing at the time of payment plus legal interest to commence from the
filing of the counterclaim up to the time of payment. Further, plaintiff is directed to pay defendant the
amount of One Million Five Hundred Thousand (Pl,500,000.00) pesos as and for exemplary damages;
and the amount of Three Hundred Thousand (P300,000.00) pesos as and by way of attorney's fees.
Costs against plaintiff.7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27
January 1986, affirmed the findings of the court a quo on their material points but with some
modifications with respect to the monetary awards granted. The dispositive portion of the appellate
court's decision is as follows:
WHEREFORE, with the following modifications —
1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the latter's
overriding commission covering the period March 16, 1977 to December 31, 1980, or its Philippine
peso equivalent in accordance with the official rate of exchange legally prevailing on July 10, 1981, the
date the counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding commission per
month starting January 1, 1981 until date of termination, May 9, 1981 or its Philippine peso equivalent
in accordance with the official rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the answer
with counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing the substance
thereof and arguing for its reversal. The appellate court's decision was also the subject of a Motion for
Partial Reconsideration by Orient Air which prayed for the restoration of the trial court's ruling with
respect to the monetary awards. The Court of Appeals, by resolution promulgated on 17 December
1986, denied American Air's motion and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial
court's award of exemplary damages and attorney's fees, but granted insofar as the rate of exchange is
concerned. The decision of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive
part so that the payment of the sums mentioned therein shall be at their Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on the date of actual payment.9
Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as
petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution 10 of this
Court dated 25 March 1987 both petitions were consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding
commission. It is the stand of American Air that such commission is based only on sales of its services
actually negotiated or transacted by Orient Air, otherwise referred to as "ticketed sales." As basis
thereof, primary reliance is placed upon paragraph 5(b) of the Agreement which, in reiteration, is
quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an overriding commission of
3% of the tariff fees and charges for all sales of transportation over American's services by Orient Air
Services or itssub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having
opted to appoint any sub-agents, it is American Air's contention that Orient Air can claim entitlement
to the disputed overriding commission based only on ticketed sales. This is supposed to be the clear
meaning of the underscored portion of the above provision. Thus, to be entitled to the 3% overriding
commission, the sale must be made by Orient Air and the sale must be done with the use of American
Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission
covers the total revenue of American Air and not merely that derived from ticketed sales undertaken
by Orient Air. The latter, in justification of its submission, invokes its designation as
the exclusive General Sales Agent of American Air, with the corresponding obligations arising from such
agency, such as, the promotion and solicitation for the services of its principal. In effect, by virtue of
such exclusivity, "all sales of transportation over American Air's services are necessarily by Orient
Air."11
It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be
taken into consideration to ascertain the meaning of its provisions. 12 The various stipulations in the
contract must be read together to give effect to all.13 After a careful examination of the records, the
Court finds merit in the contention of Orient Air that the Agreement, when interpreted in accordance
with the foregoing principles, entitles it to the 3% overriding commission based on total revenue, or as
referred to by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the
promotion and marketing of American Air's services for air passenger transportation, and the
solicitation of sales therefor. In return for such efforts and services, Orient Air was to be paid
commissions of two (2) kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and
charges from sales by Orient Air when made on American Air ticket stock; and second, an overriding
commission of 3% of tariff fares and charges for all sales of passenger transportation over American Air
services. It is immediately observed that the precondition attached to the first type of commission
does not obtain for the second type of commissions. The latter type of commissions would accrue for
sales of American Air services made not on its ticket stock but on the ticket stock of other air carriers
sold by such carriers or other authorized ticketing facilities or travel agents. To rule otherwise, i.e., to
limit the basis of such overriding commissions to sales from American Air ticket stock would erase any
distinction between the two (2) types of commissions and would lead to the absurd conclusion that the
parties had entered into a contract with meaningless provisions. Such an interpretation must at all
times be avoided with every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that American Air
was the party responsible for the preparation of the Agreement. Consequently, any ambiguity in this
"contract of adhesion" is to be taken "contra proferentem", i.e., construed against the party who
caused the ambiguity and could have avoided it by the exercise of a little more care. Thus, Article 1377
of the Civil Code provides that the interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity.14 To put it differently, when several interpretations of a
provision are otherwise equally proper, that interpretation or construction is to be adopted which is
most favorable to the party in whose favor the provision was made and who did not cause the
ambiguity.15 We therefore agree with the respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read
against the party who drafted it.16
We now turn to the propriety of American Air's termination of the Agreement. The respondent
appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of
the Agreement, Exh. F, which provides for remittances to American less commissions to which Orient is
entitled, and from paragraph 5(d) which specifically allows Orient to retain the full amount of its
commissions. Since, as stated ante, Orient is entitled to the 3% override. American's premise,
therefore, for the cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established, Orient Air was
entitled to an overriding commission based on total flown revenue. American Air's perception that
Orient Air was remiss or in default of its obligations under the Agreement was, in fact, a situation
where the latter acted in accordance with the Agreement—that of retaining from the sales proceeds
its accrued commissions before remitting the balance to American Air. Since the latter was still
obligated to Orient Air by way of such commissions. Orient Air was clearly justified in retaining and
refusing to remit the sums claimed by American Air. The latter's termination of the Agreement was,
therefore, without cause and basis, for which it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial court's
award of exemplary damages and attorney's fees. This Court sees no error in such modification and,
thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the decision of
the trial court.1âwphi1We refer particularly to the lower court's decision ordering American Air to
"reinstate defendant as its general sales agent for passenger transportation in the Philippines in
accordance with said GSA Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to
extend its personality to Orient Air. Such would be violative of the principles and essence of agency,
defined by law as a contract whereby "a person binds himself to render some service or to do
something in representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE
LATTER .17 (emphasis supplied) In an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would have him do. Such a relationship can
only be effected with the consent of the principal, which must not, in any way, be compelled by law or
by any court. The Agreement itself between the parties states that "either party may terminate the
Agreementwithout cause by giving the other 30 days' notice by letter, telegram or cable." (emphasis
supplied) We, therefore, set aside the portion of the ruling of the respondent appellate court
reinstating Orient Air as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the
respondent Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively. Costs
against petitioner American Air.
SO ORDERED.
SECOND DIVISION
[G.R. No. 130148. December 15, 1997]
JOSE BORDADOR and LYDIA BORDADOR, petitioners, vs. BRIGIDA D. LUZ, ERNESTO M.
LUZ and NARCISO DEGANOS, respondents.
DECISION
REGALADO, J.:
In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in CA-
G.R. CV No. 49175 affirming the adjudication of the Regional Trial Court of Malolos,
Bulacan which found private respondent Narciso Deganos liable to petitioners for actual
damages, but absolved respondent spouses Brigida D. Luz and Ernesto M. Luz of liability.
Petitioners likewise belabor the subsequent resolution of the Court of Appeals which
denied their motion for reconsideration of its challenged decision.
Petitioners were engaged in the business of purchase and sale of jewelry and
respondent Brigida D. Luz, also known as Aida D. Luz, was their regular customer. On
several occasions during the period from April 27, 1987 to September 4, 1987,
respondent Narciso Deganos, the brother of Brigida D. Luz, received several pieces of
gold and jewelry from petitioners amounting to P382,816.00. [1] These items and their
prices were indicated in seventeen receipts covering the same. Eleven of the receipts
stated that they were received for a certain Evelyn Aquino, a niece of Deganos, and the
remaining six indicated that they were received for Brigida D. Luz. [2]
Deganos was supposed to sell the items at a profit and thereafter remit the proceeds
and return the unsold items to petitioners. Deganos remitted only the sum
of P53,207.00. He neither paid the balance of the sales proceeds, nor did he return any
unsold item to petitioners. By January 1990, the total of his unpaid account to
petitioners, including interest, reached the sum of P725,463.98. [3] Petitioners eventually
filed a complaint in the barangay court against Deganos to recover said amount.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case,
appeared as a witness for Deganos and ultimately, she and her husband, together with
Deganos, signed a compromise agreement with petitioners. In that compromise
agreement, Deganos obligated himself to pay petitioners, on installment basis, the
balance of his account plus interest thereon. However, he failed to comply with his
aforestated undertakings.
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial
Court of Malolos, Bulacan against Deganos and Brigida D. Luz for recovery of a sum of
money and damages, with an application for preliminary attachment. [4] Ernesto Luz was
impleaded therein as the spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with
estafa[5] in the Regional Trial Court of Malolos, Bulacan, which was docketed as Criminal
Case No. 785-M-94. That criminal case appears to be still pending in said trial court.
During the trial of the civil case, petitioners claimed that Deganos acted as the agent of
Brigida D. Luz when he received the subject items of jewelry and, because he failed to
pay for the same, Brigida, as principal, and her spouse are solidarily liable with him
therefor.
On the other hand, while Deganos admitted that he had an unpaid obligation to
petitioners, he claimed that the same was only in the sum of P382,816.00 and
not P725,463.98. He further asserted that it was he alone who was involved in the
transaction with the petitioners; that he neither acted as agent for nor was he
authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that six of the
receipts indicated that the items were received by him for the latter. He further claimed
that he never delivered any of the items he received from petitioners to Brigida.
Brigida, on her part, denied that she had anything to do with the transactions between
petitioners and Deganos. She claimed that she never authorized Deganos to receive any
item of jewelry in her behalf and, for that matter, neither did she actually receive any of
the articles in question.
After trial, the court below found that only Deganos was liable to petitioners for the
amount and damages claimed. It held that while Brigida D. Luz did have transactions
with petitioners in the past, the items involved were already paid for and all that Brigida
owed petitioners was the sum of P21,483.00 representing interest on the principal
account which she had previously paid for. [6]
The trial court also found that it was petitioner Lydia Bordador who indicated in the
receipts that the items were received by Deganos for Evelyn Aquino and Brigida D.
Luz. [7] Said court was persuaded that Brigida D. Luz was behind Deganos, but because
there was no memorandum to this effect, the agreement between the parties was
unenforceable under the Statute of Frauds. [8] Absent the required memorandum or any
written document connecting the respondent Luz spouses with the subject receipts, or
authorizing Deganos to act on their behalf, the alleged agreement between petitioners
and Brigida D. Luz was unenforceable.
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest
thereon from June 25, 1990, and attorneys fees. Brigida D. Luz was ordered to
pay P21,483.00 representing the interest on her own personal loan. She and her co-
defendant spouse were absolved from any other or further liability. [9]
As stated at the outset, petitioners appealed the judgment of the court a quo to the
Court of Appeals which affirmed said judgment. [10] The motion for reconsideration filed
by petitioners was subsequently dismissed, [11] hence the present recourse to this Court.
The primary issue in the instant petition is whether or not herein respondent spouses
are liable to petitioners for the latters claim for money and damages in the sum
of P725,463.98, plus interests and attorneys fees, despite the fact that the evidence
does not show that they signed any of the subject receipts or authorized Deganos to
receive the items of jewelry on their behalf.
Petitioners argue that the Court of Appeals erred in adopting the findings of the court a
quo that respondent spouses are not liable to them, as said conclusion of the trial court
is contradicted by the finding of fact of the appellate court that (Deganos) acted as
agent of his sister (Brigida Luz). [12] In support of this contention, petitioners quoted
several letters sent to them by Brigida D. Luz wherein the latter acknowledged her
obligation to petitioners and requested for more time to fulfill the same. They likewise
aver that Brigida testified in the trial court that Deganos took some gold articles from
petitioners and delivered the same to her.
Both the Court of Appeals and the trial court, however, found as a fact that the
aforementioned letters concerned the previous obligations of Brigida to petitioners, and
had nothing to do with the money sought to be recovered in the instant case. Such
concurrent factual findings are entitled to great weight, hence, petitioners cannot
plausibly claim in this appellate review that the letters were in the nature of
acknowledgments by Brigida that she was the principal of Deganos in the subject
transactions.
On the other hand, with regard to the testimony of Brigida admitting delivery of the
gold to her, there is no showing whatsoever that her statement referred to the items
which are the subject matter of this case. It cannot, therefore, be validly said that she
admitted her liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him
with apparent authority as her agent and held him out to the public as such, hence
Brigida can not be permitted to deny said authority to innocent third parties who dealt
with Deganos under such belief. [13] Petitioners further represent that the Court of
Appeals recognized in its decision that Deganos was an agent of Brigida. [14]
The evidence does not support the theory of petitioners that Deganos was an agent of
Brigida D. Luz and that the latter should consequently be held solidarily liable with
Deganos in his obligation to petitioners. While the quoted statement in the findings of
fact of the assailed appellate decision mentioned that Deganos ostensibly acted as an
agent of Brigida, the actual conclusion and ruling of the Court of Appeals categorically
stated that, (Brigida Luz) never authorized her brother (Deganos) to act for and in her
behalf in any transaction with Petitioners x xx. [15] It is clear, therefore, that even
assuming arguendo that Deganos acted as an agent of Brigida, the latter never
authorized him to act on her behalf with regard to the transactions subject of this case.
The Civil Code provides:
Art. 1868. By the contract of agency a person binds himself to render some service or to
do something in representation or on behalf of another, with the consent or authority
of the latter.
The basis for agency is representation. Here, there is no showing that Brigida consented
to the acts of Deganos or authorized him to act on her behalf, much less with respect to
the particular transactions involved. Petitioners attempt to foist liability on respondent
spouses through the supposed agency relation with Deganos is groundless and ill-
advised.
Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos,
not once or twice but on at least six occasions as evidenced by six receipts, several
pieces of jewelry of substantial value without requiring a written authorization from his
alleged principal. A person dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent. [16]
The records show that neither an express nor an implied agency was proven to have
existed between Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent
in their transactions with Deganos, cannot seek relief from the effects of their
negligence by conjuring a supposed agency relation between the two respondents
where no evidence supports such claim.
Petitioners next allege that the Court of Appeals erred in ignoring the fact that the
decision of the court below, which it affirmed, is null and void as it contradicted its
ruling in CA-G.R. SP No. 39445 holding that there is sufficient evidence/proof against
Brigida D. Luz and Deganos for estafa in the pending criminal case. They further aver
that said appellate court erred in ruling against them in this civil action since the same
would result in an inevitable conflict of decisions should the trial court convict the
accused in the criminal case.
By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz
and Deganos had filed a demurrer to evidence and a motion for reconsideration in the
aforestated criminal case, both of which were denied by the trial court. They then filed a
petition for certiorari in the Court of Appeals to set aside the denial of their demurrer
and motion for reconsideration but, as just stated, their petition therefor was
dismissed.[17]
Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the
petition in CA-G.R. SP No. 39445 with respect to the criminal case is equivalent to a
finding that there is sufficient evidence in the estafa case against Brigida D. Luz and
Deganos. Hence, as already stated, petitioners theorize that the decision and resolution
of the Court of Appeals now being impugned in the case at bar would result in a possible
conflict with the prospective decision in the criminal case. Instead of promulgating the
present decision and resolution under review, so they suggest, the Court of Appeals
should have awaited the decision in the criminal case, so as not to render academic or
preempt the same or, worse, create two conflicting rulings. [18]
Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that
in cases involving alleged fraudulent acts, a civil action for damages, entirely separate
and distinct from the criminal action, may be brought by the injured party. Such civil
action shall proceed independently of the criminal prosecution and shall require only a
preponderance of evidence.
It is worth noting that this civil case was instituted four years before the criminal case
for estafa was filed, and that although there was a move to consolidate both cases, the
same was denied by the trial court. Consequently, it was the duty of the two branches
of the Regional Trial Court concerned to independently proceed with the civil and
criminal cases. It will also be observed that a final judgment rendered in a civil action
absolving the defendant from civil liability is no bar to a criminal action. [19]
It is clear, therefore, that this civil case may proceed independently of the criminal
case [20] especially because while both cases are based on the same facts, the quantum
of proof required for holding the parties liable therein differ. Thus, it is improvident of
petitioners to claim that the decision and resolution of the Court of Appeals in the
present case would be preemptive of the outcome of the criminal case. Their fancied
fear of possible conflict between the disposition of this civil case and the outcome of the
pending criminal case is illusory.
Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to
issue the denial resolution dated August 18, 1997, as the same was tainted with
irregularities and badges of fraud perpetrated by its court officers. [21] They charge that
said appellate court, through conspiracy and fraud on the part of its officers, gravely
abused its discretion in issuing that resolution denying their motion for
reconsideration. They claim that said resolution was drafted by the ponente, then signed
and issued by the members of the Eleventh Division of said court within one and a half
days from the elevation thereof by the division clerk of court to the office of
the ponente.
It is ironic that while some litigants malign the judiciary for being supposedly slothful in
disposing of cases, petitioners are making a show of calling out for justice because the
Court of Appeals issued a resolution disposing of a case sooner than expected of it. They
would even deny the exercise of discretion by the appellate court to prioritize its action
on cases in line with the procedure it has adopted in disposing thereof and in declogging
its dockets. It is definitely not for the parties to determine and dictate when and how a
tribunal should act upon those cases since they are not even aware of the status of the
dockets and the internal rules and policies for acting thereon.
The fact that a resolution was issued by said court within a relatively short period of
time after the records of the case were elevated to the office of the ponente cannot, by
itself, be deemed irregular. There is no showing whatsoever that the resolution was
issued without considering the reply filed by petitioners. In fact, that brief pleading filed
by petitioners does not exhibit any esoteric or ponderous argument which could not be
analyzed within an hour. It is a legal presumption, born of wisdom and experience, that
official duty has been regularly performed; [27] that the proceedings of a judicial tribunal
are regular and valid, and that judicial acts and duties have been and will be duly and
properly performed. [28] The burden of proving irregularity in official conduct is on the
part of petitioners and they have utterly failed to do so. It is thus reprehensible for them
to cast aspersions on a court of law on the bases of conjectures or surmises, especially
since one of the petitioners appears to be a member of the Philippine Bar.
Lastly, petitioners fault the trial courts holding that whatever contract of agency was
established between Brigida D. Luz and Narciso Deganos is unenforceable under the
Statute of Frauds as that aspect of this case allegedly is not covered thereby. [29] They
proceed on the premise that the Statute of Frauds applies only to executory contracts
and not to executed or to partially executed ones. From there, they move on to claim
that the contract involved in this case was an executed contract as the items had
already been delivered by petitioners to Brigida D. Luz, hence, such delivery resulted in
the execution of the contract and removed the same from the coverage of the Statute
of Frauds.
Petitioners claim is speciously unmeritorious. It should be emphasized that neither the
trial court nor the appellate court categorically stated that there was such a contractual
relation between these two respondents. The trial court merely said that if there was
such an agency existing between them, the same is unenforceable as the contract would
fall under the Statute of Frauds which requires the presentation of a note or
memorandum thereof in order to be enforceable in court. That was merely a
preparatory statement of a principle of law. What was finally proven as a matter of fact
is that there was no such contract between Brigida D. Luz and Narciso Deganos,
executed or partially executed, and no delivery of any of the items subject of this case
was ever made to the former.
WHEREFORE, no error having been committed by the Court of Appeals in affirming the
judgment of the court a quo, its challenged decision and resolution are hereby
AFFIRMED and the instant petition is DENIED, with double costs against petitioners
SO ORDERED.

It is the thesis of petitioners that there was undue haste in issuing the resolution as the
same was made without waiting for the lapse of the ten-day period for respondents to
file their comment and for petitioners to file their reply. It was allegedly impossible for
the Court of Appeals to resolve the issue in just one and a half days, especially because
its ponente, the late Justice Maximiano C. Asuncion, was then recuperating from surgery
and, that, additionally, hundreds of more important cases were pending. [22]

These lamentable allegation of irregularities in the Court of Appeals and in the conduct
of its officers strikes us as a desperate attempt of petitioners to induce this Court to give
credence to their arguments which, as already found by both the trial and intermediate
appellate courts, are devoid of factual and legal substance. The regrettably irresponsible
attempt to tarnish the image of the intermediate appellate tribunal and its judicial
officers through ad hominem imputations could well be contumacious, but we are
inclined to let that pass with a strict admonition that petitioners refrain from indulging
in such conduct in litigations.

On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial
courts decision. [23] Petitioners moved for reconsideration and the Court of Appeals
ordered respondents to file a comment. Respondents filed the same on August 5,
1997 [24] and petitioners filed their reply to said comment on August 15, 1997. [25] The
Eleventh Division of said court issued the questioned resolution denying petitioners
motion for reconsideration on August 18, 1997. [26]
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. 152613 & 152628 November 20, 2009
APEX MINING CO., INC., petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication board,
provincial mining regulatory board (PMRB-DAVAO), MONKAYO INTEGRATED SMALL
SCALE MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR, BALITE COMMUNAL PORTAL
MINING COOPERATIVE, DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO,
PUTING-BATO GOLD MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG,
LUIS GALANG, RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN
ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY
ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN, LETICIA
ALQUEZA and JOEL BRILLANTES Management Mining Corporation, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 152619-20
BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORP., APEX MINING CO., INC., The Mines
Adjudication Board, Provincial Mining Regulatory Board (PMRB-DAVAO), MONKAYO
INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR, DAVAO
UNITED MINERS COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD MINERS
COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS GALANG, RENATO
BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN ASION, MACARIO
HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY ESPORTONO, ROMEO
CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and JOEL
BRILLANTES Management Mining Corporation, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 152870-71
THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON. VICTOR O. RAMOS
(Chairman), UNDERSECRETARY VIRGILIO MARCELO (Member) and DIRECTOR HORACIO
RAMOS (Member), petitioners,
vs.
SOUTHEAST MINDANAO GOLD MINING CORPORATION, Respondent.
RESOLUTION
CHICO-NAZARIO, J.:
This resolves the motion for reconsideration dated 12 July 2006, filed by Southeast
Mindanao Gold Mining Corporation (SEM), of this Court’s Decision dated 23 June 2006
(Assailed Decision). The Assailed Decision held that the assignment of Exploration
Permit (EP) 133 in favor of SEM violated one of the conditions stipulated in the permit,
i.e., that the same shall be for the exclusive use and benefit of Marcopper Mining
Corporation (MMC) or its duly authorized agents. Since SEM did not claim or submit
evidence that it was a designated agent of MMC, the latter cannot be considered as an
agent of the former that can use EP 133 and benefit from it. It also ruled that the
transfer of EP 133 violated Presidential Decree No. 463, which requires that the
assignment of a mining right be made with the prior approval of the Secretary of the
Department of Environment and Natural Resources (DENR). Moreover, the Assailed
Decision pointed out that EP 133 expired by non-renewal since it was not renewed
before or after its expiration.
The Assailed Decision likewise upheld the validity of Proclamation No. 297 absent any
question against its validity. In view of this, and considering that under Section 5 of
Republic Act No. 7942, otherwise known as the "Mining Act of 1995," mining operations
in mineral reservations may be undertaken directly by the State or through a contractor,
the Court deemed the issue of ownership of priority right over the contested Diwalwal
Gold Rush Area as having been overtaken by the said proclamation. Thus, it was held in
the Assailed Decision that it is now within the prerogative of the Executive Department
to undertake directly the mining operations of the disputed area or to award the
operations to private entities including petitioners Apex and Balite, subject to applicable
laws, rules and regulations, and provided that these private entities are qualified.
SEM also filed a Motion for Referral of Case to the Court En Banc and for Oral
Arguments dated 22 August 2006.
Apex, for its part, filed a Motion for Clarification of the Assailed Decision, praying that
the Court elucidate on the Decision’s pronouncement that "mining operations, are now,
therefore within the full control of the State through the executive branch." Moreover,
Apex asks this Court to order the Mines and Geosciences Board (MGB) to accept its
application for an exploration permit.
In its Manifestation and Motion dated 28 July 2006, Balite echoes the same concern as
that of Apex on the actual takeover by the State of the mining industry in the disputed
area to the exclusion of the private sector. In addition, Balite prays for this Court to
direct MGB to accept its application for an exploration permit.
Camilo Banad, et al., likewise filed a motion for reconsideration and prayed that the
disputed area be awarded to them.
In the Resolution dated 15 April 2008, the Court En Banc resolved to accept the instant
cases. The Court, in a resolution dated 29 April 2008, resolved to set the cases for Oral
Argument on 1 July 2008.
During the Oral Argument, the Court identified the following principal issues to be
discussed by the parties:
1. Whether the transfer or assignment of Exploration Permit (EP) 133 by MMC to SEM
was validly made without violating any of the terms and conditions set forth in
Presidential Decree No. 463 and EP 133 itself.
2. Whether Southeast Mindanao Mining Corp. acquired a vested right over the disputed
area, which constitutes a property right protected by the Constitution.
3. Whether the assailed Decision dated 23 June 2006 of the Third Division in this case is
contrary to and overturns the earlier Decision of this Court in Apex v. Garcia (G.R. No.
92605, 16 July 1991, 199 SCRA 278).
4. Whether the issuance of Proclamation No. 297 declaring the disputed area as mineral
reservation outweighs the claims of SEM, Apex Mining Co. Inc. and Balite Communal
Portal Mining Cooperative over the Diwalwal Gold Rush Area.
5. Whether the issue of the legality/constitutionality of Proclamation No. 297 was
belatedly raised.
6. Assuming that the legality/constitutionality of Proclamation No. 297 was timely
raised, whether said proclamation violates any of the following:
a. Article XII, Section 4 of the Constitution;
b. Section 1 of Republic Act No. 3092;
c. Section 14 of the Administrative Code of 1987;
d. Section 5(a) of Republic Act No. 7586;
e. Section 4(a) of Republic Act No. 6657; and
f. Section 2, Subsection 2.1.2 of Executive Order No. 318 dated 9 June 2004.
After hearing the arguments of the parties, the Court required them to submit their
respective memoranda. Memoranda were accordingly filed by SEM, Apex, Balite and
Mines Adjudication Board (MAB).
We shall resolve the second issue before dwelling on the first, third and the rest of the
issues.
MMC or SEM Did Not Have Vested Rights Over the Diwalwal Gold Rush Area
Petitioner SEM vigorously argues that Apex Mining Co., Inc. v. Garcia 1 vested in MMC
mining rights over the disputed area. It claims that the mining rights that MMC acquired
under the said case were the ones assigned to SEM, and not the right to explore under
MMC’s EP 133. It insists that mining rights, once obtained, continue to subsist regardless
of the validity of the exploration permit; thus, mining rights are independent of the
exploration permit and therefore do not expire with the permit. SEM insists that a
mining right is a vested property right that not even the government can take away. To
support this thesis, SEM cites this Court’s ruling in McDaniel v. Apacible and Cuisia 2 and
in Gold Creek Mining Corporation v. Rodriguez,3 which were decided in 1922 and 1938,
respectively.
McDaniel and Gold Creek Mining Corporation are not in point.
In 1916, McDaniel, petitioner therein, located minerals, i.e., petroleum, on an
unoccupied public land and registered his mineral claims with the office of the mining
recorder pursuant to the Philippine Bill of 1902, where a mining claim locator, soon after
locating the mine, enjoyed possessory rights with respect to such mining claim with or
without a patent therefor. In that case, the Agriculture Secretary, by virtue of Act No.
2932, approved in 1920, which provides that "all public lands may be leased by the then
Secretary of Agriculture and Natural Resources," was about to grant the application for
lease of therein respondent, overlapping the mining claims of the subject petitioner.
Petitioner argued that, being a valid locator, he had vested right over the public land
where his mining claims were located. There, the Court ruled that the mining claim
perfected under the Philippine Bill of 1902, is "property in the highest sense of that
term, which may be sold and conveyed, and will pass by descent, and is not therefore
subject to the disposal of the Government." The Court then declared that since
petitioner had already perfected his mining claim under the Philippine Bill of 1902, a
subsequent statute, i.e., Act No. 2932, could not operate to deprive him of his already
perfected mining claim, without violating his property right.
Gold Creek Mining reiterated the ruling in McDaniel that a perfected mining claim under
the Philippine Bill of 1902 no longer formed part of the public domain; hence, such
mining claim does not come within the prohibition against the alienation of natural
resources under Section 1, Article XII of the 1935 Constitution.
Gleaned from the ruling on the foregoing cases is that for this law to apply, it must be
established that the mining claim must have been perfected when the Philippine Bill of
1902 was still in force and effect. This is so because, unlike the subsequent laws that
prohibit the alienation of mining lands, the Philippine Bill of 1902 sanctioned the
alienation of mining lands to private individuals. The Philippine Bill of 1902 contained
provisions for, among many other things, the open and free exploration, occupation and
purchase of mineral deposits and the land where they may be found. It declared "all
valuable mineral deposits in public lands in the Philippine Islands, both surveyed and
unsurveyed x x x to be free and open to exploration, occupation, and purchase, and the
land in which they are found to occupation and purchase, by citizens of the United
States, or of said Islands x x x."4 Pursuant to this law, the holder of the mineral claim is
entitled to all the minerals that may lie within his claim, provided he does three acts:
First, he enters the mining land and locates a plot of ground measuring, where possible,
but not exceeding, one thousand feet in length by one thousand feet in breadth, in as
nearly a rectangular form as possible.5 Second, the mining locator has to record the
mineral claim in the mining recorder within thirty (30) days after the location
thereof.6 Lastly, he must comply with the annual actual work requirement. 7 Complete
mining rights, namely, the rights to explore, develop and utilize, are acquired by a
mining locator by simply following the foregoing requirements.1avvphi1
With the effectivity of the 1935 Constitution, where the regalian doctrine was adopted,
it was declared that all natural resources of the Philippines, including mineral lands and
minerals, were property belonging to the State.8 Excluded, however, from the property
of public domain were the mineral lands and minerals that were located and perfected
by virtue of the Philippine Bill of 1902, since they were already considered private
properties of the locators.9
Commonwealth Act No. 137 or the Mining Act of 1936, which expressly adopted the
regalian doctrine following the provision of the 1935 Constitution, also proscribed the
alienation of mining lands and granted only lease rights to mining claimants, who were
prohibited from purchasing the mining claim itself.
When Presidential Decree No. 463, which revised Commonwealth Act No. 137, was in
force in 1974, it likewise recognized the regalian doctrine embodied in the 1973
Constitution. It declared that all mineral deposits and public and private lands belonged
to the state while, nonetheless, recognizing mineral rights that had already been
existing under the Philippine Bill of 1902 as being beyond the purview of the regalian
doctrine.10 The possessory rights of mining claim holders under the Philippine Bill of
1902 remained intact and effective, and such rights were recognized as property rights
that the holders could convey or pass by descent. 11
In the instant cases, SEM does not aver or prove that its mining rights had been
perfected and completed when the Philippine Bill of 1902 was still the operative law.
Surely, it is impossible for SEM to successfully assert that it acquired mining rights over
the disputed area in accordance with the same bill, since it was only in 1984 that MMC,
SEM’s predecessor-in-interest, filed its declaration of locations and its prospecting
permit application in compliance with Presidential Decree No. 463. It was on 1 July 1985
and 10 March 1986 that a Prospecting Permit and EP 133, respectively, were issued to
MMC. Considering these facts, there is no possibility that MMC or SEM could have
acquired a perfected mining claim under the auspices of the Philippine Bill of 1902.
Whatever mining rights MMC had that it invalidly transferred to SEM cannot, by any
stretch of imagination, be considered "mining rights" as contemplated under the
Philippine Bill of 1902 and immortalized in McDaniel and Gold Creek Mining.
SEM likens EP 133 with a building permit. SEM likewise equates its supposed rights
attached to the exploration permit with the rights that a private property land owner
has to said landholding. This analogy has no basis in law. As earlier discussed, under the
1935, 1973 and 1987 Constitutions, national wealth, such as mineral resources, are
owned by the State and not by their discoverer. The discoverer or locator can only
develop and utilize said minerals for his own benefit if he has complied with all the
requirements set forth by applicable laws and if the State has conferred on him such
right through permits, concessions or agreements. In other words, without the
imprimatur of the State, any mining aspirant does not have any definitive right over the
mineral land because, unlike a private landholding, mineral land is owned by the State,
and the same cannot be alienated to any private person as explicitly stated in Section 2,
Article XIV of the 1987 Constitution:
All lands of public domain, waters, minerals x x x and all other natural resources are
owned by the State. With the exception of agricultural lands, all other natural resources
shall not be alienated. (Emphases supplied.)
Further, a closer scrutiny of the deed of assignment in favor of SEM reveals that MMC
assigned to the former the rights and interests it had in EP 133, thus:
1. That for ONE PESO (₱1.00) and other valuable consideration received by the
ASSIGNOR from the ASSIGNEE, the ASSIGNOR hereby ASSIGNS, TRANSFERS and
CONVEYS unto the ASSIGNEE whatever rights or interest the ASSIGNOR may have in the
area situated in Monkayo, Davao del Norte and Cateel, Davao Oriental, identified as
Exploration Permit No. 133 and Application for a Permit to Prospect in Bunawan, Agusan
del Sur respectively. (Emphasis supplied.)
It is evident that what MMC had over the disputed area during the assignment was an
exploration permit. Clearly, the right that SEM acquired was limited to exploration, only
because MMC was a mere holder of an exploration permit. As previously explained,
SEM did not acquire the rights inherent in the permit, as the assignment by MMC to
SEM was done in violation of the condition stipulated in the permit, and the assignment
was effected without the approval of the proper authority in contravention of the
provision of the mining law governing at that time. In addition, the permit expired on 6
July 1994. It is, therefore, quite clear that SEM has no right over the area.
Even assuming arguendo that SEM obtained the rights attached in EP 133, said rights
cannot be considered as property rights protected under the fundamental law.
An exploration permit does not automatically ripen into a right to extract and utilize the
minerals; much less does it develop into a vested right. The holder of an exploration
permit only has the right to conduct exploration works on the area awarded.
Presidential Decree No. 463 defined exploration as "the examination and investigation
of lands supposed to contain valuable minerals, by drilling, trenching, shaft sinking,
tunneling, test pitting and other means, for the purpose of probing the presence of
mineral deposits and the extent thereof." Exploration does not include development
and exploitation of the minerals found. Development is defined by the same statute as
the steps necessarily taken to reach an ore body or mineral deposit so that it can be
mined, whereas exploitation is defined as "the extraction and utilization of mineral
deposits." An exploration permit is nothing more than a mere right accorded to its
holder to be given priority in the government’s consideration in the granting of the right
to develop and utilize the minerals over the area. An exploration permit is merely
inchoate, in that the holder still has to comply with the terms and conditions embodied
in the permit. This is manifest in the language of Presidential Decree No. 463, thus:
Sec. 8. x x x The right to exploit therein shall be awarded by the President under such
terms and conditions as recommended by the Director and approved by the Secretary
Provided, That the persons or corporations who undertook prospecting and exploration
of said area shall be given priority.
In La Bugal-B’laan Tribal Association, Inc. v. Ramos,12 this Court emphasized:
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified
person the right to conduct exploration for all minerals in specified areas. Such a permit
does not amount to an authorization to extract and carry off the mineral resources that
may be discovered. x x x.
Pursuant to Section 24 of RA 7942, an exploration permit grantee who determines the
commercial viability of a mining area may, within the term of the permit, file with the
MGB a declaration of mining project feasibility accompanied by a work program for
development. The approval of the mining project feasibility and compliance with other
requirements of RA 7942 vests in the grantee the exclusive right to an MPSA or any
other mineral agreement, or to an FTAA. (Underscoring ours.)
The non-acquisition by MMC or SEM of any vested right over the disputed area is
supported by this Court’s ruling in Southeast Mindanao Gold Mining Corporation v.
Balite Portal Mining Cooperative13 :
Clearly then, the Apex Mining case did not invest petitioner with any definite right to the
Diwalwal mines which it could now set up against respondent BCMC and other mining
groups.
Incidentally, it must likewise be pointed out that under no circumstances may
petitioner’s rights under EP No. 133 be regarded as total and absolute. As correctly held
by the Court of Appeals in its challenged decision, EP No. 133 merely evidences a
privilege granted by the State, which may be amended, modified or rescinded when the
national interest so requires. x x x. (Underscoring supplied.)
Unfortunately, SEM cannot be given priority to develop and exploit the area covered by
EP 133 because, as discussed in the assailed Decision, EP 133 expired by non-renewal on
6 July 1994. Also, as already mentioned, the transfer of the said permit to SEM was
without legal effect because it was done in contravention of Presidential Decree No. 463
which requires prior approval from the proper authority. Simply told, SEM holds nothing
for it to be entitled to conduct mining activities in the disputed mineral land.
SEM wants to impress on this Court that its alleged mining rights, by virtue of its being a
transferee of EP 133, is similar to a Financial and Technical Assistance Agreement (FTAA)
of a foreign contractor, which merits protection by the due process clause of the
Constitution. SEM cites La Bugal-B’laan Tribal Association, Inc. v. Ramos,14 as follows:
To say that an FTAA is just like a mere timber license or permit and does not involve
contract or property rights which merit protection by the due process clause of the
Constitution, and may therefore be revoked or cancelled in the blink of an eye, is to
adopt a well-nigh confiscatory stance; at the very least, it is downright dismissive of the
property rights of businesspersons and corporate entities that have investments in the
mining industry, whose investments, operations and expenditures do contribute to the
general welfare of the people, the coffers of government, and the strength of the
economy. x x x.
Again, this argument is not meritorious. SEM did not acquire the rights attached to EP
133, since their transfer was without legal effect. Granting for the sake of argument that
SEM was a valid transferee of the permit, its right is not that of a mining contractor. An
exploration permit grantee is vested with the right to conduct exploration only, while an
FTAA or MPSA contractor is authorized to extract and carry off the mineral resources
that may be discovered in the area.15 An exploration permit holder still has to comply
with the mining project feasibility and other requirements under the mining law. It has
to obtain approval of such accomplished requirements from the appropriate
government agencies. Upon obtaining this approval, the exploration permit holder has
to file an application for an FTAA or an MPSA and have it approved also. Until the MPSA
application of SEM is approved, it cannot lawfully claim that it possesses the rights of an
MPSA or FTAA holder, thus:
x x x prior to the issuance of such FTAA or mineral agreement, the exploration permit
grantee (or prospective contractor) cannot yet be deemed to have entered into any
contract or agreement with the State x x x. 16
But again, SEM is not qualified to apply for an FTAA or any mineral agreement,
considering that it is not a holder of a valid exploration permit, since EP 133 expired by
non-renewal and the transfer to it of the same permit has no legal value.
More importantly, assuming arguendo that SEM has a valid exploration permit, it cannot
assert any mining right over the disputed area, since the State has taken over the mining
operations therein, pursuant to Proclamation No. 297 issued by the President on 25
November 2002. The Court has consistently ruled that the nature of a natural resource
exploration permit is analogous to that of a license. In Republic v. Rosemoor Mining and
Development Corporation, this Court articulated:
Like timber permits, mining exploration permits do not vest in the grantee any
permanent or irrevocable right within the purview of the non-impairment of contract
and due process clauses of the Constitution, since the State, under its all-encompassing
police power, may alter, modify or amend the same, in accordance with the demands of
the general welfare.17 (Emphasis supplied.)
As a mere license or privilege, an exploration permit can be validly amended by the
President of the Republic when national interests suitably necessitate. The Court
instructed thus:
Timber licenses, permits and license agreements are the principal instruments by which
the State regulates the utilization and disposition of forest resources to the end that the
public welfare is promoted. x x x They may be validly amended, modified, replaced or
rescinded by the Chief Executive when national interests so require. 18
Recognizing the importance of the country’s natural resources, not only for national
economic development, but also for its security and national defense, Section 5 of
Republic Act No. 7942 empowers the President, when the national interest so requires,
to establish mineral reservations where mining operations shall be undertaken directly
by the State or through a contractor, viz:
SEC 5. Mineral Reservations. – When the national interest so requires, such as when
there is a need to preserve strategic raw materials for industries critical to national
development, or certain minerals for scientific, cultural or ecological value, the
President may establish mineral reservations upon the recommendation of the Director
through the Secretary. Mining operations in existing mineral reservations and such
other reservations as may thereafter be established, shall be undertaken by the
Department or through a contractor x x x. (Emphasis supplied.)
Due to the pressing concerns in the Diwalwal Gold Rush Area brought about by
unregulated small to medium-scale mining operations causing ecological, health and
peace and order problems, the President, on 25 November 2002, issued Proclamation
No. 297, which declared the area as a mineral reservation and as an environmentally
critical area. This executive fiat was aimed at preventing the further dissipation of the
natural environment and rationalizing the mining operations in the area in order to
attain an orderly balance between socio-economic growth and environmental
protection. The area being a mineral reservation, the Executive Department has full
control over it pursuant to Section 5 of Republic Act No. 7942. It can either directly
undertake the exploration, development and utilization of the minerals found therein,
or it can enter into agreements with qualified entities. Since the Executive Department
now has control over the exploration, development and utilization of the resources in
the disputed area, SEM’s exploration permit, assuming that it is still valid, has been
effectively withdrawn. The exercise of such power through Proclamation No. 297 is in
accord with jura regalia, where the State exercises its sovereign power as owner of
lands of the public domain and the mineral deposits found within. Thus, Article XII,
Section 2 of the 1987 Constitution emphasizes:
SEC. 2. All lands of the public domain, water, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture, or product-sharing agreements with Filipino
citizens, or corporations or associations at least sixty per centum of whose capital is
owned by such citizens. (Emphasis supplied.)
Furthermore, said proclamation cannot be denounced as offensive to the fundamental
law because the State is sanctioned to do so in the exercise of its police power. 19 The
issues on health and peace and order, as well the decadence of the forest resources
brought about by unregulated mining in the area, are matters of national interest. The
declaration of the Chief Executive making the area a mineral reservation, therefore, is
sanctioned by Section 5 of Republic Act No. 7942.
The Assignment of EP No. 133 by MMC in Favor of SEM Violated Section 97 of
Presidential Decree No. 463 and the Terms and Conditions Set Forth in the Permit
SEM claims that the approval requirement under Section 97 of Presidential Decree No.
463 is not applicable to this case, because MMC neither applied for nor was granted a
mining lease contract. The said provision states:
SEC. 97. Assignment of Mining Rights. – A mining lease contract or any interest therein
shall not be transferred, assigned, or subleased without the prior approval of the
Secretary: Provided, that such transfer, assignment or sublease may be made only to a
qualified person possessing the resources and capability to continue the mining
operations of the lessee and that the assignor has complied with all the obligations of
the lease: Provided, further, That such transfer or assignment shall be duly registered
with the office of the mining recorder concerned. (Emphasis supplied.)
Exploration Permit 133 was issued in favor of MMC on 10 March 1986, when
Presidential Decree No. 463 was still the governing law. Presidential Decree No. 463
pertains to the old system of exploration, development and utilization of natural
resources through "license, concession or lease."20
Pursuant to this law, a mining lease contract confers on the lessee or his successors the
right to extract, to remove, process and utilize the mineral deposits found on or
underneath the surface of his mining claims covered by the lease. The lessee may also
enter into a service contract for the exploration, development and exploitation of the
minerals from the lands covered by his lease, to wit:
SEC. 44. A mining lease contract shall grant to the lessee, his heirs, successors, and
assigns the right to extract all mineral deposits found on or underneath the surface of
his mining claims covered by the lease, continued vertically downward; to remove,
process, and otherwise utilize the mineral deposits for his own benefit; and to use the
lands covered by the lease for the purpose or purposes specified therein x x x That a
lessee may on his own or through the Government, enter into a service contract… for
the exploration, development and exploitation of his claims and the processing and
marketing of the product thereof, subject to the rules and regulations that shall be
promulgated by the Director, with the approval of the Secretary x x x. (Emphases
supplied.)
In other words, the lessee’s interests are not only limited to the extraction or utilization
of the minerals in the contract area, but also to include the right to explore and develop
the same. This right to explore the mining claim or the contract area is derived from the
exploration permit duly issued by the proper authority. An exploration permit is, thus,
covered by the term "any other interest therein." Section 97 is entitled, "Assignment of
Mining Rights." This alone gives a hint that before mining rights -- namely, the rights to
explore, develop and utilize -- are transferred or assigned, prior approval must be
obtained from the DENR Secretary. An exploration permit, thus, cannot be assigned
without the imprimatur of the Secretary of the DENR.
It is instructive to note that under Section 13 of Presidential Decree No. 463, the
prospecting and exploration of minerals in government reservations, such as forest
reservations, are prohibited, except with the permission of the government agency
concerned. It is the government agency concerned that has the prerogative to conduct
prospecting, exploration and exploitation of such reserved lands. 21 It is only in instances
wherein said government agency, in this case the Bureau of Mines, cannot undertake
said mining operations that qualified persons may be allowed by the government to
undertake such operations. PNOC-EDC v. Veneracion, Jr.22 outlines the five
requirements for acquiring mining rights in reserved lands under Presidential Decree
No. 463: (1) a prospecting permit from the agency that has jurisdiction over the land; (2)
an exploration permit from the Bureau of Mines and Geo-Sciences (BMGS); (3) if the
exploration reveals the presence of commercial deposit, application to BMGS by the
permit holder for the exclusion of the area from the reservation; (4) a grant by the
President of the application to exclude the area from the reservation; and (5) a mining
agreement (lease, license or concession) approved by the DENR Secretary.
Here, MMC met the first and second requirements and obtained an exploration permit
over the disputed forest reserved land. Although MMC still has to prove to the
government that it is qualified to develop and utilize the subject mineral land, as it has
yet to go through the remaining process before it can secure a lease agreement,
nonetheless, it is bound to follow Section 97 of Presidential Decree No. 463. The logic is
not hard to discern. If a lease holder, who has already demonstrated to the government
his capacity and qualifications to further develop and utilize the minerals within the
contract area, is prohibited from transferring his mining rights (rights to explore,
develop and utilize), with more reason will this proscription apply with extra force to a
mere exploration permit holder who is yet to exhibit his qualifications in conducting
mining operations. The rationale for the approval requirement under Section 97 of
Presidential Decree No. 463 is not hard to see. Exploration permits are strictly granted
to entities or individuals possessing the resources and capability to undertake mining
operations. Mining industry is a major support of the national economy and the
continuous and intensified exploration, development and wise utilization of mining
resources is vital for national development. For this reason, Presidential Decree No. 463
makes it imperative that in awarding mining operations, only persons possessing the
financial resources and technical skill for modern exploratory and development
techniques are encouraged to undertake the exploration, development and utilization
of the country’s natural resources. The preamble of Presidential Decree No. 463
provides thus:
WHEREAS, effective and continuous mining operations require considerable outlays of
capital and resources, and make it imperative that persons possessing the financial
resources and technical skills for modern exploratory and development techniques be
encouraged to undertake the exploration, development and exploitation of our mineral
resources;
The Court has said that a "preamble" is the key to understanding the statute, written to
open the minds of the makers to the mischiefs that are to be remedied, and the
purposes that are to be accomplished, by the provisions of the statute. 23 As such, when
the statute itself is ambiguous and difficult to interpret, the preamble may be resorted
to as a key to understanding the statute.
Indubitably, without the scrutiny by the government agency as to the qualifications of
the would-be transferee of an exploration permit, the same may fall into the hands of
non-qualified entities, which would be counter-productive to the development of the
mining industry. It cannot be overemphasized that the exploration, development and
utilization of the country’s natural resources are matters vital to the public interest and
the general welfare; hence, their regulation must be of utmost concern to the
government, since these natural resources are not only critical to the nation’s security,
but they also ensure the country’s survival as a viable and sovereign republic.24
The approval requirement of the Secretary of the DENR for the assignment of
exploration permits is bolstered by Section 25 of Republic Act No. 7942 (otherwise
known as the Philippine Mining Act of 1995), which provides that:
Sec. 25. Transfer or Assignment. – An exploration permit may be transferred or assigned
to a qualified person subject to the approval of the Secretary upon the recommendation
of the Director.
SEM further posits that Section 97 of Presidential Decree No. 463, which requires the
prior approval of the DENR when there is a transfer of mining rights, cannot be applied
to the assignment of EP 133 executed by MMC in favor of SEM because during the
execution of the Deed of Assignment on 16 February 1994, Executive Order No.
27925became the governing statute, inasmuch as the latter abrogated the old mining
system -- i.e., license, concession or lease -- which was espoused by the former.
This contention is not well taken. While Presidential Decree No. 463 has already been
repealed by Executive Order No. 279, the administrative aspect of the former law
nonetheless remains applicable. Hence, the transfer or assignment of exploration
permits still needs the prior approval of the Secretary of the DENR. As ruled in Miners
Association of the Philippines, Inc. v. Factoran, Jr. 26 :
Presidential Decree No. 463, as amended, pertains to the old system of exploration,
development and utilization of natural resources through "license, concession or lease"
which, however, has been disallowed by Article XII, Section 2 of the 1987 Constitution.
By virtue of the said constitutional mandate and its implementing law, Executive Order
No. 279, which superseded Executive Order No. 211, the provisions dealing on "license,
concession, or lease" of mineral resources under Presidential Decree No. 463, as
amended, and other existing mining laws are deemed repealed and, therefore, ceased
to operate as the governing law. In other words, in all other areas of administration and
management of mineral lands, the provisions of Presidential Decree No. 463, as
amended, and other existing mining laws, still govern. (Emphasis supplied.)
Not only did the assignment of EP 133 to SEM violate Section 97 of Presidential Decree
No. 463, it likewise transgressed one of the conditions stipulated in the grant of the said
permit. The following terms and conditions attached to EP 133 are as follows: 27
1. That the permittee shall abide by the work program submitted with the application or
statements made later in support thereof, and which shall be considered as conditions
and essential parts of this permit;
2. That permittee shall maintain a complete record of all activities and accounting of all
expenditures incurred therein subject to periodic inspection and verification at
reasonable intervals by the Bureau of Mines at the expense of the applicant;
3. That the permittee shall submit to the Director of Mines within 15 days after the end
of each calendar quarter a report under oath of a full and complete statement of the
work done in the area covered by the permit;
4. That the term of this permit shall be for two (2) years to be effective from this date,
renewable for the same period at the discretion of the Director of Mines and upon
request of the applicant;
5. That the Director of Mines may at any time cancel this permit for violation of its
provision or in case of trouble or breach of peace arising in the area subject hereof by
reason of conflicting interests without any responsibility on the part of the government
as to expenditures for exploration that might have been incurred, or as to other
damages that might have been suffered by the permittee;
6. That this permit shall be for the exclusive use and benefit of the permittee or his duly
authorized agents and shall be used for mineral exploration purposes only and for no
other purpose.
It must be noted that under Section 9028 of Presidential Decree No. 463, which was the
applicable statute during the issuance of EP 133, the DENR Secretary, through the
Director of the Bureau of Mines and Geosciences, was charged with carrying out the
said law. Also, under Commonwealth Act No. 136, also known as "An Act Creating the
Bureau of Mines," which was approved on 7 November 1936, the Director of Mines had
the direct charge of the administration of the mineral lands and minerals; and of the
survey, classification, lease or any other form of concession or disposition thereof under
the Mining Act.29 This power of administration included the power to prescribe terms
and conditions in granting exploration permits to qualified entities.
Thus, in the grant of EP 133 in favor of the MMC, the Director of the BMG acted within
his power in laying down the terms and conditions attendant thereto. MMC and SEM
did not dispute the reasonableness of said conditions.
Quite conspicuous is the fact that neither MMC nor SEM denied that they were unaware
of the terms and conditions attached to EP 133. MMC and SEM did not present any
evidence that they objected to these conditions. Indubitably, MMC wholeheartedly
accepted these terms and conditions, which formed part of the grant of the permit.
MMC agreed to abide by these conditions. It must be accentuated that a party to a
contract cannot deny its validity, without outrage to one’s sense of justice and fairness,
after enjoying its benefits.30 Where parties have entered into a well-defined contractual
relationship, it is imperative that they should honor and adhere to their rights and
obligations as stated in their contracts, because obligations arising from these have the
force of law between the contracting parties and should be complied with in good
faith.31 Condition Number 6 categorically states that the permit shall be for the exclusive
use and benefit of MMC or its duly authorized agents. While it may be true that SEM,
the assignee of EP 133, is a 100% subsidiary corporation of MMC, records are bereft of
any evidence showing that the former is the duly authorized agent of the latter. This
Court cannot condone such utter disregard on the part of MMC to honor its obligations
under the permit. Undoubtedly, having violated this condition, the assignment of EP 133
to SEM is void and has no legal effect.
To boot, SEM squandered whatever rights it assumed it had under EP 133. On 6 July
1993, EP 133 was extended for twelve more months or until 6 July 1994. MMC or SEM,
however, never renewed EP 133 either prior to or after its expiration. Thus, EP 133
expired by non-renewal on 6 July 1994. With the expiration of EP 133 on 6 July 1994,
MMC lost any right to the Diwalwal Gold Rush Area.
The Assailed Decision Resolved Facts and Issues That Transpired after the Promulgation
of Apex Mining Co., Inc. v. Garcia
SEM asserts that the 23 June 2006 Decision reversed the 16 July 1991 Decision of the
Court en banc entitled, "Apex Mining Co., Inc. v. Garcia."32
The assailed Decision DID NOT overturn the 16 July 1991 Decision in Apex Mining Co.,
Inc. v. Garcia.
It must be pointed out that what Apex Mining Co., Inc. v. Garcia resolved was the issue
of which, between Apex and MMC, availed itself of the proper procedure in acquiring
the right to prospect and to explore in the Agusan-Davao-Surigao Forest Reserve. Apex
registered its Declarations of Location (DOL) with the then BMGS, while MMC was
granted a permit to prospect by the Bureau of Forest Development (BFD) and was
subsequently granted an exploration permit by the BMGS. Taking into consideration
Presidential Decree No. 463, which provides that "mining rights within forest
reservation can be acquired by initially applying for a permit to prospect with the BFD
and subsequently for a permit to explore with the BMGS," the Court therein ruled that
MMC availed itself of the proper procedure to validly operate within the forest reserve
or reservation.
While it is true that Apex Mining Co., Inc. v. Garcia settled the issue of which between
Apex and MMC was legally entitled to explore in the disputed area, such rights, though,
were extinguished by subsequent events that transpired after the decision was
promulgated. These subsequent events, which were not attendant in Apex Mining Co.,
Inc. v. Garcia33 dated 16 July 1991, are the following:
(1) the expiration of EP 133 by non-renewal on 6 July 1994;
(2) the transfer/assignment of EP 133 to SEM on 16 February 1994 which was done in
violation to the condition of EP 133 proscribing its transfer;
(3) the transfer/assignment of EP 133 to SEM is without legal effect for violating PD 463
which mandates that the assignment of mining rights must be with the prior approval of
the Secretary of the DENR.
Moreover, in Southeast Mindanao Gold Mining Corporation v. Balite Portal Mining
Cooperative,34 the Court, through Associate Justice Consuelo Ynares-Santiago (now
retired), declared that Apex Mining Co., Inc. v. Garcia did not deal with the issues of the
expiration of EP 133 and the validity of the transfer of EP 133 to SEM, viz:
Neither can the Apex Mining case foreclose any question pertaining to the continuing
validity of EP No. 133 on grounds which arose after the judgment in said case was
promulgated. While it is true that the Apex Mining case settled the issue of who
between Apex and Marcopper validly acquired mining rights over the disputed area by
availing of the proper procedural requisites mandated by law, it certainly did not deal
with the question raised by the oppositors in the Consolidated Mines cases, i.e.,
whether EP No. 133 had already expired and remained valid subsequent to its transfer
by Marcopper to petitioner. (Emphasis supplied.)
What is more revealing is that in the Resolution dated 26 November 1992, resolving the
motion for reconsideration of Apex Mining Co., Inc. v. Garcia, the Court clarified that the
ruling on the said decision was binding only between Apex and MMC and with respect
the particular issue raised therein. Facts and issues not attendant to the said decision, as
in these cases, are not settled by the same. A portion of the disposition of the Apex
Mining Co., Inc. v. Garcia Resolution dated 26 November 1992 decrees:
x x x The decision rendered in this case is conclusive only between the parties with
respect to the particular issue herein raised and under the set of circumstances herein
prevailing. In no case should the decision be considered as a precedent to resolve or
settle claims of persons/entities not parties hereto. Neither is it intended to unsettle
rights of persons/entities which have been acquired or which may have accrued upon
reliance on laws passed by the appropriate agencies. (Emphasis supplied.)
The Issue of the Constitutionality of Proclamation Is Raised Belatedly
In its last-ditch effort to salvage its case, SEM contends that Proclamation No. 297,
issued by President Gloria Macapagal-Arroyo and declaring the Diwalwal Gold Rush Area
as a mineral reservation, is invalid on the ground that it lacks the concurrence of
Congress as mandated by Section 4, Article XII of the Constitution; Section 1 of Republic
Act No. 3092; Section 14 of Executive Order No. 292, otherwise known as the
Administrative Code of 1987; Section 5(a) of Republic Act No. 7586, and Section 4(a) of
Republic Act No. 6657.
It is well-settled that when questions of constitutionality are raised, the court can
exercise its power of judicial review only if the following requisites are present: (1) an
actual and appropriate case exists; (2) there is a personal and substantial interest of the
party raising the constitutional question; (3) the exercise of judicial review is pleaded at
the earliest opportunity; and (4) the constitutional question is the lis mota of the case.
Taking into consideration the foregoing requisites of judicial review, it is readily clear
that the third requisite is absent. The general rule is that the question of
constitutionality must be raised at the earliest opportunity, so that if it is not raised in
the pleadings, ordinarily it may not be raised at the trial; and if not raised in the trial
court, it will not be considered on appeal.35
In the instant case, it must be pointed out that in the Reply to Respondent SEM’s
Consolidated Comment filed on 20 May 2003, MAB mentioned Proclamation No. 297,
which was issued on 25 November 2002. This proclamation, according to the MAB, has
rendered SEM’s claim over the contested area moot, as the President has already
declared the same as a mineral reservation and as an environmentally critical area. SEM
did not put to issue the validity of said proclamation in any of its pleadings despite
numerous opportunities to question the same. It was only after the assailed Decision
was promulgated -- i.e., in SEM’s Motion for Reconsideration of the questioned Decision
filed on 13 July 2006 and its Motion for Referral of the Case to the Court En Banc and for
Oral Arguments filed on 22 August 2006 -- that it assailed the validity of said
proclamation.
Certainly, posing the question on the constitutionality of Proclamation No. 297 for the
first time in its Motion for Reconsideration is, indeed, too late. 36
In fact, this Court, when it rendered the Decision it merely recognized that the
questioned proclamation came from a co-equal branch of government, which entitled it
to a strong presumption of constitutionality.37 The presumption of its constitutionality
stands inasmuch as the parties in the instant cases did not question its validity, much
less present any evidence to prove that the same is unconstitutional. This is in line with
the precept that administrative issuances have the force and effect of law and that they
benefit from the same presumption of validity and constitutionality enjoyed by
statutes.38
Proclamation No. 297 Is in Harmony with Article XII, Section 4, of the Constitution
At any rate, even if this Court were to consider the arguments belatedly raised by SEM,
said arguments are not meritorious.
SEM asserts that Article XII, Section 4 of the Constitution, bars the President from
excluding forest reserves/reservations and proclaiming the same as mineral
reservations, since the power to de-classify them resides in Congress.
Section 4, Article XII of the Constitution reads:
The Congress shall as soon as possible, determine by law the specific limits of forest
lands and national parks, marking clearly their boundaries on the ground. Thereafter,
such forest lands and national parks shall be conserved and may not be increased nor
diminished, except by law. The Congress shall provide, for such periods as it may
determine, measures to prohibit logging in endangered forests and in watershed areas.
The above-quoted provision says that the area covered by forest lands and national
parks may not be expanded or reduced, unless pursuant to a law enacted by Congress.
Clear in the language of the constitutional provision is its prospective tenor, since it
speaks in this manner: "Congress shall as soon as possible." It is only after the specific
limits of the forest lands shall have been determined by the legislature will this
constitutional restriction apply. SEM does not allege nor present any evidence that
Congress had already enacted a statute determining with specific limits forest lands and
national parks. Considering the absence of such law, Proclamation No. 297 could not
have violated Section 4, Article XII of the 1987 Constitution. In PICOP Resources, Inc. v.
Base Metals Mineral Resources Corporation,39 the Court had the occasion to similarly
rule in this fashion:
x x x Sec. 4, Art. XII of the 1987 Constitution, on the other hand, provides that Congress
shall determine the specific limits of forest lands and national parks, marking clearly
their boundaries on the ground. Once this is done, the area thus covered by said forest
lands and national parks may not be expanded or reduced except also by congressional
legislation. Since Congress has yet to enact a law determining the specific limits of the
forest lands covered by Proclamation No. 369 and marking clearly its boundaries on the
ground, there can be no occasion that could give rise to a violation of the constitutional
provision.
Section 4, Article XII of the Constitution, addresses the concern of the drafters of the
1987 Constitution about forests and the preservation of national parks. This was
brought about by the drafters’ awareness and fear of the continuing destruction of this
country’s forests.40 In view of this concern, Congress is tasked to fix by law the specific
limits of forest lands and national parks, after which the trees in these areas are to be
taken care of.41 Hence, these forest lands and national parks that Congress is to delimit
through a law could be changed only by Congress.
In addition, there is nothing in the constitutional provision that prohibits the President
from declaring a forest land as an environmentally critical area and from regulating the
mining operations therein by declaring it as a mineral reservation in order to prevent
the further degradation of the forest environment and to resolve the health and peace
and order problems that beset the area.
A closer examination of Section 4, Article XII of the Constitution and Proclamation No.
297 reveals that there is nothing contradictory between the two. Proclamation No. 297,
a measure to attain and maintain a rational and orderly balance between socio-
economic growth and environmental protection, jibes with the constitutional policy of
preserving and protecting the forest lands from being further devastated by denudation.
In other words, the proclamation in question is in line with Section 4, Article XII of the
Constitution, as the former fosters the preservation of the forest environment of the
Diwalwal area and is aimed at preventing the further degradation of the same. These
objectives are the very same reasons why the subject constitutional provision is in place.
What is more, jurisprudence has recognized the policy of multiple land use in our laws
towards the end that the country’s precious natural resources may be rationally
explored, developed, utilized and conserved. 42 It has been held that forest reserves or
reservations can at the same time be open to mining operations, provided a prior
written clearance by the government agency having jurisdiction over such reservation is
obtained. In other words mineral lands can exist within forest reservations. These two
terms are not anti-thetical. This is made manifest if we read Section 47 of Presidential
Decree No. 705 or the Revised Forestry Code of the Philippines, which provides:
Mining operations in forest lands shall be regulated and conducted with due regard to
protection, development and utilization of other surface resources. Location,
prospecting, exploration, utilization or exploitation of mineral resources in forest
reservations shall be governed by mining laws, rules and regulations. (Emphasis
supplied.)
Also, Section 6 of Republic Act No. 7942 or the Mining Act of 1995, states that mining
operations in reserved lands other than mineral reservations, such as forest
reserves/reservations, are allowed, viz:
Mining operations in reserved lands other than mineral reservations may be undertaken
by the Department, subject to limitations as herein provided. In the event that the
Department cannot undertake such activities, they may be undertaken by a qualified
person in accordance with the rules and regulations promulgated by the Secretary.
(Emphasis supplied.)
Since forest reservations can be made mineral lands where mining operations are
conducted, then there is no argument that the disputed land, which lies within a forest
reservation, can be declared as a mineral reservation as well.
Republic Act No. 7942 Otherwise Known as the "Philippine Mining Act of 1995," is the
Applicable Law
Determined to rivet its crumbling cause, SEM then argues that Proclamation No. 297 is
invalid, as it transgressed the statutes governing the exclusion of areas already declared
as forest reserves, such as Section 1 of Republic Act No. 3092,43 Section 14 of the
Administrative Code of 1987, Section 5(a) of Republic Act No. 7586, 44 and Section 4(a) of
Republic Act No. 6657.45
Citing Section 1 of Republic Act No. 3092, which provides as follows:
Upon the recommendation of the Director of Forestry, with the approval of the
Department Head, the President of the Philippines shall set apart forest reserves which
shall include denuded forest lands from the public lands and he shall by proclamation
declare the establishment of such forest reserves and the boundaries thereof, and
thereafter such forest reserves shall not be entered, or otherwise disposed of, but shall
remain indefinitely as such for forest uses.
The President of the Philippines may, in like manner upon the recommendation of the
Director of Forestry, with the approval of the Department head, by proclamation,
modify the boundaries of any such forest reserve to conform with subsequent precise
survey but not to exclude any portion thereof except with the concurrence of
Congress.(Underscoring supplied.)
SEM submits that the foregoing provision is the governing statute on the exclusion of
areas already declared as forest reserves. Thus, areas already set aside by law as forest
reserves are no longer within the proclamation powers of the President to modify or set
aside for any other purposes such as mineral reservation.
To bolster its contention that the President cannot disestablish forest reserves into
mineral reservations, SEM makes reference to Section 14, Chapter 4, Title I, Book III of
the Administrative Code of 1987, which partly recites:
The President shall have the power to reserve for settlement or public use, and for
specific public purposes, any of the lands of the public domain, the use of which is not
otherwise directed by law. The reserved land shall thereafter remain subject to the
specific public purpose indicated until otherwise provided by law or proclamation.
(Emphases supplied.)
SEM further contends that Section 7 of Republic Act No. 7586,46 which declares that the
disestablishment of a protected area shall be done by Congress, and Section 4(a) of
Republic Act No. 6657,47 which in turn requires a law passed by Congress before any
forest reserve can be reclassified, militate against the validity of Proclamation No. 297.
Proclamation No. 297, declaring a certain portion of land located in Monkayo,
Compostela Valley, with an area of 8,100 hectares, more or less, as a mineral
reservation, was issued by the President pursuant to Section 5 of Republic Act No. 7942,
also known as the "Philippine Mining Act of 1995."
Proclamation No. 297 did not modify the boundaries of the Agusan-Davao-Surigao
Forest Reserve since, as earlier discussed, mineral reservations can exist within forest
reserves because of the multiple land use policy. The metes and bounds of a forest
reservation remain intact even if, within the said area, a mineral land is located and
thereafter declared as a mineral reservation.
More to the point, a perusal of Republic Act No. 3092, "An Act to Amend Certain
Sections of the Revised Administrative Code of 1917," which was approved on 17 August
1961, and the Administrative Code of 1987, shows that only those public lands declared
by the President as reserved pursuant to these two statutes are to remain subject to the
specific purpose. The tenor of the cited provisions, namely: "the President of the
Philippines shall set apart forest reserves" and "the reserved land shall thereafter
remain," speaks of future public reservations to be declared, pursuant to these two
statutes. These provisions do not apply to forest reservations earlier declared as such, as
in this case, which was proclaimed way back on 27 February 1931, by Governor General
Dwight F. Davis under Proclamation No. 369.
Over and above that, Section 5 of Republic Act No. 7942 authorizes the President to
establish mineral reservations, to wit:
Sec. 5. Mineral Reservations. - When the national interest so requires, such as when
there is a need to preserve strategic raw materials for industries critical to national
development, or certain minerals for scientific, cultural or ecological value, the
President may establish mineral reservations upon the recommendation of the Director
through the Secretary. Mining operations in existing mineral reservations and such
other reservations as may thereafter be established, shall be undertaken by the
Department or through a contractor x x x. (Emphasis supplied.)
It is a rudimentary principle in legal hermeneutics that where there are two acts or
provisions, one of which is special and particular and certainly involves the matter in
question, the other general, which, if standing alone, would include the matter and thus
conflict with the special act or provision, the special act must as intended be taken as
constituting an exception to the general act or provision, especially when such general
and special acts or provisions are contemporaneous, as the Legislature is not to be
presumed to have intended a conflict.
Hence, it has become an established rule of statutory construction that where one
statute deals with a subject in general terms, and another deals with a part of the same
subject in a more detailed way, the two should be harmonized if possible; but if there is
any conflict, the latter shall prevail regardless of whether it was passed prior to the
general statute. Or where two statutes are of contrary tenor or of different dates but
are of equal theoretical application to a particular case, the one specially designed
therefor should prevail over the other.
It must be observed that Republic Act No. 3092, "An Act to Amend Certain Sections of
the Revised Administrative Code of 1917," and the Administrative Code of 1987, are
general laws. Section 1 of Republic Act No. 3092 and Section 14 of the Administrative
Code of 1987 require the concurrence of Congress before any portion of a forest reserve
can be validly excluded therefrom. These provisions are broad since they deal with all
kinds of exclusion or reclassification relative to forest reserves, i.e., forest reserve areas
can be transformed into all kinds of public purposes, not only the establishment of a
mineral reservation. Section 5 of Republic Act No. 7942 is a special provision, as it
specifically treats of the establishment of mineral reservations only. Said provision
grants the President the power to proclaim a mineral land as a mineral reservation,
regardless of whether such land is also an existing forest reservation.
Sec. 5(a) of Republic Act No. 7586 provides:
Sec. 5. Establishment and Extent of the System. — The establishment and
operationalization of the System shall involve the following:
(a) All areas or islands in the Philippines proclaimed, designated or set aside, pursuant to
a law, presidential decree, presidential proclamation or executive order as national
park, game refuge, bird and wildlife sanctuary, wilderness area, strict nature reserve,
watershed, mangrove reserve, fish sanctuary, natural and historical landmark, protected
and managed landscape/seascape as well as identified virgin forests before the
effectivity of this Act are hereby designated as initial components of the System. The
initial components of the System shall be governed by existing laws, rules and
regulations, not inconsistent with this Act.
Glaring in the foregoing enumeration of areas comprising the initial component of the
NIPAS System under Republic Act No. 7586 is the absence of forest reserves. Only
protected areas enumerated under said provision cannot be modified. Since the subject
matter of Proclamation No. 297 is a forest reservation proclaimed as a mineral reserve,
Republic Act No. 7586 cannot possibly be made applicable. Neither can Proclamation
No. 297 possibly violate said law.
Similarly, Section 4(a) of Republic Act No. 6657 cannot be made applicable to the instant
case.
Section 4(a) of Republic Act No. 6657 reads:
All alienable and disposable lands of the public domain devoted to or suitable for
agriculture. No reclassification of forest or mineral lands to agricultural lands shall be
undertaken after the approval of this Act until Congress, taking into account ecological,
developmental and equity considerations, shall have determined by law, the specific
limits of the public domain. (Underscoring supplied.)
Section 4(a) of Republic Act No. 6657 prohibits the reclassification of forest or mineral
lands into agricultural lands until Congress shall have determined by law the specific
limits of the public domain. A cursory reading of this provision will readily show that the
same is not relevant to the instant controversy, as there has been no reclassification of a
forest or mineral land into an agricultural land.
Furthermore, the settled rule of statutory construction is that if two or more laws of
different dates and of contrary tenors are of equal theoretical application to a particular
case, the statute of later date must prevail being a later expression of legislative will. 48
In the case at bar, there is no question that Republic Act No. 7942 was signed into law
later than Republic Act No. 3092, the Administrative Code of 1987, 49 Republic Act No.
7586 and Republic Act No. 6657. Applying the cited principle, the provisions of Republic
Act No. 3092, the Administrative Code of 1987, Republic Act No. 7586 and Republic Act
No. 6657 cited by SEM must yield to Section 5 of Republic Act No. 7942.
Camilo Banad, et al., Cannot Seek Relief from This Court
Camilo Banad and his group admit that they are members of the Balite Cooperative.
They, however, claim that they are distinct from Balite and move that this Court
recognize them as prior mining locators.
Unfortunately for them, this Court cannot grant any relief they seek. Records reveal that
although they were parties to the instant cases before the Court of Appeals, they did
not file a petition for review before this Court to contest the decision of the appellate
court. The only petitioners in the instant cases are the MAB, SEM, Balite and Apex.
Consequently, having no personality in the instant cases, they cannot seek any relief
from this Court.
Apex’s Motion for Clarification and Balite’s Manifestation and Motion
In its Motion for Clarification, Apex desires that the Court elucidate the assailed
Decision’s pronouncement that "mining operations, are now, therefore within the full
control of the State through the executive branch" and place the said pronouncement in
the proper perspective as the declaration in La Bugal-B’Laan, which states that –
The concept of control adopted in Section 2 of Article XII must be taken to mean less
than dictatorial, all-encompassing control; but nevertheless sufficient to give the State
the power to direct, restrain, regulate and govern the affairs of the extractive
enterprise.50
Apex states that the subject portion of the assailed Decision could send a chilling effect
to potential investors in the mining industry, who may be of the impression that the
State has taken over the mining industry, not as regulator but as an operator. It is of the
opinion that the State cannot directly undertake mining operations.
Moreover, Apex is apprehensive of the following portion in the questioned Decision–
"The State can also opt to award mining operations in the mineral reservation to private
entities including petitioner Apex and Balite, if it wishes." It avers that the phrase "if it
wishes" may whimsically be interpreted to mean a blanket authority of the
administrative authority to reject the former’s application for an exploration permit
even though it complies with the prescribed policies, rules and regulations.1 a vv p h i 1
Apex likewise asks this Court to order the MGB to accept its application for an
exploration permit.
Balite echoes the same concern as that of Apex on the actual take-over by the State of
the mining industry in the disputed area to the exclusion of the private sector. In
addition, Balite prays that this Court direct MGB to accept Balite’s application for an
exploration permit.
Contrary to the contention of Apex and Balite, the fourth paragraph of Section 2, Article
XII of the Constitution and Section 5 of Republic Act No. 7942 sanctions the State,
through the executive department, to undertake mining operations directly, as an
operator and not as a mere regulator of mineral undertakings. This is made clearer by
the fourth paragraph of Section 2, Article XII of the 1987 Constitution, which provides in
part:
SEC. 2. x x x The State may directly undertake such activities, or it may enter into co-
production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such
citizens. x x x. (Emphasis supplied.)
Also, Section 5 of Republic Act No. 7942 states that the mining operations in mineral
reservations shall be undertaken by the Department of Environment and Natural
Resources or a contractor, to wit:
SEC. 5. Mineral Reservations. – When the national interest so requires, such as when
there is a need to preserve strategic raw materials for industries critical to national
development, or certain minerals for scientific, cultural or ecological value, the
President may establish mineral reservations upon the recommendation of the Director
through the Secretary. Mining operations in existing mineral reservations and such
other reservations as may thereafter be established, shall be undertaken by the
Department or through a contractor x x x. (Emphasis supplied.)
Undoubtedly, the Constitution, as well as Republic Act No. 7942, allows the executive
department to undertake mining operations. Besides, La Bugal-B’Laan, cited by Apex,
did not refer to the fourth sentence of Section 2, Article XII of the Constitution, but to
the third sentence of the said provision, which states:
SEC. 2. x x x The exploration, development, and utilization of natural resources shall be
under the full control and supervision of the State. x x x.
Pursuant to Section 5 of Republic Act No. 7942, the executive department has the
option to undertake directly the mining operations in the Diwalwal Gold Rush Area or to
award mining operations therein to private entities. The phrase "if it wishes" must be
understood within the context of this provision. Hence, the Court cannot dictate this co-
equal branch to choose which of the two options to select. It is the sole prerogative of
the executive department to undertake directly or to award the mining operations of
the contested area.
Even assuming that the proper authority may decide to award the mining operations of
the disputed area, this Court cannot arrogate unto itself the task of determining who,
among the applicants, is qualified. It is the duty of the appropriate administrative body
to determine the qualifications of the applicants. It is only when this administrative
body whimsically denies the applications of qualified applicants that the Court may
interfere. But until then, the Court has no power to direct said administrative body to
accept the application of any qualified applicant.
In view of this, the Court cannot grant the prayer of Apex and Balite asking the Court to
direct the MGB to accept their applications pending before the MGB.
SEM’s Manifestation and Motion dated 25 January 2007
SEM wants to emphasize that its predecessor-in-interest, Marcopper or MMC, complied
with the mandatory exploration work program, required under EP 133, by attaching
therewith quarterly reports on exploration work from 20 June 1986 to March 1994.
It must be observed that this is the very first time at this very late stage that SEM has
presented the quarterly exploration reports. From the early phase of this controversy,
SEM did not disprove the arguments of the other parties that Marcopper violated the
terms under EP 133, among other violations, by not complying with the mandatory
exploration work program. Neither did it present evidence for the appreciation of the
lower tribunals. Hence, the non-compliance with the mandatory exploration work
program was not made an issue in any stage of the proceedings. The rule is that an issue
that was not raised in the lower court or tribunal cannot be raised for the first time on
appeal, as this would violate the basic rules of fair play, justice and due process. 51 Thus,
this Court cannot take cognizance of the issue of whether or not MMC complied with
the mandatory work program.
In sum, this Court finds:
1. The assailed Decision did not overturn the 16 July 1991 Decision in Apex Mining Co.,
Inc. v. Garcia. The former was decided on facts and issues that were not attendant in the
latter, such as the expiration of EP 133, the violation of the condition embodied in EP
133 prohibiting its assignment, and the unauthorized and invalid assignment of EP 133
by MMC to SEM, since this assignment was effected without the approval of the
Secretary of DENR;
2. SEM did not acquire vested right over the disputed area because its supposed right
was extinguished by the expiration of its exploration permit and by its violation of the
condition prohibiting the assignment of EP 133 by MMC to SEM. In addition, even
assuming that SEM has a valid exploration permit, such is a mere license that can be
withdrawn by the State. In fact, the same has been withdrawn by the issuance of
Proclamation No. 297, which places the disputed area under the full control of the State
through the Executive Department;

3. The approval requirement under Section 97 of Presidential Decree No. 463 applies to
the assignment of EP 133 by MMC to SEM, since the exploration permit is an interest in
a mining lease contract;

4. The issue of the constitutionality and the legality of Proclamation No. 297 was raised
belatedly, as SEM questions the same for the first time in its Motion for
Reconsideration. Even if the issue were to be entertained, the said proclamation is
found to be in harmony with the Constitution and other existing statutes;

5. The motion for reconsideration of Camilo Banad, et al. cannot be passed upon
because they are not parties to the instant cases;

6. The prayers of Apex and Balite asking the Court to direct the MGB to accept their
applications for exploration permits cannot be granted, since it is the Executive
Department that has the prerogative to accept such applications, if ever it decides to
award the mining operations in the disputed area to a private entity;

7. The Court cannot pass upon the issue of whether or not MMC complied with the
mandatory exploration work program, as such was a non-issue and was not raised
before the Court of Appeals and the lower tribunals.

WHEREFORE, premises considered, the Court holds:

1. The Motions for Reconsideration filed by Camilo Banad, et al. and Southeast
Mindanao Gold Mining Corporation are DENIED for lack of merit;

2. The Motion for Clarification of Apex Mining Co., Inc. and the Manifestation and
Motion of the Balite Communal Portal Mining Cooperative, insofar as these
motions/manifestation ask the Court to direct the Mines and Geo-Sciences Bureau to
accept their respective applications for exploration permits, are DENIED;

3. The Manifestation and Urgent Motion dated 25 January 2007 of Southeast Mindanao
Gold Mining Corporation is DENIED.

4. The State, through the Executive Department, should it so desire, may now award
mining operations in the disputed area to any qualified entities it may determine. The
Mines and Geosciences Bureau may process exploration permits pending before it,
taking into consideration the applicable mining laws, rules and regulations relative
thereto.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-7089 August 31, 1954
DOMINGO DE LA CRUZ, plaintiff-appellant,
vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees.
Conrado Rubio for appellant.
Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.
MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the year 1941
the Northern Theatrical Enterprises Inc., a domestic corporation operated a movie
house in Laoag, Ilocos Norte, and among the persons employed by it was the plaintiff
DOMINGO DE LA CRUZ, hired as a special guard whose duties were to guard the main
entrance of the cine, to maintain peace and order and to report the commission of
disorders within the premises. As such guard he carried a revolver. In the afternoon of
July 4, 1941, one Benjamin Martin wanted to crash the gate or entrance of the movie
house. Infuriated by the refusal of plaintiff De la Cruz to let him in without first providing
himself with a ticket, Martin attacked him with a bolo. De la Cruz defendant himself as
best he could until he was cornered, at which moment to save himself he shot the gate
crasher, resulting in the latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the
Court of First Instance of Ilocos Norte. After a re-investigation conducted by the
Provincial Fiscal the latter filed a motion to dismiss the complaint, which was granted by
the court in January 1943. On July 8, 1947, De la Cruz was again accused of the same
crime of homicide, in Criminal Case No. 431 of the same Court. After trial, he was finally
acquitted of the charge on January 31, 1948. In both criminal cases De la Cruz employed
a lawyer to defend him. He demanded from his former employer reimbursement of his
expenses but was refused, after which he filed the present action against the movie
corporation and the three members of its board of directors, to recover not only the
amounts he had paid his lawyers but also moral damages said to have been suffered,
due to his worry, his neglect of his interests and his family as well in the supervision of
the cultivation of his land, a total of P15,000. On the basis of the complaint and the
answer filed by defendants wherein they asked for the dismissal of the complaint, as
well as the agreed statement of facts, the Court of First Instance of Ilocos Norte after
rejecting the theory of the plaintiff that he was an agent of the defendants and that as
such agent he was entitled to reimbursement of the expenses incurred by him in
connection with the agency (Arts. 1709-1729 of the old Civil Code), found that plaintiff
had no cause of action and dismissed the complaint without costs. De la Cruz appealed
directly to this Tribunal for the reason that only questions of law are involved in the
appeal.
In a case like the present or a similar case of say a driver employed by a transportation
company, who while in the course of employment runs over and inflicts physical injuries
on or causes the death of a pedestrian; and such driver is later charged criminally in
court, one can imagine that it would be to the interest of the employer to give legal help
to and defend its employee in order to show that the latter was not guilty of any crime
either deliberately or through negligence, because should the employee be finally held
criminally liable and he is found to be insolvent, the employer would be subsidiarily
liable. That is why, we repeat, it is to the interest of the employer to render legal
assistance to its employee. But we are not prepared to say and to hold that the giving of
said legal assistance to its employees is a legal obligation. While it might yet and
possibly be regarded as a normal obligation, it does not at present count with the
sanction of man-made laws.
If the employer is not legally obliged to give, legal assistance to its employee and
provide him with a lawyer, naturally said employee may not recover the amount he may
have paid a lawyer hired by him.
Viewed from another angle it may be said that the damage suffered by the plaintiff by
reason of the expenses incurred by him in remunerating his lawyer, is not caused by his
act of shooting to death the gate crasher but rather by the filing of the charge of
homicide which made it necessary for him to defend himself with the aid of counsel.
Had no criminal charge been filed against him, there would have been no expenses
incurred or damage suffered. So the damage suffered by plaintiff was caused rather by
the improper filing of the criminal charge, possibly at the instance of the heirs of the
deceased gate crasher and by the State through the Fiscal. We say improper filing,
judging by the results of the court proceedings, namely, acquittal. In other words, the
plaintiff was innocent and blameless. If despite his innocence and despite the absence
of any criminal responsibility on his part he was accused of homicide, then the
responsibility for the improper accusation may be laid at the door of the heirs of the
deceased and the State, and so theoretically, they are the parties that may be held
responsible civilly for damages and if this is so, we fail to see now this responsibility can
be transferred to the employer who in no way intervened, much less initiated the
criminal proceedings and whose only connection or relation to the whole affairs was
that he employed plaintiff to perform a special duty or task, which task or duty was
performed lawfully and without negligence.
Still another point of view is that the damages incurred here consisting of the payment
of the lawyer's fee did not flow directly from the performance of his duties but only
indirectly because there was an efficient, intervening cause, namely, the filing of the
criminal charges. In other words, the shooting to death of the deceased by the plaintiff
was not the proximate cause of the damages suffered but may be regarded as only a
remote cause, because from the shooting to the damages suffered there was not that
natural and continuous sequence required to fix civil responsibility.
In view of the foregoing, the judgment of the lower court is affirmed. No costs.
Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J.B.L.,
JJ., concur.

We agree with the trial court that the relationship between the movie corporation and
the plaintiff was not that of principal and agent because the principle of representation
was in no way involved. Plaintiff was not employed to represent the defendant
corporation in its dealings with third parties. He was a mere employee hired to perform
a certain specific duty or task, that of acting as special guard and staying at the main
entrance of the movie house to stop gate crashers and to maintain peace and order
within the premises. The question posed by this appeal is whether an employee or
servant who in line of duty and while in the performance of the task assigned to him,
performs an act which eventually results in his incurring in expenses, caused not directly
by his master or employer or his fellow servants or by reason of his performance of his
duty, but rather by a third party or stranger not in the employ of his employer, may
recover said damages against his employer.

The learned trial court in the last paragraph of its decision dismissing the complaint said
that "after studying many laws or provisions of law to find out what law is applicable to
the facts submitted and admitted by the parties, has found none and it has no other
alternative than to dismiss the complaint." The trial court is right. We confess that we
are not aware of any law or judicial authority that is directly applicable to the present
case, and realizing the importance and far-reaching effect of a ruling on the subject-
matter we have searched, though vainly, for judicial authorities and enlightenment. All
the laws and principles of law we have found, as regards master and servants, or
employer and employee, refer to cases of physical injuries, light or serious, resulting in
loss of a member of the body or of any one of the senses, or permanent physical
disability or even death, suffered in line of duty and in the course of the performance of
the duties assigned to the servant or employee, and these cases are mainly governed by
the Employer's Liability Act and the Workmen's Compensation Act. But a case involving
damages caused to an employee by a stranger or outsider while said employee was in
the performance of his duties, presents a novel question which under present legislation
we are neither able nor prepared to decide in favor of the employee.
Republic of the Philippines
SUPREME COURT
THIRD DIVISION
G.R. No. 156262 July 14, 2005
MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses ANASTACIO
and MARY T. BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.
DECISION
PANGANIBAN, J.:
Stripped of nonessentials, the present case involves the collection of a sum of money.
Specifically, this case arose from the failure of petitioners to pay respondents’
predecessor-in-interest. This fact was shown by the non-encashment of checks issued by
a third person, but indorsed by herein Petitioner Maria Tuazon in favor of the said
predecessor. Under these circumstances, to enable respondents to collect on the
indebtedness, the check drawer need not be impleaded in the Complaint. Thus, the suit
is directed, not against the drawer, but against the debtor who indorsed the checks in
payment of the obligation.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the
July 31, 2002 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 46535. The decretal
portion of the assailed Decision reads:
"WHEREFORE, the appeal is DISMISSED and the appealed decision is AFFIRMED."
On the other hand, the affirmed Decision3 of Branch 34 of the Regional Trial Court (RTC)
of Gapan, Nueva Ecija, disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants, ordering the defendants spouses Leonilo Tuazon and Maria Tuazon to pay
the plaintiffs, as follows:
"1. The sum of ₱1,750,050.00, with interests from the filing of the second amended
complaint;
"2. The sum of ₱50,000.00, as attorney’s fees;
"3. The sum of ₱20,000.00, as moral damages
"4. And to pay the costs of suit.
x x x x x x x x x"4
The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988,
spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from [the
deceased Bartolome] Ramos [predecessor-in-interest of respondents]. That of this
[quantity,] x x x only 4,437 cavans [have been paid for so far], leaving unpaid 3,889
cavans valued at ₱1,211,919.00. In payment therefor, the spouses Tuazon issued x x x
[several] Traders Royal Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks bounced due to insufficiency
of funds. [Respondents] advanced that before issuing said checks[,] spouses Tuazon
already knew that they had no available fund to support the checks, and they failed to
provide for the payment of these despite repeated demands made on them.
"[Respondents] averred that because spouses Tuazon anticipated that they would be
sued, they conspired with the other [defendants] to defraud them as creditors by
executing x x x fictitious sales of their properties. They executed x x x simulated sale[s]
[of three lots] in favor of the x x x spouses Buenaventura x x x[,] as well as their
residential lot and the house thereon[,] all located at Nueva Ecija, and another
simulated deed of sale dated July 12, 1988 of a Stake Toyota registered with the Land
Transportation Office of Cabanatuan City on September 7, 1988. [Co-petitioner] Melecio
Tuazon, a son of spouses Tuazon, registered a fictitious Deed of Sale on July 19, 1988 x x
x over a residential lot located at Nueva Ecija. Another simulated sale of a Toyota Willys
was executed on January 25, 1988 in favor of their other son, [co-petitioner] Alejandro
Tuazon x x x. As a result of the said sales, the titles of these properties issued in the
names of spouses Tuazon were cancelled and new ones were issued in favor of the [co-
]defendants spouses Buenaventura, Alejandro Tuazon and Melecio Tuazon. Resultantly,
by the said ante-dated and simulated sales and the corresponding transfers there was
no more property left registered in the names of spouses Tuazon answerable to
creditors, to the damage and prejudice of [respondents].
"For their part, defendants denied having purchased x x x rice from [Bartolome] Ramos.
They alleged that it was Magdalena Ramos, wife of said deceased, who owned and
traded the merchandise and Maria Tuazon was merely her agent. They argued that it
was Evangeline Santos who was the buyer of the rice and issued the checks to Maria
Tuazon as payments therefor. In good faith[,] the checks were received [by petitioner]
from Evangeline Santos and turned over to Ramos without knowing that these were not
funded. And it is for this reason that [petitioners] have been insisting on the inclusion of
Evangeline Santos as an indispensable party, and her non-inclusion was a fatal error.
Refuting that the sale of several properties were fictitious or simulated, spouses Tuazon
contended that these were sold because they were then meeting financial difficulties
but the disposals were made for value and in good faith and done before the filing of
the instant suit. To dispute the contention of plaintiffs that they were the buyers of the
rice, they argued that there was no sales invoice, official receipts or like evidence to
prove this. They assert that they were merely agents and should not be held
answerable."5
The corresponding civil and criminal cases were filed by respondents against Spouses
Tuazon. Those cases were later consolidated and amended to include Spouses Anastacio
and Mary Buenaventura, with Alejandro Tuazon and Melecio Tuazon as additional
defendants. Having passed away before the pretrial, Bartolome Ramos was substituted
by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the case, petitioners
moved to file a third-party complaint against her. Allegedly, she was primarily liable to
respondents, because she was the one who had purchased the merchandise from their
predecessor, as evidenced by the fact that the checks had been drawn in her name. The
RTC, however, denied petitioners’ Motion.
Since the trial court acquitted petitioners in all three of the consolidated criminal cases,
they appealed only its decision finding them civilly liable to respondents.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioners had failed to prove the existence of an
agency between respondents and Spouses Tuazon. The appellate court disbelieved
petitioners’ contention that Evangeline Santos should have been impleaded as an
indispensable party. Inasmuch as all the checks had been indorsed by Maria Tuazon,
who thereby became liable to subsequent holders for the amounts stated in those
checks, there was no need to implead Santos.
Hence, this Petition.6
Issues
Petitioners raise the following issues for our consideration:
"1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners are
not agents of the respondents.
"2. Whether or not the Honorable Court of Appeals erred in rendering judgment against
the petitioners despite x x x the failure of the respondents to include in their action
Evangeline Santos, an indispensable party to the suit."7
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Agency
Well-entrenched is the rule that the Supreme Court’s role in a petition under Rule 45 is
limited to reviewing errors of law allegedly committed by the Court of Appeals. Factual
findings of the trial court, especially when affirmed by the CA, are conclusive on the
parties and this Court.8 Petitioners have not given us sufficient reasons to deviate from
this rule.
In a contract of agency, one binds oneself to render some service or to do something in
representation or on behalf of another, with the latter’s consent or authority. 9 The
following are the elements of agency: (1) the parties’ consent, express or implied, to
establish the relationship; (2) the object, which is the execution of a juridical act in
relation to a third person; (3) the representation, by which the one who acts as an agent
does so, not for oneself, but as a representative; (4) the limitation that the agent acts
within the scope of his or her authority.10 As the basis of agency is representation, there
must be, on the part of the principal, an actual intention to appoint, an intention
naturally inferable from the principal’s words or actions. In the same manner, there
must be an intention on the part of the agent to accept the appointment and act upon
it. Absent such mutual intent, there is generally no agency. 11

This Court finds no reversible error in the findings of the courts a quo that petitioners
were the rice buyers themselves; they were not mere agents of respondents in their rice
dealership. The question of whether a contract is one of sale or of agency depends on
the intention of the parties.12

The declarations of agents alone are generally insufficient to establish the fact or extent
of their authority.13 The law makes no presumption of agency; proving its existence,
nature and extent is incumbent upon the person alleging it. 14 In the present case,
petitioners raise the fact of agency as an affirmative defense, yet fail to prove its
existence.

The Court notes that petitioners, on their own behalf, sued Evangeline Santos for
collection of the amounts represented by the bounced checks, in a separate civil case
that they sought to be consolidated with the current one. If, as they claim, they were
mere agents of respondents, petitioners should have brought the suit against Santos for
and on behalf of their alleged principal, in accordance with Section 2 of Rule 3 of the
Rules on Civil Procedure.15 Their filing a suit against her in their own names negates their
claim that they acted as mere agents in selling the rice obtained from Bartolome Ramos.

Second Issue:

Indispensable Party

Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be
impleaded as an indispensable party. They insist that respondents’ Complaint against
them is based on the bouncing checks she issued; hence, they point to her as the person
primarily liable for the obligation.

We hold that respondents’ cause of action is clearly founded on petitioners’ failure to

pay the purchase price of the rice. The trial court held that Petitioner Maria Tuazon had
indorsed the questioned checks in favor of respondents, in accordance with Sections 31
and 63 of the Negotiable Instruments Law.16 That Santos was the drawer of the checks is
thus immaterial to the respondents’ cause of action.

As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks
were to be accepted or paid, or both, according to their tenor; and that in case they
were dishonored, she would pay the corresponding amount. 17After an instrument is
dishonored by nonpayment, indorsers cease to be merely secondarily liable; they
become principal debtors whose liability becomes identical to that of the original
obligor. The holder of a negotiable instrument need not even proceed against the maker
before suing the indorser.18 Clearly, Evangeline Santos -- as the drawer of the checks -- is
not an indispensable party in an action against Maria Tuazon, the indorser of the checks.

Indispensable parties are defined as "parties in interest without whom no final

determination can be had."19 The instant case was originally one for the collection of the
purchase price of the rice bought by Maria Tuazon from respondents’ predecessor. In
this case, it is clear that there is no privity of contract between respondents and Santos.
Hence, a final determination of the rights and interest of the parties may be made
without any need to implead her.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioners.

SO ORDERED.
G.R. No. 117356 June 19, 2000
VICTORIAS MILLING CO., INC., petitioner,
vs.
COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No.
31717, as well as the respondent court's resolution of September 30, 1994 modifying
said decision. Both decision and resolution amended the judgment dated February 13,
1991, of the Regional Trial Court of Makati City, Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner
Victorias Milling Co., Inc., (VMC). In the course of their dealings, petitioner issued
several Shipping List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among
these was SLDR No. 1214M, which gave rise to the instant case. Dated October 16, 1989,
SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained 50 kilograms and
priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated October 16,
1989."1 The transaction it covered was a "direct sale."2The SLDR also contains an
additional note which reads: "subject for (sic) availability of a (sic) stock at NAWACO
(warehouse)."3
On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation
(CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated
October 25, 1989 and three checks postdated November 13, 1989 in payment. That
same day, CSC wrote petitioner that it had been authorized by STM to withdraw the
sugar covered by SLDR No. 1214M. Enclosed in the letter were a copy of SLDR No.
1214M and a letter of authority from STM authorizing CSC "to withdraw for and in our
behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR)
No. 1214 dated October 16, 1989 in the total quantity of 25,000 bags." 4
On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with
petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated October
27, 1989 acknowledging receipt of the said checks in payment of 50,000 bags. Aside
from SLDR No. 1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO
warehouse and was allowed to withdraw sugar. However, after 2,000 bags had been
released, petitioner refused to allow further withdrawals of sugar against SLDR No.
1214M. CSC then sent petitioner a letter dated January 23, 1990 informing it that SLDR
No. 1214M had been "sold and endorsed" to it but that it had been refused further
withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags
had been withdrawn.5 CSC thus inquired when it would be allowed to withdraw the
remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further withdrawals
of sugar against SLDR No. 1214M because STM had already dwithdrawn all the sugar
covered by the cleared checks.6
On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of
23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the amount of
STM's cleared checks had been fully withdrawn and hence, there would be no more
deliveries of the commodity to STM's account. Petitioner also noted that CSC had
represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR
No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case
No. 90-1118. Defendants were Teresita Ng Sy (doing business under the name of St.
Therese Merchandising) and herein petitioner. Since the former could not be served
with summons, the case proceeded only against the latter. During the trial, it was
discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy who
could not be reached through summons.7 CSC, however, did not bother to pursue its
case against her, but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR
No. 1214M. Therefore, the latter had no justification for refusing delivery of the sugar.
CSC prayed that petitioner be ordered to deliver the 23,000 bags covered by SLDR No.
1214M and sought the award of P1,104,000.00 in unrealized profits, P3,000,000.00 as
exemplary damages, P2,200,000.00 as attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000
bags.8 Since STM had already drawn in full all the sugar corresponding to the amount of
its cleared checks, it could no longer authorize further delivery of sugar to CSC.
Petitioner also contended that it had no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of title,
but mere delivery receipts issued pursuant to a series of transactions entered into
between it and STM. The SLDRs prescribed delivery of the sugar to the party specified
therein and did not authorize the transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-
conspirator to defraud it through a misrepresentation that CSC was an innocent
purchaser for value and in good faith. Petitioner then prayed that CSC be ordered to pay
it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as exemplary
damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed that cross-
defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and
P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the
merits.
As earlier stated, the trial court rendered its judgment favoring private respondent CSC,
as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of
the plaintiff and against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags
of refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as
unrealized profits, the amount of P800,000.00 as exemplary damages and the amount
of P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of
refined sugar in the amount of P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."9
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the
purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered by
SLDR No. 1214 as well as the purchase price of P15,950,000.00 for the 25,000 bags of
sugar bought by her covered by SLDR No. 1213 on the same date, October 16, 1989
(date of the two SLDRs) is duly supported by Exhibits C to C-15 inclusive which are post-
dated checks dated October 27, 1989 issued by St. Therese Merchandising in favor of
Victorias Milling Company at the time it purchased the 50,000 bags of sugar covered by
SLDR No. 1213 and 1214. Said checks appear to have been honored and duly credited to
the account of Victorias Milling Company because on October 27, 1989 Victorias Milling
Company issued official receipt no. 34734 in favor of St. Therese Merchandising for the
amount of P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita Ng Go is
further supported by Exhibit F, which is a computer printout of defendant Victorias
Milling Company showing the quantity and value of the purchases made by St. Therese
Merchandising, the SLDR no. issued to cover the purchase, the official reciept no. and
the status of payment. It is clear in Exhibit 'F' that with respect to the sugar covered by
SLDR No. 1214 the same has been fully paid as indicated by the word 'cleared' appearing
under the column of 'status of payment.'
"On the other hand, the claim of defendant Victorias Milling Company that the purchase
price of the 25,000 bags of sugar purchased by St. Therese Merchandising covered by
SLDR No. 1214 has not been fully paid is supported only by the testimony of Arnulfo
Caintic, witness for defendant Victorias Milling Company. The Court notes that the
testimony of Arnulfo Caintic is merely a sweeping barren assertion that the purchase
price has not been fully paid and is not corroborated by any positive evidence. There is
an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by
the buyer in payment of the purchased price were dishonored. However, said witness
failed to present in Court any dishonored check or any replacement check. Said witness
likewise failed to present any bank record showing that the checks issued by the buyer,
Teresita Ng Go, in payment of the purchase price of the sugar covered by SLDR No. 1214
were dishonored."10
Petitioner appealed the trial court’s decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part of a
series of transactions involving only one account or one general contract of sale.
Pursuant to this contract, STM or any of its authorized agents could withdraw bags of
sugar only against cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs
issued to STM and since the latter had already withdrawn its full quota of sugar under
the said SLDR, CSC was already precluded from seeking delivery of the 23,000 bags of
sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M
were separate and independent transactions and that the details of the series of
purchases were contained in a single statement with a consolidated summary of cleared
check payments and sugar stock withdrawals because this a more convenient system
than issuing separate statements for each purchase.
The appellate court considered the following issues: (a) Whether or not the transaction
between petitioner and STM involving SLDR No. 1214M was a separate, independent,
and single transaction; (b) Whether or not CSC had the capacity to sue on its own on
SLDR No. 1214M; and (c) Whether or not CSC as buyer from STM of the rights to 25,000
bags of sugar covered by SLDR No. 1214M could compel petitioner to deliver 23,000
bags allegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision modifying the trial
court's judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-
appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;
"2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered
bags of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."11
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its decision to
read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-
appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."12
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit ‘F' We relied upon in fixing the number of bags of sugar which remained
undelivered as 12,586 cannot be made the basis for such a finding. The rule is explicit
that courts should consider the evidence only for the purpose for which it was
offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to afford the
party against whom the evidence is presented to object thereto if he deems it
necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit ‘F' which
was offered to prove that checks in the total amount of P15,950,000.00 had been
cleared. (Formal Offer of Evidence for Plaintiff, Records p. 58) cannot be used to prove
the proposition that 12,586 bags of sugar remained undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and
Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-
appellee was to the effect that it had withdrawn only 2,000 bags of sugar from SLDR
after which it was not allowed to withdraw anymore. Documentary evidence (Exhibit I,
Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to
defendant-appellant asking the latter to allow it to withdraw the remaining 23,000 bags
of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that sugar
delivery to the STM corresponded only to the value of cleared checks; and that all sugar
corresponded to cleared checks had been withdrawn. Defendant-appellant did not
rebut plaintiff-appellee's assertions. It did not present evidence to show how many bags
of sugar had been withdrawn against SLDR No. 1214M, precisely because of its theory
that all sales in question were a series of one single transaction and withdrawal of sugar
depended on the clearing of checks paid therefor.
"After a second look at the evidence, We see no reason to overturn the findings of the
trial court on this point."13
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private respondent's
specially informing petitioner that respondent was authorized by buyer STM to
withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf," (emphasis in the
original) private respondent's withdrawing 2,000 bags of sugar for STM, and STM's
empowering other persons as its agents to withdraw sugar against the same SLDR No.
1214M, rendered respondent like the other persons, an agent of STM as held in Rallos v.
Felix Go Chan & Realty Corp., 81 SCRA 252, and precluded it from subsequently claiming
and proving being an assignee of SLDR No. 1214M and from suing by itself for its
enforcement because it was conclusively presumed to be an agent (Sec. 2, Rule 131,
Rules of Court) and estopped from doing so. (Art. 1431, Civil Code).
"2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding
certain relevant and undisputed facts which, had they been considered, would have
shown that petitioner was not liable, except for 69 bags of sugar, and which would
justify review of its conclusion of facts by this Honorable Court.
"3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285
and 1626 of the Civil Code when it ruled that compensation applied only to credits from
one SLDR or contract and not to those from two or more distinct contracts between the
same parties; and erred in denying petitioner's right to setoff all its credits arising prior
to notice of assignment from other sales or SLDRs against private respondent's claim as
assignee under SLDR No. 1214M, so as to extinguish or reduce its liability to 69 bags,
because the law on compensation applies precisely to two or more distinct contracts
between the same parties (emphasis in the original).
"4. The Court of Appeals erred in concluding that the settlement or liquidation of
accounts in Exh. ‘F’ between petitioner and STM, respondent's admission of its balance,
and STM's acquiescence thereto by silence for almost one year did not render Exh. `F' an
account stated and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR
No. 1214, namely, (a) its subject matter being generic, and (b) the sale of sugar being
subject to its availability at the Nawaco warehouse, made the sale conditional and
prevented STM or private respondent from acquiring title to the sugar; and the non-
availability of sugar freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded
respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being
against its assignor."14
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of
STM and hence, estopped to sue upon SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on compensation to
the transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its
credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar
under SLDR No. 1214M was a conditional sale or a contract to sell and hence freed
petitioner from further obligations.
(4)....Whether or not the Court of Appeals committed an error of law in not applying the
"clean hands doctrine" to preclude CSC from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for the
first time on appeal.1avvphi1 It is settled that an issue which was not raised during the
trial in the court below could not be raised for the first time on appeal as to do so would
be offensive to the basic rules of fair play, justice, and due process. 15 Nonetheless, the
Court of Appeals opted to address this issue, hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar
against SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion
of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative to
withdraw for and in our behalf (stress supplied) the refined sugar covered by Shipping
List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total
quantity of 25, 000 bags."16
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds himself to render some service or
to do something in representation or on behalf of another, with the consent or
authority of the latter."
It is clear from Article 1868 that the basis of agency is representation. 17 On the part of
the principal, there must be an actual intention to appoint18 or an intention naturally
inferable from his words or actions;19 and on the part of the agent, there must be an
intention to accept the appointment and act on it,20 and in the absence of such intent,
there is generally no agency.21 One factor which most clearly distinguishes agency from
other legal concepts is control; one person - the agent - agrees to act under the control
or direction of another - the principal. Indeed, the very word "agency" has come to
connote control by the principal.22 The control factor, more than any other, has caused
the courts to put contracts between principal and agent in a separate category. 23 The WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.
Court of Appeals, in finding that CSC, was not an agent of STM, opined:
SO ORDERED.
"This Court has ruled that where the relation of agency is dependent upon the acts of
the parties, the law makes no presumption of agency, and it is always a fact to be
proved, with the burden of proof resting upon the persons alleging the agency, to show
not only the fact of its existence, but also its nature and extent (Antonio vs.
Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently establish
the existence of an agency relation between plaintiff-appellee and STM. The fact alone
that it (STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in our
(STM's) behalf" should not be eyed as pointing to the existence of an agency relation ...It
should be viewed in the context of all the circumstances obtaining. Although it would
seem STM represented plaintiff-appellee as being its agent by the use of the phrase "for
and in our (STM's) behalf" the matter was cleared when on 23 January 1990, plaintiff-
appellee informed defendant-appellant that SLDFR No. 1214M had been "sold and
endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown
that the 25, 000 bags of sugar covered by the SLDR No. 1214M were sold and
transferred by STM to it ...A conclusion that there was a valid sale and transfer to
plaintiff-appellee may, therefore, be made thus capacitating plaintiff-appellee to sue in
its own name, without need of joining its imputed principal STM as co-plaintiff."24

In the instant case, it appears plain to us that private respondent CSC was a buyer of the
SLDFR form, and not an agent of STM. Private respondent CSC was not subject to STM's
control. The question of whether a contract is one of sale or agency depends on the
intention of the parties as gathered from the whole scope and effect of the language
employed.25 That the authorization given to CSC contained the phrase "for and in our
(STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention
of the parties.26 That no agency was meant to be established by the CSC and STM is
clearly shown by CSC's communication to petitioner that SLDR No. 1214M had been
"sold and endorsed" to it.27 The use of the words "sold and endorsed" means that STM
and CSC intended a contract of sale, and not an agency. Hence, on this score, no error
was committed by the respondent appellate court when it held that CSC was not STM's
agent and could independently sue petitioner.

On the second issue, proceeding from the theory that the transactions entered into
between petitioner and STM are but serial parts of one account, petitioner insists that
its debt has been offset by its claim for STM's unpaid purchases, pursuant to Article
1279 of the Civil Code.28 However, the trial court found, and the Court of Appeals
concurred, that the purchase of sugar covered by SLDR No. 1214M was a separate and
independent transaction; it was not a serial part of a single transaction or of one
account contrary to petitioner's insistence. Evidence on record shows, without being
rebutted, that petitioner had been paid for the sugar purchased under SLDR No. 1214M.
Petitioner clearly had the obligation to deliver said commodity to STM or its assignee.
Since said sugar had been fully paid for, petitioner and CSC, as assignee of STM, were
not mutually creditors and debtors of each other. No reversible error could thereby be
imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil
Code to the present case.

Regarding the third issue, petitioner contends that the sale of sugar under SLDR No.
1214M is a conditional sale or a contract to sell, with title to the sugar still remaining
with the vendor. Noteworthy, SLDR No. 1214M contains the following terms and
conditions:

"It is understood and agreed that by payment by buyer/trader of refined sugar and/or
receipt of this document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to buyer/trader and delivery to him/it
is deemed effected and completed (stress supplied) and buyer/trader assumes full
responsibility therefore…"29

The aforequoted terms and conditions clearly show that petitioner transferred title to
the sugar to the buyer or his assignee upon payment of the purchase price. Said terms
clearly establish a contract of sale, not a contract to sell. Petitioner is now estopped
from alleging the contrary. The contract is the law between the contracting
parties.30 And where the terms and conditions so stipulated are not contrary to law,
morals, good customs, public policy or public order, the contract is valid and must be
upheld.31 Having transferred title to the sugar in question, petitioner is now obliged to
deliver it to the purchaser or its assignee.

As to the fourth issue, petitioner submits that STM and private respondent CSC have
entered into a conspiracy to defraud it of its sugar. This conspiracy is allegedly
evidenced by: (a) the fact that STM's selling price to CSC was below its purchasing price;
(b) CSC's refusal to pursue its case against Teresita Ng Go; and (c) the authority given by
the latter to other persons to withdraw sugar against SLDR No. 1214M after she had
sold her rights under said SLDR to CSC. Petitioner prays that the doctrine of "clean
hands" should be applied to preclude CSC from seeking judicial relief. However, despite
careful scrutiny, we find here the records bare of convincing evidence whatsoever to
support the petitioner's allegations of fraud. We are now constrained to deem this
matter purely speculative, bereft of concrete proof.
G.R. No. 149353 June 26, 2006
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court
questioning the Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R.
CV No. 66985, which reversed the Decision dated July 29, 1998 of the Regional Trial
Court (RTC), Branch 21, City of Manila; and the CA Resolution2 dated August 6, 2001
which denied petitioner’s Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for
Specific Performance with Damages against Jocelyn B. Doles (petitioner), docketed as
Civil Case No. 97-82716. Respondent alleged that petitioner was indebted to the former
in the concept of a personal loan amounting to P405,430.00 representing the principal
amount and interest; that on October 5, 1996, by virtue of a "Deed of Absolute
Sale",3 petitioner, as seller, ceded to respondent, as buyer, a parcel of land, as well as
the improvements thereon, with an area of 42 square meters, covered by Transfer
Certificate of Title No. 382532,4 and located at a subdivision project known as Camella
Townhomes Sorrente in Bacoor, Cavite, in order to satisfy her personal loan with
respondent; that this property was mortgaged to National Home Mortgage Finance
Corporation (NHMFC) to secure petitioner’s loan in the sum of P337,050.00 with that
entity; that as a condition for the foregoing sale, respondent shall assume the undue
balance of the mortgage and pay the monthly amortization of P4,748.11 for the
remainder of the 25 years which began on September 3, 1994; that the property was at
that time being occupied by a tenant paying a monthly rent of P3,000.00; that upon
verification with the NHMFC, respondent learned that petitioner had incurred
arrearages amounting to P26,744.09, inclusive of penalties and interest; that upon
informing the petitioner of her arrears, petitioner denied that she incurred them and
refused to pay the same; that despite repeated demand, petitioner refused to
cooperate with respondent to execute the necessary documents and other formalities
required by the NHMFC to effect the transfer of the title over the property; that
petitioner collected rent over the property for the month of January 1997 and refused
to remit the proceeds to respondent; and that respondent suffered damages as a result
and was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint, denied
that she borrowed money from respondent, and averred that from June to September
1995, she referred her friends to respondent whom she knew to be engaged in the
business of lending money in exchange for personal checks through her capitalist
Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo, Theresa Moratin,
Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed money from
respondent and issued personal checks in payment of the loan; that the checks bounced
for insufficiency of funds; that despite her efforts to assist respondent to collect from
the borrowers, she could no longer locate them; that, because of this, respondent
became furious and threatened petitioner that if the accounts were not settled, a
criminal case will be filed against her; that she was forced to issue eight checks
amounting to P350,000 to answer for the bounced checks of the borrowers she
referred; that prior to the issuance of the checks she informed respondent that they
were not sufficiently funded but the latter nonetheless deposited the checks and for
which reason they were subsequently dishonored; that respondent then threatened to
initiate a criminal case against her for violation of Batas Pambansa Blg. 22; that she was
forced by respondent to execute an "Absolute Deed of Sale" over her property in
Bacoor, Cavite, to avoid criminal prosecution; that the said deed had no valid
consideration; that she did not appear before a notary public; that the Community Tax
Certificate number on the deed was not hers and for which respondent may be
prosecuted for falsification and perjury; and that she suffered damages and lost rental
as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid;
second; if valid, whether petitioner is obliged to sign and execute the necessary
documents to effect the transfer of her rights over the property to the respondent; and
third, whether petitioner is liable for damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the
complaint for insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration: 5
Plaintiff Angeles’ admission that the borrowers are the friends of defendant Doles and
further admission that the checks issued by these borrowers in payment of the loan
obligation negates [sic] the cause or consideration of the contract of sale executed by
and between plaintiff and defendant. Moreover, the property is not solely owned by
defendant as appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532
(Annex A, Complaint), thus:
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share
of Teodorico Doles on the parcel of land described in this certificate of title by virtue of
the special power of attorney to mortgage, executed before the notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration produce
no effect whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed her sole
assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic]
THE DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY
OF EVIDENCE.6
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which
reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The
Decision of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new one
is entered ordering defendant-appellee to execute all necessary documents to effect
transfer of subject property to plaintiff-appellant with the arrearages of the former’s
loan with the NHMFC, at the latter’s expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the
amount borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale
was supported by a valid consideration, which is the sum of money petitioner owed
respondent amounting to P405,430.00, representing both principal and interest.
The CA took into account the following circumstances in their entirety: the supposed
friends of petitioner never presented themselves to respondent and that all transactions
were made by and between petitioner and respondent; 7 that the money borrowed was
deposited with the bank account of the petitioner, while payments made for the loan
were deposited by the latter to respondent’s bank account; 8 that petitioner herself
admitted in open court that she was "re-lending" the money loaned from respondent to
other individuals for profit;9 and that the documentary evidence shows that the actual
borrowers, the friends of petitioner, consider her as their creditor and not the
respondent.10
Furthermore, the CA held that the alleged threat or intimidation by respondent did not
vitiate consent, since the same is considered just or legal if made to enforce one’s claim
through competent authority under Article 133511 of the Civil Code;12 that with respect
to the arrearages of petitioner on her monthly amortization with the NHMFC in the sum
of P26,744.09, the same shall be deemed part of the balance of petitioner’s loan with
the NHMFC which respondent agreed to assume; and that the amount of P3,000.00
representing the rental for January 1997 supposedly collected by petitioner, as well as
the claim for damages and attorney’s fees, is denied for insufficiency of evidence. 13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing
that respondent categorically admitted in open court that she acted only as agent or
representative of Arsenio Pua, the principal financier and, hence, she had no legal
capacity to sue petitioner; and that the CA failed to consider the fact that petitioner’s
father, who co-owned the subject property, was not impleaded as a defendant nor was
he indebted to the respondent and, hence, she cannot be made to sign the documents
to effect the transfer of ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that
the foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28,
2001, petitioner filed the present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE
RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO
COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE DEBTOR.
III. a. No, sir.

WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE. 14 Atty. Diza:

Although, as a rule, it is not the business of this Court to review the findings of fact q. Your friends and the plaintiff did not meet personally?
made by the lower courts, jurisprudence has recognized several exceptions, at least
three of which are present in the instant case, namely: when the judgment is based on a witness:
misapprehension of facts; when the findings of facts of the courts a quo are conflicting;
and when the CA manifestly overlooked certain relevant facts not disputed by the a. Yes, sir.
parties, which, if properly considered, could justify a different conclusion.15 To arrive at
Atty. Diza:
a proper judgment, therefore, the Court finds it necessary to re-examine the evidence
presented by the contending parties during the trial of the case.
q. You are intermediaries?
The Petition is meritorious.
witness:
The principal issue is whether the Deed of Absolute Sale is supported by a valid
a. We are both intermediaries. As evidenced by the checks of the debtors they were
consideration.
deposited to the name of Arsenio Pua because the money came from Arsenio Pua.
1. Petitioner argues that since she is merely the agent or representative of the alleged
xxxx
debtors, then she is not a party to the loan; and that the Deed of Sale executed between
her and the respondent in their own names, which was predicated on that pre-existing Atty. Diza:
debt, is void for lack of consideration.
q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the one you mentioned [a] while ago?
form of a price certain in money16 and that this sum indisputably pertains to the debt in
issue. This Court has consistently held that a contract of sale is null and void and witness:
produces no effect whatsoever where the same is without cause or consideration. 17 The
question that has to be resolved for the moment is whether this debt can be considered a. Yes, she knows the money will go to those persons.
as a valid cause or consideration for the sale.
Atty. Diza:
To restate, the CA cited four instances in the record to support its holding that
petitioner "re-lends" the amount borrowed from respondent to her friends: first, the q. You are re-lending the money?
friends of petitioner never presented themselves to respondent and that all transactions
were made by and between petitioner and respondent; 18 second; the money passed witness:
through the bank accounts of petitioner and respondent; 19 third, petitioner herself
admitted that she was "re-lending" the money loaned to other individuals for a. Yes, sir.
profit;20 and fourth, the documentary evidence shows that the actual borrowers, the
Atty. Diza:
friends of petitioner, consider her as their creditor and not the respondent.21
q. What profit do you have, do you have commission?
On the first, third, and fourth points, the CA cites the testimony of the petitioner, then
defendant, during her cross-examination:22
witness:
Atty. Diza:
a. Yes, sir.
q. You also mentioned that you were not the one indebted to the plaintiff?
Atty. Diza:
witness:
q. How much?
a. Yes, sir.
witness:
Atty. Diza:
a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends
none, sir.
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin,
Maria Luisa Inocencio, Zenaida Romulo, they are your friends?
Based on the foregoing, the CA concluded that petitioner is the real borrower, while the
respondent, the real lender.
witness:
But as correctly noted by the RTC, respondent, then plaintiff, made the following
a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were
admission during her cross examination:23
just referred.
Atty. Villacorta:
Atty. Diza:
q. Who is this Arsenio Pua?
q. And you have transact[ed] with the plaintiff?
witness:
witness:
a. Principal financier, sir.
a. Yes, sir.
Atty. Villacorta:
Atty. Diza:
q. So the money came from Arsenio Pua?
q. What is that transaction?
witness:
witness:
a. Yes, because I am only representing him, sir.
a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.
Other portions of the testimony of respondent must likewise be considered: 24
Atty. Diza:
Atty. Villacorta:
q. Did the plaintiff personally see the transactions with your friends?
q. So it is not actually your money but the money of Arsenio Pua?
witness:
witness: a. Yes, sir.

a. Yes, sir. Atty. Villacorta:

Court: q. And because of that Arsenio Pua got mad with you?

q. It is not your money? witness:

witness: a. Yes, sir.

a. Yes, Your Honor. Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua,
her disclosed principal. She is also estopped to deny that petitioner acted as agent for
Atty. Villacorta: the alleged debtors, the friends whom she (petitioner) referred.

q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is
somebody, are you aware of that? representation.25 The question of whether an agency has been created is ordinarily a
question which may be established in the same way as any other fact, either by direct or
witness: circumstantial evidence. The question is ultimately one of intention. 26 Agency may even
be implied from the words and conduct of the parties and the circumstances of the
a. I am aware of that.
particular case.27Though the fact or extent of authority of the agents may not, as a
general rule, be established from the declarations of the agents alone, if one professes
Atty. Villacorta:
to act as agent for another, she may be estopped to deny her agency both as against the
q. More or less she [accommodated] several friends of the defendant? asserted principal and the third persons interested in the transaction in which he or she
is engaged.28
witness:
In this case, petitioner knew that the financier of respondent is Pua; and respondent
a. Yes, sir, I am aware of that. knew that the borrowers are friends of petitioner.

xxxx The CA is incorrect when it considered the fact that the "supposed friends of
[petitioner], the actual borrowers, did not present themselves to [respondent]" as
Atty. Villacorta: evidence that negates the agency relationship—it is sufficient that petitioner disclosed
to respondent that the former was acting in behalf of her principals, her friends whom
q. And these friends of the defendant borrowed money from you with the assurance of she referred to respondent. For an agency to arise, it is not necessary that the principal
the defendant? personally encounter the third person with whom the agent interacts. The law in fact
contemplates, and to a great degree, impersonal dealings where the principal need not
witness: personally know or meet the third person with whom her agent transacts: precisely, the
purpose of agency is to extend the personality of the principal through the facility of the
a. They go direct to Jocelyn because I don’t know them. agent.29

xxxx In the case at bar, both petitioner and respondent have undeniably disclosed to each
other that they are representing someone else, and so both of them are estopped to
Atty. Villacorta:
deny the same. It is evident from the record that petitioner merely refers actual
borrowers and then collects and disburses the amounts of the loan upon which she
q. And is it not also a fact Madam witness that everytime that the defendant borrowed
received a commission; and that respondent transacts on behalf of her "principal
money from you her friends who [are] in need of money issued check[s] to you? There
financier", a certain Arsenio Pua. If their respective principals do not actually and
were checks issued to you?
personally know each other, such ignorance does not affect their juridical standing as
witness: agents, especially since the very purpose of agency is to extend the personality of the
principal through the facility of the agent.
a. Yes, there were checks issued.
With respect to the admission of petitioner that she is "re-lending" the money loaned
Atty. Villacorta: from respondent to other individuals for profit, it must be stressed that the manner in
which the parties designate the relationship is not controlling. If an act done by one
q. By the friends of the defendant, am I correct? person in behalf of another is in its essential nature one of agency, the former is the
agent of the latter notwithstanding he or she is not so called.30 The question is to be
witness: determined by the fact that one represents and is acting for another, and if relations
exist which will constitute an agency, it will be an agency whether the parties
a. Yes, sir. understood the exact nature of the relation or not. 31

Atty. Villacorta: That both parties acted as mere agents is shown by the undisputed fact that the friends
of petitioner issued checks in payment of the loan in the name of Pua. If it is true that
q. And because of your assistance, the friends of the defendant who are in need of
petitioner was "re-lending", then the checks should have been drawn in her name and
money were able to obtain loan to [sic] Arsenio Pua through your assistance?
not directly paid to Pua.
witness:
With respect to the second point, particularly, the finding of the CA that the
disbursements and payments for the loan were made through the bank accounts of
a. Yes, sir.
petitioner and respondent,
Atty. Villacorta:
suffice it to say that in the normal course of commercial dealings and for reasons of
q. So that occasion lasted for more than a year? convenience and practical utility it can be reasonably expected that the facilities of the
agent, such as a bank account, may be employed, and that a sub-agent be appointed,
witness: such as the bank itself, to carry out the task, especially where there is no stipulation to
the contrary.32
a. Yes, sir.
In view of the two agency relationships, petitioner and respondent are not privy to the
Atty. Villacorta: contract of loan between their principals. Since the sale is predicated on that loan, then
the sale is void for lack of consideration.
q. And some of the checks that were issued by the friends of the defendant bounced,
am I correct? 2. A further scrutiny of the record shows, however, that the sale might have been
backed up by another consideration that is separate and distinct from the debt:
witness: respondent averred in her complaint and testified that the parties had agreed that as a
condition for the conveyance of the property the respondent shall assume the balance
of the mortgage loan which petitioner allegedly owed to the NHMFC. 33 This Court in the
recent past has declared that an assumption of a mortgage debt may constitute a valid
consideration for a sale.34

Although the record shows that petitioner admitted at the time of trial that she owned
the property described in the TCT,35 the Court must stress that the Transfer Certificate
of Title No. 38253236 on its face shows that the owner of the property which admittedly
forms the subject matter of the Deed of Absolute Sale refers neither to the petitioner
nor to her father, Teodorico Doles, the alleged co-owner. Rather, it states that the
property is registered in the name of "Household Development Corporation." Although
there is an entry to the effect that the petitioner had been granted a special power of
attorney "covering the shares of Teodorico Doles on the parcel of land described in this
certificate,"37 it cannot be inferred from this bare notation, nor from any other evidence
on the record, that the petitioner or her father held any direct interest on the property
in question so as to validly constitute a mortgage thereon38 and, with more reason, to
effect the delivery of the object of the sale at the consummation stage.39 What is worse,
there is a notation that the TCT itself has been "cancelled."40

In view of these anomalies, the Court cannot entertain the

possibility that respondent agreed to assume the balance of the mortgage loan which
petitioner allegedly owed to the NHMFC, especially since the record is bereft of any
factual finding that petitioner was, in the first place, endowed with any ownership rights
to validly mortgage and convey the property. As the complainant who initiated the case,
respondent bears the burden of proving the basis of her complaint. Having failed to
discharge such burden, the Court has no choice but to declare the sale void for lack of
cause. And since the sale is void, the Court finds it unnecessary to dwell on the issue of
whether duress or intimidation had been foisted upon petitioner upon the execution of
the sale.

Moreover, even assuming the mortgage validly exists, the Court notes respondent’s
allegation that the mortgage with the NHMFC was for 25 years which began September
3, 1994. Respondent filed her Complaint for Specific Performance in 1997. Since the 25
years had not lapsed, the prayer of respondent to compel petitioner to execute
necessary documents to effect the transfer of title is premature.

WHEREFORE, the petition is granted. The Decision and Resolution of the Court of
Appeals are REVERSED and SET ASIDE. The complaint of respondent in Civil Case No. 97-
82716 is DISMISSED.

SO ORDERED.