Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-56170 January 31, 1984

HILARIO JARAVATA petitioner,

vs.
THE HON. SANDIGANBAYAN and THE PEOPLE OF THE PHILIPPINES, respondents.

Franco L. Loyola and Sabas Cacananta for petitioner.

The Solicitor General for respondents.

ABAD SANTOS, J.:

This is a petition to review the decision of the Sandiganbayan in Criminal Case No. 873.

Hilario Jaravata was accused of violating Section 3(b) of Republic Act No. 3019, as amended, said
to have been committed in the following manner:

That on or about the period from April 30, 1979 to May 25, 1979, in the Municipality
of Tubao, Province of La Union, Philippines, and within the jurisdiction of this
Honorable Court, the abovenamed accused, being then the Assistant Principal of the
Leones Tubao, La Union Barangay High School and with the use of his influence as
such public official and taking advantage of his moral and official ascendancy over
his classroom teachers, with deliberate intent did then and there wilfully, unlawfully
and feloniously made demand and actually received payments from other classroom
teachers, ROMEO DACAYANAN, DOMINGO LOPEZ, MARCELA BAUTISTA, and
FRANCISCO DULAY various sums of money, namely: P118.00, P100.00, P50.00
and P70.00 out of their salary differentials, in consideration of accused having
officially intervened in the release of the salary differentials of the six classroom
teachers, to the prejudice and damage of the said classroom teachers, in the total
amount of THREE HUNDRED THIRTY EIGHT (P338.00) PESOS, Philippine
Currency. (Decision, p.1-2.)

After trial, the Sandiganbayan rendered the following judgment:

WHEREFORE, accused is hereby found guilty beyond reasonable doubt for Violation
of Section 3(b), Republic Act No. 3019, as amended, and he is hereby sentenced to
suffer an indeterminate imprisonment ranging from ONE (1) YEAR, is minimum, to
FOUR (4) YEARS, as maximum, to further suffer perpetual special disqualification
from public office and to pay the costs.

No pronouncement as to the civil liability it appearing that the money given to the
accused was already refunded by him. (Id. pp, 16-17.)
The petition raises factual and legal issues but for obvious reasons Our decision shall deal with the
legal issue only.

The Sandiganbayan states in its decision the following:

A perusal of the conflicting versions of the prosecution and the defense shows that
there is no dispute that [complainants] Ramos, Lloren, Lopez, Dacayanan, Dulay and
Bautista are classroom teachers of the Leones Barangay High School with accused
as their assistant principal and [Conrado Baltazar as the administrator; that on
January 5, 1979, accused informed the classroom teachers of the approval of the
release of their salary differentials for 1978 and to facilitate its payment accused and
the classroom teachers agreed that accused follow-up the papers in Manila with the
obligation on the part of the classroom teachers to reimburse the accused of his
expenses; that accused incurred expenses in the total amount of P220.00 and there
being six classroom teachers, he divided said amount by six or at the rate of P36.00
each; that the classroom teachers actually received their salary differentials and
pursuant to said agreement, they, with the exception of Lloren and Ramos, gave the
accused varying amounts but as Baltazar did not approve it, he ordered the accused
to return the money given to him by Lopez, Dacayanan, Dulay and Bautista, and
accused complied (Pp. 7-8.)

The decision also recites that "the evidence is overwhelming to show that accused received more
than the rightful contribution of P36.00 from four classroom teachers, namely: Lopez, Dulay,
Dacayanan and Bautista. Lopez categorically declared that he gave the accused P100.00 (TSN, p.
5, August 21, 1980 hearing) after he received his salary differential or an excess of P64.00. So with
Dulay, that he gave P70.00 to the accused (TSN, p. 16, supra) or an excess of P34.00; Dacayanan,
that he gave to the accused P118.00 (TSN, p. 26, supra) or an excess of P82.00, and Bautista, that
he gave to the accused P50.00 (TSN, p. 38, supra) or an excess of P14.00. In short, the total
amount received by the accused in excess of the share of the classroom teachers in the
reimbursement of his expenses is P194.00. " (P. 9.)

Republic Act No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act provides, inter
alia the following:

Sec. 3. Corrupt practices of public officers. — In addition to acts or omissions of

public officers already penalized by existing law, the following shall constitute corrupt
practices of any public officer and are hereby declared to be unlawful:

xxx xxx xxx

(b) Directly or indirectly requesting or receiving any gift, present, share, percentage,
or benefit, for himself or for any other person in connection with any contract or
transaction between the Government and any other party, wherein the public officer
in his official capacity has to intervene under the law.

xxx xxx xxx

The legal issue is whether or not, under the facts stated, petitioner Jaravata violated the above-
quoted provision of the statute.

A simple reading of the provision has to yield a negative answer.

There is no question that Jaravata at the time material to the case was a "public officer" as defined
by Section 2 of R.A. No. 3019, i.e. "elective and appointive officials and employees, permanent or
temporary, whether in the classified or unclassified or exempt service receiving compensation, even
normal from the government." It may also be said that any amount which Jaravata received in
excess of P36.00 from each of the complainants was in the concept of a gift or benefit. The pivotal
question, however, is whether Jaravata, an assistant principal of a high school in the boondocks of
Tubao, La Union, "in his official capacity has to intervene under the law" in the payment of the salary
differentials for 1978 of the complainants. It should be noted that the arrangement was "to facilitate
its [salary differential] payment accused and the classroom teachers agreed that accused follow-up
the papers in Manila with the obligation on the part of the classroom teachers to reimburse the
accused of his expenses.

In Our opinion, Sec. 3(b) of R.A. No. 3019, refers to a public officer whose official intervention is
required by law in a contract or transaction.

There is no law which invests the petitioner with the power to intervene in the payment of the salary
differentials of the complainants or anyone for that matter. Far from exercising any power, the
petitioner played the humble role of a supplicant whose mission was to expedite payment of the
salary differentials. In his official capacity as assistant principal he is not required by law to intervene
in the payment of the salary differentials. Accordingly, he cannot be said to have violated the law
afore-cited although he exerted efforts to facilitate the payment of the salary differentials.

WHEREFORE, the petition is hereby granted and the judgment of the Sandiganbayan convicting the
petitioner is set aside. Costs de oficio.

SO ORDERED.

Fernando, C.J., Teehankee, Makasiar, Aquino, Concepcion, Jr., Guerrero, De Castro, Melencio-
Herrera, Plana, Escolin, Relova and Gutierrez, Jr., JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 131622 November 27, 1998

LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners,

vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR.
doing lending business under the trade name and style "GONZALES CREDIT
ENTERPRISES", respondents.

PARDO, J.:

The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised Rules
of Court, seeking to set aside the decision of the Court of Appeals,1 and its resolution denying
reconsideration, 2 the dispositive portion of which decision reads as follows:

WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants

are hereby-ordered to pay the plaintiff: the sum of P500,000.00, plus 5.5% per month
interest and 2% service charge per annum effective July 23, 1986, plus 1% per
month of the total amount due and demandable as penalty charges effective August
23, 1986, until the entire amount is fully paid.

The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so is the
imposition of costs against the defendants.

SO ORDERED. 3

The Court required the respondents to comment on the petition,4 which was filed on April 3,
1998,5 and the petitioners to reply thereto, which was filed on May 29, 1998.6 We now resolve to give
due course to the petition and decide the case.

The facts of the case, as found by the Court of Appeals in its decision, which are considered binding
and conclusive on the parties herein, as the appeal is limited to questions of law, are as follows:

On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia)
obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money
lending business under the name "Gonzales Credit Enterprises", in the amount of P50,000.00,
payable in two months. Veronica gave only the amount of P47,000.00, to the borrowers, as she
retained P3,000.00, as advance interest for one month at 6% per month. Servando and Leticia
executed a promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986.

On November 19, 1985, Servando and Liticia obtained from Veronica another loan in the amount of
P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to
evidence the loan, maturing on Janaury 19, 1986. They received only P84,000.00, out of the
proceeds of the loan.

On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.

On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amout of
P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging
to Leticia Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel,
authorizing her to execute the mortgage. Servando and Leticia executed a promissory note in favor
of Veronica to pay the sum of P300,000.00, after a month, or on July 11, 1986. However, only the
sum of P275.000.00, was given to them out of the proceeds of the loan.

Like the previous loans, Servando and Medel failed to pay the third loan on maturity.

On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all
their previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the
amount of P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23,
1986. They executed a promissory note, reading as follows:

Baliwag, Bulacan July 23, 1986

Maturity Date Augsut 23, 1986

P500,000.00

FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of
VERONICA R. GONZALES doing business in the business style of GONZALES
CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of
Baliwag, Bulacan, the sum of PESOS . . . FIVE HUNDRED THOUSAND . . .
(P500,000.00) Philippine Currency with interest thereon at the rate of 5.5 PER CENT
per month plus 2% service charge per annum from date hereof until fully paid
according to the amortization schedule contained herein. (Emphasis supplied)

Payment will be made in full at the maturity date.

Should I/WE fail to pay any amortization or portion hereof when due, all the other
installments together with all interest accrued shall immediately be due and payable
and I/WE hereby agree to pay an additional amount equivalent to one per cent (1%)
per month of the amount due and demandable as penalty charges in the form of
liquidated damages until fully paid; and the further sum of TWENTY FIVE PER CENT
(25%) thereof in full, without deductions as Attorney's Fee whether actually incurred
or not, of the total amount due and demandable, exclusive of costs and judicial or
extra judicial expenses. (Emphasis supplied).

I, WE further agree that in the event the present rate of interest on loan is increased
by law or the Central Bank of the Philippines, the holder shall have the option to
apply and collect the increased interest charges without notice although the original
interest have already been collected wholly or partially unless the contrary is required
by law.
 It is also a special condition of this contract that the parties herein agree that the
amount of peso-obligation under this agreement is based on the present value of the
peso, and if there be any change in the value thereof, due to extraordinary inflation or
deflation, or any other cause or reason, then the peso-obligation herein contracted
shall be adjusted in accordance with the value of the peso then prevailing at the time
of the complete fulfillment of the obligation.

Demand and notice of dishonor waived. Holder may accept partial payments and
grant renewals of this note or extension of payments, reserving rights against each
and all indorsers and all parties to this note.

IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors
waive all his/their rights under the provisions of Section 12, Rule 39, of the Revised
Rules of Court.

On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests
and penalties, evidenced by the above-quoted promissory note.

On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with
the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the
full amount of the loan including interests and other charges.

In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged
that he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel
who borrowed from the plaintiffs the sum of P500,000.00, and actually received the amount and
benefited therefrom; that the loan was secured by a real estate mortgage executed in favor of the
plaintiffs, and that he (Servando Franco) signed the promissory note only as a witness.

In their separate answer filed on April 10, 1990, defendants Leticia and Rafael Medel alleged that
the loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs
over a parcel of real estate situated in San Juan, Batangas; that the interest rate is excessive at
5.5% per month with additional service charge of 2% per annum, and penalty charge of 1% per
month; that the stipulation for attorney's fees of 25% of the amount due is unconscionable, illegal
and excessive, and that substantial payments made were applied to interest, penalties and other
charges.

After due trial, the lower court declared that the due execution and genuineness of the four
promissory notes had been duly proved, and ruled that although the Usury Law had been repealed,
the interest charged by the plaintiffs on the loans was unconscionable and "revolting to the
conscience". Hence, the trial court applied "the provision of the New [Civil] Code" that the "legal rate
of interest for loan or forbearance of money, goods or credit is 12% per annum."7

Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which
reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered, as follows:

1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally,
to pay plaintiffs the amount of P47,000.00 plus 12% interest per annum from
November 7, 1985 and 1% per month as penalty, until the entire amount is paid in
full.
 2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly
and severally the amount of P84,000.00 with 12% interest per annum and 1% per
cent per month as penalty from November 19, 1985 until the whole amount is fully
paid;

3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of
P285,000.00 plus 12% interest per annum and 1% per month as penalty from July
11, 1986, until the whole amount is fully paid;

4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of
P50,000.00 as attorney's fees;

5. All counterclaims are hereby dismissed.

With costs against the defendants.8

In due time, both plaintiffs and defendants appealed to the Court of Appeals.

In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the
unpaid loans of the defendants, is the law that governs the parties. They further argued that Circular
No. 416 of the Central Bank prescribing the rate of interest for loans or forbearance of money, goods
or credit at 12% per annum, applies only in the absence of a stipulation on interest rate, but not
when the parties agreed thereon.

The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law
having become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No.
905, the lender and borrower could agree on any interest that may be charged on the loan".9 The
Court of Appeals further held that "the imposition of 'an additional amount equivalent to 1% per
month of the amount due and demandable as penalty charges in the form of liquidated damages
until fully paid' was allowed by
law". 10

Accordingly, on March 21, 1997, the Court of Appeals promulgated its decision reversing that of the
Regional Trial Court, disposing as follows:

WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants

are hereby ordered to pay the plaintiffs the sum of P500,000.00, plus 5.5% per
month interest and 2% service charge per annum effective July 23, 1986, plus 1%
per month of the total amount due and demandable as penalty charges effective
August 24, 1986, until the entire amount is fully paid.

The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the
imposition of costs against the defendants.

SO ORDERED. 11

On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By
resolution dated November 25, 1997, the Court of Appeals denied the motion. 12

Hence, defendants interposed the present recourse via petition for review on certiorari. 13
We find the petition meritorious.

Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the question
presented is whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum
of P500,000.00, that plaintiffs extended to the defendants is usurious. In other words, is the Usury
Law still effective, or has it been repealed by Central Bank Circular No. 905, adopted on December
22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D. No. 1684?

We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00
loan is excessive, iniquitous, unconscionable and exorbitant. 13 However, we can not consider the
rate "usurious" because this Court has consistently held that Circular No. 905 of the Central Bank,
adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the
Usury Law 14 and that the Usury Law is now "legally inexistent". 15

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 16 the Court held
that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended
the latter's effectivity." Indeed, we have held that "a Central Bank Circular can not repeal a law. Only
a law can repeal another law." 17 In the recent case of Florendo vs. Court of Appeals 18, the Court
reiterated the ruling that "by virtue of CB Circular 905, the Usury Law has been rendered ineffective".
"Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and
borrower may agree upon." 19

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the
parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra
bonos mores"), if not against the law. 20 The stipulation is void. 21 The courts shall reduce equitably
liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or
unconscionable. 22

Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we
agree with the trial court that, under the circumstances, interest at 12% per annum, and an additional
1% a month penalty charge as liquidated damages may be more reasonable.

WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals
promulgated on March 21, 1997, and its resolution dated November 25, 1997. Instead, we render
judgment REVIVING and AFFIRMING the decision dated December 9, 1991, of the Regional Trial
Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same
parties.

No pronouncement as to costs in this instance.

SO ORDERED.

Narvasa, C.J., Romero, Kapunan and Purisima, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-16797 February 27, 1963

RODRIGO ENRIQUEZ, ET AL., plaintiffs-appellees,

vs.
SOCORRO A. RAMOS, ET AL., defendants-appellants.

Gelasio L. Dimaano for plaintiffs-appellees.

Vicente K. Aranda for defendants-appellants.

REYES, J.B.L., J.:

Direct appeal on points of law from a decision of the Court of First Instance of Rizal in its Civil Case
No. Q-4232.

The record is to the effect that on 24 November 1958, Rodrigo Enriquez and the spouses Urbano
Dizon and Aurea Soriano de Dizon sold to Socorro A. Ramos, by a notarial deed of even date,
eleven (11) parcels of land situated in Bago Bantay, Quezon City, and covered by their
corresponding certificates of title, for the stipulated price of P101,000.00. The vendee paid
P5,000.00 down, P2,500.00 in cash, and P2,500.00 by a check drawn against the Philippine
National Bank, and agreed to satisfy the balance of P96,000.00 within ninety (90) days. To secure
the said balance, the vendee Socorro A. Ramos, in the same deed of sale, mortgaged the eleven
parcels in favor of the vendors. By way of additional security, Socorro A. Ramos, as attorney-in-fact
of her children, Enrique, Antonio, Milagros, and Lourdes, and as judicial guardian of her minor child
Angelita Ramos, executed another mortgage on Lot No. 409 of the Malinta Estate.

Because of the vendee-mortgagor's failure to comply with some conditions of the mortgage, this
action for foreclosure of the mortgage was filed by the vendors-mortgagees in the court below, on 29
April 1959. Defendant Socorro Ramos moved to dismiss, alleging that the plaintiffs previously had
filed action against her in the Court of First Instance of Manila on 24 February 1959 for the recovery
of P2,500.00 paid by check as part of the down payment on the price of the mortgaged lands; that at
the time this first suit was filed, the mortgage debt was already accrued and demandable; that
plaintiffs were, therefore, guilty of splitting a single cause of action, and under section 4 of Rule 2 of
the Rules of Court, the filing of the first action for P2,500.00 was a defense that could be pleaded in
abatement of the second suit. Upon opposition by the plaintiffs, the Court of First Instance of Quezon
City denied the motion to dismiss; but defendant Ramos repleaded the averments as a special
defense in her answer. After trial, on 16 December 1959, the Court of First Instance of Quezon City
rendered judgment against defendant Ramos; ordered her to pay P96,000.00, with 12% interest
from 24 February 1959 until payment, 10% of the amount due as attorney's fees, and the costs of
the suit; and further decreed the foreclosure sale of the mortgaged properties in case of non-
payment within ninety (90) days.

Socorro Ramos appealed directly to this Court, and here insists that the action should be dismissed
on account of the alleged splitting of appellee's cause of action, and that the obligation not having
fixed a period, although one was intended, the court below should have set first a date of maturity
before ordering payment or foreclosure.
We find no merit in the appeal.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts.
1äwphï1.ñët

An examination of the first complaint filed against appellant in the Court of First Instance of Manila
shows that it was based on appellants' having unlawfully stopped payment of the check for
P2,500.00 she had issued in favor of appellees; while the complaint in the present action was for
non-payment of the balance of P96,000.00 guaranteed by the mortgage. The claim for P2,500.00
was, therefore, a distinct debt not covered by the security; and since the mortgage was constituted
on lands situated in Quezon City, the appellees could not ask for its foreclosure in the Manila courts.
The two causes of action being different, section 4 of Rule 2 does not apply.

On the second assignment of error: the stipulation in the mortgage contract that the obligation for
P96,000.00 was to be —

without interest, payable within ninety (90) days from this date, provided that in case of
default it shall bear interest at the rate of 12% per annum,

clearly fixes a date of maturity, the stipulated twelve per cent in case of default being nothing more
than a penalty, designed to induce the debtor to pay on or before the expiration of the ninety (90)
days. Hence, there was no call upon the court to set another due date.

Finding no error in the judgment appealed from, the same is affirmed, with costs against appellants.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Dizon, Regala
and Makalintal, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 151953 June 29, 2007

SALVADOR P. ESCAÑO and MARIO M. SILOS, petitioner,

vs.
RAFAEL ORTIGAS, JR., respondent.

DECISION

TINGA, J.:

The main contention raised in this petition is that petitioners are not under obligation to reimburse
respondent, a claim that can be easily debunked. The more perplexing question is whether this
obligation to repay is solidary, as contended by respondent and the lower courts, or merely joint as
argued by petitioners.

On 28 April 1980, Private Development Corporation of the Philippines (PDCP)1 entered into a loan
agreement with Falcon Minerals, Inc. (Falcon) whereby PDCP agreed to make available and lend to
Falcon the amount of US$320,000.00, for specific purposes and subject to certain terms and
conditions.2 On the same day, three stockholders-officers of Falcon, namely: respondent Rafael
Ortigas, Jr. (Ortigas), George A. Scholey and George T. Scholey executed an Assumption of
Solidary Liability whereby they agreed "to assume in [their] individual capacity, solidary liability with
[Falcon] for the due and punctual payment" of the loan contracted by Falcon with PDCP.3 In the
meantime, two separate guaranties were executed to guarantee the payment of the same loan by
other stockholders and officers of Falcon, acting in their personal and individual capacities. One
Guaranty4 was executed by petitioner Salvador Escaño (Escaño), while the other5 by petitioner Mario
M. Silos (Silos), Ricardo C. Silverio (Silverio), Carlos L. Inductivo (Inductivo) and Joaquin J.
Rodriguez (Rodriguez).

Two years later, an agreement developed to cede control of Falcon to Escaño, Silos and Joseph M.
Matti (Matti). Thus, contracts were executed whereby Ortigas, George A. Scholey, Inductivo and the
heirs of then already deceased George T. Scholey assigned their shares of stock in Falcon to
Escaño, Silos and Matti.6 Part of the consideration that induced the sale of stock was a desire by
Ortigas, et al., to relieve themselves of all liability arising from their previous joint and several
undertakings with Falcon, including those related to the loan with PDCP. Thus, an Undertaking
dated 11 June 1982 was executed by the concerned parties,7 namely: with Escaño, Silos and Matti
identified in the document as "SURETIES," on one hand, and Ortigas, Inductivo and the Scholeys as
"OBLIGORS," on the other. The Undertaking reads in part:

3. That whether or not SURETIES are able to immediately cause PDCP and PAIC to release
OBLIGORS from their said guarantees [sic], SURETIES hereby irrevocably agree and undertake to
assume all of OBLIGORs’ said guarantees [sic] to PDCP and PAIC under the following terms and
conditions:

a. Upon receipt by any of [the] OBLIGORS of any demand from PDCP and/or PAIC for the payment
of FALCON’s obligations with it, any of [the] OBLIGORS shall immediately inform SURETIES thereof
so that the latter can timely take appropriate measures;
b. Should suit be impleaded by PDCP and/or PAIC against any and/or all of OBLIGORS for
collection of said loans and/or credit facilities, SURETIES agree to defend OBLIGORS at their own
expense, without prejudice to any and/or all of OBLIGORS impleading SURETIES therein for
contribution, indemnity, subrogation or other relief in respect to any of the claims of PDCP and/or
PAIC; and

c. In the event that any of [the] OBLIGORS is for any reason made to pay any amount to PDCP
and/or PAIC, SURETIES shall reimburse OBLIGORS for said amount/s within seven (7) calendar
days from such payment;

4. OBLIGORS hereby waive in favor of SURETIES any and all fees which may be due from
FALCON arising out of, or in connection with, their said guarantees[sic].8

Falcon eventually availed of the sum of US$178,655.59 from the credit line extended by PDCP. It
would also execute a Deed of Chattel Mortgage over its personal properties to further secure the
loan. However, Falcon subsequently defaulted in its payments. After PDCP foreclosed on the chattel
mortgage, there remained a subsisting deficiency of ₱5,031,004.07, which Falcon did not satisfy
despite demand.9

On 28 April 1989, in order to recover the indebtedness, PDCP filed a complaint for sum of money
with the Regional Trial Court of Makati (RTC) against Falcon, Ortigas, Escaño, Silos, Silverio and
Inductivo. The case was docketed as Civil Case No. 89-5128. For his part, Ortigas filed together with
his answer a cross-claim against his co-defendants Falcon, Escaño and Silos, and also manifested
his intent to file a third-party complaint against the Scholeys and Matti.10 The cross-claim lodged
against Escaño and Silos was predicated on the 1982 Undertaking, wherein they agreed to assume
the liabilities of Ortigas with respect to the PDCP loan.

Escaño, Ortigas and Silos each sought to seek a settlement with PDCP. The first to come to terms
with PDCP was Escaño, who in December of 1993, entered into a compromise agreement whereby
he agreed to pay the bank ₱1,000,000.00. In exchange, PDCP waived or assigned in favor of
Escaño one-third (1/3) of its entire claim in the complaint against all of the other defendants in the
case.11 The compromise agreement was approved by the RTC in a Judgment12 dated 6 January
1994.

Then on 24 February 1994, Ortigas entered into his own compromise agreement13 with PDCP,
allegedly without the knowledge of Escaño, Matti and Silos. Thereby, Ortigas agreed to pay PDCP
₱1,300,000.00 as "full satisfaction of the PDCP’s claim against Ortigas,"14 in exchange for PDCP’s
release of Ortigas from any liability or claim arising from the Falcon loan agreement, and a
renunciation of its claims against Ortigas.

In 1995, Silos and PDCP entered into a Partial Compromise Agreement whereby he agreed to pay
₱500,000.00 in exchange for PDCP’s waiver of its claims against him.15

In the meantime, after having settled with PDCP, Ortigas pursued his claims against Escaño, Silos
and Matti, on the basis of the 1982 Undertaking. He initiated a third-party complaint against Matti
and Silos,16 while he maintained his cross-claim against Escaño. In 1995, Ortigas filed a motion for
Summary Judgment in his favor against Escaño, Silos and Matti. On 5 October 1995, the RTC
issued the Summary Judgment, ordering Escaño, Silos and Matti to pay Ortigas, jointly and
severally, the amount of ₱1,300,000.00, as well as ₱20,000.00 in attorney’s fees.17 The trial court
ratiocinated that none of the third-party defendants disputed the 1982 Undertaking, and that "the
mere denials of defendants with respect to non-compliance of Ortigas of the terms and conditions of
the Undertaking, unaccompanied by any substantial fact which would be admissible in evidence at a
hearing, are not sufficient to raise genuine issues of fact necessary to defeat a motion for summary
judgment, even if such facts were raised in the pleadings."18 In an Order dated 7 March 1996, the
trial court denied the motion for reconsideration of the Summary Judgment and awarded Ortigas
legal interest of 12% per annum to be computed from 28 February 1994.19

From the Summary Judgment, recourse was had by way of appeal to the Court of Appeals. Escaño
and Silos appealed jointly while Matti appealed by his lonesome. In a Decision20 dated 23 January
2002, the Court of Appeals dismissed the appeals and affirmed the Summary Judgment. The
appellate court found that the RTC did not err in rendering the summary judgment since the three
appellants did not effectively deny their execution of the 1982 Undertaking. The special defenses
that were raised, "payment and excussion," were characterized by the Court of Appeals as
"appear[ing] to be merely sham in the light of the pleadings and supporting documents and
affidavits."21Thus, it was concluded that there was no genuine issue that would still require the rigors
of trial, and that the appealed judgment was decided on the bases of the undisputed and established
facts of the case.

Hence, the present petition for review filed by Escaño and Silos.22 Two main issues are raised. First,
petitioners dispute that they are liable to Ortigas on the basis of the 1982 Undertaking, a document
which they do not disavow and have in fact annexed to their petition. Second, on the assumption
that they are liable to Ortigas under the 1982 Undertaking, petitioners argue that they are jointly
liable only, and not solidarily. Further assuming that they are liable, petitioners also submit that they
are not liable for interest and if at all, the proper interest rate is 6% and not 12%.

Interestingly, petitioners do not challenge, whether in their petition or their memorandum before the
Court, the appropriateness of the summary judgment as a relief favorable to Ortigas. Under Section
3, Rule 35 of the 1997 Rules of Civil Procedure, summary judgment may avail if the pleadings,
supporting affidavits, depositions and admissions on file show that, except as to the amount of
damages, there is no genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law. Petitioner have not attempted to demonstrate before us that there
existed a genuine issue as to any material fact that would preclude summary judgment. Thus, we
affirm with ease the common rulings of the lower courts that summary judgment is an appropriate
recourse in this case.

The vital issue actually raised before us is whether petitioners were correctly held liable to Ortigas on
the basis of the 1982 Undertaking in this Summary Judgment. An examination of the document
reveals several clauses that make it clear that the agreement was brought forth by the desire of
Ortigas, Inductivo and the Scholeys to be released from their liability under the loan agreement
which release was, in turn, part of the consideration for the assignment of their shares in Falcon to
petitioners and Matti. The whereas clauses manifest that Ortigas had bound himself with Falcon for
the payment of the loan with PDCP, and that "amongst the consideration for OBLIGORS and/or their
principals aforesaid selling is SURETIES’ relieving OBLIGORS of any and all liability arising from
their said joint and several undertakings with FALCON."23 Most crucial is the clause in Paragraph 3
of the Undertaking wherein petitioners "irrevocably agree and undertake to assume all of
OBLIGORs’ said guarantees [sic] to PDCP x x x under the following terms and conditions."24

At the same time, it is clear that the assumption by petitioners of Ortigas’s "guarantees" [sic] to
PDCP is governed by stipulated terms and conditions as set forth in sub-paragraphs (a) to (c) of
Paragraph 3. First, upon receipt by "any of OBLIGORS" of any demand from PDCP for the payment
of Falcon’s obligations with it, "any of OBLIGORS" was to immediately inform "SURETIES" thereof
so that the latter can timely take appropriate measures. Second, should "any and/or all of
OBLIGORS" be impleaded by PDCP in a suit for collection of its loan, "SURETIES agree[d] to
defend OBLIGORS at their own expense, without prejudice to any and/or all of OBLIGORS
impleading SURETIES therein for contribution, indemnity, subrogation or other relief"25 in respect to
any of the claims of PDCP. Third, if any of the "OBLIGORS is for any reason made to pay any
amount to [PDCP], SURETIES [were to] reimburse OBLIGORS for said amount/s within seven (7)
calendar days from such payment."26

Petitioners claim that, contrary to paragraph 3(c) of the Undertaking, Ortigas was not "made to pay"
PDCP the amount now sought to be reimbursed, as Ortigas voluntarily paid PDCP the amount of
₱1.3 Million as an amicable settlement of the claims posed by the bank against him. However, the
subject clause in paragraph 3(c) actually reads "[i]n the event that any of OBLIGORS is for any
reason made to pay any amount to PDCP x x x"27 As pointed out by Ortigas, the phrase "for any
reason" reasonably includes any extra-judicial settlement of obligation such as what Ortigas had
undertaken to pay to PDCP, as it is indeed obvious that the phrase was incorporated in the clause to
render the eventual payment adverted to therein unlimited and unqualified.

The interpretation posed by petitioners would have held water had the Undertaking made clear that
the right of Ortigas to seek reimbursement accrued only after he had delivered payment to PDCP as
a consequence of a final and executory judgment. On the contrary, the clear intent of the
Undertaking was for petitioners and Matti to relieve the burden on Ortigas and his fellow
"OBLIGORS" as soon as possible, and not only after Ortigas had been subjected to a final and
executory adverse judgment.

Paragraph 1 of the Undertaking enjoins petitioners to "exert all efforts to cause PDCP x x x to within
a reasonable time release all the OBLIGORS x x x from their guarantees [sic] to PDCP x x x" 28 In the
event that Ortigas and his fellow "OBLIGORS" could not be released from their guaranties,
paragraph 2 commits petitioners and Matti to cause the Board of Directors of Falcon to make a call
on its stockholders for the payment of their unpaid subscriptions and to pledge or assign such
payments to Ortigas, et al., as security for whatever amounts the latter may be held liable under their
guaranties. In addition, paragraph 1 also makes clear that nothing in the Undertaking "shall prevent
OBLIGORS, or any one of them, from themselves negotiating with PDCP x x x for the release of
their said guarantees [sic]."29

There is no argument to support petitioners’ position on the import of the phrase "made to pay" in the
Undertaking, other than an unduly literalist reading that is clearly inconsistent with the thrust of the
document. Under the Civil Code, the various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken jointly.30 Likewise
applicable is the provision that if some stipulation of any contract should admit of several meanings,
it shall be understood as bearing

that import which is most adequate to render it effectual.31 As a means to effect the general intent of
the document to relieve Ortigas from liability to PDCP, it is his interpretation, not that of petitioners,
that holds sway with this Court.

Neither do petitioners impress us of the non-fulfillment of any of the other conditions set in paragraph
3, as they claim. Following the general assertion in the petition that Ortigas violated the terms of the
Undertaking, petitioners add that Ortigas "paid PDCP BANK the amount of ₱1.3 million without
petitioners ESCANO and SILOS’s knowledge and consent."32 Paragraph 3(a) of the Undertaking
does impose a requirement that any of the "OBLIGORS" shall immediately inform "SURETIES" if
they received any demand for payment of FALCON’s obligations to PDCP, but that requirement is
reasoned "so that the [SURETIES] can timely take appropriate measures"33 presumably to settle the
obligation without having to burden the "OBLIGORS." This notice requirement in paragraph 3(a) is
markedly way off from the suggestion of petitioners that Ortigas, after already having been
impleaded as a defendant in the collection suit, was obliged under the 1982 Undertaking to notify
them before settling with PDCP.

The other arguments petitioners have offered to escape liability to Ortigas are similarly weak.

Petitioners impugn Ortigas for having settled with PDCP in the first place. They note that Ortigas
had, in his answer, denied any liability to PDCP and had alleged that he signed the Assumption of
Solidary Liability not in his personal capacity, but as an officer of Falcon. However, such position,
according to petitioners, could not be justified since Ortigas later voluntarily paid PDCP the amount
of ₱1.3 Million. Such circumstances, according to petitioners, amounted to estoppel on the part of
Ortigas.

Even as we entertain this argument at depth, its premises are still erroneous. The Partial
Compromise Agreement between PDCP and Ortigas expressly stipulated that Ortigas’s offer to pay
PDCP was conditioned "without [Ortigas’s] admitting liability to plaintiff PDCP Bank’s complaint, and
to terminate and dismiss the said case as against Ortigas solely."34 Petitioners profess it is
"unthinkable" for Ortigas to have voluntarily paid PDCP without admitting his liability,35 yet such
contention based on assumption cannot supersede the literal terms of the Partial Compromise
Agreement.

Petitioners further observe that Ortigas made the payment to PDCP after he had already assigned
his obligation to petitioners through the 1982 Undertaking. Yet the fact is PDCP did pursue a judicial
claim against Ortigas notwithstanding the Undertaking he executed with petitioners. Not being a
party to such Undertaking, PDCP was not precluded by a contract from pursuing its claim against
Ortigas based on the original Assumption of Solidary Liability.

At the same time, the Undertaking did not preclude Ortigas from relieving his distress through a
settlement with the creditor bank. Indeed, paragraph 1 of the Undertaking expressly states that
"nothing herein shall prevent OBLIGORS, or any one of them, from themselves negotiating with
PDCP x x x for the release of their said guarantees [sic]."36 Simply put, the Undertaking did not bar
Ortigas from pursuing his own settlement with PDCP. Neither did the Undertaking bar Ortigas from
recovering from petitioners whatever amount he may have paid PDCP through his own settlement.
The stipulation that if Ortigas was "for any reason made to pay any amount to PDCP[,] x x x
SURETIES shall reimburse OBLIGORS for said amount/s within seven (7) calendar days from such
payment"37makes it clear that petitioners remain liable to reimburse Ortigas for the sums he paid
PDCP.

We now turn to the set of arguments posed by petitioners, in the alternative, that is, on the
assumption that they are indeed liable.

Petitioners submit that they could only be held jointly, not solidarily, liable to Ortigas, claiming that
the Undertaking did not provide for express solidarity. They cite Article 1207 of the New Civil Code,
which states in part that "[t]here is a solidary liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires solidarity."

Ortigas in turn argues that petitioners, as well as Matti, are jointly and severally liable for the
Undertaking, as the language used in the agreement "clearly shows that it is a surety
agreement"38 between the obligors (Ortigas group) and the sureties (Escaño group). Ortigas points
out that the Undertaking uses the word "SURETIES" although the document, in describing the
parties. It is further contended that the principal objective of the parties in executing the Undertaking
cannot be attained unless petitioners are solidarily liable "because the total loan obligation can not
be paid or settled to free or release the OBLIGORS if one or any of the SURETIES default from their
obligation in the Undertaking."39

In case, there is a concurrence of two or more creditors or of two or more debtors in one and the
same obligation, Article 1207 of the Civil Code states that among them, "[t]here is a solidary liability
only when the obligation expressly so states, or when the law or the nature of the obligation requires
solidarity." Article 1210 supplies further caution against the broad interpretation of solidarity by
providing: "The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility."

These Civil Code provisions establish that in case of concurrence of two or more creditors or of two
or more debtors in one and the same obligation, and in the absence of express and indubitable
terms characterizing the obligation as solidary, the presumption is that the obligation is only joint. It
thus becomes incumbent upon the party alleging that the obligation is indeed solidary in character to
prove such fact with a preponderance of evidence.

The Undertaking does not contain any express stipulation that the petitioners agreed "to bind
themselves jointly and severally" in their obligations to the Ortigas group, or any such terms to that
effect. Hence, such obligation established in the Undertaking is presumed only to be joint. Ortigas,
as the party alleging that the obligation is in fact solidary, bears the burden to overcome the
presumption of jointness of obligations. We rule and so hold that he failed to discharge such burden.

Ortigas places primary reliance on the fact that the petitioners and Matti identified themselves in the
Undertaking as "SURETIES", a term repeated no less than thirteen (13) times in the document.
Ortigas claims that such manner of identification sufficiently establishes that the obligation of
petitioners to him was joint and solidary in nature.

The term "surety" has a specific meaning under our Civil Code. Article 2047 provides the statutory
definition of a surety agreement, thus:

Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3,
Title I of this Book shall be observed. In such case the contract is called a suretyship. [Emphasis
supplied]40

As provided in Article 2047 in a surety agreement the surety undertakes to be bound solidarily with
the principal debtor. Thus, a surety agreement is an ancillary contract as it presupposes the
existence of a principal contract. It appears that Ortigas’s argument rests solely on the solidary
nature of the obligation of the surety under Article 2047. In tandem with the nomenclature
"SURETIES" accorded to petitioners and Matti in the Undertaking, however, this argument can only
be viable if the obligations established in the

Undertaking do partake of the nature of a suretyship as defined under Article 2047 in the first place.
That clearly is not the case here, notwithstanding the use of the nomenclature "SURETIES" in the
Undertaking.

Again, as indicated by Article 2047, a suretyship requires a principal debtor to whom the surety is
solidarily bound by way of an ancillary obligation of segregate identity from the obligation between
the principal debtor and the creditor. The suretyship does bind the surety to the creditor, inasmuch
as the latter is vested with the right to proceed against the former to collect the credit in lieu of
proceeding against the principal debtor for the same obligation.41 At the same time, there is also a
legal tie created between the surety and the principal debtor to which the creditor is not privy or party
to. The moment the surety fully answers to the creditor for the obligation created by the principal
debtor, such obligation is extinguished.42 At the same time, the surety may seek reimbursement from
the principal debtor for the amount paid, for the surety does in fact "become subrogated to all the
rights and remedies of the creditor."43

Note that Article 2047 itself specifically calls for the application of the provisions on joint and solidary
obligations to suretyship contracts.44 Article 1217 of the Civil Code thus comes into play, recognizing
the right of reimbursement from a co-debtor (the principal debtor, in case of suretyship) in favor of
the one who paid (i.e., the surety).45However, a significant distinction still lies between a joint and
several debtor, on one hand, and a surety on the other. Solidarity signifies that the creditor can
compel any one of the joint and several debtors or the surety alone to answer for the entirety of the
principal debt. The difference lies in the respective faculties of the joint and several debtor and the
surety to seek reimbursement for the sums they paid out to the creditor.

Dr. Tolentino explains the differences between a solidary co-debtor and a surety:

A guarantor who binds himself in solidum with the principal debtor under the provisions of the
second paragraph does not become a solidary co-debtor to all intents and purposes. There is a
difference between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of the
liability he assumes to pay the debt before the property of the principal debtor has been exhausted,
retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a
solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, Title I,
Book IV of the Civil Code.

The second paragraph of [Article 2047] is practically equivalent to the contract of suretyship. The
civil law suretyship is, accordingly, nearly synonymous with the common law guaranty; and the civil
law relationship existing between the co-debtors liable in solidum is similar to the common law
suretyship.46

In the case of joint and several debtors, Article 1217 makes plain that the solidary debtor who
effected the payment to the creditor "may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made." Such solidary debtor will not
be able to recover from the co-debtors the full amount already paid to the creditor, because the right
to recovery extends only to the proportional share of the other co-debtors, and not as to the
particular proportional share of the solidary debtor who already paid. In contrast, even as the surety
is solidarily bound with the principal debtor to the creditor, the surety who does pay the creditor has
the right to recover the full amount paid, and not just any proportional share, from the principal
debtor or debtors. Such right to full reimbursement falls within the other rights, actions and benefits
which pertain to the surety by reason of the subsidiary obligation assumed by the surety.

What is the source of this right to full reimbursement by the surety? We find the right under Article
2066 of the Civil Code, which assures that "[t]he guarantor who pays for a debtor must be
indemnified by the latter," such indemnity comprising of, among others, "the total amount of the
debt."47 Further, Article 2067 of the Civil Code likewise establishes that "[t]he guarantor who pays is
subrogated by virtue thereof to all the rights which the creditor had against the debtor."48

Articles 2066 and 2067 explicitly pertain to guarantors, and one might argue that the provisions
should not extend to sureties, especially in light of the qualifier in Article 2047 that the provisions on
joint and several obligations should apply to sureties. We reject that argument, and instead adopt Dr.
Tolentino’s observation that "[t]he reference in the second paragraph of [Article 2047] to the
provisions of Section 4, Chapter 3, Title I, Book IV, on solidary or several obligations, however, does
not mean that suretyship is withdrawn from the applicable provisions governing guaranty."49 For if
that were not the implication, there would be no material difference between the surety as defined
under Article 2047 and the joint and several debtors, for both classes of obligors would be governed
by exactly the same rules and limitations.

Accordingly, the rights to indemnification and subrogation as established and granted to the
guarantor by Articles 2066 and 2067 extend as well to sureties as defined under Article 2047. These
rights granted to the surety who pays materially differ from those granted under Article 1217 to the
solidary debtor who pays, since the "indemnification" that pertains to the latter extends "only [to] the
share which corresponds to each [co-debtor]." It is for this reason that the Court cannot accord the
conclusion that because petitioners are identified in the Undertaking as "SURETIES," they are
consequently joint and severally liable to Ortigas.

In order for the conclusion espoused by Ortigas to hold, in light of the general presumption favoring
joint liability, the Court would have to be satisfied that among the petitioners and Matti, there is one
or some of them who stand as the principal debtor to Ortigas and another as surety who has the
right to full reimbursement from the principal debtor or debtors. No suggestion is made by the parties
that such is the case, and certainly the Undertaking is not revelatory of such intention. If the Court
were to give full fruition to the use of the term "sureties" as conclusive indication of the existence of a
surety agreement that in turn gives rise to a solidary obligation to pay Ortigas, the necessary
implication would be to lay down a corresponding set of rights and obligations as between the
"SURETIES" which petitioners and Matti did not clearly intend.

It is not impossible that as between Escaño, Silos and Matti, there was an agreement whereby in the
event that Ortigas were to seek reimbursement from them per the terms of the Undertaking, one of
them was to act as surety and to pay Ortigas in full, subject to his right to full reimbursement from
the other two obligors. In such case, there would have been, in fact, a surety agreement which
evinces a solidary obligation in favor of Ortigas. Yet if there was indeed such an agreement, it does
not appear on the record. More consequentially, no such intention is reflected in the Undertaking
itself, the very document that creates the conditional obligation that petitioners and Matti reimburse
Ortigas should he be made to pay PDCP. The mere utilization of the term "SURETIES" could not
work to such effect, especially as it does not appear who exactly is the principal debtor whose
obligation is "assured" or "guaranteed" by the surety.

Ortigas further argues that the nature of the Undertaking requires "solidary obligation of the
Sureties," since the Undertaking expressly seeks to "reliev[e] obligors of any and all liability arising
from their said joint and several undertaking with [F]alcon," and for the "sureties" to "irrevocably
agree and undertake to assume all of obligors said guarantees to PDCP."50 We do not doubt that a
finding of solidary liability among the petitioners works to the benefit of Ortigas in the facilitation of
these goals, yet the Undertaking itself contains no stipulation or clause that establishes petitioners’
obligation to Ortigas as solidary. Moreover, the aims adverted to by Ortigas do not by themselves
establish that the nature of the obligation requires solidarity. Even if the liability of petitioners and
Matti were adjudged as merely joint, the full relief and reimbursement of Ortigas arising from his
payment to PDCP would still be accomplished through the complete execution of such a judgment.

Petitioners further claim that they are not liable for attorney’s fees since the Undertaking contained
no such stipulation for attorney’s fees, and that the situation did not fall under the instances under
Article 2208 of the Civil Code where attorney’s fees are recoverable in the absence of stipulation.
We disagree. As Ortigas points out, the acts or omissions of the petitioners led to his being
impleaded in the suit filed by PDCP. The Undertaking was precisely executed as a means to obtain
the release of Ortigas and the Scholeys from their previous obligations as sureties of Falcon,
especially considering that they were already divesting their shares in the corporation. Specific
provisions in the Undertaking obligate petitioners to work for the release of Ortigas from his surety
agreements with Falcon. Specific provisions likewise mandate the immediate repayment of Ortigas
should he still be made to pay PDCP by reason of the guaranty agreements from which he was
ostensibly to be released through the efforts of petitioners. None of these provisions were complied
with by petitioners, and Article 2208(2) precisely allows for the recovery of attorney’s fees "[w]hen
the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest."

Finally, petitioners claim that they should not be liable for interest since the Undertaking does not
contain any stipulation for interest, and assuming that they are liable, that the rate of interest should
not be 12% per annum, as adjudged by the RTC.

The seminal ruling in Eastern Shipping Lines, Inc. v. Court of Appeals51 set forth the rules with
respect to the manner of computing legal interest:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII
on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the
Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on

the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.52

Since what was the constituted in the Undertaking consisted of a payment in a sum of money, the
rate of interest thereon shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand. The interest rate imposed by the RTC is thus proper. However, the
computation should be reckoned from judicial or extrajudicial demand. Per records, there is no
indication that Ortigas made any extrajudicial demand to petitioners and Matti after he paid PDCP,
but on 14 March 1994, Ortigas made a judicial demand when he filed a Third-Party Complaint
praying that petitioners and Matti be made to reimburse him for the payments made to PDCP. It is
the filing of this Third Party Complaint on 14 March 1994 that should be considered as the date of
judicial demand from which the computation of interest should be reckoned.53 Since the RTC held
that interest should be computed from 28 February 1994, the appropriate redefinition should be
made.

WHEREFORE, the Petition is GRANTED in PART. The Order of the Regional Trial Court dated 5
October 1995 is modified by declaring that petitioners and Joseph M. Matti are only jointly liable, not
jointly and severally, to respondent Rafael Ortigas, Jr. in the amount of ₱1,300,000.00. The Order of
the Regional Trial Court dated 7 March 1996 is MODIFIED in that the legal interest of 12% per
annum on the amount of ₱1,300,000.00 is to be computed from 14 March 1994, the date of judicial
demand, and not from 28 February 1994 as directed in the Order of the lower court. The assailed
rulings are affirmed in all other respects. Costs against petitioners.

SO ORDERED.

DANTE O. TINGA Associate Justice

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-15499 February 9, 1921

THE TAYABAS LAND COMPANY, plaintiff-appellee,

vs.
SALOMON SHARRUF, CANUTO BARTOLOME, sheriff of Tayabas,
SALVADOR FARRE and FRANCISCO ALVAREZ, defendants.
SALOMON SHARRUF, appellant.

Crossfield and O'Brien for appellant.

Alfredo Chicote and Jose Arnaiz for appellee.

STREET, J.:

On December 10, 1914, one Salvador Farre recovered a joint and several judgment against
Salomon M. Sharruf and Farham M. Sharruf in the Court of First Instance of the city of Manila for the
sum of P1,300, with legal interest from September 5, 1914, and with costs. This judgment having
remained unsatisfied, and execution was upon April 3, 1916, issued thereon at the instance of the
plaintiff.

Meanwhile on March 27, 1915, Salomon M. Sharruf had himself recovered a judgment, also in the
Court of First Instance of the city of Manila, against the Tayabas Land Company and A.M. Ginainati,
for the sum of P6,841.36, with interest and costs; and as there seems to have been no visible
property belonging to Salomon M. Sharruf and Farham M. Sharruf subject to seizure by the sheriff to
satisfy the execution in favor of Salvador Farre, it became important for Farre to subject the
judgment in favor of Salomon M. Sharruf against the Tayabas Land Company and A.M. Ginainati to
the payment of his own claim.

To this end process of garnishment (notification de embargo) was, on April 6, 1916, issued at the
instance of Salvador Farre in aid of his execution against the Sharrufs and was on the same or
succeeding day duly served upon the Tayabas Land Company. By this process the Tayabas Land
Company was informed that levy had, by virtue of the execution aforesaid, been made upon all the
property of S. M. Sharruf in the possession of said Tayabas Land Company and upon all debts
owing by the latter to said Sharruf, and in particular upon all participation and interest of S. M.
Sharruf in the judgment rendered in his favor in the action prosecuted by him against the Tayabas
Land Company and others.

In pursuance of the levy thus effected upon the judgment in favor of Salomon M. Sharruf against the
Tayabas Land Company, the sheriff of the city of Manila, as in ordinary cases of levy upon chattels
of real property, proceeded upon April 15, 1916, to expose to sale all right, title, and interest of said
Sharruf in the judgment aforesaid. At this sale Salvador Farre, the execution creditor himself,
became the purchaser of the judgment in question for the sum of P200; but the Tayabas Land
Company, with a legitimate view to its own protection, afterwards stepped in, and acting through Mr.
Francisco Alvarez, as attorney and intermediary, purchased from Farre, on October 6, 1917, the
judgment of Salomon M. Sharruf against itself, paying to Farre the full amount due him, to wit, the
sum of P1,588.24.
At this point it should be stated that when levy of execution was made in the manner above stated,
upon the judgment in favor of Sharruf against the Tayabas Land Company and others, the time
allowed by law for an appeal in that case of the Supreme Court had not passed; and said cause was
in fact subsequently appealed to the Supreme Court, where final judgment was rendered, affirming
the decision of the lower court, on February 15, 1918.1

It may also be stated that on April 4, 1916, Salomon M. Sharruf, by a public document, which was
duly incorporated in the record in his case against the Tayabas Land Company, et al., sold and
transferred unto O'Brien & Company, a corporation, his right, title, and interest in the judgment
aforesaid to the extent necessary to satisfy a debt for P988.14, owing to O'Brien & Company, for
merchandise purchased from said entity by Sharruf; and upon the same date Messrs. Crossfield &
O'Brien, as attorneys, filed a memorandum of an attorney's lien in their favor to the extent of 25 per
cent of the amount of the judgment. These transactions, as will be seen, had the result of reducing in
a considerable degree the apparent beneficial interest of Salomon M. Sharruf in the result of the
litigation, but they do not affect the fundamentals of the case.

As a consequence of the facts above narrated the Tayabas Land Company supposes that the
judgment obtained by Salomon M. Sharruf against it and A.M. Ginainati has been wholly satisfied,
while Salomon M. Sharruf and those interested under him claim that the execution sale of the
judgment in question was void and that as a consequence said judgment remains wholly unsatisfied.
Proceeding upon this conception of the case, Messrs. Crossfield and O'Brien, as attorneys for the
plaintiff in that action, procured an execution to be issued on August 30, 1918, upon said judgment
for the entire amount of the recovery, including accrued interest and costs, less the sum of P13.21,
which had been secured in a garnishment proceeding against one of the local banks.

Being thus menaced with the levy of an execution upon its property, the Tayabas Land Company
instituted the present action in the Court of First Instance of the city of Manila, Against Salomon M.
Sharruf and others, including the sheriff of the Province of Tayabas, to obtain an order restraining
the threatened levy of execution and perpetually enjoining all proceedings for the enforcement of the
judgment against it. Upon hearing the cause the trial court, while recognizing the validity of the
claims of O'Brien & Company and of Crossfield and O'Brien, held that all other interest in said
judgment pertaining to Salomon M. Sharruf had passed by virtue of the execution sale to Salvador
Farre and thence by transfer through Francisco Alvarez to the Tayabas Land Company. As a
consequence the court declared the preliminary injunction perpetual. From said judgment Salomon
M. Sharruf appealed to this court.

The principal question in the case relates to the validity of the proceedings whereby the judgment
against the Tayabas Land Company and A.M. Ginainati in favor of Salomon M. Sharruf was, on April
15, 1916, exposed to sale by the sheriff under the execution issued in the action of Salvador Farre
against the two Sharrufs; and we believe it will be conducive to clarity in the discussion for us to
proceed at once to consider the manner in which, under the provisions of our Code of Civil
Procedure, a judgment for a sum of money entered in favor of the plaintiff in one case can be
reached and applied to the payment of a judgment in another case against the party who occupies
the position of creditor in the former.

In the first place, we have no hesitancy in saying that a judgment for a sum of money, that is, the
interest of the plaintiff in such a judgment, is liable to execution. A judgment for a sum of money is,
as to the party entitled to payment, a credit; and as to the party who ought to pay the money, a debt.
Furthermore, the interest of the creditor in such a judgment is clearly property, though not capable of
manual delivery. All of these elements of value — "debts." "credits," and "all other property not
capable of manual delivery" — are expressly declared, in section 450 of the Code of Civil Procedure,
to be liable to execution. It will be noted, however, that under the section just cited, debts, credits,
and other property not capable of manual delivery are to be dealt with in a different manner from that
prescribed in case of the execution of tangible property; for while tangible property is proceeded with
by seizure and sale under execution, debts and credits are to be attached by the citation of the
debtor. The provisions governing the execution of tangible property are found in sections 453 to 457,
inclusive, of the Code of Civil Procedure; while the provisions prescribing the method of reaching
debts and credits are found chiefly in the chapter relating to attachment, consisting principally of
sections 431 to 436, inclusive, of the Code of Civil Procedure.

The proceeding thus indicated as proper, in order to subject a debt or credit is known in American
civil procedure as the process of garnishment; and it may be truly said that garnishment is one of the
simplest processes, and the least involved in technicalities, of any proceeding known to the law. It
consists in the citation of some stranger to the litigation, who is debtor to one of the parties to the
action. By this means such debtor stranger becomes a forced intervenor; and the court, having
acquired jurisdiction over his person by means of the citation, requires him to pay his debt, not to his
former creditor, but to the new creditor, who is creditor in the main litigation. It is merely a case of
involuntary novation by the substitution of one creditor for another. Upon principle the remedy is a
species of attachment or execution for reaching any property pertaining to a judgment debtor which
may be found owing to such debtor by a third person.

The situation involved supposes the existence of at least three persons, to wit, a judgment creditor, a
judgment debtor, and the garnishee, or person cited, who in turn is supposed to be indebted to the
first debtor (i.e., judgment debtor).

To proceed a little further with the barest details of the process of garnishment, we note that a
citation issues from the court having jurisdiction of the principal litigations, notifying the garnishee
that the property and credits of the judgment debtor have been levied upon or attached in the hands
of such garnishee, and enjoining him not to deliver, transfer, or otherwise dispose of any effects or
credits belonging to that person, and requiring him furthermore to make a statement to the court of
the property of the judgment debtor in his hands and of the debts owing by the garnishee to such
debtor.

In cases where indebtedness is admitted, as not infrequently occurs, the payment of the money by
the garnishee to the judgment creditor or into court, brings the proceeding to a close, so far as the
garnishee is concerned; but if the garnishee fails to answer, or does not admit the indebtedness, he
may be required to attend before the court in which the action is pending to be examined on oath
respecting the same. Finally, if the liability of the garnishee is made manifest, the officer of the court
may, under paragraph No. 3 of section 436 of the Code of Civil Procedure, collect the money and
pay it to the person entitled.

The circumstances that garnishment has not been made the subject of independent treatment in our
Code of Civil Procedure and that the rules relating thereto are only brought out inferentially in
connection with the subject of attachment has undoubtedly contributed to obscure a matter which
upon principle is simple enough. Additional light on the subject may, however, be acquired by
referring to sections 476, 481, and 486 of the Code of Civil Procedures, which treat of
supplementary proceedings. It will be found that those proceedings are identical in principle with the
proceeding for the citation of debtors explained in the chapter on attachment.

Enough has now been said to show clearly that the action of the sheriff in exposing to public sale the
judgment which had been procured by Salomon M. Sharruf in the action against the Tayabas Land
Company, et al., was wholly unauthorized, and said sale must be considered void. The proper step
would have been for the court to require the Tayabas Land Company, after the judgment against it
had become final, to pay into court, in the cause wherein Salvador Farre was plaintiff, a sufficient
amount of money to satisfy Farre's claim against Sharruf; and if the judgment against the Tayabas
Land Company had been permitted to go to the stage of execution, the proceeds in the hands of the
sheriff would have been applied, under the direction of the court, to the payment of Farre's claim
before any part would have been payable to Sharruf.

In dealing with the problems which have from time to time arisen in connection with garnishment
proceedings, courts have sometimes been perplexed over the matter of protecting the garnishee
from the danger of having to pay his debt twice; and it goes without saying that the procedure must
be so adjusted as not to subject the garnishee to this risk. Otherwise it is a fatal obstacle to the
garnishment. No such difficulty would arise in a case like this, where the two judgments are both of
record in the same court, and where consequently that court has control over the process in both
cases.

Our conclusion that the sale of the judgment in question under process of execution was void is
supported by the decisions of the Supreme Court of California, construing the very section of the
California Code of Civil Procedure from which section 450 of the Code of Civil Procedure of the
Philippine Islands was taken. Thus, in McBride vs. Fallon (65 Cal., 301, 303), the Supreme Court of
that State said:

After enumerating the kinds of property of a judgment debtor liable to execution, the Code
provides that "shares and interests in any corporation or company" and debts and credits . . .
and all other property not capable of manual delivery, may be attached on execution in like
manner as upon writs of attachments.

"Debts and credits and property not capable of manual delivery must be attached in the
mode pointed out by subdivision 5, sec. 542." (Corresponding to section 431 of the
Philippine Code of Civil Procedure.) "That is "by leaving with the person owing the debt or
having in possession or under his control such credits and other personal property" or with
his agent, a copy of the writ, and a notice that the debts owing by him to the defendant, or
the credits and other personal property' in his possession or under his control, belonging to
the defendant are attached in pursuance of such writ.

"The fact that a debt is evidenced by a judgment does not, in our opinion, make it anything
more or less than a debt, or more capable of manual delivery than it would be if not so
evidenced. No provision is made for attaching or levying on evidences of debt. It is the debt
itself which may be attached by writ of attachment, or on execution in like manner as upon
writs of attachment." This we think to be the meaning of the Code, and the mode prescribed
by it is exclusively . . .

In order to avoid misunderstanding, we wish to say that we make no question as to the propriety of
the proceedings up to the time when the judgment in question was advertised and exposed to sale
by the sheriff. The issuance of the execution and the service of the garnishment were appropriate;
and the garnishment was effective for the purpose of preventing the garnishee, the Tayabas Land
Company, from paying the judgment to Salomon M. Sharruf.

Moreover, the garnishment was effective for the purpose of conferring upon the Tayabas Land
Company the right to pay off the judgment which Farre had obtained against Sharruf. This right is
not only recognized in section 481 of the Code of Civil Procedure but also in subsection 3 of article
1210 of the Civil Code; and by satisfying Farre's claim, regardless of the manner in which it was
accomplished, the Tayabas Land Company absolved itself pro tanto from its indebtedness to
Sharruf. It results that, although the judgment against the Tayabas Land Company has not yet been
satisfied in full, said company is entitled to be credited with the sum of P1,588.24, said by it, through
Francisco Alvarez, to Farre on October 6, 1917, with interest.

In the view we take of the case it becomes unnecessary to consider at length the fact that Sharruf's
judgment against the Tayabas Land Company was appealed to the Supreme Court after the process
of garnishment had been served on the company. Suffice is to say that this circumstance would at
most merely postpone the realization of the results without defeating the garnishment.

Reflection upon this feature of the case, however, confirms the opinion that our lawmakers acted
wisely in requiring that debts and credits should be executed by means of the process of
garnishment rather than by exposing them to public sale. In the case before us a judgment for a
large amount was sold for a merely nominal sum, and such would generally be the case at a sale
under similar conditions. This cannot fail to be highly prejudicial to the debtor who is under
immediate execution. The proceeding by garnishment, on the contrary, enables all parties to realize
their rights without unduly disturbing the position of any.

The judgment must be reserved, and the defendants will be absolved from the complaint. It is so
ordered, without express pronouncement as to costs of either instance.

Mapa, C.J., Araullo, Malcolm, Avanceña and Villamor, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

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

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

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

Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.

MUÑOZ PALMA, J.:

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

Hence, this Petition for Review on certiorari.

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

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

A. On Plaintiffs Complaint —

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

(2) Ordering the Register of Deeds of Cebu City to cancel Transfer

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

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

(4) Sentencing the defendant Juan T. Borromeo, administrator of the

Estate of Simeon Rallos, to pay to plaintiff in concept of reasonable
attorney's fees the sum of P1,000.00; and

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

B. On GO CHANTS Cross-Claim:

(1) Sentencing the co-defendant Juan T. Borromeo, administrator of

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ART. 1919. Agency is extinguished.

xxx xxx xxx

3. By the death, civil interdiction, insanity or insolvency of the principal or of the

agent; ... (Emphasis supplied)

By reason of the very nature of the relationship between Principal and agent, agency is extinguished
by the death of the principal or the agent. This is the law in this jurisdiction.8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is
found in the juridical basis of agency which is representation Them being an in. integration of the
personality of the principal integration that of the agent it is not possible for the representation to
continue to exist once the death of either is establish. Pothier agrees with Manresa that by reason of
the nature of agency, death is a necessary cause for its extinction. Laurent says that the juridical tie
between the principal and the agent is severed ipso jure upon the death of either without necessity
for the heirs of the fact to notify the agent of the fact of death of the former. 9

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

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

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

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

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

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

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

In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his
principal at the time he sold the latter's share in Lot No. 5983 to respondent corporation. The
knowledge of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the
trial court. 12 That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of
the court a quo 13 and of respondent appellate court when the latter stated that Simon Rallos 'must
have known of the death of his sister, and yet he proceeded with the sale of the lot in the name of
both his sisters Concepcion and Gerundia Rallos without informing appellant (the realty corporation)
of the death of the former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his principal
Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death of his principal; it is not enough
that the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying
Article 1738 of the old Civil rode now Art. 1931 of the new Civil Code sustained the validity , of a sale
made after the death of the principal because it was not shown that the agent knew of his principal's
demise. 15 To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in
the words of Justice Jesus Barrera the Court stated:

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

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

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

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

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

quote:

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

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

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

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

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

To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et
al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:

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

But there is a narrower ground on which the defenses of the

defendant- appellee must be overruled. Agustin Nano had
possession of Jose Vallejo's title papers. Without those title papers
handed over to Nano with the acquiescence of Vallejo, a fraud could
not have been perpetuated. When Fernando de la Canters, a
member of the Philippine Bar and the husband of Angela Blondeau,
the principal plaintiff, searched the registration record, he found them
in due form including the power of attorney of Vallajo in favor of
Nano. If this had not been so and if thereafter the proper notation of
the encumbrance could not have been made, Angela Blondeau would
not have sent P12,000.00 to the defendant Vallejo.' An executed
transfer of registered lands placed by the registered owner thereof in
the hands of another operates as a representation to a third party that
the holder of the transfer is authorized to deal with the land.
 As between two innocent persons, one of whom must suffer the
consequence of a breach of trust, the one who made it possible by
his act of coincidence bear the loss. (pp. 19-21)

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