1.

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.:p

This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 of the Court of
Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel
Representatives, Inc." which affirmed, with modification, the decision 2 of the Regional Trial Court of
Manila, Branch IV, which dismissed the complaint and granted therein defendant's counterclaim for
agent's overriding commission and damages.

The antecedent facts are as follows:

On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier
offering passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel
Representatives (hereinafter referred to as Orient Air), entered into a General Sales Agency
Agreement (hereinafter referred to as the Agreement), whereby the former authorized the latter to act
as its exclusive general sales agent within the Philippines for the sale of air passenger transportation.
Pertinent provisions of the agreement are reproduced, to wit:

WITNESSETH

In consideration of the mutual convenants herein contained, the parties hereto agree as follows:

1. Representation of American by Orient Air Services

Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the
Philippines, including any United States military installation therein which are not serviced by an Air
Carrier Representation Office (ACRO), for the sale of air passenger transportation. The services to be
performed by Orient Air Services shall include:

(a) soliciting and promoting passenger traffic for the services of American and, if
necessary, employing staff competent and sufficient to do so;
 (b) providing and maintaining a suitable area in its place of business to be used
exclusively for the transaction of the business of American;

(c) arranging for distribution of American's timetables, tariffs and promotional material to
sales agents and the general public in the assigned territory;

(d) servicing and supervising of sales agents (including such sub-agents as may be
appointed by Orient Air Services with the prior written consent of American) in the
assigned territory including if required by American the control of remittances and
commissions retained; and

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

In connection with scheduled or non-scheduled air passenger transportation within the United States,
neither Orient Air Services nor its sub-agents will perform services for any other air carrier similar to those
to be performed hereunder for American without the prior written consent of American. Subject to periodic
instructions and continued consent from American, Orient Air Services may sell air passenger
transportation to be performed within the United States by other scheduled air carriers provided American
does not provide substantially equivalent schedules between the points involved.

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 xxx 3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by
failing to promptly remit the net proceeds of sales for the months of January to March 1981 in the
amount of US $254,400.40, American Air by itself undertook the collection of the proceeds of tickets
sold originally by Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13
thereof (Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against
Orient Air with the Court of First Instance of Manila, Branch 24, for Accounting with Preliminary
Attachment or Garnishment, Mandatory Injunction and Restraining Order 4 averring the aforesaid
basis for the termination of the Agreement as well as therein defendant's previous record of failures
"to promptly settle past outstanding refunds of which there were available funds in the possession of
the defendant, . . . to the damage and prejudice of plaintiff." 5

In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material
allegations of the complaint with respect to plaintiff's entitlement to alleged unremitted amounts,
contending that after application thereof to the commissions due it under the Agreement, plaintiff in
fact still owed Orient Air a balance in unpaid overriding commissions. Further, the defendant
contended that the actions taken by American Air in the course of terminating the Agreement as well
as the termination itself were untenable, Orient Air claiming that American Air's precipitous conduct
had occasioned prejudice to its business interests.

Finding that the record and the evidence substantiated the allegations of the defendant, the trial court
ruled in its favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of defendant
and against plaintiff dismissing the complaint and holding the termination made by the latter as affecting
the GSA agreement illegal and improper and order the plaintiff to reinstate defendant as its general sales
agent for passenger tranportation in the Philippines in accordance with said GSA agreement; plaintiff is
ordered to pay defendant the balance of the overriding commission on total flown revenue covering the
period from March 16, 1977 to December 31, 1980 in the amount of US$84,821.31 plus the additional
 amount of US$8,000.00 by way of proper 3% overriding commission per month commencing from
January 1, 1981 until such reinstatement or said amounts in its Philippine peso equivalent legally
prevailing at the time of payment plus legal interest to commence from the filing of the counterclaim up to
the time of payment. Further, plaintiff is directed to pay defendant the amount of One Million Five Hundred
Thousand (Pl,500,000.00) pesos as and for exemplary damages; and the amount of Three Hundred
Thousand (P300,000.00) pesos as and by way of attorney's fees.

Costs against plaintiff. 7

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27
January 1986, affirmed the findings of the court a quo on their material points but with some
modifications with respect to the monetary awards granted. The dispositive portion of the appellate
court's decision is as follows:

WHEREFORE, with the following modifications —

1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the latter's
overriding commission covering the period March 16, 1977 to December 31, 1980, or its Philippine peso
equivalent in accordance with the official rate of exchange legally prevailing on July 10, 1981, the date
the counterclaim was filed;

2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding commission per
month starting January 1, 1981 until date of termination, May 9, 1981 or its Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed

3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the answer
with counterclaim was filed, until full payment;

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

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

the rest of the appealed decision is affirmed.

Costs against American. 8

American Air moved for reconsideration of the aforementioned decision, assailing the substance
thereof and arguing for its reversal. The appellate court's decision was also the subject of a Motion for
Partial Reconsideration by Orient Air which prayed for the restoration of the trial court's ruling with
respect to the monetary awards. The Court of Appeals, by resolution promulgated on 17 December
1986, denied American Air's motion and with respect to that of Orient Air, ruled thus:

Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial court's
award of exemplary damages and attorney's fees, but granted insofar as the rate of exchange is
concerned. The decision of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive part
so that the payment of the sums mentioned therein shall be at their Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on the date of actual payment. 9

Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as
petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution 10 of this
Court dated 25 March 1987 both petitions were consolidated, hence, the case at bar.

The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding
commission. It is the stand of American Air that such commission is based only on sales of its
services actually negotiated or transacted by Orient Air, otherwise referred to as "ticketed sales." As
basis thereof, primary reliance is placed upon paragraph 5(b) of the Agreement which, in reiteration,
is quoted as follows:

5. Commissions

a) . . .

b) Overriding Commission

In addition to the above commission, American will pay Orient Air Services an overriding commission of
3% of the tariff fees and charges for all sales of transportation over American's services by Orient Air
Services or its sub-agents. (Emphasis supplied)

Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having
opted to appoint any sub-agents, it is American Air's contention that Orient Air can claim entitlement
to the disputed overriding commission based only on ticketed sales. This is supposed to be the clear
meaning of the underscored portion of the above provision. Thus, to be entitled to the 3% overriding
commission, the sale must be made by Orient Air and the sale must be done with the use of
American Air's ticket stocks.

On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission
covers the total revenue of American Air and not merely that derived from ticketed sales undertaken
by Orient Air. The latter, in justification of its submission, invokes its designation as the exclusive
General Sales Agent of American Air, with the corresponding obligations arising from such agency,
such as, the promotion and solicitation for the services of its principal. In effect, by virtue of such
exclusivity, "all sales of transportation over American Air's services are necessarily by Orient Air." 11

It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be
taken into consideration to ascertain the meaning of its provisions. 12 The various stipulations in the
contract must be read together to give effect to all. 13 After a careful examination of the records, the
Court finds merit in the contention of Orient Air that the Agreement, when interpreted in accordance
with the foregoing principles, entitles it to the 3% overriding commission based on total revenue, or as
referred to by the parties, "total flown revenue."

As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the
promotion and marketing of American Air's services for air passenger transportation, and the
solicitation of sales therefor. In return for such efforts and services, Orient Air was to be paid
commissions of two (2) kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and
charges from sales by Orient Air when made on American Air ticket stock; and second, an overriding
commission of 3% of tariff fares and charges for all sales of passenger transportation over American
Air services. It is immediately observed that the precondition attached to the first type of commission
does not obtain for the second type of commissions. The latter type of commissions would accrue for
sales of American Air services made not on its ticket stock but on the ticket stock of other air carriers
sold by such carriers or other authorized ticketing facilities or travel agents. To rule otherwise, i.e., to
limit the basis of such overriding commissions to sales from American Air ticket stock would erase
any distinction between the two (2) types of commissions and would lead to the absurd conclusion
that the parties had entered into a contract with meaningless provisions. Such an interpretation must
at all times be avoided with every effort exerted to harmonize the entire Agreement.

An additional point before finally disposing of this issue. It is clear from the records that American Air
was the party responsible for the preparation of the Agreement. Consequently, any ambiguity in this
"contract of adhesion" is to be taken "contra proferentem", i.e., construed against the party who
caused the ambiguity and could have avoided it by the exercise of a little more care. Thus, Article
1377 of the Civil Code provides that the interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the
obscurity. 14 To put it differently, when several interpretations of a provision are otherwise equally
proper, that interpretation or construction is to be adopted which is most favorable to the party in
whose favor the provision was made and who did not cause the ambiguity. 15 We therefore agree with
the respondent appellate court's declaration that:

Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read against
the party who drafted it. 16

We now turn to the propriety of American Air's termination of the Agreement. The respondent
appellate court, on this issue, ruled thus:

It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of the
Agreement, Exh. F, which provides for remittances to American less commissions to which Orient is
entitled, and from paragraph 5(d) which specifically allows Orient to retain the full amount of its
commissions. Since, as stated ante, Orient is entitled to the 3% override. American's premise, therefore,
for the cancellation of the Agreement did not exist. . . ."

We agree with the findings of the respondent appellate court. As earlier established, Orient Air was
entitled to an overriding commission based on total flown revenue. American Air's perception that
Orient Air was remiss or in default of its obligations under the Agreement was, in fact, a situation
where the latter acted in accordance with the Agreement—that of retaining from the sales proceeds
its accrued commissions before remitting the balance to American Air. Since the latter was still
obligated to Orient Air by way of such commissions. Orient Air was clearly justified in retaining and
refusing to remit the sums claimed by American Air. The latter's termination of the Agreement was,
therefore, without cause and basis, for which it should be held liable to Orient Air.

On the matter of damages, the respondent appellate court modified by reduction the trial court's
award of exemplary damages and attorney's fees. This Court sees no error in such modification and,
thus, affirms the same.

It is believed, however, that respondent appellate court erred in affirming the rest of the decision of
the trial court. We refer particularly to the lower court's decision ordering American Air to "reinstate
defendant as its general sales agent for passenger transportation in the Philippines in accordance
with said GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to
extend its personality to Orient Air. Such would be violative of the principles and essence of agency,
defined by law as a contract whereby "a person binds himself to render some service or to do
something in representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF
THE LATTER . 17 (emphasis supplied) In an agent-principal relationship, the personality of the
principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes
the principal, authorized to perform all acts which the latter would have him do. Such a relationship
can only be effected with the consent of the principal, which must not, in any way, be compelled by
law or by any court. The Agreement itself between the parties states that "either party may terminate
the Agreement without cause by giving the other 30 days' notice by letter, telegram or cable."
(emphasis supplied) We, therefore, set aside the portion of the ruling of the respondent appellate
court reinstating Orient Air as general sales agent of American Air.

WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the
respondent Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively. Costs
against petitioner American Air.
SO ORDERED.

4.

G.R. No. L-12986             March 31, 1966

THE SPOUSES BERNABE AFRICA and SOLEDAD C. AFRICA, and the HEIRS OF DOMINGA
ONG, petitioners-appellants,
vs.
CALTEX (PHIL.), INC., MATEO BOQUIREN and THE COURT OF APPEALS, respondents-appellees.

Ross, Selph, Carrascoso and Janda for the respondents.

Bernabe Africa, etc. for the petitioners.

MAKALINTAL., J.:

This case is before us on a petition for review of the decision of the Court of Appeals, which affirmed that of
the Court of First Instance of Manila dismissing petitioners' second amended complaint against respondents.

The action is for damages under Articles 1902 and 1903 of the old Civil Code. It appears that in the afternoon of
March 18, 1948 a fire broke out at the Caltex service station at the corner of Antipolo street and Rizal Avenue,
Manila. It started while gasoline was being hosed from a tank truck into the underground storage, right at the
opening of the receiving tank where the nozzle of the hose was inserted. The fire spread to and burned several
neighboring houses, including the personal properties and effects inside them. Their owners, among them
petitioners here, sued respondents Caltex (Phil.), Inc. and Mateo Boquiren, the first as alleged owner of the
station and the second as its agent in charge of operation. Negligence on the part of both of them was attributed
as the cause of the fire.

The trial court and the Court of Appeals found that petitioners failed to prove negligence and that respondents
had exercised due care in the premises and with respect to the supervision of their employees.

The first question before Us refers to the admissibility of certain reports on the fire prepared by the Manila
Police and Fire Departments and by a certain Captain Tinio of the Armed Forces of the Philippines. Portions of
the first two reports are as follows:

1. Police Department report: —

Investigation disclosed that at about 4:00 P.M. March 18, 1948, while Leandro Flores was
transferring gasoline from a tank truck, plate No. T-5292 into the underground tank of the Caltex
Gasoline Station located at the corner of Rizal Avenue and Antipolo Street, this City, an
unknown Filipino lighted a cigarette and threw the burning match stick near the main valve of
the said underground tank. Due to the gasoline fumes, fire suddenly blazed. Quick action of
Leandro Flores in pulling off the gasoline hose connecting the truck with the underground tank
prevented a terrific explosion. However, the flames scattered due to the hose from which the
gasoline was spouting. It burned the truck and the following accessorias and residences.

2. The Fire Department report: —

In connection with their allegation that the premises was (sic) subleased for the installation of a coca-
cola and cigarette stand, the complainants furnished this Office a copy of a photograph taken during the
fire and which is submitted herewith. it appears in this picture that there are in the premises a coca-cola
 cooler and a rack which according to information gathered in the neighborhood contained cigarettes and
matches, installed between the gasoline pumps and the underground tanks.

The report of Captain Tinio reproduced information given by a certain Benito Morales regarding the history of
the gasoline station and what the chief of the fire department had told him on the same subject.

The foregoing reports were ruled out as "double hearsay" by the Court of Appeals and hence inadmissible. This
ruling is now assigned as error. It is contended: first, that said reports were admitted by the trial court without
objection on the part of respondents; secondly, that with respect to the police report (Exhibit V-Africa) which
appears signed by a Detective Zapanta allegedly "for Salvador Capacillo," the latter was presented as witness
but respondents waived their right to cross-examine him although they had the opportunity to do so; and thirdly,
that in any event the said reports are admissible as an exception to the hearsay rule under section 35 of Rule
123, now Rule 130.

The first contention is not borne out by the record. The transcript of the hearing of September 17, 1953 (pp.
167-170) shows that the reports in question, when offered as evidence, were objected to by counsel for each of
respondents on the ground that they were hearsay and that they were "irrelevant, immaterial and impertinent."
Indeed, in the court's resolution only Exhibits J, K, K-5 and X-6 were admitted without objection; the admission
of the others, including the disputed ones, carried no such explanation.

On the second point, although Detective Capacillo did take the witness stand, he was not examined and he did
not testify as to the facts mentioned in his alleged report (signed by Detective Zapanta). All he said was that he
was one of those who investigated "the location of the fire and, if possible, gather witnesses as to the
occurrence, and that he brought the report with him. There was nothing, therefore, on which he need be cross-
examined; and the contents of the report, as to which he did not testify, did not thereby become competent
evidence. And even if he had testified, his testimony would still have been objectionable as far as information
gathered by him from third persons was concerned.

Petitioners maintain, however, that the reports in themselves, that is, without further testimonial evidence on
their contents, fall within the scope of section 35, Rule 123, which provides that "entries in official records
made in the performance of his duty by a public officer of the Philippines, or by a person in the performance of
a duty specially enjoined by law, are prima facie evidence of the facts therein stated."

There are three requisites for admissibility under the rule just mentioned: (a) that the entry was made by a
public officer, or by another person specially enjoined by law to do so; (b) that it was made by the public officer
in the performance of his duties, or by such other person in the performance of a duty specially enjoined by law;
and (c) that the public officer or other person had sufficient knowledge of the facts by him stated, which must
have been acquired by him personally or through official information (Moran, Comments on the Rules of Court,
Vol. 3 [1957] p. 398).

Of the three requisites just stated, only the last need be considered here. Obviously the material facts recited in
the reports as to the cause and circumstances of the fire were not within the personal knowledge of the officers
who conducted the investigation. Was knowledge of such facts, however, acquired by them through official
information? As to some facts the sources thereof are not even identified. Others are attributed to Leopoldo
Medina, referred to as an employee at the gas station were the fire occurred; to Leandro Flores, driver of the
tank truck from which gasoline was being transferred at the time to the underground tank of the station; and to
respondent Mateo Boquiren, who could not, according to Exhibit V-Africa, give any reason as to the origin of
the fire. To qualify their statements as "official information" acquired by the officers who prepared the reports,
the persons who made the statements not only must have personal knowledge of the facts stated but must have
the duty to give such statements for record.1
The reports in question do not constitute an exception to the hearsay rule; the facts stated therein were not
acquired by the reporting officers through official information, not having been given by the informants
pursuant to any duty to do so.

The next question is whether or not, without proof as to the cause and origin of the fire, the doctrine of res ipsa
loquitur should apply so as to presume negligence on the part of appellees. Both the trial court and the appellate
court refused to apply the doctrine in the instant case on the grounds that "as to (its) applicability ... in the
Philippines, there seems to he nothing definite," and that while the rules do not prohibit its adoption in
appropriate cases, "in the case at bar, however, we find no practical use for such doctrine." The question
deserves more than such summary dismissal. The doctrine has actually been applied in this jurisdiction, in the
case of Espiritu vs. Philippine Power and Development Co. (CA-G.R. No. 3240-R, September 20, 1949),
wherein the decision of the Court of Appeals was penned by Mr. Justice J.B.L. Reyes now a member of the
Supreme Court.

The facts of that case are stated in the decision as follows:

In the afternoon of May 5, 1946, while the plaintiff-appellee and other companions were loading grass
between the municipalities of Bay and Calauan, in the province of Laguna, with clear weather and
without any wind blowing, an electric transmission wire, installed and maintained by the defendant
Philippine Power and Development Co., Inc. alongside the road, suddenly parted, and one of the broken
ends hit the head of the plaintiff as he was about to board the truck. As a result, plaintiff received the full
shock of 4,400 volts carried by the wire and was knocked unconscious to the ground. The electric charge
coursed through his body and caused extensive and serious multiple burns from skull to legs, leaving the
bone exposed in some parts and causing intense pain and wounds that were not completely healed when
the case was tried on June 18, 1947, over one year after the mishap.

The defendant therein disclaimed liability on the ground that the plaintiff had failed to show any specific act of
negligence, but the appellate court overruled the defense under the doctrine of res ipsa loquitur. The court said:

The first point is directed against the sufficiency of plaintiff's evidence to place appellant on its defense.
While it is the rule, as contended by the appellant, that in case of noncontractual negligence, or culpa
aquiliana, the burden of proof is on the plaintiff to establish that the proximate cause of his injury was
the negligence of the defendant, it is also a recognized principal that "where the thing which caused
injury, without fault of the injured person, is under the exclusive control of the defendant and the injury
is such as in the ordinary course of things does not occur if he having such control use proper care, it
affords reasonable evidence, in the absence of the explanation, that the injury arose from defendant's
want of care."

And the burden of evidence is shifted to him to establish that he has observed due care and diligence.
(San Juan Light & Transit Co. v. Requena, 244, U.S. 89, 56 L. ed. 680.) This rule is known by the name
of res ipsa loquitur (the transaction speaks for itself), and is peculiarly applicable to the case at bar,
where it is unquestioned that the plaintiff had every right to be on the highway, and the electric wire was
under the sole control of defendant company. In the ordinary course of events, electric wires do not part
suddenly in fair weather and injure people, unless they are subjected to unusual strain and stress or there
are defects in their installation, maintenance and supervision; just as barrels do not ordinarily roll out of
the warehouse windows to injure passersby, unless some one was negligent. (Byrne v. Boadle, 2 H &
Co. 722; 159 Eng. Reprint 299, the leading case that established that rule). Consequently, in the absence
of contributory negligence (which is admittedly not present), the fact that the wire snapped suffices to
raise a reasonable presumption of negligence in its installation, care and maintenance. Thereafter, as
observed by Chief Baron Pollock, "if there are any facts inconsistent with negligence, it is for the
defendant to prove."
It is true of course that decisions of the Court of Appeals do not lay down doctrines binding on the Supreme
Court, but we do not consider this a reason for not applying the particular doctrine of res ipsa loquitur in the
case at bar. Gasoline is a highly combustible material, in the storage and sale of which extreme care must be
taken. On the other hand, fire is not considered a fortuitous event, as it arises almost invariably from some act of
man. A case strikingly similar to the one before Us is Jones vs. Shell Petroleum Corporation, et al., 171 So. 447:

Arthur O. Jones is the owner of a building in the city of Hammon which in the year 1934 was leased to
the Shell Petroleum Corporation for a gasoline filling station. On October 8, 1934, during the term of the
lease, while gasoline was being transferred from the tank wagon, also operated by the Shell Petroleum
Corporation, to the underground tank of the station, a fire started with resulting damages to the building
owned by Jones. Alleging that the damages to his building amounted to $516.95, Jones sued the Shell
Petroleum Corporation for the recovery of that amount. The judge of the district court, after hearing the
testimony, concluded that plaintiff was entitled to a recovery and rendered judgment in his favor for
$427.82. The Court of Appeals for the First Circuit reversed this judgment, on the ground the testimony
failed to show with reasonable certainty any negligence on the part of the Shell Petroleum Corporation
or any of its agents or employees. Plaintiff applied to this Court for a Writ of Review which was
granted, and the case is now before us for decision.1äwphï1.ñët

In resolving the issue of negligence, the Supreme Court of Louisiana held:

Plaintiff's petition contains two distinct charges of negligence — one relating to the cause of the fire and
the other relating to the spreading of the gasoline about the filling station.

Other than an expert to assess the damages caused plaintiff's building by the fire, no witnesses were
placed on the stand by the defendant.

Taking up plaintiff's charge of negligence relating to the cause of the fire, we find it established by the
record that the filling station and the tank truck were under the control of the defendant and operated by
its agents or employees. We further find from the uncontradicted testimony of plaintiff's witnesses that
fire started in the underground tank attached to the filling station while it was being filled from the tank
truck and while both the tank and the truck were in charge of and being operated by the agents or
employees of the defendant, extended to the hose and tank truck, and was communicated from the
burning hose, tank truck, and escaping gasoline to the building owned by the plaintiff.

Predicated on these circumstances and the further circumstance of defendant's failure to explain the
cause of the fire or to show its lack of knowledge of the cause, plaintiff has evoked the doctrine of res
ipsa loquitur. There are many cases in which the doctrine may be successfully invoked and this, we
think, is one of them.

Where the thing which caused the injury complained of is shown to be under the management of
defendant or his servants and the accident is such as in the ordinary course of things does not happen if
those who have its management or control use proper care, it affords reasonable evidence, in absence of
explanation by defendant, that the accident arose from want of care. (45 C.J. #768, p. 1193).

This statement of the rule of res ipsa loquitur has been widely approved and adopted by the courts of
last resort. Some of the cases in this jurisdiction in which the doctrine has been applied are the
following, viz.: Maus v. Broderick, 51 La. Ann. 1153, 25 So. 977; Hebert v. Lake Charles Ice, etc., Co.,
111 La. 522, 35 So. 731, 64 L.R.A. 101, 100 Am. St. Rep. 505; Willis v. Vicksburg, etc., R. Co., 115 La.
63, 38 So. 892; Bents v. Page, 115 La. 560, 39 So. 599.

The principle enunciated in the aforequoted case applies with equal force here. The gasoline station, with all its
appliances, equipment and employees, was under the control of appellees. A fire occurred therein and spread to
and burned the neighboring houses. The persons who knew or could have known how the fire started were
appellees and their employees, but they gave no explanation thereof whatsoever. It is a fair and reasonable
inference that the incident happened because of want of care.

In the report submitted by Captain Leoncio Mariano of the Manila Police Department (Exh. X-1 Africa) the
following appears:

Investigation of the basic complaint disclosed that the Caltex Gasoline Station complained of occupies a
lot approximately 10 m x 10 m at the southwest corner of Rizal Avenue and Antipolo. The location is
within a very busy business district near the Obrero Market, a railroad crossing and very thickly
populated neighborhood where a great number of people mill around t

until

gasoline

tever be theWactjvities of these peopleor lighting a cigarette cannot be excluded and this constitute a
secondary hazard to its operation which in turn endangers the entire neighborhood to conflagration.

Furthermore, aside from precautions already taken by its operator the concrete walls south and west
adjoining the neighborhood are only 2-1/2 meters high at most and cannot avoid the flames from leaping
over it in case of fire.

Records show that there have been two cases of fire which caused not only material damages but
desperation and also panic in the neighborhood.

Although the soft drinks stand had been eliminated, this gasoline service station is also used by its
operator as a garage and repair shop for his fleet of taxicabs numbering ten or more, adding another risk
to the possible outbreak of fire at this already small but crowded gasoline station.

The foregoing report, having been submitted by a police officer in the performance of his duties on the basis of
his own personal observation of the facts reported, may properly be considered as an exception to the hearsay
rule. These facts, descriptive of the location and objective circumstances surrounding the operation of the
gasoline station in question, strengthen the presumption of negligence under the doctrine of res ipsa loquitur,
since on their face they called for more stringent measures of caution than those which would satisfy the
standard of due diligence under ordinary circumstances. There is no more eloquent demonstration of this than
the statement of Leandro Flores before the police investigator. Flores was the driver of the gasoline tank wagon
who, alone and without assistance, was transferring the contents thereof into the underground storage when the
fire broke out. He said: "Before loading the underground tank there were no people, but while the loading was
going on, there were people who went to drink coca-cola (at the coca-cola stand) which is about a meter from
the hole leading to the underground tank." He added that when the tank was almost filled he went to the tank
truck to close the valve, and while he had his back turned to the "manhole" he, heard someone shout "fire."

Even then the fire possibly would not have spread to the neighboring houses were it not for another negligent
omission on the part of defendants, namely, their failure to provide a concrete wall high enough to prevent the
flames from leaping over it. As it was the concrete wall was only 2-1/2 meters high, and beyond that height it
consisted merely of galvanized iron sheets, which would predictably crumple and melt when subjected to
intense heat. Defendants' negligence, therefore, was not only with respect to the cause of the fire but also with
respect to the spread thereof to the neighboring houses.

There is an admission on the part of Boquiren in his amended answer to the second amended complaint that "the
fire was caused through the acts of a stranger who, without authority, or permission of answering defendant,
passed through the gasoline station and negligently threw a lighted match in the premises." No evidence on this
point was adduced, but assuming the allegation to be true — certainly any unfavorable inference from the
admission may be taken against Boquiren — it does not extenuate his negligence. A decision of the Supreme
Court of Texas, upon facts analogous to those of the present case, states the rule which we find acceptable here.
"It is the rule that those who distribute a dangerous article or agent, owe a degree of protection to the public
proportionate to and commensurate with a danger involved ... we think it is the generally accepted rule as
applied to torts that 'if the effects of the actor's negligent conduct actively and continuously operate to bring
about harm to another, the fact that the active and substantially simultaneous operation of the effects of a third
person's innocent, tortious or criminal act is also a substantial factor in bringing about the harm, does not protect
the actor from liability.' (Restatement of the Law of Torts, vol. 2, p. 1184, #439). Stated in another way, "The
intention of an unforeseen and unexpected cause, is not sufficient to relieve a wrongdoer from consequences of
negligence, if such negligence directly and proximately cooperates with the independent cause in the resulting
injury." (MacAfee, et al. vs. Traver's Gas Corporation, 153 S.W. 2nd 442.)

The next issue is whether Caltex should be held liable for the damages caused to appellants. This issue depends
on whether Boquiren was an independent contractor, as held by the Court of Appeals, or an agent of Caltex.
This question, in the light of the facts not controverted, is one of law and hence may be passed upon by this
Court. These facts are: (1) Boquiren made an admission that he was an agent of Caltex; (2) at the time of the
fire Caltex owned the gasoline station and all the equipment therein; (3) Caltex exercised control over Boquiren
in the management of the state; (4) the delivery truck used in delivering gasoline to the station had the name of
CALTEX painted on it; and (5) the license to store gasoline at the station was in the name of Caltex, which paid
the license fees. (Exhibit T-Africa; Exhibit U-Africa; Exhibit X-5 Africa; Exhibit X-6 Africa; Exhibit Y-
Africa).

In Boquiren's amended answer to the second amended complaint, he denied that he directed one of his drivers to
remove gasoline from the truck into the tank and alleged that the "alleged driver, if one there was, was not in his
employ, the driver being an employee of the Caltex (Phil.) Inc. and/or the owners of the gasoline station." It is
true that Boquiren later on amended his answer, and that among the changes was one to the effect that he was
not acting as agent of Caltex. But then again, in his motion to dismiss appellants' second amended complaint the
ground alleged was that it stated no cause of action since under the allegations thereof he was merely acting as
agent of Caltex, such that he could not have incurred personal liability. A motion to dismiss on this ground is
deemed to be an admission of the facts alleged in the complaint.

Caltex admits that it owned the gasoline station as well as the equipment therein, but claims that the business
conducted at the service station in question was owned and operated by Boquiren. But Caltex did not present
any contract with Boquiren that would reveal the nature of their relationship at the time of the fire. There must
have been one in existence at that time. Instead, what was presented was a license agreement manifestly tailored
for purposes of this case, since it was entered into shortly before the expiration of the one-year period it was
intended to operate. This so-called license agreement (Exhibit 5-Caltex) was executed on November 29, 1948,
but made effective as of January 1, 1948 so as to cover the date of the fire, namely, March 18, 1948. This
retroactivity provision is quite significant, and gives rise to the conclusion that it was designed precisely to free
Caltex from any responsibility with respect to the fire, as shown by the clause that Caltex "shall not be liable for
any injury to person or property while in the property herein licensed, it being understood and agreed that
LICENSEE (Boquiren) is not an employee, representative or agent of LICENSOR (Caltex)."

But even if the license agreement were to govern, Boquiren can hardly be considered an independent contractor.
Under that agreement Boquiren would pay Caltex the purely nominal sum of P1.00 for the use of the premises
and all the equipment therein. He could sell only Caltex Products. Maintenance of the station and its equipment
was subject to the approval, in other words control, of Caltex. Boquiren could not assign or transfer his rights as
licensee without the consent of Caltex. The license agreement was supposed to be from January 1, 1948 to
December 31, 1948, and thereafter until terminated by Caltex upon two days prior written notice. Caltex could
at any time cancel and terminate the agreement in case Boquiren ceased to sell Caltex products, or did not
conduct the business with due diligence, in the judgment of Caltex. Termination of the contract was therefore a
right granted only to Caltex but not to Boquiren. These provisions of the contract show the extent of the control
of Caltex over Boquiren. The control was such that the latter was virtually an employee of the former.

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

To determine the nature of a contract courts do not have or are not bound to rely upon the name or title
given it by the contracting parties, should thereby a controversy as to what they really had intended to
enter into, but the way the contracting parties do or perform their respective obligations stipulated or
agreed upon may be shown and inquired into, and should such performance conflict with the name or
title given the contract by the parties, the former must prevail over the latter. (Shell Company of the
Philippines, Ltd. vs. Firemens' Insurance Company of Newark, New Jersey, 100 Phil. 757).

The written contract was apparently drawn for the purpose of creating the apparent relationship of
employer and independent contractor, and of avoiding liability for the negligence of the employees
about the station; but the company was not satisfied to allow such relationship to exist. The evidence
shows that it immediately assumed control, and proceeded to direct the method by which the work
contracted for should be performed. By reserving the right to terminate the contract at will, it retained
the means of compelling submission to its orders. Having elected to assume control and to direct the
means and methods by which the work has to be performed, it must be held liable for the negligence of
those performing service under its direction. We think the evidence was sufficient to sustain the verdict
of the jury. (Gulf Refining Company v. Rogers, 57 S.W. 2d, 183).

Caltex further argues that the gasoline stored in the station belonged to Boquiren. But no cash invoices were
presented to show that Boquiren had bought said gasoline from Caltex. Neither was there a sales contract to
prove the same.

As found by the trial court the Africas sustained a loss of P9,005.80, after deducting the amount of P2,000.00
collected by them on the insurance of the house. The deduction is now challenged as erroneous on the ground
that Article 2207 of the New Civil Code, which provides for the subrogation of the insurer to the rights of the
insured, was not yet in effect when the loss took place. However, regardless of the silence of the law on this
point at that time, the amount that should be recovered be measured by the damages actually suffered, otherwise
the principle prohibiting unjust enrichment would be violated. With respect to the claim of the heirs of Ong
P7,500.00 was adjudged by the lower court on the basis of the assessed value of the property destroyed, namely,
P1,500.00, disregarding the testimony of one of the Ong children that said property was worth P4,000.00. We
agree that the court erred, since it is of common knowledge that the assessment for taxation purposes is not an
accurate gauge of fair market value, and in this case should not prevail over positive evidence of such value.
The heirs of Ong are therefore entitled to P10,000.00.

Wherefore, the decision appealed from is reversed and respondents-appellees are held liable solidarily to
appellants, and ordered to pay them the aforesaid sum of P9,005.80 and P10,000.00, respectively, with interest
from the filing of the complaint, and costs.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Regala, Bengzon, J.P., Zaldivar and
Sanchez, JJ., concur.
Dizon, J., took no part.

Footnotes
1
Thus, for instance, the record of a justice of the peace of marriage certificates transmitted to him by the
corresponding priest is admissible. The justice of the peace has no personal knowledge of the marriage,
but it was reported to him by a priest whose duty it was, under the law, to make the report for record
purposes. Similarly, the tax records of a provincial assessor are admissible even if the assessments were
made by subordinates. So also are entries of marriages made by a municipal treasurer in his official
record, because he acquires knowledge thereof by virtue of a statutory duty on the part of those
authorized to solemnize marriages to send a copy of each marriage contract solemnized by them to the
local civil registrar. (See Moran, Comments on the Rules of Court, Vol. 3 [1957] pp. 389-395.)
5.

G.R. No. L-28721             October 5, 1928

MARTIN MENDOZA and NATALIO ENRIQUEZ, plaintiffs-appellees,

vs.
MANUEL DE GUZMAN, defendant-appellant.
MAX B. SOLIS, intervenor-appellant.

Juan S. Rustia for appellants.

Godofredo Reyes for appellees.

MALCOLM, J.:

          This case calls for the application of articles 361, 435, and 454 of the Civil Code to the proven facts.

          On November 6, 1916, Leandra Solis and her husband Bernardo Solis brought an action in the Court of
First Instance of Tayabas against Martin Mendoza for the recovery of a certain piece of land. Judgment was
rendered in that case absolving Mendoza from the complaint, and this judgment was subsequently affirmed by
the Supreme Court. 1 When the case was remanded to the court of origin, the trial judge issued an order
requiring the provincial sheriff immediately to dissolve the preliminary writ of injunction and to put Mendoza in
the possession of the land. By virtue of this order, Mendoza was in fact put in possession of the property.

          In the cadastral proceedings of the municipality of Sariaya, Tayabas, the piece of land above-mentioned
was identified as lot No. 687. In the decision rendered in the cadastral case, this lot was adjudicated in favor of
Martin Mendoza and Natalio Enriquez in equal parts pro indiviso subject to the right of retention on the part of
Manuel de Guzman until he shall have been indemnified for the improvements existing on the land. By virtue of
this judgment, De Guzman presented a motion requesting the issuance of a writ of possession for lot No. 687 in
his favor which was granted on June 25, 1924. From the time Leandra Solis and Bernardo Solis, as well as
Manuel de Guzman who was working on the land, were ejected therefrom, Martin Mendoza possessed it until
June 25, 1924, when de Guzman obtained the writ of possession above- mentioned. Since then De Guzman has
had dominion over the land.

          Being unable to come to an agreement as to the amount which should be allowed for the improvements
made on the land, Martin Mendoza and Natalio Enriquez began an action requesting the court to (a) fix the
value of the necessary and useful expenses incurred by Manuel de Guzman in introducing the improvements;
(b) require the defendant to render an accounting of the fruits received by him and order that the value of the
fruits be applied to the payment of the necessary and useful expenses; and (c) decree the restitution of the
possession to the plaintiffs. To the complaint, the defendant filed an answer in the form of a general denial with
special defenses and appended a counter-claim and crosscomplaint, in which a total of P6,000 was asked.
During the pendency of the case, Bernardo Solis, or Max. B. Solis, one of the persons who was ejected from the
land, asked leave to intervene, alleging, among other things, that De Guzman, in consideration of the sum of
P5,000, had transferred all his rights in the improvements and in the lot to him with the exception of two
hundred coconut trees. This petition was granted by the trial court.

          When the case was called for trial, the parties entered into the follwing stipulation:

1. That the plaintiffs are the owners and proprietors of the land described in the second paragraph of the
complaint.
 2. That a decree of registration has been issued on said land in the terms set forth in paragraph 3 of the
complaint.

3. That the defendant Manuel de Guzman is the one who has been in possession and enjoyment of the
land from June 25, 1924, up to the present time by virtue of a writ of possession obtained by him from
the Court of Land Registration.

4. That the defendant has made improvements on said land be planting coconut trees thereon.

5. That the plaintiff Martin Mendoza is the one who has been in possession and enjoyment of said
property and its improvements since December 16, 1916, by virtue of a writ of possession in civil case
No. 356 until said pssession was transferred to the defendant Manuel de Guzman.

6. That from March 20, 1920, the plaintiff Natalio Enriquez has been in possession and enjoyment of a
portion of the land, the subject matter of the complaint herein, by virtue of a deed of sale executed in his
favor by Attorney Agustin Alvarez, who, in turn, acquired it from the other plaintiff Martin Mendoza,
until June 25, 1924.

          The parties desire to submit, as they do submit, under this stipulation of facts the following
questions:

(a) The amount of the indemnity to be paid to the defendant for the improvements made by him
on said lot and the basis upon which said amount shall be fixed.

(b) Whether or not the defendant is obliged to render an account of the fruits received by him
from June 25, 1924, until the improvements are delivered after same have been paid for. 1awph!
l.net

(c) Whether the value of said fruits and products received by the defendant shall be applied to the
indemnity to which he is entitled, or whether said defendant is obliged to deliver to the plaintiffs
the remainder in case of excess.

(d) Whether or not the defendant has the right to be paid by the plaintiffs in whole or in part for
the value of the fruits received by Martin Mendoza and Natalio Enriquez from the respective
dates that they were in possession and enjoyment of the land until June 25, 1924.

          The parties at the same time that they submit to the court for decision the questions presented in
the above stipulation reserve to themselves, whatever said decision may be, the right to present later
their evidence in support of their respective views with respect to the amount of the indemnity.

          After the preliminary questions have been decided, the parties request that commissioners be
appointed to receive said evidence with respect to the amount of the indemnity in accordance with the
views of both parties.

          The trial court resolved the questions presented by holding (1) that in accordance with the provisions of
articles 435 and 454 in relation with article 361 of the Civil Code, the value of the "indemnization" to be paid to
the defendant should be fixed according to the necessary and useful expenses incurred by him in introducing
"las plantaciones en cuestion"; (2) that the plaintiffs as the owner of the property have the right to make their
own "las plantaciones hechas por el demandado" upon payment in the form indicated in No. 1, the defendant
having the right to retain the land until the expenditures have been refunded; (3) that the defendant is obliged to
render a detail and just account of the fruits and other profits received by him from the property for their due
application; and (4) that the value of the fruits received by the defendant should first be applied to the payment
of the "indemnizacion," and in that it exceeds the value of the "indemnizacion," the excess shall be returned to
the plaintiffs. With respect to the last question as to whether or not the plaintiffs are obliged to return to the
defendant the value of the fruits received by them before the defendant took possession of the land, the trial
court abstained from making any pronouncement for the reason that the circumstances under which the
plaintiffs acquired possession and the defendant again acquired it were not before him, the parties needing to
submit their evidence with respect to this point.

          At the trial which followed and at the instance of the parties, two commissioners were appinted with
instructions to inspect the land and to count the number of coconut trees planted thereon, determining the
number of fruit-bearing trees and those that are not fruit-bearing as well as the condition of the same. After trial,
Judge of First Instance Gloria rendered judgment declaring (a) that the defendant Manuel de Guzman and the
intervenor Bernardo Solis have the right to collect from the plaintiffs Martin Mendoza and Natalio Enriquez the
sum of P2,046 as compensation for the necessary and useful expenditures in the proportion of 20 per cent for
Manuel de Guzman and 80 per cent for Bernardo Solis; and (b) that Manuel de Guzman and Bernardo Solis are
obliged to pay to the plaintiffs the sum of P666.93 per annum from June 25, 1924, one-fifth of this amount to be
paid by Manuel de Guzman and the other four-fifths by Bernardo Solis. As on the date when this judgment was
rendered, that is on September 23, 1927, the amount that the plaintiffs were required to pay to the defendant and
intervenor exceeded the amount that the latter were to pay the former, the defendant and intervenor were
ordered to deliver the land and its improvement as soon as the plaintiffs have paid the difference, without
special pronouncement as to costs.

          The appeal of the defendant and intervenor is based on fourteen assigned errors relating to both questions
of fact and of law. The question of fact mainly concerns the amount to be paid as "indemnizacion" in the form
of necessary and useful expenditures incurred by the defendant. The question of law mainly concerns the
interpretation of articles 361, 453, and 454 of the Civil Code. Counsel for the appellants has presented a learned
brief divided into three chapters. Counsel for the appellees has countered with an equally helpful brief in which
the fourteen assigned errors are reduced for purposes of arguments to four fundamental questions. It would not
be profitable and it is not necessary to follow opposing counsel into all of their refinements of fact and law.

          As to the facts, the findings of the trial judge should be given effect. An examination of the evidence
shows that these findings are fully substantiated. Our only doubt has been as to the just value for each coconut
tree now found on the land. However, everything considered, we have at last determined that we would not be
justified in changing the value per tree of P2 as fixed in the trial court. With respect to the fruits received by the
defendant while the land was in his possession, the finding in the trial court is correct.

          With the facts as above indicated, little time need be taken to discuss the points of law. Article 361 of the
Civil Code in the original Spanish text uses the word "indemnizacion." However one may speculate as to the
true meaning of the term "indemnizacion" whether correctly translated as "compensation" or "indemnity," the
amount of the "indemnizacion" is the amount of the expenditures mentioned in articles 453 and 454 of the Civil
Code, which in the present case is the amount of the necessary and useful expenditures incurred by the
defendant. Necessary expenses have been variously described by the Spanish commentators as those made for
the preservation of the thing (4 Manresa's Comentarios al Codigo Civil, p. 258); as those without which the
thing would deteriorate or be lost (Scaevola's Comentarios al Codigo Civil, p.408); as those that augment the
income of the things upon which they are expanded (4 Manresa's Comentarios al Codigo Civil, p. 261; 8
Scaevola's Comentarios al Codigo Civil, p. 416). Among the necessary expenditures are those incurred for
cultivation, production, upkeep, etc. (4 Manresa's Comentarios al Codigo Civil, p. 257). Here the plaintiffs have
chosen to take the improvements introduced on the land and are disposed to pay the amount of the necessary
and useful expenses incurred by the defendant. Inasmuch as the retentionist, who is not exactly a posessor in
good faith with in the meaning of the law, seeks to be reimbursed for the necessary and useful expenditures, it is
only just that he should account to the owners of the estate for any rents, fruits, or crops he has gathered from it.
          In brief, therefore, and with special reference to the decision appealed from, the errors assigned on appeal,
and the argument of counsel as addressed to the decision in the lower court and the assignment of errors, we
may say that we are content to make the findings of fact and law of Judge Gloria in the lower court the findings
of fact and law in the appellate court.

          Based on the foregoing considerations, the judgment appealed from will be affirmed, with the costs of
this instance against the appellants.
6.

G.R. No. 127094            February 6, 2002

ALEJANDRIA PINEDA and SPOUSES ADEODATO DUQUE, JR., and EVANGELINE MARY JANE
DUQUE, petitioners,
vs.
COURT OF APPEALS and SPOUSES NELSON BAÑEZ and MERCEDES BAÑEZ, respondents.

PARDO, J.:

The Case

The case is an appeal via certiorari from the decision of the Court of Appeals,1 affirming that of the Regional
Trial Court, Quezon City, Branch 76, declaring that the Bañez spouses are the lawful owners of the property in
question and the petitioners could not convey title to the Duque spouses who were buyers in bad faith.

The Facts

The facts, as found by the Court of Appeals, are as follows:

"Appellees Nelson Bañez and Mercedes Bañez are the original owners of a parcel of land together with its
improvements located at 32 Sarangaya St., White Plains, Quezon City while Ms. Alejandria Pineda is the owner
of a house located at 5224 Buchanan St., Los Angeles, California.

"On January 11, 1983, the appellees and Alejandria Pineda, together with the latter’s spouse Alfredo Caldona,
executed an ‘Agreement to Exchange Real Properties’ (Exh. "A", p. 16, Folder of Exhibits). In the agreement,
the parties agreed to: 1) exchange their respective properties; 2) Pineda to pay an earnest money in the total
amount of $12,000.00 on or before the first week of February 1983; and 3) to consummate the exchange of
properties not later than June 1983. It appears that the parties undertook to clear the mortgages over their
respective properties. At the time of the execution of the exchange agreement, the White Plains property was
mortgaged with the Government Service Insurance System (GSIS) while the California property had a total
mortgage obligation of $84,000.00 (Exh. "A-2", p. 18, Ibid).

"In the meantime, the appellees were allowed to occupy or lease to a tenant Pineda’s California property (Exh.
"A-1", p. 17, Ibid) and Pineda was authorized to occupy appellees’ White Plains property (Complaint; p. 8.
Records). Pursuant to the exchange agreement, Alejandria Pineda paid the appellees the total amount of
$12,000.00 broken down as follows: 1) $5,000.00, on January 1983; 2) $4,000.00 on April 1983; 3) $3,000.00
on January 1985 (Exh. "C" & "D", pp. 28; 36 Ibid).

"On December 18, 1984, unknown to the appellees, Alejandria Pineda and the appellants Adeodato C. Duque,
Jr. and Evangeline Mary Jane Duque executed an ‘Agreement to Sell’ over the White Plains property whereby
Pineda sold the property to the appellants for the amount of P1,600,000.00 (Exh. "1", p. 51, Ibid). The contract
provides that: 1) upon signing of the agreement, the purchaser shall pay P450,000.00 and the seller shall cause
the release of the property from any encumbrance and deliver to the purchaser the title to the property; 2)
balance shall be paid by the purchaser to the seller on or before the end of January 1985; 3) upon full payment,
the seller shall deliver to the purchaser a deed of absolute sale duly signed by its registered owner, the appellees.
On the same date, Pineda, out of the downpayment received from the appellants, paid the appellees’ mortgage
obligation with the GSIS in the sum of P112,690.75 (Exhs. "D-1" to "D-3", pp. 41-43, Ibid).

"Pineda then requested the appellees for a written authority for the release of the title from the GSIS (pp. 18-19,
November 9, 1989, TSN). On January 1, 1985, the appellees gave Pineda the aforementioned authority with the
understanding that Pineda will personally deliver the title to the appellees (Exh. "E", p. 44, Ibid). The record
shows that pursuant to the agreement to sell the following payments were made by the appellants to Pineda: 1)
$25,000.00 on December 26, 1984; 2) $10,000.00 on January 18, 1985; 3) P50,000.00 on January 24, 1985; 4)
$500.00 on February 1, 1985; and 5) $330 on February 7, 1985 (Exhs. "4" to "8", pp. 55-57, Ibid). The
appellants physically occupied the premises on June or July 1985 (Pre-Trial Order, p. 156, Records).

"Upon their return to the Philippines sometime in March 1985, the appellees discovered that the appellants were
occupying the White Plains property. They talked with appellant Atty. Adeodato Duque who showed interest in
buying the property and the latter mentioned that they gave money to Mrs. Pineda to facilitate the redemption of
her property in the U. S. (pp. 23-26, November 9, 1989, TSN). Appellees alleged that they confronted Pineda on
their title to the property but the latter replied that she gave the title to the appellants. They did not insist on its
return from the appellants as the latter were interested in buying the property (pp. 33-35, November 9, 1989,
TSN).

"A series of communications ensued between the representatives of the appellees and Ms. Pineda with regards
to the status of the exchange agreement which resulted in its rescission for failure of Pineda to clear her
mortgage obligation of the California property (Exhs. "B", "C" & "D", pp. 24-29; 35-37, Folder of Exhibits).
Negotiations for the purchase of the property were held between the appellants and the appellees but the same
failed which resulted in the appellees demanding for the appellants to vacate the property (Exhs. "F" to "F-12",
pp. 81-93, Ibid).

"Appellees claim that upon their return to the Philippines on July 1987, they discovered from the Register of
Deeds that the title over their White Plains property was cancelled and a new one was issued in the name of
Alejandria Pineda. They also discovered a fictitious deed of sale dated September 5, 1979 in favor of Pineda.
Appellees alleged that the deed of absolute sale is fictitious and their signatures a forgery (pp. 37-39, November
9, 1989, TSN). Appellants maintained that on December 22, 1986, they discovered the property was registered
in the name of Pineda by virtue of a deed of sale and they informed the appellees of the existence of the deed of
sale in a meeting in the United States on March 1987 (pp. 3-4, October 22, 1990, TSN).

"During that meeting, an agreement was reached by the appellants and the appellees for the sale of the property
at $89,000.00. Appellees alleged that the purchase price was reduced to $60,000.00 which appellants failed to
pay (pp. 40- 41, November 10, 1989, TSN). They admitted however to have received the sum of P 100,000.00
from Atty. Duque (pp. 51-52, November 10, 1989, TSN). On the other hand, the appellants alleged that the
purchase price of $89,000.00 was conditioned that all payments made to Pineda as well as expenses incurred
will be considered as forming part of the purchase price (pp. 3-4, October 22, 1990, TSN). The records are
silent as to what happened to this agreement.

"On September 3, 1987, the present complaint was filed before the court a quo. Since the record of this case
was burned during the fire that razed the Quezon City Hall Building sometime in June 1988, the record was
reconstituted upon petition of the plaintiffs Nelson S. Bañez and Mercedes Bañez, without objection from the
defendant Duques. For failure to serve summons by personal delivery on defendant Alejandria Pineda, an alias
writ of summons was issued by publication. After the lapse of sixty (60) days from the last publication of
summons, the court, upon motion, declared Pineda in default in its order dated March 4, 1988. Thereafter,
defendant spouses Adeodato and Evangeline Mary Jane L. Duque, appellants herein, filed their Answer."2

On February 17, 1992, the trial court rendered a decision, the decretal portion of which reads as follows:

"WHEREFORE, prescinding from the foregoing, judgment is hereby rendered:

"1. Declaring plaintiffs spouses Nelson S. Bañez and Mercedes Bañez the absolute owners in fee simple
title of the house and lot in question located at 32 Sarangaya St., White Plains, Quezon City, entitled as
such to all the rights blossoming forth from such ownership.
 "2. Declaring as null and void ab-initio for being a patent forgery that Deed of Absolute Sale dated
September 5, 1979 (Exh. I) purportedly executed by plaintiffs in favor of defendant Alejandria Pineda;

"3. Declaring as null and void that TCT No. T-338857 (Exh. H) of the land records of Quezon City,
issued January 03, 1986 in the name of Alejandria (dra) B. Pineda, widow, of legal age, Filipino and the
Register of Deeds of Quezon City, after the finality of this decision, is hereby ordered to cancel said
Certificate of Title and, in lieu thereof, to issue a new Certificate of Title in the name of plaintiffs
Nelson S. Bañez, married to Mercedez Bañez, both of legal age, Filipinos and residents of No. 32
Sarangaya St., White Plains, Quezon City, covering the lot in question.

"4. Declaring as null and void ab-initio that certain "Agreement to Sell" dated December 18, 1988 (Exh.
1) executed by and between defendant Alejandria Pineda and spouses defendants Adeodata C. Duque,
Jr. and Evangeline Mary Jane Duque, over the house and lot in question;

"5. Declaring alleged vendees, defendants Adeodato Duque, Jr. and Evangeline Mary Jane Duque as
purchasers in bad faith of the house and land in suit and as builders in bad faith over whatever
improvements introduced by them in the house and lot in question;

"6. Ordering herein defendants Adeodato Duque, Jr. and Evangeline Mary Jane Duque, their heirs, and
assigns, and all persons claiming under them to vacate and peacefully surrender possession of the
premises in question located at no. 32 Sarangaya St., White Plains, Quezon City. Afterwhich, said
defendants, their heirs and assigns are likewise ordered to respect and not to molest the peaceful
possession of plaintiffs spouses Bañezes over the premises in question;

"7. Ordering defendants spouses Duques to pay plaintiffs the sum of P10,000.00 monthly rentals since
August 1985 until they shall have peacefully surrendered physical possession of the premises in question
to plaintiffs;

"8. Ordering plaintiffs spouses Bañez to reimburse defendants spouses the sum of P 100,000.00
representing the amount they received when said defendants Duques offered a proposal to buy the
premises in question (Exh. N, p. 487, dated July 24, 1987), with interest at the legal rate, which amount
however shall be deducted from the accumulated past rentals due the plaintiffs;

"9. Ordering defendant Pineda to pay plaintiffs the sum of P200,000.00 by way of moral damages, plus
the sum of P 100,000.00 by way of exemplary damages;

"10. Ordering defendants spouses Duques to pay plaintiffs Bañezes the sum of P 100,000.00 by way of
moral damages, plus the sum of P50,000.00 by way of exemplary damages;

"11. Ordering herein defendant Pineda and defendants spouses Duques to pay jointly and severally the
sum of P50,000.00, plus 10% of the sums awarded to plaintiffs by way of reasonable attorney’s fees;
and

"12. Both defendants to pay the costs.

"SO ORDERED."3

In time, petitioners appealed the decision to the Court of Appeals.4

On September 18, 1992, respondents Nelson and Mercedes Bañez filed with the Court of Appeals a motion for
execution pending appeal.5 On April 27, 1993, the Court of Appeals denied the motion for lack of merit.6
On May 20, 1996, the Court of Appeals promulgated a decision, the dispositive portion of which reads:

"WHEREFORE, premises considered, the decision appealed from is AFFIRMED with the modification that
rental payments should commence on January 1986 (not August 1985) and appellants are liable for attorney’s
fees only in the sum of P50,000.00."7

On June 26, 1996, petitioners filed a motion for reconsideration of the above quoted decision.8 On November 7,
1996, the Court of Appeals denied the motion.9

Hence, this appeal.10

The Issue

The issue raised is whether petitioners validly acquired the subject property.

The Court's Ruling

We deny the petition. The issue raised is factual. In an appeal via certiorari, we may not review the findings of
fact of the Court of Appeals.11

Nevertheless, it appears that the Bañez spouses were the original owners of the parcel of land and improvements
located at 32 Sarangaya St., White Plains, Quezon City. On January 11, 1983, the Bañez spouses and petitioner
Pineda executed an agreement to exchange real properties. However, the exchange did not materialize.

Petitioner Pineda’s "sale" of the property to petitioners Duque was not authorized by the real owners of the land,
respondent Bañez. The Civil Code provides that in a sale of a parcel of land or any interest therein made
through an agent, a special power of attorney is essential.12 This authority must be in writing, otherwise the sale
shall be void.13 In his testimony, petitioner Adeodato Duque confirmed that at the time he "purchased"
respondents’ property from Pineda, the latter had no Special Power of Authority to sell the property.14

A special power of attorney is necessary to enter into any contract by which the ownership of an immovable is
transmitted or acquired for a valuable consideration.15 Without an authority in writing, petitioner Pineda could
not validly sell the subject property to petitioners Duque. Hence, any "sale" in favor of petitioners Duque is
void.16

Further, Article 1318 of the Civil Code lists the requisites of a valid and perfected contract, namely: "(1)
consent of the contracting parties; (2) object certain which is the subject matter of the contract; (3) cause of the
obligation which is established."17 Pineda was not authorized to enter into a contract to sell the property. As the
consent of the real owner of the property was not obtained, no contract was perfected.18

Consequently, petitioner Duque failed to validly acquire the subject property.

The Fallo

WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the Court of Appeals,19 in toto.

No costs.

SO ORDERED.

Davide, Jr., Puno, Kapunan, and Ynares-Santiago, JJ., concur.

7

G.R. No. 129459 September 29, 1998

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner,

vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT
CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents.

PANGANIBAN, J.:

May corporate treasurer, by herself and without any authorization from he board of directors, validly sell a parcel of land
owned by the corporation?. May the veil of corporate fiction be pierced on the mere ground that almost all of the shares of
stock of the corporation are owned by said treasurer and her husband?

The Case

These questions are answered in the negative by this Court in resolving the Petition for Review on Certiorari before us,
assailing the March 18, 1997 Decision 1 of the Court of Appeals 2 in CA GR CV No. 46801 which, in turn, modified the July
18, 1994 Decision of the Regional Trial Court of Makati, Metro Manila, Branch 63 3 in Civil Case No. 89-3511. The RTC
dismissed both the Complaint and the Counterclaim filed by the parties. On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH MODIFICATION ordering defendant-appellee Nenita Lee
Gruenberg to REFUND or return to plaintiff-appellant the downpayment of P100,000.00 which she received from plaintiff-appellant. There is
4
no pronouncement as to costs.

The petition also challenges the June 10, 1997 CA Resolution denying reconsideration. 5

The Facts

The facts as found by the Court of Appeals are as follows:

Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended complaint alleged that on 14 February 1989, plaintiff-appellant
entered into an agreement with defendant-appellee Motorich Sales Corporation for the transfer to it of a parcel of land identified as Lot 30,
Block 1 of the Acropolis Greens Subdivision located in the District of Murphy, Quezon City. Metro Manila, containing an area of Four
Hundred Fourteen (414) square meters, covered by TCT No. (362909) 2876: that as stipulated in the Agreement of 14 February 1989,
plaintiff-appellant paid the downpayment in the sum of One Hundred Thousand (P100,000.00) Pesos, the balance to be paid on or before
March 2, 1989; that on March 1, 1989. Mr. Andres T. Co, president of plaintiff-appellant corporation, wrote a letter to defendant-appellee
Motorich Sales Corporation requesting for a computation of the balance to be paid: that said letter was coursed through defendant-appellee's
broker. Linda Aduca, who wrote the computation of the balance: that on March 2, 1989, plaintiff-appellant was ready with the amount
corresponding to the balance, covered by Metrobank Cashier's Check No. 004223, payable to defendant-appellee Motorich Sales
Corporation; that plaintiff-appellant and defendant-appellee Motorich Sales Corporation were supposed to meet in the office of plaintiff-
appellant but defendant-appellee's treasurer, Nenita Lee Gruenberg, did not appear; that defendant-appellee Motorich Sales Corporation
despite repeated demands and in utter disregard of its commitments had refused to execute the Transfer of Rights/Deed of Assignment
which is necessary to transfer the certificate of title; that defendant ACL Development Corp. is impleaded as a necessary party since
Transfer Certificate of Title No. (362909) 2876 is still in the name of said defendant; while defendant JNM Realty & Development Corp. is
likewise impleaded as a necessary party in view of the fact that it is the transferor of right in favor of defendant-appellee Motorich Sales
Corporation: that on April 6, 1989, defendant ACL Development Corporation and Motorich Sales Corporation entered into a Deed of Absolute
Sale whereby the former transferred to the latter the subject property; that by reason of said transfer, the Registry of Deeds of Quezon City
issued a new title in the name of Motorich Sales Corporation, represented by defendant-appellee Nenita Lee Gruenberg and Reynaldo L.
Gruenberg, under Transfer Certificate of Title No. 3571; that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales
Corporation's bad faith in refusing to execute a formal Transfer of Rights/Deed of Assignment, plaintiff-appellant suffered moral and nominal
damages which may be assessed against defendants-appellees in the sum of Five Hundred Thousand (500,000.00) Pesos; that as a result
of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's unjustified and unwarranted failure to execute the required
Transfer of Rights/Deed of Assignment or formal deed of sale in favor of plaintiff-appellant, defendants-appellees should be assessed
exemplary damages in the sum of One Hundred Thousand (P100,000.00) Pesos; that by reason of defendants-appellees' bad faith in
refusing to execute a Transfer of Rights/Deed of Assignment in favor of plaintiff-appellant, the latter lost the opportunity to construct a
residential building in the sum of One Hundred Thousand (P100,000.00) Pesos; and that as a consequence of defendants-appellees Nenita
Lee Gruenberg and Motorich Sales Corporation's bad faith in refusing to execute a deed of sale in favor of plaintiff-appellant, it has been
constrained to obtain the services of counsel at an agreed fee of One Hundred Thousand (P100,000.00) Pesos plus appearance fee for
every appearance in court hearings.

In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg interposed as affirmative defense that the
President and Chairman of Motorich did not sign the agreement adverted to in par. 3 of the amended complaint; that Mrs. Gruenberg's
signature on the agreement (ref: par. 3 of Amended Complaint) is inadequate to bind Motorich. The other signature, that of Mr. Reynaldo
Gruenberg, President and Chairman of Motorich, is required: that plaintiff knew this from the very beginning as it was presented a copy of the
 Transfer of Rights (Annex B of amended complaint) at the time the Agreement (Annex B of amended complaint) was signed; that plaintiff-
appellant itself drafted the Agreement and insisted that Mrs. Gruenberg accept the P100,000.00 as earnest money; that granting, without
admitting, the enforceability of the agreement, plaintiff-appellant nonetheless failed to pay in legal tender within the stipulated period (up to
March 2, 1989); that it was the understanding between Mrs. Gruenberg and plaintiff-appellant that the Transfer of Rights/Deed of Assignment
will be signed only upon receipt of cash payment; thus they agreed that if the payment be in check, they will meet at a bank designated by
plaintiff-appellant where they will encash the check and sign the Transfer of Rights/Deed. However, plaintiff-appellant informed Mrs.
Gruenberg of the alleged availability of the check, by phone, only after banking hours.

On the basis of the evidence, the court a quo rendered the judgment appealed from[,] dismissing plaintiff-appellant's complaint, ruling that:

The issue to be resolved is: whether plaintiff had the right to compel defendants to execute a deed of absolute sale in
accordance with the agreement of February 14, 1989: and if so, whether plaintiff is entitled to damage.

As to the first question, there is no evidence to show that defendant Nenita Lee Gruenberg was indeed authorized by
defendant corporation. Motorich Sales, to dispose of that property covered by T.C.T. No. (362909) 2876. Since the
property is clearly owned by the corporation. Motorich Sales, then its disposition should be governed by the
requirement laid down in Sec. 40. of the Corporation Code of the Philippines, to wit:

Sec. 40, Sale or other disposition of assets. Subject to the provisions of existing laws on illegal
combination and monopolies, a corporation may by a majority vote of its board of directors . . .
sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its
property and assets including its goodwill . . . when authorized by the vote of the stockholders
representing at least two third (2/3) of the outstanding capital stock . . .

No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed sale[;] neither was there evidence to
show that the supposed transaction was ratified by the corporation. Plaintiff should have been on the look out under
these circumstances. More so, plaintiff himself [owns] several corporations (tsn dated August 16, 1993, p. 3) which
makes him knowledgeable on corporation matters.

Regarding the question of damages, the Court likewise, does not find substantial evidence to hold defendant Nenita
Lee Gruenberg liable considering that she did not in anyway misrepresent herself to be authorized by the corporation to
sell the property to plaintiff (tsn dated September 27, 1991, p. 8).

In the light of the foregoing, the Court hereby renders judgment DISMISSING the complaint at instance for lack of
merit.

"Defendants" counterclaim is also DISMISSED for lack of basis. (Decision, pp. 7-8; Rollo, pp. 34-35)

For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:

AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Agreement, made and entered into by and between:

MOTORICH SALES CORPORATION, a corporation duly organized and existing under and by virtue of Philippine
Laws, with principal office address at 5510 South Super Hi-way cor. Balderama St., Pio del Pilar. Makati, Metro Manila,
represented herein by its Treasurer, NENITA LEE GRUENBERG, hereinafter referred to as the TRANSFEROR;

— and —

SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and existing under and by virtue of
the laws of the Philippines, with principal office address at Sumulong Highway, Barrio Mambungan, Antipolo, Rizal,
represented herein by its President, ANDRES T. CO, hereinafter referred to as the TRANSFEREE.

WITNESSETH, That:

WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of the ACROPOLIS GREENS SUBDIVISION
located at the District of Murphy, Quezon City, Metro Manila, containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS,
covered by a TRANSFER OF RIGHTS between JNM Realty & Dev. Corp. as the Transferor and Motorich Sales Corp. as the Transferee;

NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have agreed as follows:

1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS (P5,200.00) per square meter;
subject to the following terms:

a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS (P100,000.00), will be

paid upon the execution of this agreement and shall form part of the total purchase price;
 b. Balance shall be payable on or before March 2, 1989;

2. That the monthly amortization for the month of February 1989 shall be for the account of the Transferor; and that the
monthly amortization starting March 21, 1989 shall be for the account of the Transferee;

The transferor warrants that he [sic] is the lawful owner of the above-described property and that there [are] no existing liens and/or
encumbrances of whatsoever nature;

In case of failure by the Transferee to pay the balance on the date specified on 1, (b), the earnest money shall be forfeited in favor of the
Transferor.

That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in favor
of the TRANSFEREE.

IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February, 1989 at Greenhills, San Juan, Metro Manila,
Philippines.

MOTORICH SALES CORPORATION SAN JUAN STRUCTURAL & STEEL FABRICATORS

TRANSFEROR TRANSFEREE

[SGD.] [SGD.]

By. NENITA LEE GRUENBERG By: ANDRES T. CO

Treasurer President

Signed In the presence of:

[SGD.] [SGD.]

6
————————————— ———————————

In its recourse before the Court of Appeals, petitioner insisted:

1. Appellant is entitled to compel the appellees to execute a Deed of Absolute Sale in accordance with the Agreement
of February 14, 1989,

7
2. Plaintiff is entitled to damages.

As stated earlier, the Court of Appeals debunked petitioner's arguments and affirmed the Decision of the RTC with the
modification that Respondent Nenita Lee Gruenberg was ordered to refund P100,000 to petitioner, the amount remitted as
"downpayment" or "earnest money." Hence, this petition before us. 8

The Issues

Before this Court, petitioner raises the following issues:

I. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the instant case

II. Whether or not the appellate court may consider matters which the parties failed to raise in the lower court

III. Whether or not there is a valid and enforceable contract between the petitioner and the respondent corporation

IV. Whether or not the Court of Appeals erred in holding that there is a valid correction/substitution of answer in the
transcript of stenographic note[s].

9
V. Whether or not respondents are liable for damages and attorney's fees

The Court synthesized the foregoing and will thus discuss them seriatim as follows:

1. Was there a valid contract of sale between petitioner and Motorich?

 2. May the doctrine of piercing the veil of corporate fiction be applied to Motorich?

3. Is the alleged alteration of Gruenberg's testimony as recorded in the transcript of stenographic notes material to the
disposition of this case?

4. Are respondents liable for damages and attorney's fees?

The Court's Ruling

The petition is devoid of merit.

First Issue: Validity of Agreement

Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it entered through its
president, Andres Co, into the disputed Agreement with Respondent Motorich Sales Corporation, which was in turn
allegedly represented by its treasurer, Nenita Lee Gruenberg. Petitioner insists that "[w]hen Gruenberg and Co affixed
their signatures on the contract they both consented to be bound by the terms thereof." Ergo, petitioner contends that the
contract is binding on the two corporations. We do not agree.

True, Gruenberg and Co signed on February 14, 1989, the Agreement, according to which a lot owned by Motorich Sales
Corporation was purportedly sold. Such contract, however, cannot bind Motorich, because it never authorized or ratified
such sale.

A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the
corporation is not the property of its stockholders or members and may not be sold by the stockholders or members
without express authorization from the corporation's board of directors. 10 Section 23 of BP 68, otherwise known as the
Corporation Code of the Philippines, provides;

Sec. 23. The Board of Directors or Trustees. — Unless otherwise provided in this Code, the corporate powers of all corporations formed
under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors
or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who
shall hold office for one (1) year and until their successors are elected and qualified.

Indubitably, a corporation may act only through its board of directors or, when authorized either by its bylaws or by its
board resolution, through its officers or agents in the normal course of business. The general principles of agency govern
the relation between the corporation and its officers or agents, subject to the articles of incorporation, bylaws, or relevant
provisions of law. 11 Thus, this Court has held that "a corporate officer or agent may represent and bind the corporation in
transactions with third persons to the extent that the authority to do so has been conferred upon him, and this includes
powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business,
are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as
usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons
dealing with the officer or agent to believe that it has conferred." 12

Furthermore, the Court has also recognized the rule that "persons dealing with an assumed agent, whether the assumed
agency be a general or special one bound at their peril, if they would hold the principal liable, to ascertain not only the fact
of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them
to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19)." 13 Unless duly authorized, a treasurer, whose powers are limited,
cannot bind the corporation in a sale of its assets. 14

In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its treasurer, to sell
the subject parcel of land. 15 Consequently, petitioner had the burden of proving that Nenita Gruenberg was in fact
authorized to represent and bind Motorich in the transaction. Petitioner failed to discharge this burden. Its offer of
evidence before the trial court contained no proof of such authority. 16 It has not shown any provision of said respondent's
articles of incorporation, bylaws or board resolution to prove that Nenita Gruenberg possessed such power.

That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of ascertaining the
extent of her authority to represent the corporation. Petitioner cannot assume that she, by virtue of her position, was
authorized to sell the property of the corporation. Selling is obviously foreign to a corporate treasurer's function, which
generally has been described as "to receive and keep the funds of the corporation, and to disburse them in accordance
with the authority given him by the board or the properly authorized officers." 17
Neither was such real estate sale shown to be a normal business activity of Motorich. The primary purpose of Motorich is
marketing, distribution, export and import in relation to a general merchandising business. 18 Unmistakably, its treasurer is
not cloaked with actual or apparent authority to buy or sell real property, an activity which falls way beyond the scope of
her general authority.

Art. 1874 and 1878 of the Civil Code of the Philippines provides:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing: otherwise,
the sale shall be void.

Art. 1878. Special powers of attorney are necessary in the following case:

xxx xxx xxx

(5) To enter any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration;

xxx xxx xxx.

Petitioner further contends that Respondent Motorich has ratified said contract of sale because of its "acceptance of
benefits," as evidenced by the receipt issued by Respondent Gruenberg. 19 Petitioner is clutching at straws.

As a general rule, the acts of corporate officers within the scope of their authority are binding on the corporation. But when
these officers exceed their authority, their actions "cannot bind the corporation, unless it has ratified such acts or is
estopped from disclaiming them." 20

In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or made it appear to any
third person that she had the authority, to sell its land or to receive the earnest money. Neither was there any proof that
Motorich ratified, expressly or impliedly, the contract. Petitioner rests its argument on the receipt which, however, does not
prove the fact of ratification. The document is a hand-written one, not a corporate receipt, and it bears only Nenita
Gruenberg's signature. Certainly, this document alone does not prove that her acts were authorized or ratified by
Motorich.

Art. 1318 of the Civil Code lists the requisites of a valid and perfected contract: "(1) consent of the contracting parties; (2)
object certain which is the subject matter of the contract; (3) cause of the obligation which is established." As found by the
trial court 21 and affirmed by the Court of Appeals, 22 there is no evidence that Gruenberg was authorized to enter into the
contract of sale, or that the said contract was ratified by Motorich. This factual finding of the two courts is binding on this
Court. 23 As the consent of the seller was not obtained, no contract to bind the obligor was perfected. Therefore, there can
be no valid contract of sale between petitioner and Motorich.

Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel of land, we hold that
the February 14, 1989 Agreement entered into by the latter with petitioner is void under Article 1874 of the Civil Code.
Being inexistent and void from the beginning, said contract cannot be ratified. 24

Second Issue:
Piercing the Corporate Veil Not Justified

Petitioner also argues that the veil of corporate fiction of Motorich should be pierced, because the latter is a close
corporation. Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866% to be
accurate, of the subscribed capital stock" 25 of Motorich, petitioner argues that Gruenberg needed no authorization from
the board to enter into the subject contract. 26 It adds that, being solely owned by the Spouses Gruenberg, the company
can treated as a close corporation which can be bound by the acts of its principal stockholder who needs no specific
authority. The Court is not persuaded.

First, petitioner itself concedes having raised the issue belatedly, 27 not having done so during the trial, but only when it
filed its sur-rejoinder before the Court of Appeals. 28 Thus, this Court cannot entertain said issue at this late stage of the
proceedings. It is well-settled the points of law, theories and arguments not brought to the attention of the trial court need
not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time on appeal. 29
Allowing petitioner to change horses in midstream, as it were, is to run roughshod over the basic principles of fair play,
justice and due process.
Second, even if the above mentioned argument were to be addressed at this time, the Court still finds no reason to uphold
it. True, one of the advantages of a corporate form of business organization is the limitation of an investor's liability to the
amount of the investment. 30 This feature flows from the legal theory that a corporate entity is separate and distinct from its
stockholders. However, the statutorily granted privilege of a corporate veil may be used only for legitimate purposes. 31 On
equitable considerations, the veil can be disregarded when it is utilized as a shield to commit fraud, illegality or inequity;
defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or business conduit of a person or an
instrumentality, agency or adjunct of another corporation. 32

Thus, the Court has consistently ruled that "[w]hen the fiction is used as a means of perpetrating a fraud or an illegal act
or as vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a
monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation
from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of
individuals." 33

We stress that the corporate fiction should be set aside when it becomes a shield against liability for fraud, illegality or
inequity committed on third persons. The question of piercing the veil of corporate fiction is essentially, then, a matter of
proof. In the present case, however, the Court finds no reason to pierce the corporate veil of Respondent Motorich.
Petitioner utterly failed to establish that said corporation was formed, or that it is operated, for the purpose of shielding any
alleged fraudulent or illegal activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality
or inequity at the expense of third persons like petitioner.

Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the Corporation Code defines a
close corporation as follows:

Sec. 96. Definition and Applicability of Title. — A close corporation, within the meaning of this Code, is one whose articles of incorporation
provide that: (1) All of the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a
specified number of persons, not exceeding twenty (20); (2) All of the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any
of its stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a close corporation when at least two-thirds (2/3)
of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this
Code. . . . .

The articles of incorporation 34 of Motorich Sales Corporation does not contain any provision stating that (1) the number of
stockholders shall not exceed 20, or (2) a preemption of shares is restricted in favor of any stockholder or of the
corporation, or (3) listing its stocks in any stock exchange or making a public offering of such stocks is prohibited. From its
articles, it is clear that Respondent Motorich is not a close corporation. 35 Motorich does not become one either, just
because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The "[m]ere ownership
by a single stockholder or by another corporation of all or capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personalities." 36 So, too, a narrow distribution of ownership does not, by itself, make
a close corporation.

Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals 37 wherein the Court ruled that ". . . petitioner
corporation is classified as a close corporation and, consequently, a board resolution authorizing the sale or mortgage of
the subject property is not necessary to bind the corporation for the action of its president." 38 But the factual milieu in
Dulay is not on all fours with the present case. In Dulay, the sale of real property was contracted by the president of a
close corporation with the knowledge and acquiescence of its board of directors. 39 In the present case, Motorich is not a
close corporation, as previously discussed, and the agreement was entered into by the corporate treasurer without the
knowledge of the board of directors.

The Court is not unaware that there are exceptional cases where "an action by a director, who singly is the controlling
stockholder, may be considered as a binding corporate act and a board action as nothing more than a mere formality." 40
The present case, however, is not one of them.

As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own "almost 99.866%" of Respondent Motorich. 41
Since Nenita is not the sole controlling stockholder of Motorich, the aforementioned exception does not apply. Granting
arguendo that the corporate veil of Motorich is to be disregarded, the subject parcel of land would then be treated as
conjugal property of Spouses Gruenberg, because the same was acquired during their marriage. There being no
indication that said spouses, who appear to have been married before the effectivity of the Family Code, have agreed to a
different property regime, their property relations would be governed by conjugal partnership of gains. 42 As a
consequence, Nenita Gruenberg could not have effected a sale of the subject lot because "[t]here is no co-ownership
between the spouses in the properties of the conjugal partnership of gains. Hence, neither spouse can alienate in favor of
another his or interest in the partnership or in any property belonging to it; neither spouse can ask for a partition of the
properties before the partnership has been legally dissolved." 43

Assuming further, for the sake of argument, that the spouses' property regime is the absolute community of property, the
sale would still be invalid. Under this regime, "alienation of community property must have the written consent of the other
spouse or he authority of the court without which the disposition or encumbrance is void." 44 Both requirements are
manifestly absent in the instant case.

Third Issue: Challenged Portion of TSN Immaterial

Petitioner calls our attention to the following excerpt of the transcript of stenographic notes (TSN):

Q Did you ever represent to Mr. Co that you were authorized by the corporation to sell the property?

45
A Yes, sir.

Petitioner claims that the answer "Yes" was crossed out, and, in its place was written a "No" with an initial scribbled above
it. 46 This, however, is insufficient to prove that Nenita Gruenberg was authorized to represent Respondent Motorich in the
sale of its immovable property. Said excerpt be understood in the context of her whole testimony. During her cross-
examination. Respondent Gruenberg testified:

Q So, you signed in your capacity as the treasurer?

[A] Yes, sir.

Q Even then you kn[e]w all along that you [were] not authorized?

A Yes, sir.

Q You stated on direct examination that you did not represent that you were authorized to sell the property?

A Yes, sir.

Q But you also did not say that you were not authorized to sell the property, you did not tell that to Mr. Co, is that
correct?

A That was not asked of me.

Q Yes, just answer it.

A I just told them that I was the treasurer of the corporation and it [was] also the president who [was] also authorized to
sign on behalf of the corporation.

Q You did not say that you were not authorized nor did you say that you were authorized?

A Mr. Co was very interested to purchase the property and he offered to put up a P100,000.00 earnest money at that
time. That was our first meeting. 47

Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its property. On the other hand, her
testimony demonstrates that the president of Petitioner Corporation, in his great desire to buy the property, threw caution
to the wind by offering and paying the earnest money without first verifying Gruenberg's authority to sell the lot.

Fourth Issue:
Damages and Attorney's Fees

Finally, petitioner prays for damages and attorney's fees, alleging that "[i]n an utter display of malice and bad faith,
respondents attempted and succeeded in impressing on the trial court and [the] Court of Appeals that Gruenberg did not
represent herself as authorized by Respondent Motorich despite the receipt issued by the former specifically indicating
that she was signing on behalf of Motorich Sales Corporation. Respondent Motorich likewise acted in bad faith when it
claimed it did not authorize Respondent Gruenberg and that the contract [was] not binding, [insofar] as it [was] concerned,
despite receipt and enjoyment of the proceeds of Gruenberg's act." 48 Assuming that Respondent Motorich was not a party
to the alleged fraud, petitioner maintains that Respondent Gruenberg should be held liable because she "acted
fraudulently and in bad faith [in] representing herself as duly authorized by [R]espondent [C]orporation." 49

As already stated, we sustain the findings of both the trial and the appellate courts that the foregoing allegations lack
factual bases. Hence, an award of damages or attorney's fees cannot be justified. The amount paid as "earnest money"
was not proven to have redounded to the benefit of Respondent Motorich. Petitioner claims that said amount was
deposited to the account of Respondent Motorich, because "it was deposited with the account of Aren Commercial c/o
Motorich Sales Corporation." 50 Respondent Gruenberg, however, disputes the allegations of petitioner. She testified as
follows:

Q You voluntarily accepted the P100,000.00, as a matter of fact, that was encashed, the check was encashed.

A Yes. sir, the check was paid in my name and I deposit[ed] it.

Q In your account?

51
A Yes, sir.

In any event, Gruenberg offered to return the amount to petitioner ". . . since the sale did not push through." 52

Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has been the president of
Petitioner Corporation for more than ten years and has also served as chief executive of two other corporate entities. 53 Co
cannot feign ignorance of the scope of the authority of a corporate treasurer such as Gruenberg. Neither can he be
oblivious to his duty to ascertain the scope of Gruenberg's authorization to enter into a contract to sell a parcel of land
belonging to Motorich.

Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to persuade the Court. Indubitably, petitioner
appears to be the victim of its own officer's negligence in entering into a contract with and paying an unauthorized officer
of another corporation.

As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to return to petitioner the
amount she received as earnest money, as "no one shall enrich himself at the expense of another." 54 a principle
embodied in Article 2154 of Civil Code. 55 Although there was no binding relation between them, petitioner paid Gruenberg
on the mistaken belief that she had the authority to sell the property of Motorich. 56 Article 2155 of Civil Code provides that
"[p]ayment by reason of a mistake in the contruction or application of a difficult question of law may come within the scope
of the preceding article."

WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.

SO ORDERED.

Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur.

8

G.R. No. L-21237             March 22, 1924

JAMES D. BARTON, plaintiff-appellee,

vs.
LEYTE ASPHALT & MINERAL OIL CO., LTD., defendant-appellant.

Block, Johnston & Greenbaum and Ross, Lawrence & Selph for appellant.
Frank B. Ingersoll for appellee.

STREET, J.:

This action was instituted in the Court of First Instance of the City of Manila by James D. Barton, to recover of
the Leyte Asphalt & Mineral Oil Co., Ltd., as damages for breach of contract, the sum of $318,563.30, United
States currency, and further to secure a judicial pronouncement to the effect that the plaintiff is entitled to an
extension of the terms of the sales agencies specified in the contract Exhibit A. The defendant answered with a
general denial, and the cause was heard upon the proof, both documentary and oral, after which the trial judge
entered a judgment absolving the defendant corporation from four of the six causes of action set forth in the
complaint and giving judgment for the plaintiff to recover of said defendant, upon the first and fourth causes of
action, the sum of $202,500, United States currency, equivalent to $405,000, Philippine currency, with legal
interest from June 2, 1921, and with costs. From this judgment the defendant company appealed.

The plaintiff is a citizen of the United States, resident in the City of Manila, while the defendant is a corporation
organized under the law of the Philippine Islands with its principal office in the City of Cebu, Province of Cebu,
Philippine Islands. Said company appears to be the owner by a valuable deposit of bituminous limestone and
other asphalt products, located on the Island of Leyte and known as the Lucio mine. On April 21, 1920, one
William Anderson, as president and general manager of the defendant company, addressed a letter Exhibit B, to
the plaintiff Barton, authorizing the latter to sell the products of the Lucio mine in the Commonwealth of
Australia and New Zealand upon a scale of prices indicated in said letter.

In the third cause of action stated in the complaint the plaintiff alleges that during the life of the agency
indicated in Exhibit B, he rendered services to the defendant company in the way of advertising and
demonstrating the products of the defendant and expended large sums of money in visiting various parts of the
world for the purpose of carrying on said advertising and demonstrations, in shipping to various parts of the
world samples of the products of the defendant, and in otherwise carrying on advertising work. For these
services and expenditures the plaintiff sought, in said third cause of action, to recover the sum of $16,563.80,
United States currency. The court, however, absolved the defendant from all liability on this cause of action and
the plaintiff did not appeal, with the result that we are not now concerned with this phase of the case. Besides,
the authority contained in said Exhibit B was admittedly superseded by the authority expressed in a later letter,
Exhibit A, dated October 1, 1920. This document bears the approval of the board of directors of the defendant
company and was formally accepted by the plaintiff. As it supplies the principal basis of the action, it will be
quoted in its entirety.

(Exhibit A)
CEBU, CEBU, P. I.
October 1, 1920.
JAMES D. BARTON, Esq.,
Cebu Hotel City.

DEAR SIR: — You are hereby given the sole and exclusive sales agency for our bituminous limestone and
other asphalt products of the Leyte Asphalt and Mineral Oil Company, Ltd., May first, 1922, in the following
territory:

Australia Saigon Java

New Zealand India China
Tasmania Sumatra Hongkong

Siam and the Straits Settlements, also in the United States of America until May 1, 1921.

As regard bituminous limestone mined from the Lucio property. No orders for less than one thousand (1,000)
tons will be accepted except under special agreement with us. All orders for said products are to be billed to you
as follows:

Per ton
In 1,000 ton lots ........................................... P15
In 2,000 ton lots ........................................... 14
In 5,000 ton lots ........................................... 12
In 10,000 ton lots .......................................... 10

with the understanding, however that, should the sales in the above territory equal or exceed ten thousand
(10,000) tons in the year ending October 1, 1921, then in that event the price of all shipments made during the
above period shall be ten pesos (P10) per ton, and any sum charged to any of your customers or buyers in the
aforesaid territory in excess of ten pesos (P10) per ton, shall be rebated to you. Said rebate to be due and
payable when the gross sales have equalled or exceeded ten thousand (10,000) tons in the twelve months period
as hereinbefore described. Rebates on lesser sales to apply as per above price list.

You are to have full authority to sell said product of the Lucio mine for any sum see fit in excess of the prices
quoted above and such excess in price shall be your extra and additional profit and commission. Should we
make any collection in excess of the prices quoted, we agree to remit same to your within ten (10) days of the
date of such collections or payments.

All contracts taken with municipal governments will be subject to inspector before shipping, by any authorized
representative of such governments at whatever price may be contracted for by you and we agree to accept such
contracts subject to draft attached to bill of lading in full payment of such shipment.

It is understood that the purchasers of the products of the Lucio mine are to pay freight from the mine carriers to
destination and are to be responsible for all freight, insurance and other charges, providing said shipment has
been accepted by their inspectors.

All contracts taken with responsible firms are to be under the same conditions as with municipal governments.

All contracts will be subject to delays caused by the acts of God, over which the parties hereto have no control.

It is understood and agreed that we agree to load all ships, steamers, boats or other carriers prompty and without
delay and load not less than 1,000 tons each twenty-four hours after March 1, 1921, unless we so notify you
specifically prior to that date we are prepared to load at that rate, and it is also stipulated that we shall not be
required to ship orders of 5,000 tons except on 30 days notice and 10,000 tons except on 60 days notice.

If your sales in the United States reach five thousand tons on or before May 1, 1921, you are to have sole rights
for this territory also for one year additional and should your sales in the second year reach or exceed ten
thousand tons you are to have the option to renew the agreement for this territory on the same terms for an
additional two years.

Should your sales equal exceed ten thousand (10,000) tons in the year ending October 1, 1921, or twenty
thousand (20,000) tons by May 1, 1922, then this contract is to be continued automatically for an additional
three years ending April 30, 1925, under the same terms and conditions as above stipulated.

The products of the other mines can be sold by you in the aforesaid territories under the same terms and
conditions as the products of the Lucio mine; scale of prices to be mutually agreed upon between us.

LEYTE ASPHALT & MINERAL OIL CO., LTD.

By (Sgd.) WM. ANDERSON
President

(Sgd.) W. C. A. PALMER
Secretary

Approved by Board of Directors,

October 1, 1920.
(Sgd.) WM. ANDERSON
President

Accepted.
(Sgd.) JAMES D. BARTON
Witness D. G. MCVEAN

Upon careful perusal of the fourth paragraph from the end of this letter it is apparent that some negative word
has been inadvertently omitted before "prepared," so that the full expression should be "unless we should notify
you specifically prior to that date that we are unprepared to load at that rate," or "not prepared to load at that
rate."

Very soon after the aforesaid contract became effective, the plaintiff requested the defendant company to give
him a similar selling agency for Japan. To this request the defendant company, through its president, Wm.
Anderson, replied, under date of November 27, 1920, as follows:

In re your request for Japanese agency, will say, that we are willing to give you, the same commission
on all sales made by you in Japan, on the same basis as your Australian sales, but we do not feel like
giving you a regular agency for Japan until you can make some large sized sales there, because some
other people have given us assurances that they can handle our Japanese sales, therefore we have
decided to leave this agency open for a time.

Meanwhile the plaintiff had embarked for San Francisco and upon arriving at that port he entered into an
agreement with Ludvigsen & McCurdy, of that city, whereby said firm was constituted a subagent and given the
sole selling rights for the bituminous limestone products of the defendant company for the period of one year
from November 11, 1920, on terms stated in the letter Exhibit K. The territory assigned to Ludvigsen &
McCurdy included San Francisco and all territory in California north of said city. Upon an earlier voyage during
the same year to Australia, the plaintiff had already made an agreement with Frank B. Smith, of Sydney,
whereby the latter was to act as the plaintiff's sales agent for bituminous limestone mined at the defendant's
quarry in Leyte, until February 12, 1921. Later the same agreement was extended for the period of one year
from January 1, 1921. (Exhibit Q.)

On February 5, 1921, Ludvigsen & McCurdy, of San Francisco, addressed a letter to the plaintiff, then in San
Francisco, advising hi that he might enter an order for six thousand tons of bituminous limestone to be loaded at
Leyte not later than May 5, 1921, upon terms stated in the letter Exhibit G. Upon this letter the plaintiff
immediately indorsed his acceptance.

The plaintiff then returned to Manila; and on March 2, 1921, Anderson wrote to him from Cebu, to the effect
that the company was behind with construction and was not then able to handle big contracts. (Exhibit FF.) On
March 12, Anderson was in Manila and the two had an interview in the Manila Hotel, in the course of which the
plaintiff informed Anderson of the San Francisco order. Anderson thereupon said that, owing to lack of capital,
adequate facilities had not been provided by the company for filling large orders and suggested that the plaintiff
had better hold up in the matter of taking orders. The plaintiff expressed surprise at this and told Anderson that
he had not only the San Francisco order (which he says he exhibited to Anderson) but other orders for large
quantities of bituminous limestone to be shipped to Australia and Shanghai. In another interview on the same
Anderson definitely informed the plaintiff that the contracts which be claimed to have procured would not be
filled.

Three days later the plaintiff addressed a letter (Exhibit Y) to the defendant company in Cebu, in which he
notified the company to be prepared to ship five thousand tons of bituminous limestone to John Chapman Co.,
San Francisco, loading to commence on May 1, and to proceed at the rate of one thousand tons per day of each
twenty-four hours, weather permitting.

On March 5, 1921, Frank B. Smith, of Sydney, had cabled the plaintiff an order for five thousand tons of
bituminous limestone; and in his letter of March 15 to the defendant, the plaintiff advised the defendant
company to be prepared to ship another five thousand tons of bituminous limestone, on or about May 6, 1921,
in addition to the intended consignment for San Francisco. The name Henry E. White was indicated as the name
of the person through whom this contract had been made, and it was stated that the consignee would be named
later, no destination for the shipment being given. The plaintiff explains that the name White, as used in this
letter, was based on an inference which he had erroneously drawn from the cable sent by Frank B. Smith, and
his intention was to have the second shipment consigned to Australia in response to Smith's order.

It will be noted in connection with this letter of the plaintiff, of March 15, 1921, that no mention was made of
the names of the person, or firm, for whom the shipments were really intended. The obvious explanation that
occurs in connection with this is that the plaintiff did not then care to reveal the fact that the two orders had
originated from his own subagents in San Francisco and Sydney.

To the plaintiff's letter of March 15, the assistant manager of the defendant company replied on March, 25,
1921, acknowledging the receipt of an order for five thousand tons of bituminous limestone to be consigned to
John Chapman Co., of San Francisco, and the further amount of five thousand tons of the same material to be
consigned to Henry E. White, and it was stated that "no orders can be entertained unless cash has been actually
deposited with either the International Banking Corporation or the Chartered Bank of India, Australia and
China, Cebu." (Exhibit Z.)

To this letter the plaintiff in turn replied from Manila, under date of March, 1921, questioning the right of the
defendant to insist upon a cash deposit in Cebu prior to the filling of the orders. In conclusion the plaintiff gave
orders for shipment to Australia of five thousand tons, or more, about May 22, 1921, and ten thousand tons, or
more, about June 1, 1921. In conclusion the plaintiff said "I have arranged for deposits to be made on these
additional shipments if you will signify your ability to fulfill these orders on the dates mentioned." No name
was mentioned as the purchaser, or purchases, of these intended Australian consignments.
Soon after writing the letter last above-mentioned, the plaintiff embarked for China and Japan. With his
activities in China we are not here concerned, but we note that in Tokio, Japan, he came in contact with one H.
Hiwatari, who appears to have been a suitable person for handling bituminous limestone for construction work
in Japan. In the letter Exhibit X, Hiwatari speaks of himself as if he had been appointed exclusive sales agent
for the plaintiff in Japan, but no document expressly appointing him such is in evidence.

While the plaintiff was in Tokio he procured the letter Exhibit W, addressed to himself, to be signed by
Hiwatari. This letter, endited by the plaintiff himself, contains an order for one thousand tons of bituminous
limestone from the quarries of the defendant company, to be delivered as soon after July 1, 1921, as possible. In
this letter Hiwatari states, "on receipt of the cable from you, notifying me of date you will be ready to ship, and
also tonnage rate, I will agree to transfer through the Bank of Taiwan, of Tokio, to the Asia Banking
Corporation, of Manila, P. I., the entire payment of $16,000 gold, to be subject to our order on delivery of
documents covering bill of lading of shipments, the customs report of weight, and prepaid export tax receipt. I
will arrange in advance a confirmed or irrevocable letter of credit for the above amounts so that payment can be
ordered by cable, in reply to your cable advising shipping date."

In a letter, Exhibit X, of May 16, 1921, Hiwatari informs the plaintiff that he had shown the contract, signed by
himself, to the submanager of the Taiwan Bank who had given it as his opinion that he would be able to issue,
upon request of Hiwatari, a credit note for the contracted amount, but he added that the submanager was not
personally able to place his approval on the contract as that was a matter beyond his authority. Accordingly
Hiwatari advised that he was intending to make further arrangements when the manager of the bank should
return from Formosa.

In the letter of May 5, 1921, containing Hiwatari's order for one thousand tons of bituminous limestone, it was
stated that if the material should prove satisfactory after being thoroughly tested by the Paving Department of
the City of Tokio, he would contract with the plaintiff for a minimum quantity of ten thousand additional tons,
to be used within a year from September 1, 1921, and that in this event the contract was to be automatically
extended for an additional four years. The contents of the letter of May 5 seems to have been conveyed, though
imperfectly, by the plaintiff to his attorney, Mr. Frank B. Ingersoll, of Manila; and on May 17, 1921, Ingersoll
addressed a note to the defendant company in Cebu in which he stated that he had been requested by the
plaintiff to notify the defendant that the plaintiff had accepted an order from Hiwatari, of Tokio, approved by
the Bank of Taiwan, for a minimum order of ten thousand tons of the stone annually for a period of five years,
the first shipment of one thousand tons to be made as early after July 1 as possible. It will be noted that this
communication did not truly reflect the contents of Hiwatari's letter, which called unconditionally for only one
thousand tons, the taking of the remainder being contingent upon future eventualities.

It will be noted that the only written communications between the plaintiff and the defendant company in which
the former gave notice of having any orders for the sale of bituminous limestone are the four letters Exhibit Y,
AA, BB, and II. In the first of these letters, dated March 15, 1921, the plaintiff advises the defendant company
to be prepared to ship five thousand tons of bituminous limestone, to be consigned to John Chapman, Co., of
San Francisco, to be loaded by March 5, and a further consignment of five thousand tons, through a contract
with Henry E. White, consignees to be named later. In the letter Exhibit BB dated May 17, 1921, the plaintiff's
attorney gives notice of the acceptance by plaintiff of an order from Hiwatari, of Tokio, approved by the Bank
of Taiwan, for a minimum of ten thousand annually for a period of five years, first shipment of a thousand tons
to be as early after July 1 as possible. In the letter Exhibit H the plaintiff gives notice of an "additional" (?) order
from H. E. White, Sydney, for two lots of bituminous limestone of five thousand tons each, one for shipment
not later than June 30, 1921, and the other by July 20, 1921. In the same letter thousand tons from F. B. Smith,
to be shipped to Brisbane, Australia, by June 30, and a similar amount within thirty days later.

After the suit was brought, the plaintiff filed an amendment to his complaint in which he set out, in tabulated
form, the orders which he claims to have received and upon which his letters of notification to the defendant
company were based. In this amended answer the name of Ludvigsen & McCurdy appears for the first time; and
the name of Frank B. Smith, of Sydney, is used for the first time as the source of the intended consignments of
the letters, Exhibits G, L, M, and W, containing the orders from Ludvigen & McCurdy, Frank B. Smith and H.
Hiwatari were at no time submitted for inspection to any officer of the defendant company, except possibly the
Exhibit G, which the plaintiff claims to have shown to Anderson in Manila on March, 12, 1921.

The different items conspiring the award which the trial judge gave in favor of the plaintiff are all based upon
the orders given by Ludvigsen & McCurdy (Exhibit G), by Frank B. Smith (Exhibit L and M), and by Hiwatari
in Exhibit W; and the appealed does not involve an order which came from Shanghai, China. We therefore now
address ourselves to the question whether or not the orders contained in Exhibit G, L, M, and W, in connection
with the subsequent notification thereof given by the plaintiff to the defendant, are sufficient to support the
judgment rendered by the trial court.

The transaction indicated in the orders from Ludvigsen, & McCurdy and from Frank B. Smith must, in our
opinion, be at once excluded from consideration as emanating from persons who had been constituted mere
agents of the plaintiff. The San Francisco order and the Australian orders are the same in legal effect as if they
were orders signed by the plaintiff and drawn upon himself; and it cannot be pretended that those orders
represent sales to bona fide purchasers found by the plaintiff. The original contract by which the plaintiff was
appointed sales agent for a limited period of time in Australia and the United States contemplated that he should
find reliable and solvent buyers who should be prepared to obligate themselves to take the quantity of
bituminous limestone contracted for upon terms consistent with the contract. These conditions were not met by
the taking of these orders from the plaintiff's own subagents, which was as if the plaintiff had bought for
himself the commodity which he was authorized to sell to others. Article 267 of the Code of Commerce
declares that no agent shall purchase for himself or for another that which he has been ordered to sell. The law
has placed its ban upon a broker's purchasing from his principal unless the latter with full knowledge of all the
facts and circumstances acquiesces in such course; and even then the broker's action must be characterized by
the utmost good faith. A sale made by a broker to himself without the consent of the principal is ineffectual
whether the broker has been guilty of fraudulent conduct or not. (4 R. C. L., 276-277.) We think, therefore, that
the position of the defendant company is indubitably sound in so far as it rest upon the contention that the
plaintiff has not in fact found any bona fide purchasers ready and able to take the commodity contracted for
upon terms compatible with the contract which is the basis of the action.

It will be observed that the contract set out at the beginning of this opinion contains provisions under which the
period of the contract might be extended. That privilege was probably considered a highly important incident of
the contract and it will be seen that the sale of five thousand tons which the plaintiff reported for shipment to
San Francisco was precisely adjusted to the purpose of the extension of the contract for the United States for the
period of an additional year; and the sales reported for shipment to Australia were likewise adjusted to the
requirements for the extention of the contract in that territory. Given the circumstances surrounding these
contracts as they were reported to the defendant company and the concealment by the plaintiff of the names of
the authors of the orders, -- who after all were merely the plaintiff's subagents, — the officers of the defendant
company might justly have entertained the suspicion that the real and only person behind those contracts was
the plaintiff himself. Such at least turns out to have been the case.

Much energy has been expended in the briefs upon his appeal over the contention whether the defendant was
justified in laying down the condition mentioned in the letter of March 26, 1921, to the effect that no order
would be entertained unless cash should be deposited with either the International Banking Corporation of the
Chartered Bank of India, Australia and China, in Cebu. In this connection the plaintiff points to the stipulation
of the contract which provides that contracts with responsible parties are to be accepted "subject to draft
attached to bill of lading in full payment of such shipment." What passed between the parties upon this point
appears to have the character of mere diplomatic parrying, as the plaintiff had no contract from any responsible
purchaser other than his own subagents and the defendant company could no probably have filled the contracts
even if they had been backed by the Bank of England.
Upon inspection of the plaintiff's letters (Exhibit Y and AA), there will be found ample assurance that deposits
for the amount of each shipment would be made with a bank in Manila provided the defendant would indicated
its ability to fill the orders; but these assurance rested upon no other basis than the financial responsibility of the
plaintiff himself, and this circumstance doubtless did not escape the discernment of the defendant's officers.

With respect to the order from H. Hiwatari, we observe that while he intimates that he had been promised the
exclusive agency under the plaintiff for Japan, nevertheless it does not affirmatively appear that he had been in
fact appointed to be such at the time he signed to order Exhibit W at the request of the plaintiff. It may be
assumed, therefore, that he was at that time a stranger to the contract of agency. It clearly appears, however, that
he did not expect to purchase the thousand tons of bituminous limestone referred to in his order without banking
assistance; and although the submanager of the Bank of Taiwan had said something encouraging in respect to
the matter, nevertheless that official had refrained from giving his approval to the order Exhibit W. It is
therefore not shown affirmatively that this order proceeds from a responsible source.

The first assignment of error in the appellant's brief is directed to the action of the trial judge in refusing to
admit Exhibit 2, 7, 8, 9 and 10, offered by the defendant, and in admitting Exhibit E, offered by the plaintiff.
The Exhibit 2 is a letter dated June 25, 1921, or more than three weeks after the action was instituted, in which
the defendant's assistant general manager undertakes to reply to the plaintiff's letter of March 29 proceeding. It
was evidently intended as an argumentative presentation of the plaintiff's point of view in the litigation then
pending, and its probative value is so slight, even if admissible at all, that there was no error on the part of the
trial court in excluding it.

Exhibit 7, 8, 9 and 10 comprise correspondence which passed between the parties by mail or telegraph during
the first part of the year 1921. The subject-matter of this correspondence relates to efforts that were being made
by Anderson to dispose of the controlling in the defendant corporation, and Exhibit 9 in particular contains an
offer from the plaintiff, representing certain associates, to but out Anderson's interest for a fixed sum. While
these exhibits perhaps shed some light upon the relations of the parties during the time this controversy was
brewing, the bearing of the matter upon the litigation before us is too remote to exert any definitive influence on
the case. The trial court was not in error in our opinion in excluding these documents.

Exhibit E is a letter from Anderson to the plaintiff, dated April 21, 1920, in which information is given
concerning the property of the defendant company. It is stated in this letter that the output of the Lucio (quarry)
during the coming year would probably be at the rate of about five tons for twenty-four hours, with the
equipment then on hand, but that with the installation of a model cableway which was under contemplation, the
company would be able to handle two thousand tons in twenty-four hours. We see no legitimate reason for
rejecting this document, although of slight probative value; and her error imputed to the court in admitting the
same was not committed.

Exhibit 14, which was offered in evidence by the defendant, consists of a carbon copy of a letter dated June 13,
1921, written by the plaintiff to his attorney, Frank B. Ingersoll, Esq., of Manila, and in which plaintiff states,
among other things, that his profit from the San Francisco contract would have been at the rate of eigthy-five
cents (gold) per ton. The authenticity of this city document is admitted, and when it was offered in evidence by
the attorney for the defendant the counsel for the plaintiff announced that he had no objection to the
introduction of this carbon copy in evidence if counsel for the defendant would explain where this copy was
secured. Upon this the attorney for the defendant informed the court that he received the letter from the former
attorneys of the defendant without explanation of the manner in which the document had come into their
possession. Upon this the attorney for the plaintiff made this announcement: "We hereby give notice at this time
that unless such an explanation is made, explaining fully how this carbon copy came into the possession of the
defendant company, or any one representing it, we propose to object to its admission on the ground that it is a
confidential communication between client and lawyer." No further information was then given by the attorney
for the defendant as to the manner in which the letter had come to his hands and the trial judge thereupon
excluded the document, on the ground that it was a privileged communication between client and attorney.
We are of the opinion that this ruling was erroneous; for even supposing that the letter was within the privilege
which protects communications between attorney and client, this privilege was lost when the letter came to the
hands of the adverse party. And it makes no difference how the adversary acquired possession. The law protects
the client from the effect of disclosures made by him to his attorney in the confidence of the legal relation, but
when such a document, containing admissions of the client, comes to the hand of a third party, and reaches the
adversary, it is admissible in evidence. In this connection Mr. Wigmore says:

The law provides subjective freedom for the client by assuring him of exemption from its processes of
disclosure against himself or the attorney or their agents of communication. This much, but not a whit
more, is necessary for the maintenance of the privilege. Since the means of preserving secrecy of
communication are entirely in the client's hands, and since the privilege is a derogation from the general
testimonial duty and should be strictly construed, it would be improper to extend its prohibition to third
persons who obtain knowledge of the communications. One who overhears the communication, whether
with or without the client's knowledge, is not within the protection of the privilege. The same rule ought
to apply to one who surreptitiously reads or obtains possession of a document in original or copy. (5
Wigmore on Evidence, 2d ed., sec. 2326.)

Although the precedents are somewhat confusing, the better doctrine is to the effect that when papers are
offered in evidence a court will take no notice of how they were obtained, whether legally or illegally, properly
or improperly; nor will it form a collateral issue to try that question. (10 R. C. L., 931; 1 Greenl. Evid., sec.
254a; State vs. Mathers, 15 L. R. A., 268; Gross vs. State, 33 L. R. A., [N. S.], 477, note.)

Our conclusion upon the entire record is that the judgment appealed from must be reversed; and the defendant
will be absolved from the complaint. It is so ordered, without special pronouncement as to costs of either
instance.

Araullo, C.J., Johnson, Avanceña, Ostrand, Johns and Romualdez, JJ., concur.

Separate Opinions

MALCOLM, J., dissenting:

An intensive scrutiny of every phase of this case leads me to the conclusion that the trial judge was correct in
his findings of fact and in his decision. Without encumbering the case with a long and tedious dissent, I shall
endeavor to explain my point of view as briefly and clearly as possible.

A decision must be reached on the record as it is and not on a record as we would like to have it. The plaintiff
and the defendant deliberately entered into a contract, the basis of this action. The plaintiff, proceeding pursuant
to this contract, spent considerable effort and used considerable money to advance the interests of the defendant
and to secure orders for its products. These orders were submitted to the president of the defendant company
personally and later formally by writing. Prior to the institution of the suit, the only objection of the defendant
was that the money should be deposited with either the International Banking Corporation or the Chartered
Bank of India, Australia and China at Cebu, a stipulation not found in the contract.

A reasonable deduction, therefore, is that the plaintiff presented orders under circumstances which were a
substantial compliance with the terms of the contract with the defendant, and which insured to the defendant
payment for its deliveries according to the price agreed upon, and that as the defendant has breached its
contract, it must respond in damages.
The current running through the majority opinion is that the order emanated from subagents of the plaintiff, and
that no bona fide purchasers were ready and able to take the commodity contracted for upon terms compatible
with the contract. The answer is, in the first place, that the contract nowhere prohibits the plaintiff to secure
subagents. The answer is, in the second place, that the orders were so phrased as to make the persons making
them personally responsible. The Ludvigsen & McCurdy order from San Francisco begins: "You can enter our
order for 6,000 tons of bituminous limestone as per sample submitted, at $10 gold per ton, f. o. b., island of
Leyte, subject to the following terms and conditions:

* * * "(Exhibit G). The Smith order from Australia contains the following: "It is therefore with great pleasure I
confirm the booking of the following orders, to be shipped at least within a week of respective dates: . . ."
(Exhibit L). The Japan order starts with the following sentence: "You can enter my order for 1,000 tons of 1,000
kilos each of bituminous limestone from the quarries of the Leyte Asphalt and Mineral Oil Co. . . ." (Exhibit
W.)

But the main point of the plaintiff which the majority decision misses entirely centers on the proposition that the
orders were communicated by the plaintiff to the defendant, and that the only objection the defendant had
related to the manner of payment. To emphasize this thought again, let me quote the reply of the defendant to
the plaintiff when the defendant acknowledge receipts of the orders placed by the plaintiff. The letter reads: "In
reply to same we have to advice you that no orders can be entertained unless cash has been actually deposited
with either the International Banking Corporation or the Chartered Bank of India, Australia and China, Cebu."
(Exhibit Y.) Prior to the filing of suit, the defendant company never at any time raised any questioned as to
whether the customers secured by plaintiff were "responsible firms" within the meaning of the contract, and
never secured any information whatsoever as to their financial standing. Consequently, defendant is now
estopped by its conduct from raising new objections for rejection of the orders. (Mechem on Agency, section
2441.)

The majority decision incidentally takes up for consideration assignments of error 1 and 2 having to do with
either the admission or the rejection by the trial court of certain exhibits. Having in mind that the Court reverses
the court a quo on the facts, what is said relative to these two assignments is absolutely unnecessary for a
judgment, and even as obiter dicta, contains unfortunate expressions. Exhibit 14, for example, is a letter
addressed by the plaintiff to his lawyer and probably merely shown to the counsel of the defendant during
negotiations to seek a compromise. Whether that exhibit be considered improperly rejected or not would not
change the result one iota.

The rule now announced by the Court that it makes no difference how the adversary acquired possession of the
document, and that a court will take no notice of how it was obtained, is destructive of the attorney's privilege
and constitutes and obstacle to attempts at friendly compromise. In the case of Uy Chico vs. Union Life
Assurance Society ([1915], 29 Phil., 163), it was held that communications made by a client to his attorney for
the purpose of being communicated to others are not privileged if they have been so communicated. But here,
there is no intimation that Exhibit 14 was sent by the client to the lawyer for the purpose of being
communicated to others. The Supreme Court of Georgia in the case of Southern Railway Co. vs. White ([1899],
108 Ga., 201), held that statements in a letter to a party's attorney handed by the latter to the opponent's
attorney, are confidential communications and must be excluded.

Briefly, the decision of the majority appears to me to be defective in the following particulars: (1) It sets aside
without good reason the fair findings of fact as made by the trial court and substitutes therefor other findings not
warranted by the proof; (2) it fails to stress plaintiff's main argument, and (3) it lay downs uncalled for rules
which undermine the inviolability of a client's communications to his attorney.

Accordingly, I dissent and vote for an affirmance of the judgment.

9
G.R. No. L-30573 October 29, 1971

VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA. DE DOMINGO,

RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and JOSELITO, all surnamed
DOMINGO, petitioners-appellants,
vs.
GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent.

Teofilo Leonin for petitioners-appellants.

Osorio, Osorio & Osorio for respondent-appellee.

Teofilo P. Purisima in his own behalf as intervenor-respondent.

MAKASIAR, J.:

Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs, Antonina
Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all
surnamed Domingo, sought the reversal of the majority decision dated, March 12, 1969 of the Special
Division of Five of the Court of Appeals affirming the judgment of the trial court, which sentenced the
said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the intervenor Teofilo P.
Purisima P2,607.50 with interest on both amounts from the date of the filing of the complaint, to pay
Gregorio Domingo P1,000.00 as moral and exemplary damages and P500.00 as attorney's fees plus
costs.

The following facts were found to be established by the majority of the Special Division of Five of the
Court of Appeals:

In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted Gregorio
Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of Piedad Estate with an
area of about 88,477 square meters at the rate of P2.00 per square meter (or for P176,954.00) with a
commission of 5% on the total price, if the property is sold by Vicente or by anyone else during the
30-day duration of the agency or if the property is sold by Vicente within three months from the
termination of the agency to apurchaser to whom it was submitted by Gregorio during the
continuance of the agency with notice to Vicente. The said agency contract was in triplicate, one copy
was given to Vicente, while the original and another copy were retained by Gregorio.

On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a buyer,
promising him one-half of the 5% commission.

Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective buyer.

Oscar de Leon submitted a written offer which was very much lower than the price of P2.00 per
square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to raise his offer. After
several conferences between Gregorio and Oscar de Leon, the latter raised his offer to P109,000.00
on June 20, 1956 as evidenced by Exhibit "C", to which Vicente agreed by signing Exhibit "C". Upon
demand of Vicente, Oscar de Leon issued to him a check in the amount of P1,000.00 as earnest
money, after which Vicente advanced to Gregorio the sum of P300.00. Oscar de Leon confirmed his
former offer to pay for the property at P1.20 per square meter in another letter, Exhibit "D".
Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest money, which Oscar
de Leon promised to deliver to him. Thereafter, Exhibit "C" was amended to the effect that Oscar de
Leon will vacate on or about September 15, 1956 his house and lot at Denver Street, Quezon City
which is part of the purchase price. It was again amended to the effect that Oscar will vacate his
house and lot on December 1, 1956, because his wife was on the family way and Vicente could stay
in lot No. 883 of Piedad Estate until June 1, 1957, in a document dated June 30, 1956 (the year 1957
therein is a mere typographical error) and marked Exhibit "D". Pursuant to his promise to Gregorio,
Oscar gave him as a gift or propina the sum of One Thousand Pesos (P1,000.00) for succeeding in
persuading Vicente to sell his lot at P1.20 per square meter or a total in round figure of One Hundred
Nine Thousand Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not
disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the additional amount of One
Thousand Pesos (P1,000.00) by way of earnest money. In the deed of sale was not executed on
August 1, 1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended by Vicente, Oscar
told Gregorio that he did not receive his money from his brother in the United States, for which reason
he was giving up the negotiation including the amount of One Thousand Pesos (P1,000.00) given as
earnest money to Vicente and the One Thousand Pesos (P1,000.00) given to Gregorio as propina or
gift. When Oscar did not see him after several weeks, Gregorio sensed something fishy. So, he went
to Vicente and read a portion of Exhibit "A" marked habit "A-1" to the effect that Vicente was still
committed to pay him 5% commission, if the sale is consummated within three months after the
expiration of the 30-day period of the exclusive agency in his favor from the execution of the agency
contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente during the said 30-day
period. Vicente grabbed the original of Exhibit "A" and tore it to pieces. Gregorio held his peace, not
wanting to antagonize Vicente further, because he had still duplicate of Exhibit "A". From his meeting
with Vicente, Gregorio proceeded to the office of the Register of Deeds of Quezon City, where he
discovered Exhibit "G' deed of sale executed on September 17, 1956 by Amparo Diaz, wife of Oscar
de Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon City, in favor Vicente as
down payment by Oscar de Leon on the purchase price of Vicente's lot No. 883 of Piedad Estate.
Upon thus learning that Vicente sold his property to the same buyer, Oscar de Leon and his wife, he
demanded in writting payment of his commission on the sale price of One Hundred Nine Thousand
Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who told him that Vicente
went to him and asked him to eliminate Gregorio in the transaction and that he would sell his property
to him for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's letter,
Exhibit "H", Vicente stated that Gregorio is not entitled to the 5% commission because he sold the
property not to Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz, wife of Oscar de
Leon.

The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency contract, is
genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the sale by Vicente of his
property is practically a sale to Oscar de Leon since husband and wife have common or identical
interests; that Gregorio and intervenor Teofilo Purisima were the efficient cause in the consummation
of the sale in favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de Leon paid
Gregorio the sum of One Thousand Pesos (P1,000.00) as "propina" or gift and not as additional
earnest money to be given to the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar
de Leon with respect to the additional earnest money, does not appear to have been answered by
Oscar de Leon and therefore there is no writing or document supporting Oscar de Leon's testimony
that he paid an additional earnest money of One Thousand Pesos (P1,000.00) to Gregorio for
delivery to Vicente, unlike the first amount of One Thousand Pesos (P1,000.00) paid by Oscar de
Leon to Vicente as earnest money, evidenced by the letter Exhibit "4"; and that Vicente did not even
mention such additional earnest money in his two replies Exhibits "I" and "J" to Gregorio's letter of
demand of the 5% commission.

The three issues in this appeal are (1) whether the failure on the part of Gregorio to disclose to
Vicente the payment to him by Oscar de Leon of the amount of One Thousand Pesos (P1,000.00) as
gift or "propina" for having persuaded Vicente to reduce the purchase price from P2.00 to P1.20 per
square meter, so constitutes fraud as to cause a forfeiture of his commission on the sale price; (2)
whether Vicente or Gregorio should be liable directly to the intervenor Teofilo Purisima for the latter's
share in the expected commission of Gregorio by reason of the sale; and (3) whether the award of
legal interest, moral and exemplary damages, attorney's fees and costs, was proper.

Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by Justice
Juan Enriquez did not touch on these issues which were extensively discussed by Justice Magno
Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his concurring opinion, affirmed
that it does not constitute breach of trust or fraud on the part of the broker and regarded same as
merely part of the whole process of bringing about the meeting of the minds of the seller and the
purchaser and that the commitment from the prospect buyer that he would give a reward to Gregorio
if he could effect better terms for him from the seller, independent of his legitimate commission, is not
fraudulent, because the principal can reject the terms offered by the prospective buyer if he believes
that such terms are onerous disadvantageous to him. On the other hand, Justice Gatmaitan, with
whom Justice Antonio Cafizares corner held the view that such an act on the part of Gregorio was
fraudulent and constituted a breach of trust, which should deprive him of his right to the commission.

The duties and liabilities of a broker to his employer are essentially those which an agent owes to his
principal. 1

Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the New Civil
Code.

Art. 1891. Every agent is bound to render an account of his transactions and to deliver to the principal
whatever he may have received by virtue of the agency, even though it may not be owing to the principal.

Every stipulation exempting the agent from the obligation to render an account shall be void.

xxx xxx xxx

Art. 1909. The agent is responsible not only for fraud but also for negligence, which shall be judged with
more less rigor by the courts, according to whether the agency was or was not for a compensation.

Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which provides
that:

Art. 1720. Every agent is bound to give an account of his transaction and to pay to the principal whatever
he may have received by virtue of the agency, even though what he has received is not due to the
principal.

The modification contained in the first paragraph Article 1891 consists in changing the phrase "to pay"
to "to deliver", which latter term is more comprehensive than the former.

Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required to
an agent — condemning as void any stipulation exempting the agent from the duty and liability
imposed on him in paragraph one thereof.

Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old Spanish
Civil Code which reads thus:

Art. 1726. The agent is liable not only for fraud, but also for negligence, which shall be judged with more
or less severity by the courts, according to whether the agency was gratuitous or for a price or reward.
The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and fairness on the
part of the agent, the real estate broker in this case, to his principal, the vendor. The law imposes
upon the agent the absolute obligation to make a full disclosure or complete account to his principal
of all his transactions and other material facts relevant to the agency, so much so that the law as
amended does not countenance any stipulation exempting the agent from such an obligation and
considers such an exemption as void. The duty of an agent is likened to that of a trustee. This is not a
technical or arbitrary rule but a rule founded on the highest and truest principle of morality as well as
of the strictest justice. 2

Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from
the vendee, without revealing the same to his principal, the vendor, is guilty of a breach of his loyalty
to the principal and forfeits his right to collect the commission from his principal, even if the principal
does not suffer any injury by reason of such breach of fidelity, or that he obtained better results or that
the agency is a gratuitous one, or that usage or custom allows it; because the rule is to prevent the
possibility of any wrong, not to remedy or repair an actual damage. 3 By taking such profit or bonus or
gift or propina from the vendee, the agent thereby assumes a position wholly inconsistent with that of
being an agent for hisprincipal, who has a right to treat him, insofar as his commission is concerned,
as if no agency had existed. The fact that the principal may have been benefited by the valuable
services of the said agent does not exculpate the agent who has only himself to blame for such a
result by reason of his treachery or perfidy.

This Court has been consistent in the rigorous application of Article 1720 of the old Spanish Civil
Code. Thus, for failure to deliver sums of money paid to him as an insurance agent for the account of
his employer as required by said Article 1720, said insurance agent was convicted estafa. 4 An
administrator of an estate was likewise under the same Article 1720 for failure to render an account of
his administration to the heirs unless the heirs consented thereto or are estopped by having accepted
the correctness of his account previously rendered. 5

Because of his responsibility under the aforecited article 1720, an agent is likewise liable for estafa for
failure to deliver to his principal the total amount collected by him in behalf of his principal and cannot
retain the commission pertaining to him by subtracting the same from his collections. 6

A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the money and
property received by him for his client despite his attorney's lien. 7 The duty of a commission agent to
render a full account his operations to his principal was reiterated in Duhart, etc. vs. Macias. 8

The American jurisprudence on this score is well-nigh unanimous.

Where a principal has paid an agent or broker a commission while ignorant of the fact that the latter has
been unfaithful, the principal may recover back the commission paid, since an agent or broker who has
been unfaithful is not entitled to any compensation.

xxx xxx xxx

In discussing the right of the principal to recover commissions retained by an unfaithful agent, the court in
Little vs. Phipps (1911) 208 Mass. 331, 94 NE 260, 34 LRA (NS) 1046, said: "It is well settled that the
agent is bound to exercise the utmost good faith in his dealings with his principal. As Lord Cairns said,
this rule "is not a technical or arbitrary rule. It is a rule founded on the highest and truest principles, of
morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent does not conduct himself with
entire fidelity towards his principal, but is guilty of taking a secret profit or commission in regard the matter
in which he is employed, he loses his right to compensation on the ground that he has taken a position
wholly inconsistent with that of agent for his employer, and which gives his employer, upon discovering it,
the right to treat him so far as compensation, at least, is concerned as if no agency had existed. This may
 operate to give to the principal the benefit of valuable services rendered by the agent, but the agent has
only himself to blame for that result."

xxx xxx xxx

The intent with which the agent took a secret profit has been held immaterial where the agent has in fact
entered into a relationship inconsistent with his agency, since the law condemns the corrupting tendency
of the inconsistent relationship. Little vs. Phipps (1911) 94 NE 260. 9

As a general rule, it is a breach of good faith and loyalty to his principal for an agent, while the agency
exists, so to deal with the subject matter thereof, or with information acquired during the course of the
agency, as to make a profit out of it for himself in excess of his lawful compensation; and if he does so he
may be held as a trustee and may be compelled to account to his principal for all profits, advantages,
rights, or privileges acquired by him in such dealings, whether in performance or in violation of his duties,
and be required to transfer them to his principal upon being reimbursed for his expenditures for the same,
unless the principal has consented to or ratified the transaction knowing that benefit or profit would
accrue or had accrued, to the agent, or unless with such knowledge he has allowed the agent so as to
change his condition that he cannot be put in status quo. The application of this rule is not affected by the
fact that the principal did not suffer any injury by reason of the agent's dealings or that he in fact obtained
better results; nor is it affected by the fact that there is a usage or custom to the contrary or that the
agency is a gratuitous one. (Emphasis applied.) 10

In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift or propina in
the amount of One Thousand Pesos (P1,000.00) from the prospective buyer Oscar de Leon, without
the knowledge and consent of his principal, herein petitioner-appellant Vicente Domingo. His
acceptance of said substantial monetary gift corrupted his duty to serve the interests only of his
principal and undermined his loyalty to his principal, who gave him partial advance of Three Hundred
Pesos (P300.00) on his commission. As a consequence, instead of exerting his best to persuade his
prospective buyer to purchase the property on the most advantageous terms desired by his principal,
the broker, herein defendant-appellee Gregorio Domingo, succeeded in persuading his principal to
accept the counter-offer of the prospective buyer to purchase the property at P1.20 per square meter
or One Hundred Nine Thousand Pesos (P109,000.00) in round figure for the lot of 88,477 square
meters, which is very much lower the the price of P2.00 per square meter or One Hundred Seventy-
Six Thousand Nine Hundred Fifty-Four Pesos (P176,954.00) for said lot originally offered by his
principal.

The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker acted
only as a middleman with the task of merely bringing together the vendor and vendee, who
themselves thereafter will negotiate on the terms and conditions of the transaction. Neither would the
rule apply if the agent or broker had informed the principal of the gift or bonus or profit he received
from the purchaser and his principal did not object therto. 11 Herein defendant-appellee Gregorio
Domingo was not merely a middleman of the petitioner-appellant Vicente Domingo and the buyer
Oscar de Leon. He was the broker and agent of said petitioner-appellant only. And therein petitioner-
appellant was not aware of the gift of One Thousand Pesos (P1,000.00) received by Gregorio
Domingo from the prospective buyer; much less did he consent to his agent's accepting such a gift.

The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon, does
not materially alter the situation; because the transaction, to be valid, must necessarily be with the
consent of the husband Oscar de Leon, who is the administrator of their conjugal assets including
their house and lot at No. 40 Denver Street, Cubao, Quezon City, which were given as part of and
constituted the down payment on, the purchase price of herein petitioner-appellant's lot No. 883 of
Piedad Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer.
As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo must
forfeit his right to the commission and must return the part of the commission he received from his
principal.

Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his
one-half share of whatever amounts Gregorio Domingo received by virtue of the transaction as his
sub-agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who was not
even aware of such sub-agency. Since Gregorio Domingo received from Vicente Domingo and Oscar
de Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand Pesos
(P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half of the same,
which is Six Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo Purisima.

Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental anguish
and serious anxiety as well as wounded feelings, petitioner-appellant Vicente Domingo should be
awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00) attorney's
fees in the reasonable amount of One Thousand Pesos (P1,000.00), considering that this case has
been pending for the last fifteen (15) years from its filing on October 3, 1956.

WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals and
directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of Vicente Domingo the sum
of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos (P1,000.00) as
attorney's fees; (2) to pay Teofilo Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to
pay the costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo and
Villamor, JJ., concur.

11
G.R. No. L-24332 January 31, 1978

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,

vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.

Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.

MUÑOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal,
Concepcion Rallos, sold the latter's undivided share in a parcel of land pursuant to a power of
attorney which the principal had executed in favor. The administrator of the estate of the went to court
to have the sale declared uneanforceable and to recover the disposed share. The trial court granted
the relief prayed for, but upon appeal the Court of Appeals uphold the validity of the sale and the
complaint.

Hence, this Petition for Review on certiorari.

The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters
and registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu
covered by Transfer Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the
sisters executed a special power of attorney in favor of their brother, Simeon Rallos, authorizing him
to sell for and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12,
1955, Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to
Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The deed of sale was
registered in the Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer
certificate of Title No. 12989 was issued in the named of the vendee.

On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a
complaint docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that
the sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable,
and said share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix
Go Chan & Sons Realty Corporation be cancelled and another title be issued in the names of the
corporation and the "Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be
indemnified by way of attorney's fees and payment of costs of suit. Named party defendants were
Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but
subsequently, the latter was dropped from the complaint. The complaint was amended twice;
defendant Corporation's Answer contained a crossclaim against its co-defendant, Simon Rallos while
the latter filed third-party complaint against his sister, Gerundia Rallos While the case was pending in
the trial court, both Simon and his sister Gerundia died and they were substituted by the respective
administrators of their estates.

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

A. On Plaintiffs Complaint —
 (1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-indiviso
share of Concepcion Rallos in the property in question, — Lot 5983 of the Cadastral
Survey of Cebu — is concerned;

(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title No.
12989 covering Lot 5983 and to issue in lieu thereof another in the names of FELIX GO
CHAN & SONS REALTY CORPORATION and the Estate of Concepcion Rallos in the
proportion of one-half (1/2) share each pro-indiviso;

(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an
undivided one-half (1/2) share of Lot 5983 to the herein plaintiff;

(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon
Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00;
and

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

B. On GO CHANTS Cross-Claim:

(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon
Rallos, to pay to defendant Felix Co Chan & Sons Realty Corporation the sum of
P5,343.45, representing the price of one-half (1/2) share of lot 5983;

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

Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons Realty
Corporation the sum of P500.00.

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

against Josefina Rallos special administratrix of the Estate of Gerundia Rallos:

(1) Dismissing the third-party complaint without prejudice to filing either a complaint against the regular
administrator of the Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia Rallos,
covering the same subject-matter of the third-party complaint, at bar. (pp. 98-100, Record on Appeal)

Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the
foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos.
The appellate tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of
the appellant corporation sustaining the sale in question. 1 The appellee administrator, Ramon Rallos,
moved for a reconsider of the decision but the same was denied in a resolution of March 4, 1965. 2

What is the legal effect of an act performed by an agent after the death of his principal? Applied more
particularly to the instant case, We have the query. is the sale of the undivided share of Concepcion
Rallos in lot 5983 valid although it was executed by the agent after the death of his principal? What is
the law in this jurisdiction as to the effect of the death of the principal on the authority of the agent to
act for and in behalf of the latter? Is the fact of knowledge of the death of the principal a material
factor in determining the legal effect of an act performed after such death?

Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the
matter tinder consideration.

1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of
another without being authorized by the latter, or unless he has by law a right to represent him. 3 A
contract entered into in the name of another by one who has no authority or the legal representation
or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed, before it is revoked by the other
contracting party. 4 Article 1403 (1) of the same Code also provides:

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

(1) Those entered into in the name of another person by one who hi - been given no authority or legal
representation or who has acted beyond his powers; ...

Out of the above given principles, sprung the creation and acceptance of the relationship of agency
whereby one party, caged the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third persons. The essential elements of
agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person; (3) the agents acts as a
representative and not for himself, and (4) the agent acts within the scope of his authority. 5

Agency is basically personal representative, and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his act is the act of the principal if done
within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts
himself". 6

2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause
— death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of
the Spanish Civil Code provides:

ART. 1919. Agency is extinguished.

xxx xxx xxx

3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ... (Emphasis
supplied)

By reason of the very nature of the relationship between Principal and agent, agency is extinguished
by the death of the principal or the agent. This is the law in this jurisdiction. 8

Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is
found in the juridical basis of agency which is representation Them being an in. integration of the
personality of the principal integration that of the agent it is not possible for the representation to
continue to exist once the death of either is establish. Pothier agrees with Manresa that by reason of
the nature of agency, death is a necessary cause for its extinction. Laurent says that the juridical tie
between the principal and the agent is severed ipso jure upon the death of either without necessity for
the heirs of the fact to notify the agent of the fact of death of the former. 9

The same rule prevails at common law — the death of the principal effects instantaneous and
absolute revocation of the authority of the agent unless the Power be coupled with an interest. 10 This
is the prevalent rule in American Jurisprudence where it is well-settled that a power without an
interest confer. red upon an agent is dissolved by the principal's death, and any attempted execution
of the power afterward is not binding on the heirs or representatives of the deceased. 11

3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent
extinguishes the agency, subject to any exception, and if so, is the instant case within that exception?
That is the determinative point in issue in this litigation. It is the contention of respondent corporation
which was sustained by respondent court that notwithstanding the death of the principal Concepcion
Rallos the act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the property is
valid and enforceable inasmuch as the corporation acted in good faith in buying the property in
question.

Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.

ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has
been constituted in the common interest of the latter and of the agent, or in the interest of a third person
who has accepted the stipulation in his favor.

ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any other
cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons who
may have contracted with him in good. faith.

Article 1930 is not involved because admittedly the special power of attorney executed in favor of
Simeon Rallos was not coupled with an interest.

Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his
principal is valid and effective only under two conditions, viz: (1) that the agent acted without
knowledge of the death of the principal and (2) that the third person who contracted with the agent
himself acted in good faith. Good faith here means that the third person was not aware of the death of
the principal at the time he contracted with said agent. These two requisites must concur the absence
of one will render the act of the agent invalid and unenforceable.

In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his
principal at the time he sold the latter's share in Lot No. 5983 to respondent corporation. The
knowledge of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the
trial court. 12 That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of
the court a quo 13 and of respondent appellate court when the latter stated that Simon Rallos 'must
have known of the death of his sister, and yet he proceeded with the sale of the lot in the name of
both his sisters Concepcion and Gerundia Rallos without informing appellant (the realty corporation)
of the death of the former. 14

On the basis of the established knowledge of Simon Rallos concerning the death of his principal
Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death of his principal; it is not enough
that the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying
Article 1738 of the old Civil rode now Art. 1931 of the new Civil Code sustained the validity , of a sale
made after the death of the principal because it was not shown that the agent knew of his principal's
demise. 15 To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the
words of Justice Jesus Barrera the Court stated:

... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is
no indication in the record, that the agent Luy Kim Guan was aware of the death of his principal at the
time he sold the property. The death 6f the principal does not render the act of an agent unenforceable,
where the latter had no knowledge of such extinguishment of the agency. (1 SCRA 406, 412)

4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out
that there is no provision in the Code which provides that whatever is done by an agent having
knowledge of the death of his principal is void even with respect to third persons who may have
contracted with him in good faith and without knowledge of the death of the principal. 16

We cannot see the merits of the foregoing argument as it ignores the existence of the general rule
enunciated in Article 1919 that the death of the principal extinguishes the agency. That being the
general rule it follows a fortiori that any act of an agent after the death of his principal is void ab initio
unless the same fags under the exception provided for in the aforementioned Articles 1930 and 1931.
Article 1931, being an exception to the general rule, is to be strictly construed, it is not to be given an
interpretation or application beyond the clear import of its terms for otherwise the courts will be
involved in a process of legislation outside of their judicial function.

5. Another argument advanced by respondent court is that the vendee acting in good faith relied on
the power of attorney which was duly registered on the original certificate of title recorded in the
Register of Deeds of the province of Cebu, that no notice of the death was aver annotated on said
certificate of title by the heirs of the principal and accordingly they must suffer the consequences of
such omission. 17

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

quote:

If the agency has been granted for the purpose of contracting with certain persons, the revocation must
be made known to them. But if the agency is general iii nature, without reference to particular person with
whom the agent is to contract, it is sufficient that the principal exercise due diligence to make the
revocation of the agency publicity known.

In case of a general power which does not specify the persons to whom represents' on should be made, it
is the general opinion that all acts, executed with third persons who contracted in good faith, Without
knowledge of the revocation, are valid. In such case, the principal may exercise his right against the
agent, who, knowing of the revocation, continued to assume a personality which he no longer had.
(Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)

The above discourse however, treats of revocation by an act of the principal as a mode of terminating
an agency which is to be distinguished from revocation by operation of law such as death of the
principal which obtains in this case. On page six of this Opinion We stressed that by reason of the
very nature of the relationship between principal and agent, agency is extinguished ipso jure upon the
death of either principal or agent. Although a revocation of a power of attorney to be effective must be
communicated to the parties concerned, 18 yet a revocation by operation of law, such as by death of
the principal is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise
of authority is regarded as an execution of the principal's continuing will. 19 With death, the principal's
will ceases or is the of authority is extinguished.

The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal
What the Code provides in Article 1932 is that, if the agent die his heirs must notify the principal
thereof, and in the meantime adopt such measures as the circumstances may demand in the interest
of the latter. Hence, the fact that no notice of the death of the principal was registered on the
certificate of title of the property in the Office of the Register of Deeds, is not fatal to the cause of the
estate of the principal

6. Holding that the good faith of a third person in said with an agent affords the former sufficient
protection, respondent court drew a "parallel" between the instant case and that of an innocent
purchaser for value of a land, stating that if a person purchases a registered land from one who
acquired it in bad faith — even to the extent of foregoing or falsifying the deed of sale in his favor —
the registered owner has no recourse against such innocent purchaser for value but only against the
forger. 20

To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et
al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:
 In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a co-owner of
lands with Agustin Nano. The latter had a power of attorney supposedly executed by Vallejo Nano in his
favor. Vallejo delivered to Nano his land titles. The power was registered in the Office of the Register of
Deeds. When the lawyer-husband of Angela Blondeau went to that Office, he found all in order including
the power of attorney. But Vallejo denied having executed the power The lower court sustained Vallejo
and the plaintiff Blondeau appealed. Reversing the decision of the court a quo, the Supreme Court,
quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held:

But there is a narrower ground on which the defenses of the defendant- appellee must be
overruled. Agustin Nano had possession of Jose Vallejo's title papers. Without those title
papers handed over to Nano with the acquiescence of Vallejo, a fraud could not have
been perpetuated. When Fernando de la Canters, a member of the Philippine Bar and
the husband of Angela Blondeau, the principal plaintiff, searched the registration record,
he found them in due form including the power of attorney of Vallajo in favor of Nano. If
this had not been so and if thereafter the proper notation of the encumbrance could not
have been made, Angela Blondeau would not have sent P12,000.00 to the defendant
Vallejo.' An executed transfer of registered lands placed by the registered owner thereof
in the hands of another operates as a representation to a third party that the holder of the
transfer is authorized to deal with the land.

As between two innocent persons, one of whom must suffer the consequence of a
breach of trust, the one who made it possible by his act of coincidence bear the loss. (pp.
19-21)

The Blondeau decision, however, is not on all fours with the case before Us because here We are
confronted with one who admittedly was an agent of his sister and who sold the property of the latter
after her death with full knowledge of such death. The situation is expressly covered by a provision of
law on agency the terms of which are clear and unmistakable leaving no room for an interpretation
contrary to its tenor, in the same manner that the ruling in Blondeau and the cases cited therein found
a basis in Section 55 of the Land Registration Law which in part provides:

xxx xxx xxx

The production of the owner's duplicate certificate whenever any voluntary instrument is presented for
registration shall be conclusive authority from the registered owner to the register of deeds to enter a new
certificate or to make a memorandum of registration in accordance with such instruments, and the new
certificate or memorandum Shall be binding upon the registered owner and upon all persons claiming
under him in favor of every purchaser for value and in good faith: Provided however, That in all cases of
registration provided by fraud, the owner may pursue all his legal and equitable remedies against the
parties to such fraud without prejudice, however, to the right, of any innocent holder for value of a
certificate of title. ... (Act No. 496 as amended)

7. One last point raised by respondent corporation in support of the appealed decision is an 1842
ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an
agent after the death of the principal were held to be "good", "the parties being ignorant of the death".
Let us take note that the Opinion of Justice Rogers was premised on the statement that the parties
were ignorant of the death of the principal. We quote from that decision the following:

... Here the precise point is, whether a payment to an agent when the Parties are ignorant of the death is
a good payment. in addition to the case in Campbell before cited, the same judge Lord Ellenboruogh, has
decided in 5 Esp. 117, the general question that a payment after the death of principal is not good. Thus,
a payment of sailor's wages to a person having a power of attorney to receive them, has been held void
when the principal was dead at the time of the payment. If, by this case, it is meant merely to decide the
general proposition that by operation of law the death of the principal is a revocation of the powers of the
attorney, no objection can be taken to it. But if it intended to say that his principle applies where there was
110 notice of death, or opportunity of twice I must be permitted to dissent from it.
 ... That a payment may be good today, or bad tomorrow, from the accident circumstance of the death of
the principal, which he did not know, and which by no possibility could he know? It would be unjust to the
agent and unjust to the debtor. In the civil law, the acts of the agent, done bona fide in ignorance of the
death of his principal are held valid and binding upon the heirs of the latter. The same rule holds in the
Scottish law, and I cannot believe the common law is so unreasonable... (39 Am. Dec. 76, 80, 81;
emphasis supplied)

To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may
be made that the above represents the minority view in American jurisprudence. Thus in Clayton v.
Merrett, the Court said.—

There are several cases which seem to hold that although, as a general principle, death revokes an
agency and renders null every act of the agent thereafter performed, yet that where a payment has been
made in ignorance of the death, such payment will be good. The leading case so holding is that of
Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this view ii
broadly announced. It is referred to, and seems to have been followed, in the case of Dick v. Page, 17
Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate of the deceased principal had
received the benefit of the money paid, and therefore the representative of the estate might well have
been held to be estopped from suing for it again. . . . These cases, in so far, at least, as they announce
the doctrine under discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4
Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite, alone in announcing the principle in
its broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion,
except so far as it related to the particular facts, was a mere dictum, Baldwin J. said:

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

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

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

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

So Ordered.

Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.

13

G.R. No. 167812             December 19, 2006

JESUS M. GOZUN, petitioner,

vs.
JOSE TEOFILO T. MERCADO a.k.a. ‘DON PEPITO MERCADO, respondent.

CARPIO MORALES, J.:

On challenge via petition for review on certiorari is the Court of Appeals’ Decision of December 8, 2004 and
Resolution of April 14, 2005 in CA-G.R. CV No. 763091 reversing the trial court’s decision2 against Jose
Teofilo T. Mercado a.k.a. Don Pepito Mercado (respondent) and accordingly dismissing the complaint of Jesus
M. Gozun (petitioner).

In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga. Upon respondent’s
request, petitioner, owner of JMG Publishing House, a printing shop located in San Fernando, Pampanga,
submitted to respondent draft samples and price quotation of campaign materials.

By petitioner’s claim, respondent’s wife had told him that respondent already approved his price quotation and
that he could start printing the campaign materials, hence, he did print campaign materials like posters bearing
respondent’s photograph,3 leaflets containing the slate of party candidates,4 sample ballots,5 poll watcher
identification cards,6 and stickers.

Given the urgency and limited time to do the job order, petitioner availed of the services and facilities of Metro
Angeles Printing and of St. Joseph Printing Press, owned by his daughter Jennifer Gozun and mother Epifania
Macalino Gozun, respectively.7

Petitioner delivered the campaign materials to respondent’s headquarters along Gapan-Olongapo Road in San
Fernando, Pampanga.8

Meanwhile, on March 31, 1995, respondent’s sister-in-law, Lilian Soriano (Lilian) obtained from petitioner
"cash advance" of P253,000 allegedly for the allowances of poll watchers who were attending a seminar and for
other related expenses. Lilian acknowledged on petitioner’s 1995 diary9 receipt of the amount.10

Petitioner later sent respondent a Statement of Account11 in the total amount of P2,177,906 itemized as follows:
P640,310 for JMG Publishing House; P837,696 for Metro Angeles Printing; P446,900 for St. Joseph Printing
Press; and P253,000, the "cash advance" obtained by Lilian.

On August 11, 1995, respondent’s wife partially paid P1,000,000 to petitioner who issued a receipt12 therefor.

Despite repeated demands and respondent’s promise to pay, respondent failed to settle the balance of his
account to petitioner.
Petitioner and respondent being compadres, they having been principal sponsors at the weddings of their
respective daughters, waited for more than three (3) years for respondent to honor his promise but to no avail,
compelling petitioner to endorse the matter to his counsel who sent respondent a demand letter.13 Respondent,
however, failed to heed the demand.14

Petitioner thus filed with the Regional Trial Court of Angeles City on November 25, 1998 a complaint15 against
respondent to collect the remaining amount of P1,177,906 plus "inflationary adjustment" and attorney’s fees.

In his Answer with Compulsory Counterclaim,16 respondent denied having transacted with petitioner or entering
into any contract for the printing of campaign materials. He alleged that the various campaign materials
delivered to him were represented as donations from his family, friends and political supporters. He added that
all contracts involving his personal expenses were coursed through and signed by him to ensure compliance
with pertinent election laws.

On petitioner’s claim that Lilian, on his (respondent’s) behalf, had obtained from him a cash advance of
P253,000, respondent denied having given her authority to do so and having received the same.

At the witness stand, respondent, reiterating his allegations in his Answer, claimed that petitioner was his over-
all coordinator in charge of the conduct of seminars for volunteers and the monitoring of other matters bearing
on his candidacy; and that while his campaign manager, Juanito "Johnny" Cabalu (Cabalu), who was authorized
to approve details with regard to printing materials, presented him some campaign materials, those were partly
donated.17

When confronted with the official receipt issued to his wife acknowledging her payment to JMG Publishing
House of the amount of P1,000,000, respondent claimed that it was his first time to see the receipt, albeit he
belatedly came to know from his wife and Cabalu that the P1,000,000 represented "compensation [to petitioner]
who helped a lot in the campaign as a gesture of goodwill."18

Acknowledging that petitioner is engaged in the printing business, respondent explained that he sometimes
discussed with petitioner strategies relating to his candidacy, he (petitioner) having actively volunteered to help
in his campaign; that his wife was not authorized to enter into a contract with petitioner regarding campaign
materials as she knew her limitations; that he no longer questioned the P1,000,000 his wife gave petitioner as he
thought that it was just proper to compensate him for a job well done; and that he came to know about
petitioner’s claim against him only after receiving a copy of the complaint, which surprised him because he
knew fully well that the campaign materials were donations.19

Upon questioning by the trial court, respondent could not, however, confirm if it was his understanding that the
campaign materials delivered by petitioner were donations from third parties.20

Finally, respondent, disclaiming knowledge of the Comelec rule that if a campaign material is donated, it must
be so stated on its face, acknowledged that nothing of that sort was written on all the materials made by
petitioner.21

As adverted to earlier, the trial court rendered judgment in favor of petitioner, the dispositive portion of which
reads:

WHEREFORE, the plaintiff having proven its (sic) cause of action by preponderance of evidence, the
Court hereby renders a decision in favor of the plaintiff ordering the defendant as follows:

1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest per annum from the filing of this
complaint until fully paid;
 2. To pay the sum of P50,000.00 as attorney’s fees and the costs of suit.

SO ORDERED.22

Also as earlier adverted to, the Court of Appeals reversed the trial court’s decision and dismissed the complaint
for lack of cause of action.

In reversing the trial court’s decision, the Court of Appeals held that other than petitioner’s testimony, there was
no evidence to support his claim that Lilian was authorized by respondent to borrow money on his behalf. It
noted that the acknowledgment receipt23 signed by Lilian did not specify in what capacity she received the
money. Thus, applying Article 131724 of the Civil Code, it held that petitioner’s claim for P253,000 is
unenforceable.

On the accounts claimed to be due JMG Publishing House – P640,310, Metro Angeles Printing – P837,696, and
St. Joseph Printing Press – P446,900, the appellate court, noting that since the owners of the last two printing
presses were not impleaded as parties to the case and it was not shown that petitioner was authorized to
prosecute the same in their behalf, held that petitioner could not collect the amounts due them.

Finally, the appellate court, noting that respondent’s wife had paid P1,000,000 to petitioner, the latter’s claim of
P640,310 (after excluding the P253,000) had already been settled.

Hence, the present petition, faulting the appellate court to have erred:

1. . . . when it dismissed the complaint on the ground that there is no evidence, other than petitioner’s
own testimony, to prove that Lilian R. Soriano was authorized by the respondent to receive the cash
advance from the petitioner in the amount of P253,000.00.

xxxx

2. . . . when it dismissed the complaint, with respect to the amounts due to the Metro Angeles Press and
St. Joseph Printing Press on the ground that the complaint was not brought by the real party in interest.

x x x x25

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.26 Contracts entered into in the name of another
person by one who has been given no authority or legal representation or who has acted beyond his powers are
classified as unauthorized contracts and are declared unenforceable, unless they are ratified.27

Generally, the agency may be oral, unless the law requires a specific form.28 However, a special power of
attorney is necessary for an agent to, as in this case, borrow money, unless it be urgent and indispensable for the
preservation of the things which are under administration.29 Since nothing in this case involves the preservation
of things under administration, a determination of whether Soriano had the special authority to borrow money
on behalf of respondent is in order.

Lim Pin v. Liao Tian, et al.30 held that the requirement of a special power of attorney refers to the nature of the
authorization and not to its form.

. . . The requirements are met if there is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated
that such a mandate may be either oral or written. The one thing vital being that it shall be express. And
 more recently, We stated that, if the special authority is not written, then it must be duly established by
evidence:

"…the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And
while the same does not state that the special authority be in writing the Court has every reason to expect
that, if not in writing, the same be duly established by evidence other than the self-serving assertion of
counsel himself that such authority was verbally given him."31 (Emphasis and underscoring supplied)

Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian to
obtain a loan from him, viz:

Q : Another caption appearing on Exhibit "A" is cash advance, it states given on 3-31-95 received by
Mrs. Lilian Soriano in behalf of Mrs. Annie Mercado, amount P253,000.00, will you kindly tell the
Court and explain what does that caption means?

A : It is the amount representing the money borrowed from me by the defendant when one morning
they came very early and talked to me and told me that they were not able to go to the bank to get
money for the allowances of Poll Watchers who were having a seminar at the headquarters plus other
election related expenses during that day, sir.

Q : Considering that this is a substantial amount which according to you was taken by Lilian Soriano,
did you happen to make her acknowledge the amount at that time?

A : Yes, sir.32 (Emphasis supplied)

Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf of respondent
or of his wife. While petitioner claims that Lilian was authorized by respondent, the statement of account
marked as Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs. Annie Mercado."

Invoking Article 187333 of the Civil Code, petitioner submits that respondent informed him that he had
authorized Lilian to obtain the loan, hence, following Macke v. Camps34 which holds that one who clothes
another with apparent authority as his agent, and holds him out to the public as such, respondent cannot
be permitted to deny the authority.

Petitioner’s submission does not persuade. As the appellate court observed:

. . . Exhibit "B" [the receipt issued by petitioner] presented by plaintiff-appellee to support his claim
unfortunately only indicates the Two Hundred Fifty Three Thousand Pesos (P253,0000.00) was received
by one Lilian R. Soriano on 31 March 1995, but without specifying for what reason the said amount was
delivered and in what capacity did Lilian R. Soriano received [sic] the money. The note reads:

"3-31-95

261,120 ADVANCE MONEY FOR TRAINEE –

RECEIVED BY

RECEIVED FROM JMG THE AMOUNT OF 253,000 TWO HUNDRED FIFTY THREE
THOUSAND PESOS

(SIGNED)
 LILIAN R. SORIANO

3-31-95"

Nowhere in the note can it be inferred that defendant-appellant was connected with the said transaction.
Under Article 1317 of the New Civil Code, a person cannot be bound by contracts he did not authorize
to be entered into his behalf.35 (Underscoring supplied)

It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was acting
for and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent of
respondent or anyone for that matter.

It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property
executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the principal,
otherwise, it will bind the agent only. It is not enough merely that the agent was in fact authorized to make the
mortgage, if he has not acted in the name of the principal. x x x36 (Emphasis and underscoring supplied)

On the amount due him and the other two printing presses, petitioner explains that he was the one who
personally and directly contracted with respondent and he merely sub-contracted the two printing
establishments in order to deliver on time the campaign materials ordered by respondent.

Respondent counters that the claim of sub-contracting is a change in petitioner’s theory of the case which is not
allowed on appeal.

In Oco v. Limbaring,37 this Court ruled:

The parties to a contract are the real parties in interest in an action upon it, as consistently held by the
Court. Only the contracting parties are bound by the stipulations in the contract; they are the ones who
would benefit from and could violate it. Thus, one who is not a party to a contract, and for whose benefit
it was not expressly made, cannot maintain an action on it. One cannot do so, even if the contract
performed by the contracting parties would incidentally inure to one's benefit.38 (Underscoring supplied)

In light thereof, petitioner is the real party in interest in this case. The trial court’s findings on the matter were
affirmed by the appellate court.39 It erred, however, in not declaring petitioner as a real party in interest insofar
as recovery of the cost of campaign materials made by petitioner’s mother and sister are concerned, upon the
wrong notion that they should have been, but were not, impleaded as plaintiffs.

In sum, respondent has the obligation to pay the total cost of printing his campaign materials delivered by
petitioner in the total of P1,924,906, less the partial payment of P1,000,000, or P924,906.

WHEREFORE, the petition is GRANTED. The Decision dated December 8, 2004 and the Resolution dated
April 14, 2005 of the Court of Appeals are hereby REVERSED and SET ASIDE.

The April 10, 2002 Decision of the Regional Trial Court of Angeles City, Branch 57, is REINSTATED mutatis
mutandis, in light of the foregoing discussions. The trial court’s decision is modified in that the amount payable
by respondent to petitioner is reduced to P924,906.

SO ORDERED.

Quisumbing, J., Chairperson, Carpio, Tinga, and Velasco, Jr., JJ., concur.
15

G.R. No. 151319             November 22, 2004

MANILA MEMORIAL PARK CEMETERY, INC., petitioner,

vs.
PEDRO L. LINSANGAN, respondent.

DECISION

TINGA, J.:

For resolution in this case is a classic and interesting texbook question in the law on agency.

This is a petition for review assailing the Decision1 of the Court of Appeals dated 22 June 2001, and its
Resolution2 dated 12 December 2001 in CA G.R. CV No. 49802 entitled "Pedro L. Linsangan v. Manila
Memorial Cemetery, Inc. et al.," finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and severally
liable with Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan.

The facts of the case are as follows:

Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the Holy
Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a memorial lot
under Contract No. 25012 was no longer interested in acquiring the lot and had opted to sell his rights subject to
reimbursement of the amounts he already paid. The contract was for P95,000.00. Baluyot reassured Atty.
Linsangan that once reimbursement is made to the former buyer, the contract would be transferred to him. Atty.
Linsangan agreed and gave Baluyot P35,295.00 representing the amount to be reimbursed to the original buyer
and to complete the down payment to MMPCI.3 Baluyot issued handwritten and typewritten receipts for these
payments.4

Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued Contract No. 28660, a
new contract covering the subject lot in the name of the latter instead of old Contract No. 25012. Atty.
Linsangan protested, but Baluyot assured him that he would still be paying the old price of P95,000.00 with
P19,838.00 credited as full down payment leaving a balance of about P75,000.00.5

Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83, Garden
Estate I denominated as Contract No. 28660 and the Official Receipt No. 118912 dated 6 April 1985 for the
amount of P19,838.00. Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected to the
new contract price, as the same was not the amount previously agreed upon. To convince Atty. Linsangan,
Baluyot executed a document6 confirming that while the contract price is P132,250.00, Atty. Linsangan would
pay only the original price of P95,000.00.

The document reads in part:

The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference will be
issued as discounted to conform to the previous price as previously agreed upon. --- P95,000.00
 Prepared by:

(Signed)

(MRS.) FLORENCIA C. BALUYOT

Agency Manager
Holy Cross Memorial Park

4/18/85

Dear Atty. Linsangan:

This will confirm our agreement that while the offer to purchase under Contract No. 28660 states that
the total price of P132,250.00 your undertaking is to pay only the total sum of P95,000.00 under the old
price. Further the total sum of P19,838.00 already paid by you under O.R. # 118912 dated April 6, 1985
has been credited in the total purchase price thereby leaving a balance of P75,162.00 on a monthly
installment of P1,800.00 including interests (sic) charges for a period of five (5) years.

(Signed)

FLORENCIA C. BALUYOT

By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt No. 118912.
As requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of P1,800.00 each in favor of
MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated checks in
favor of MMPCI.

On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for reasons
the latter could not explain, and presented to him another proposal for the purchase of an equivalent property.
He refused the new proposal and insisted that Baluyot and MMPCI honor their undertaking.

For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a
Complaint7 for Breach of Contract and Damages against the former.

Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was cancelled
conformably with the terms of the contract8 because of non-payment of arrearages.9 MMPCI stated that Baluyot
was not an agent but an independent contractor, and as such was not authorized to represent MMPCI or to use
its name except as to the extent expressly stated in the Agency Manager Agreement.10 Moreover, MMPCI was
not aware of the arrangements entered into by Atty. Linsangan and Baluyot, as it in fact received a down
payment and monthly installments as indicated in the contract.11 Official receipts showing the application of
payment were turned over to Baluyot whom Atty. Linsangan had from the beginning allowed to receive the
same in his behalf. Furthermore, whatever misimpression that Atty. Linsangan may have had must have been
rectified by the Account Updating Arrangement signed by Atty. Linsangan which states that he "expressly
admits that Contract No. 28660 'on account of serious delinquency…is now due for cancellation under its terms
and conditions.'''12

The trial court held MMPCI and Baluyot jointly and severally liable.13 It found that Baluyot was an agent of
MMPCI and that the latter was estopped from denying this agency, having received and enchased the checks
issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted that Baluyot was authorized to
receive only the down payment, it allowed her to continue to receive postdated checks from Atty. Linsangan,
which it in turn consistently encashed.14
The dispositive portion of the decision reads:

WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of plaintiff

declaring Contract No. 28660 as valid and subsisting and ordering defendants to perform their
undertakings thereof which covers burial lot No. A11 (15), Block 83, Section Garden I, Holy Cross
Memorial Park located at Novaliches, Quezon City. All payments made by plaintiff to defendants should
be credited for his accounts. NO DAMAGES, NO ATTORNEY'S FEES but with costs against the
defendants.

The cross claim of defendant Manila Memorial Cemetery Incorporated as against defendant Baluyot is
GRANTED up to the extent of the costs.

SO ORDERED.15

MMPCI appealed the trial court's decision to the Court of Appeals.16 It claimed that Atty. Linsangan is bound
by the written contract with MMPCI, the terms of which were clearly set forth therein and read, understood, and
signed by the former.17 It also alleged that Atty. Linsangan, a practicing lawyer for over thirteen (13) years at
the time he entered into the contract, is presumed to know his contractual obligations and is fully aware that he
cannot belatedly and unilaterally change the terms of the contract without the consent, much less the knowledge
of the other contracting party, which was MMPCI. And in this case, MMPCI did not agree to a change in the
contract and in fact implemented the same pursuant to its clear terms. In view thereof, because of Atty.
Linsangan's delinquency, MMPCI validly cancelled the contract.

MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the latter exceeded the
terms of her agency, neither did MMPCI ratify Baluyot's acts. It added that it cannot be charged with making
any misrepresentation, nor of having allowed Baluyot to act as though she had full powers as the written
contract expressly stated the terms and conditions which Atty. Linsangan accepted and understood. In canceling
the contract, MMPCI merely enforced the terms and conditions imposed therein.18

Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the former's obligation, as a
party knowingly dealing with an alleged agent, to determine the limitations of such agent's authority,
particularly when such alleged agent's actions were patently questionable. According to MMPCI, Atty.
Linsangan did not even bother to verify Baluyot's authority or ask copies of official receipts for his payments.19

The Court of Appeals affirmed the decision of the trial court. It upheld the trial court's finding that Baluyot was
an agent of MMPCI at the time the disputed contract was entered into, having represented MMPCI's interest and
acting on its behalf in the dealings with clients and customers. Hence, MMPCI is considered estopped when it
allowed Baluyot to act and represent MMPCI even beyond her authority.20 The appellate court likewise found
that the acts of Baluyot bound MMPCI when the latter allowed the former to act for and in its behalf and stead.
While Baluyot's authority "may not have been expressly conferred upon her, the same may have been derived
impliedly by habit or custom, which may have been an accepted practice in the company for a long period of
time."21 Thus, the Court of Appeals noted, innocent third persons such as Atty. Linsangan should not be
prejudiced where the principal failed to adopt the needed measures to prevent misrepresentation. Furthermore, if
an agent misrepresents to a purchaser and the principal accepts the benefits of such misrepresentation, he cannot
at the same time deny responsibility for such misrepresentation.22 Finally, the Court of Appeals declared:

There being absolutely nothing on the record that would show that the court a quo overlooked, disregarded, or
misinterpreted facts of weight and significance, its factual findings and conclusions must be given great weight
and should not be disturbed by this Court on appeal.
 WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed decision in
Civil Case No. 88-1253 of the Regional Trial Court, National Capital Judicial Region, Branch 57 of
Makati, is hereby AFFIRMED in toto.

SO ORDERED.23

MMPCI filed its Motion for Reconsideration,24 but the same was denied for lack of merit.25

In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in disregarding the
plain terms of the written contract and Atty. Linsangan's failure to abide by the terms thereof, which justified its
cancellation. In addition, even assuming that Baluyot was an agent of MMPCI, she clearly exceeded her
authority and Atty. Linsangan knew or should have known about this considering his status as a long-practicing
lawyer. MMPCI likewise claims that the Court of Appeals erred in failing to consider that the facts and the
applicable law do not support a judgment against Baluyot only "up to the extent of costs."26

Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in fact faithfully
performed his contractual obligations and complied with them in good faith for at least two years.27 He claims
that contrary to MMPCI's position, his profession as a lawyer is immaterial to the validity of the subject contract
and the case at bar.28 According to him, MMPCI had practically admitted in its Petition that Baluyot was its
agent, and thus, the only issue left to be resolved is whether MMPCI allowed Baluyot to act as though she had
full powers to be held solidarily liable with the latter.29

We find for the petitioner MMPCI.

The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court is limited to
reviewing only errors of law, not fact, unless the factual findings complained of are devoid of support by the
evidence on record or the assailed judgment is based on misapprehension of facts.30 In BPI Investment
Corporation v. D.G. Carreon Commercial Corporation,31 this Court ruled:

There are instances when the findings of fact of the trial court and/or Court of Appeals may be reviewed
by the Supreme Court, such as (1) when the conclusion is a finding grounded entirely on speculation,
surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3)
where there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its
findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant
and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact
are conclusions without citation of specific evidence on which they are based; (9) when the facts set
forth in the petition as well as in the petitioners' main and reply briefs are not disputed by the
respondents; and (10) the findings of fact of the Court of Appeals are premised on the supposed absence
of evidence and contradicted by the evidence on record.32

In the case at bar, the Court of Appeals committed several errors in the apprehension of the facts of the case, as
well as made conclusions devoid of evidentiary support, hence we review its findings of fact.

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.33 Thus, the elements of agency are (i) consent,
express or implied, of the parties to establish the relationship; (ii) the object is the execution of a juridical act in
relation to a third person; (iii) the agent acts as a representative and not for himself; and (iv) the agent acts
within the scope of his authority.34

In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency Manager
Agreement; an agency manager such as Baluyot is considered an independent contractor and not an agent.35
However, in the same contract, Baluyot as agency manager was authorized to solicit and remit to MMPCI offers
to purchase interment spaces belonging to and sold by the latter.36 Notwithstanding the claim of MMPCI that
Baluyot was an independent contractor, the fact remains that she was authorized to solicit solely for and in
behalf of MMPCI. As properly found both by the trial court and the Court of Appeals, Baluyot was an agent of
MMPCI, having represented the interest of the latter, and having been allowed by MMPCI to represent it in her
dealings with its clients/prospective buyers.

Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the contract
procured by Atty. Linsangan and solicited by Baluyot.

Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained on forms
provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such forms and, when
signed by the buyer and an authorized officer of MMPCI, becomes binding on both parties.

The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI showed a total
list price of P132,250.00. Likewise, it was clearly stated therein that "Purchaser agrees that he has read or has
had read to him this agreement, that he understands its terms and conditions, and that there are no covenants,
conditions, warranties or representations other than those contained herein."37 By signing the Offer to Purchase,
Atty. Linsangan signified that he understood its contents. That he and Baluyot had an agreement different from
that contained in the Offer to Purchase is of no moment, and should not affect MMPCI, as it was obviously
made outside Baluyot's authority. To repeat, Baluyot's authority was limited only to soliciting purchasers. She
had no authority to alter the terms of the written contract provided by MMPCI. The document/letter
"confirming" the agreement that Atty. Linsangan would have to pay the old price was executed by Baluyot
alone. Nowhere is there any indication that the same came from MMPCI or any of its officers.

It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it.38 The basis for agency is representation and a
person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.39 If
he does not make such an inquiry, he is chargeable with knowledge of the agent's authority and his ignorance of
that authority will not be any excuse.40

As noted by one author, the ignorance of a person dealing with an agent as to the scope of the latter's authority
is no excuse to such person and the fault cannot be thrown upon the principal.41 A person dealing with an agent
assumes the risk of lack of authority in the agent. He cannot charge the principal by relying upon the agent's
assumption of authority that proves to be unfounded. The principal, on the other hand, may act on the
presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of
his authority as well as the existence of his agency.42

In the instant case, it has not been established that Atty. Linsangan even bothered to inquire whether Baluyot
was authorized to agree to terms contrary to those indicated in the written contract, much less bind MMPCI by
her commitment with respect to such agreements. Even if Baluyot was Atty. Linsangan's friend and known to
be an agent of MMPCI, her declarations and actions alone are not sufficient to establish the fact or extent of her
authority.43 Atty. Linsangan as a practicing lawyer for a relatively long period of time when he signed the
contract should have been put on guard when their agreement was not reflected in the contract. More
importantly, Atty. Linsangan should have been alerted by the fact that Baluyot failed to effect the transfer of
rights earlier promised, and was unable to make good her written commitment, nor convince MMPCI to assent
thereto, as evidenced by several attempts to induce him to enter into other contracts for a higher consideration.
As properly pointed out by MMPCI, as a lawyer, a greater degree of caution should be expected of Atty.
Linsangan especially in dealings involving legal documents. He did not even bother to ask for official receipts
of his payments, nor inquire from MMPCI directly to ascertain the real status of the contract, blindly relying on
the representations of Baluyot. A lawyer by profession, he knew what he was doing when he signed the written
contract, knew the meaning and value of every word or phrase used in the contract, and more importantly, knew
the legal effects which said document produced. He is bound to accept responsibility for his negligence.

The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial court,
MMPCI's acts of accepting and encashing the checks issued by Atty. Linsangan as well as allowing Baluyot to
receive checks drawn in the name of MMPCI confirm and ratify the contract of agency. On the other hand, the
Court of Appeals faulted MMPCI in failing to adopt measures to prevent misrepresentation, and declared that in
view of MMPCI's acceptance of the benefits of Baluyot's misrepresentation, it can no longer deny responsibility
therefor.

The Court does not agree. Pertinent to this case are the following provisions of the Civil Code:

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and
the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is
aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if he
undertook to secure the principal's ratification.

Art. 1910. The principal must comply with all the obligations that the agent may have contracted within
the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when
he ratifies it expressly or tacitly.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the
agent if the former allowed the latter to act as though he had full powers.

Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies them,
expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own unauthorized acts.
Moreover, the principal must have knowledge of the acts he is to ratify.44

Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by
another without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute
for a prior authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the
material facts and circumstances relating to the unauthorized act of the person who assumed to act as agent.
Thus, if material facts were suppressed or unknown, there can be no valid ratification and this regardless of the
purpose or lack thereof in concealing such facts and regardless of the parties between whom the question of
ratification may arise.45 Nevertheless, this principle does not apply if the principal's ignorance of the material
facts and circumstances was willful, or that the principal chooses to act in ignorance of the facts.46 However, in
the absence of circumstances putting a reasonably prudent man on inquiry, ratification cannot be implied as
against the principal who is ignorant of the facts.47

No ratification can be implied in the instant case.

A perusal of Baluyot's Answer48 reveals that the real arrangement between her and Atty. Linsangan was for the
latter to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the counterpart amount of
P1,455.00 to meet the P3,255.00 monthly installments as indicated in the contract. Thus, every time an
installment falls due, payment was to be made through a check from Atty. Linsangan for P1,800.00 and a cash
component of P1,455.00 from Baluyot.49 However, it appears that while Atty. Linsangan issued the post-dated
checks, Baluyot failed to come up with her part of the bargain. This was supported by Baluyot's statements in
her letter50 to Mr. Clyde Williams, Jr., Sales Manager of MMPCI, two days after she received the copy of the
Complaint. In the letter, she admitted that she was remiss in her duties when she consented to Atty. Linsangan's
proposal that he will pay the old price while the difference will be shouldered by her. She likewise admitted that
the contract suffered arrearages because while Atty. Linsangan issued the agreed checks, she was unable to give
her share of P1,455.00 due to her own financial difficulties. Baluyot even asked for compassion from MMPCI
for the error she committed.

Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is concerned,
the contract price was P132,250.00, as stated in the Offer to Purchase signed by Atty. Linsangan and MMPCI's
authorized officer. The down payment of P19,838.00 given by Atty. Linsangan was in accordance with the
contract as well. Payments of P3,235.00 for at least two installments were likewise in accord with the contract,
albeit made through a check and partly in cash. In view of Baluyot's failure to give her share in the payment,
MMPCI received only P1,800.00 checks, which were clearly insufficient payment. In fact, Atty. Linsangan
would have incurred arrearages that could have caused the earlier cancellation of the contract, if not for
MMPCI's application of some of the checks to his account. However, the checks alone were not sufficient to
cover his obligations.

If MMPCI was aware of the arrangement, it would have refused the latter's check payments for being
insufficient. It would not have applied to his account the P1,800.00 checks. Moreover, the fact that Baluyot had
to practically explain to MMPCI's Sales Manager the details of her "arrangement" with Atty. Linsangan and
admit to having made an error in entering such arrangement confirm that MMCPI had no knowledge of the said
agreement. It was only when Baluyot filed her Answer that she claimed that MMCPI was fully aware of the
agreement.

Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct of a party
amounting to false representation or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts
to assert; (ii) intent, or at least expectation, that this conduct shall be acted upon by, or at least influence, the
other party; and (iii) knowledge, actual or constructive, of the real facts.51

While there is no more question as to the agency relationship between Baluyot and MMPCI, there is no
indication that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had the authority
to alter the standard contracts of the company. Neither is there any showing that prior to signing Contract No.
28660, MMPCI had any knowledge of Baluyot's commitment to Atty. Linsangan. One who claims the benefit
of an estoppel on the ground that he has been misled by the representations of another must not have been
misled through his own want of reasonable care and circumspection.52 Even assuming that Atty. Linsangan was
misled by MMPCI's actuations, he still cannot invoke the principle of estoppel, as he was clearly negligent in
his dealings with Baluyot, and could have easily determined, had he only been cautious and prudent, whether
said agent was clothed with the authority to change the terms of the principal's written contract. Estoppel must
be intentional and unequivocal, for when misapplied, it can easily become a most convenient and effective
means of injustice.53 In view of the lack of sufficient proof showing estoppel, we refuse to hold MMPCI liable
on this score.

Likewise, this Court does not find favor in the Court of Appeals' findings that "the authority of defendant
Baluyot may not have been expressly conferred upon her; however, the same may have been derived impliedly
by habit or custom which may have been an accepted practice in their company in a long period of time." A
perusal of the records of the case fails to show any indication that there was such a habit or custom in MMPCI
that allows its agents to enter into agreements for lower prices of its interment spaces, nor to assume a portion
of the purchase price of the interment spaces sold at such lower price. No evidence was ever presented to this
effect.

As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660 between
MMPCI and by Atty. Linsangan for the purchase of an interment space in the former's cemetery. The other is
the agreement between Baluyot and Atty. Linsangan for the former to shoulder the amount P1,455.00, or the
difference between P95,000.00, the original price, and P132,250.00, the actual contract price.
To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless the latter
ratifies the same. It also bears emphasis that when the third person knows that the agent was acting beyond his
power or authority, the principal cannot be held liable for the acts of the agent. If the said third person was
aware of such limits of authority, he is to blame and is not entitled to recover damages from the agent, unless
the latter undertook to secure the principal's ratification.54

This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty. Linsangan. By
affixing his signature in the contract, Atty. Linsangan assented to the terms and conditions thereof. When Atty.
Linsangan incurred delinquencies in payment, MMCPI merely enforced its rights under the said contract by
canceling the same.

Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on what he claims to be the terms
of Contract No. 28660. The agreement, insofar as the P95,000.00 contract price is concerned, is void and cannot
be enforced as against MMPCI. Neither can he hold Baluyot liable for damages under the same contract, since
there is no evidence showing that Baluyot undertook to secure MMPCI's ratification. At best, the "agreement"
between Baluyot and Atty. Linsangan bound only the two of them. As far as MMPCI is concerned, it bound
itself to sell its interment space to Atty. Linsangan for P132,250.00 under Contract No. 28660, and had in fact
received several payments in accordance with the same contract. If the contract was cancelled due to arrearages,
Atty. Linsangan's recourse should only be against Baluyot who personally undertook to pay the difference
between the true contract price of P132,250.00 and the original proposed price of P95,000.00. To surmise that
Baluyot was acting on behalf of MMPCI when she promised to shoulder the said difference would be to
conclude that MMPCI undertook to pay itself the difference, a conclusion that is very illogical, if not
antithetical to its business interests.

However, this does not preclude Atty. Linsangan from instituting a separate action to recover damages from
Baluyot, not as an agent of MMPCI, but in view of the latter's breach of their separate agreement. To review,
Baluyot obligated herself to pay P1,455.00 in addition to Atty. Linsangan's P1,800.00 to complete the monthly
installment payment under the contract, which, by her own admission, she was unable to do due to personal
financial difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed upon, and were it not
for Baluyot's failure to provide the balance, Contract No. 28660 would not have been cancelled. Thus, Atty.
Linsangan has a cause of action against Baluyot, which he can pursue in another case.

WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated 22 June 2001
and its Resolution dated 12 December 2001 in CA- G.R. CV No. 49802, as well as the Decision in Civil Case
No. 88-1253 of the Regional Trial Court, Makati City Branch 57, are hereby REVERSED and SET ASIDE. The
Complaint in Civil Case No. 88-1253 is DISMISSED for lack of cause of action. No pronouncement as to costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.