No. L-24332. January 31, 1978.

*
RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS,
petitioner, vs. FELIX GO CHAN & SONS REALTY CORPORATION and COURT
OF APPEALS, respondents.
Agency, its concept, essential elements and characteristics.—By the relationship of agency, one
party called the principal authorizes another called the agent to act for and in his behalf in
transactions with third persons. The essential elements of agency are:(l) there is consent,
express or implied, of the parties to establish the relationship: (2) the object is the execution
of a juridical act in relation to a third person; (3) the agent acts as a representative and not
for himself; and (4) the agent acts within the scope of his authority. Agency is basically
personal, representative, and derivative in nature. The authority of the agent to act emanates
from the powers granted to him by his principal; his act is the act of the principal if done
within the scope of the authority. “He who acts through another acts himself.”
Same: Same; Art. 1930 and Art. 1931 of the Civil Code providing that death of principal or agent
extinguishing agency is only a general rule; Rationale for the provision.—Reason of the very nature of
the relationship between principal and agent, agency is extinguished by the death of the
principal. Manresa explains that the rationale for the law is found in the juridical basis of
agency which is representation. Laurent says that the juridical tie between the principal and
the agent is severed ipso jure upon the death of either without necessity for the heirs of the

1
principal to notify the agent of the fact of death of the former. The same rule prevails at
common law—the death of the principal effects instantaneous and absolute revocation of
the authority of the agent unless the power be coupled with an interest. This is the prevalent
rule in American jurisprudence where it is well-settled that a power without an interest
conferred upon an agent is dissolved by the principal’s death, and any attempted execution
of the power afterwards is not binding on the heirs or representatives of the deceased.
Same; Same; Art. 1930 and Art. 1931 of the Civil Code exceptions to general rule provided in Art.
1919 of the Civil Code, that death of principal revokes ipso jure the agency.—Is the general rule
provided for in Art. 1919 that the death of the principal or of the agent extinguishes the
agency, subject to any exception, and if so, is the instant case within that exception? That
is the determinative point in issue in this litigation x x x Articles 1930 and 1931 of the Civil
Code provide the exceptions to the general rule aforementioned.
Same; Same; Same; Contention that despite death of principal the act of attorney-in-fact in selling his
principal’s share of the disputed property is valid and enforceable since the buyer acted in good faith is
untenable because of the established knowledge of the attorney-in-fact of the death of his principal; Requisites
of Art. 1931 that despite death of principal and of agent is valid not complied with.—Under Art. 1931
of the Civil Code, an act done by the agent after the death of his principal is valid and
effective only under two conditions, viz: (1) that the agent acted without knowledge of the
death of the principal, and (2) that the third person who contracted with the agent himself
acted in good faith. Good faith here means that the third person was not aware of the death
2
of the principal at the time he contracted with said agent. These two requisites must concur:
the absence of one will render the act of the agent invalid and unenforceable. In the instant
case, it cannot be questioned that the agent Simeon Rallos knew of the death of his principal
at the time he sold the latter’s share in Lot No. 5983 to respondent corporation. x x x On
the basis of the established knowledge of Simeon Rallos concerning the death of his
principal, Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law
expressly requires for its application lack of knowledge on the part of the agent of the death
of his principal; it is not enough that the third person acted in good faith.
Same; Same; Same; Same; General rule is that an act of agent after death of his principal is void ab
initio unless the same falls under exceptions in Arts. 1930 and 1931 of the Civil Code; Art 1931 being
an exception to the general rule is to be strictly construed.—In sustaining the validity of the sale to
respondent corporation, the Court of Appeals reasoned out that there is no provision in
the Civil Code which provides that whatever is done by an agent having knowledge of the
death of his principal is void even with respect to third persons who may have contracted
with him in good faith and without knowledge of the death of the principal. We cannot see
the merits of the foregoing argument as it ignores the existence of the general rule
enunciated in Art. 1919 that the death of the principal extinguishes the agency. That being
the general rule it follows a fortiorithat any act of an agent after the death of his principal is
void ab initio unless the same falls under the exceptions provided for in the aforementioned
Articles 1930 and 1931. Article 1931, being an exception to the general rule, is to be strictly
3
construed; it is not to be given an interpretation or application beyond the clear import of
its terms for otherwise the courts will be involved in a process of legislation outside of their
judicial function.
Same; Same; Revocation by an act of the principal as a mode of terminating agency distinguished from
revocation by operation of law such as death of principal.—Revocation by an act of the principal as
a mode of terminating an agency is to be distinguished from revocation by operation of law
such as death of the principal which obtains in this case. The decision stressed that by
reason of the very nature of the relationship between principal and agent, agency is
extinguished ipso jure upon the death of either principal or agent. Although a revocation of
a power of attorney to be effective must be communicated to the parties concerned, yet a
revocation by operation of law, such as by death of the principal is, as a rule, instantaneously
effective inasmuch as “by legal fiction the agent’s exercise of authority is regarded as an
execution of the principal’s continuing will.” With death, the principal’s will ceases or is
terminated; the source of authority is extinguished.
Same; Same; Law does not impose a duty on the heirs of principal to notify agent of death of principal;
If agent dies, his heirs must notify principal thereof.—The Civil Code does not impose a duty on
the heirs of the principal to notify the agent of the death of said principal. What the Code
provides in Article 1932 is that, if the agent dies, his heirs must notify the principal thereof,
and in the meantime adopt such measures as the circumstances may demand in the interest
of the latter. Hence, the fact that no notice of the death of the principal was registered on
4
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.
Same; Same; No parallel can be drawn between the case of attorney-in-fact who after death of his
principal sold the latter’s share in the land pursuant to a special power of attorney which the principal had
executed in his favor and that of an innocent purchaser for value of registered land.—Holding that the
good faith of a third person in dealing with an agent affords the former sufficient
protection, respondent court drew a “parallel” between the instant case and that of an
innocent purchaser for value of a registered land, stating that if a person purchases a
registered land from one who acquired it in bad faith—even to the extent of forging or
falsifying the deed of sale in his favor—the registered owner has no recourse against such
innocent purchaser for value but only against the forger. To support the correctness of this
“parallelism”, respondent corporation, in its brief, cites the case of Blondeau, et al. vs. Nano
and Vallejo, 61 Phil. 625. x x x The Blondeau decision, however, is not on all fours with the
case before Us because here We are confronted with one who admittedly was an agent of
his sister and who sold the property of the latter after her death with full knowledge of such
death. The situation is expressly covered by a provision of law on agency the terms of which
are clear and unmistakable leaving no room for an interpretation contrary to its tenor, in
the same manner that the ruling in Blondeau and the cases cited therein found a basis in
Section 55 of the Land Registration Law.

5
 Same; Same; Conflict of legal opinion in American jurisprudence does not hold true in Philippine law;
Civil Code of the Philippines expressly provides for two exceptions to general rule that death of the principal
revokes the agency; Agent’s act of executing the sale of property despite notice of death of his principal is
unenforceable against the estate of the principal.—One last point raised by respondent corporation
in support of the appealed decision is an 1842 ruling of the
Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an
agent after the death of the principal were held to be “good”, “the parties being ignorant
of the death.” Let us take note that the Opinion of Justice Rogers was premised on the
statement that the parties were ignorant of the death of the principal. x x x To avoid any
wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be
made that the above represents the minority view in American jurisprudence. x x x
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American
jurisprudence, no such conflict exists in our own for the simple reason that our statute, the
Civil Code, expressly provides for two exceptions to the general rule that death of the
principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with an interest
(Art. 1930), and (2) that the act of the agent was executed without knowledge of the death
of the principal and the third person who contracted with the agent acted also in good faith
(Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress the
indispensable requirement—that the agent acted without knowledge or notice of the death
of the principal. In the case before Us the agent Ramon Rallos executed the sale
6
notwithstanding notice of the death of his principal. Accordingly, the agent’s act is
unenforceable against the estate of his principal.
PETITION for review on certiorari of the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
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 the death of his principal,
Concepcion Rallos, sold the latter’s undivided share in a parcel of land pursuant to a special
power of attorney which the principal had executed in his favor. The administrator of the
estate of the deceased principal went to court to have the sale declared unenforceable and
to recover the disposed share. The trial court granted the relief prayed for, but upon appeal,
the Court of Appeals upheld the validity of the sale and dismissed 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.
11118 of the Registry of Cebu. On April 21, 1954, the sisters executed a special power of

7
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 declared 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 shares; 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 cross-
claim against its co-defendant, Simeon Rallos, while the latter filed third-party complaint
against his sister, Gerundia Rallos. While the case was pending in the trial court, both

8
Simeon 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:
1. “A.On Plaintiff’s Complaint—
1. (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. (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 Rallosin the proportion of one-half (1/2) share each pro-indiviso;
3. (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. (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. (5)Ordering both defendants to pay the costs jointly and severally.
1. “B.On GO CHAN’S Cross-claim:
9
 1. (1)Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of
Simeon Rallos, to pay to defendant Felix Go Chan & Sons Realty Corporation the
sum of P5,343.45, representing the price of one-half (1/2) share of lot 5983;
2. (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.
1. “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. (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 Gerundia 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

10
question.1 The appellee-administrator, Ramon Rallos, moved for a reconsideration 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 Rallosin 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 proceeding to the issues, We shall briefly restate certain principles of law relevant
to the matter under 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 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:

11
 “(1) Those entered into in the name of another person by one who has been given no
authority or legal representation or who has acted beyond his powers; x x x.”
Out of the above given principles, sprung the creation and acceptance of the relationship of
agency whereby one party, called the principal (mandante), authorizes another, called the
agent (mandatario), to act for and in his behalf in transactions with third persons. The
essential elements of agency are: (1) there is consent, express or implied, of the parties to
establish the relationship; (2) the object is the 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 per se. “He who
acts through another acts himself.”6
2. There are various ways of extinguishing agency,7 but here 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:
“xx xx xx
“3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; x
x x.” (Underline supplied)

12
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. There being an
integration of the personality of the principal into 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 principal 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
in-terest.10 This is the prevalent rule in American Jurisprudence where it is well-settled that
a power without an interest conferred upon an agent is dissolved by the principal’s death,
and any attempted execution of the power afterwards is not binding on the heirs or
representatives of the deceased.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
13
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 share 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
aforementioned.
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

14
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 Simeon Rallosbefore 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 quo13 and of respondent appellate
court when the latter stated that Simeon 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 Simeon Rallosconcerning 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 Code 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,

15
et al. v. Luy Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera the Court
stated:
‘x x x even granting arquendo 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 of 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 corporation, the Court of Appeals
reasoned out that there is no provision in the Code which provides that whatever is done
by an agent having knowledge of the death of his principal is void even with respect to third
persons who may have contracted with him in good faith and without knowledge of the
death of the principal.16
We cannot see the merits of the foregoing argument as it ignores the existence of the
general rule enunciated in Article 1919 that the death of the principal extinguishes the
agency. That being the general rule it follows a fortiori that any act of an agent after the death
of his principal is void ab initio unless the same falls under the exceptions provided for in
the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the general
rule, is to be strictly construed; it is not to be given an interpretation or application beyond

16
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 ever 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’sCommentaries
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 in 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 publicly known.
“In case of a general power which does not specify the persons to whom representation
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)

17
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
terminated; the source of autnority 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 dies, his heirs must
notify the principal thereof, and in the meantime adopt such measures as the circumstances
may demand in the interest of the 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 dealing with an agent affords the
former sufficient protection, respondent court drew a “parallel” between the instant case
and that of an innocent purchaser for value of a registered land, stating that if a person
purchases a registered land from one who acquired it in bad faith—even to the extent of
18
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 “parallelism”, 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 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 Cantera, 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 Vellajo in favor of Nano. If
this had not been so and if thereafter the proper notation of the encumbrance could not
19
have been made, Angela Blondeau would not have lent 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 confidence 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:
“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

20
procured by fraud, the owner may pursue all his legal and equitable remedies against the
parties to such fraud, without prejudice, however, to the rights of any innocent holder for
value of a certificate of title. xx xx xx” (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:
“x x x 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 Ellenborough, 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 no notice of death, or opportunity of notice, I must be permitted to dissent
from it.

21
 “x x x That a payment may be good today, or bad tomorrow, from the accidental
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 AmD
76, where, in an elaborate opinion, this view is 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

22
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 proper weight to this opinion, as the judgment of
a Court of great respectability, it stands alone among common law authorities, and is
opposed by an array too formidable to permit us to follow 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
23
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 decision 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.
Decision set aside and judgment affirmed.
Notes.—The death of the principal does not render the act of an agent unenforceable
where the latter had no knowledge of the extinguishment of the agency. (Herrera vs. Luy Kim
Guan, 1 SCRA 406).
Ratification by the grantor or estoppel, consisting in benefiting from the loan must be
expressly shown and proven during the trial. (Philippine National Bank vs. Sta. Maria, 29
SCRA 303).
In an expropriation proceeding, the State cannot raise the alleged lack of authority of the
counsel of the owner of the property to bind his client in a compromise agreement because

24
such lack of authority may be questioned only by the principal or client. (Commissioner of
Public Highways vs. San Diego, 31 SCRA 616).
Where a person expressly authorized another to mortgage and borrow money for and in
his name, the liability of the two to the creditor is only joint, not joint and several or solidary.
(Philippine National Bank vs. Sta. Maria, 29 SCRA 303).
Air carriers which are members of the International Air Transport Association are
constituted as agents of each other in the issuing of tickets and, therefore, bound by the
mistakes committed by a member thereof which, in behalf of the petitioner airline
confirmed the passenger’s reservation for a first-class reservation. (Ortigas, Jr. vs. Lufthansa
German Airlines, 65 SCRA 610).
Where a check is deposited with a collecting bank, the relationship created is that of
agency, not creditor-debtor. The same rule follows after the drawee-bank’s check was
forged by one who previously encashed them. (Jai-Alai Corporation of the Philippines vs. Bank
of the Philippine Islands, 66 SCRA 29).

25
 [No. L-5142. February 26, 1954]
CONSOLACION L. RAMOS, administratrix and appellant, vs.BENIGNO
A. CAOIBES, attorney-in-fact and appellee.
1. 1.PRINCIPAL AND AGENT; OBLIGATIONS OF AN AGENT.—Where an
agent makes use of his power of attorney after the death of his principal, the agent
has the obligation to deliver the amount collected by him by virtue of said power to
the administratrix of the estate of his principal.
1. 2.ID.; DONATION OF PERSONAL PROPERTY; REQUISITES FOR ITS
VALIDITY.—Where a donation of personal property was made in writing but has
not been accepted in the same form, the donation is not valid. Nor can it be
considered a donation upon valuable consideration where no services or valuable
consideration were involved. The mere fact that the agent collected the principal's
claim from the War Damage Commission is not such a service as to require
compensation.
APPEAL from an order of the Court of First Instance of Batangas. Soriano, J.
The facts are stated in the opinion of the Court.
Consolacion L. Ramos in her own behalf.
Benigno A. Caoibes in his own behalf.
26
JUGO, J.:
This is an appeal by Consolacion L. Ramos as administratrix of the estate of
Concepcion Ramos from an order issued by the Court of First Instance of Batangas on
June 15, 1951.
On August 16, 1948, Concepcion Ramos Dipusoy executed before a notary public two
documents which have been marked as Annex "A" and Annex "B."
Annex "A" is a power of attorney which reads as follows:
"SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
"That I, Concepcion Ramos Dipusoy, of legal age, single, Filipino citizen and resident of
Balayan, Batangas, have made, constituted and appointed, and by these presents do make,
constitute and appoint Mr. Benigno A. Caoibes, also of legal age, married, Filipino citizen
and at present residing at 1047 Antipolo Street, Sampaloc, Manila, my true and lawful
attorney-in-fact, for me and in my name, place and stead, to collect any amount due me
from the Philippine War Damage Commission, regarding my claim filed for my properties
that were lost during the last war in Balayan, Batangas, to cash checks, warrants and to sign
receipts, vouchers, documents which shall be necessary to the said purpose.

27
 "That I am giving and granting unto my said attorney-in-fact Benigno A. Caoibes, full
and absolute power and authority to do and perform all any every act or thing whatsoever
to be done necessary in and about the premises, as fully to all intents and purposes as I
might or could myself do if I were personally present, and hereby confirming and ratifying
all that my said attorney-in-fact shall lawfully do or cause to be done and by virtue of these
presents.
"IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of August, 1948,
in the City of Manila, Philippines.
"(Miss) CONCEPCION RAMOSDIPUSOY
"Signed in the presence of:
1. 1.(Sgd.) CONSOLACION L. RAMOS
Witness
2. 2.(Sgd.) SOCORRO L. RAMOS
Witness
"REPUBLIC OF THE PHILIPPINES
CITY OF MANILA s.s.

28
"Before me a Notary Public for and in the City of Manila, personally appeared Miss
Concepcion Ramos Dipusoy, with Residence Certificate No. A-3115097, issued at
Balayan, Batangas, on February 26, 1948, who is known to me to be the same person who
executed the foregoing power of attorney in favor of Mr. Benigno A. Caoibes, and
acknowledged to me that the same is her free and voluntary act and deed.
"IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of August, 1948,
in the City of Manila and affixed my Notarial Seal.
(Sgd.) ARTEMIO ABAYA
Notary Public
My commission expires on December 31, 1948"
Annex B is an affidavit of the following tenor:
"REPUBLIC OF THE PHILIPPINES s. s.
CITY OF MANILA
AFFIDAVIT
"That I, CONCEPCION RAMOSDIPUSOY, of legal age, single, Filipino citizen, and
resident of Balayan, Batangas, after having been duly sworn to in accordance to law depose
and say:

29
 "That in case payment of any amount or amounts collected from the Philippine War
Damage Commission, my nephew and at the same time attorney-in-fact, shall give my sister
Teopista Vda. de Basa one-half (½), of the corresponding amount and the other half (½)
shall be given to my nephew and niece Mr. and Mrs. Benigno A. Caoibes.
"IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of August, 1948,
in the City of Manila.
(Sgd.) CONCEPCION RAMOSDIPUSOY
Signed in the presence of:
(Sgd.) CONSOLATION L. RAMOS
(Sgd.) SOCORRO L. RAMOS
"Subscribed and sworn to before me this 16th day of August, 1948, in the City of Manila.
Affiant have exhibited her residence certificate No. A-3115097, issued at Balayan, Batangas,
on February 26, 1948.
(Sgd.) ARTEMIO ABAYA
Notary Public
My Commission expires on December 31, 1948"
Concepcion Ramos died on August 19, 1948, leaving a will dated January 7, 1927 admitted
to probate on October 4, 1948, in which she ordered that the credits due to her be
30
distributed among the children of the deceased Antonino Ramos, namely, Consolacion,
Ramon, Socorro, and Cirila.
One year before she died, Concepcion Ramos filed with the War Damage Commission
a claim which was identified as No. 411773. On August 31, 1948, the Commission issued
check No. 348444, in the amount of P501.62, payable to the deceased Concepcion Ramos.
This check was returned to the Commission and substituted by the latter with check No.
564614, on November 10, 1948, for the same amount, but payable to Benigno A. Caoibes,
who had presented to said entity Annexes "A" and "B", above mentioned, in order to
exchange the first check No. 564614, which he cashed for himself.
Annexes "A" and "B" were presented to the Commission by Caoibes after the death of
Concepcion. The administratrix, Consolacion L. Ramos, the appellant herein, discovered
the collection,. made by Caoibes when she saw the note "previous payment" which
appeared in the account sent to her by the .Commission on October 13, 1950. She filed a
motion with the court asking that Caoibes be ordered to deposit the sum of P501.62 with
the clerk of court. Caoibes answered the motion admitting that after the death of
Concepcion, he presented Annexes "A" and "B" to the Commission and received in cash
the sum of P501.62, amount of the second check, above mentioned, but stating that he was
willing to deliver to the clerk the sum of P250.81. He contended that, by virtue of Annex
"A", and Annex "B", he had the right to retain, for himself, half of the sum of P501.62.
The court below issued the following order:
31
"Considering the motion of the administratrix praying that Atty. Benigno A. Caoibes turn
over the amount of P501.62, representing war damage claim, to the office of the Clerk of
this Court, and the answer of Atty. Caoibes to the said motion and this Court having had
the opportunity to personally confer with the parties and Attorney Caoibes being agreeable
to turn over the amount of F250.81 to the Clerk of this Court in final settlement of this
matter—it is ordered that the said Atty. Caoibes deposit the amount of P250.81 with the
Clerk of this Court, the said amount to be at the disposal of the administratrix and the other
parties in this intestate proceedings. With this order, the matter before this Court is deemed
closed.
"SO ORDERED.
Batangas, Batangas, June 15, 1951.
(Sgd.) E. SORIANO
Judge"
On July 3, 1951, the administratrix filed a motion for reconsideration, which was denied by
the order of the court dated July 12, 1951. (In the printed Record on Appeal the date
appears to be July 12, 1950, but it is evidently a mistake and it should be July 12, 1951.)
We will now proceed to consider the two documents.
Annex A is only a power of attorney. Caoibes, as agent, had the obligation to deliver the
amount collected by virtue of said power to his principal, Concepcion, or, after her death,

32
to the administratrix of her estate, Consolación. There is absolutely no cession of rights
made in favor of Caoibes in Annex "A", and under Article 1711 of the old Civil Code
(which was in force at the time of the transaction), the contract of agency is presumed to
be gratuitous, unless the agent is a professional agent. There is no proof that Caoibes was
such. Furthermore, according to Article 1732 of said Code, an agency is terminated, among
other causes, by the death of the principal or of the agent. When Caoibes made use of the
power of attorney, his principal, Concepcion, was already dead.
Coming now to Annex "B", the alleged document of donation, it should be noted that it is
not a donation of real but of personal property and is governed by article 632 of the old
Civil Code, which reads as follows:
"Donations of personal property may be made verbally or in writing.
"Verbal donation requires the simultaneous delivery of the gift. In the absence of this
requisite the donation shall produce no effect, unless made in writing and accepted in the
same form."
The alleged donation was made in writing but it has not been accepted in the same form,
and, consequently, has no validity. It cannot be considered a donation upon valuable
consideration, for no services nor any valuable consideration had passed from the donees
to the donor. The mere fact that Caoibes collected the claim from the War Damage

33
Commission is not such a service as to require compensation. Caoibes did not even
prepare the claim.
The court below in its order of June 15, 1951, said that it "having had the opportunity to
personally confer with the parties and Attorney Caoibes being agreeable to turn over the
amount of P250.81 to the Clerk of this Court in final settlement of this matter—it is ordered
that the said Atty. Caoibes deposit the amount of P250.81 with the Clerk of this Court, the
said amount to be at the disposal of the administratrix and the other parties in these intestate
proceedings. With this order, the matter before the administratrix never consented to the
reduction of the claim.
In view of the foregoing, the order appealed from is reversed and Benigno A. Caoibes is
ordered to deposit with the Clerk of Court of Batangas the sum of P501.62 to be at the
disposal of the administratrix in her capacity as such, without pronouncement as to costs.
So ordered.
Parás, C. J., Pablo, Bengzon, Padilla, Montemayor, Reyes,Bautista
Angelo, Labrador, Conception, and Diokno, JJ.,concur.
Order reversed.

34
 No. L- 57339. December 29, 1983.*
AIR FRANCE, petitioner, vs.HONORABLE COURT OF APPEALS, JOSE G. GANA
(Deceased), CLARA A. GANA, RAMON GANA, MANUEL GANA, MARIA TERESA
GANA, ROBERTO GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE
AREVALO, and EMILY SAN JUAN, respondents.
Civil Law; Contracts; Air carrier, not liable for breach of contract for having dishonored plane tickets
of persons which had expired.—From the foregoing tariff rules, it is clear that AIR FRANCE
cannot be faulted for breach of contract when it dishonored the tickets of the GANAS
after 8 May 1971 since those tickets expired on said date.
Same; Same; Agency; Notice to travel agent of rejection of request for extension of validity of plane
tickets, also notice to the principals.—The GANAS cannot defend by contending lack of
knowledge of those rules since the evidence bears out that Teresita, who handled travel
arrangements for the GANAS, was duly informed by travel agent Ella of the advice of Rillo,
the Office Manager of Air France, that the tickets in question could not be extended beyond
the period of their validity without paying the fare differentials and additional travel taxes
brought about by the increased fare rate and travel taxes. The ruling relied on by respondent
Appellate Court, therefore, in KLM vs. Court of Appeals, 65 SCRA 237 (1975), holding
that it would be unfair to charge respondents therein with automatic knowledge or notice
of conditions in contracts of adhesion, is inapplicable. To all legal intents and purposes,

35
Teresita was the agent of the GANAS and notice to her of the rejection of the request for
extension of the validity of the tickets was notice to the GANAS, her principals.
Same; Same; Ratification, not a case of; Fact that passengers allowed to leave by airport ticket counter
personnel, not implied ratification of irregular actuations of travel agent.—The circumstance that AIR
FRANCE personnel at the ticket counter in the airport allowed the GANAS to leave is not
tantamount to an implied ratification of travel agent Ella's irregular actuations. It should be
recalled that the GANAS left Manila the day before the expiry date of their tickets and that
"other arrangements" were to be made with respect to the remaining segments. Besides,
the validating stickers that Ella affixed on his own merely reflect the status of reservations
on the specified flight and could not legally serve to extend the validity of a ticket or revive
an expired one.
PETITION for certiorari to review the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Benjamin S. Valte for petitioner.
Napoleon Garcia for private respondents,
MELENCIO-HERRERA, J.:

36
In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of
then respondent Court of
Appeals1 promulgated on 15 December 1980 in CA-G.R. No. 58164-R, entitled "Jose G.
Gana, et al. vs. Sociedad Nacionale Air France", which reversed the Trial Court's judgment
dismissing the Complaint of private respondents for damages arising from breach of
contract of carriage, and awarding instead P90,000.00 as moral damages.
Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the
GANAS), purchased from AIR FRANCE through Imperial Travels, Incorporated, a duly
authorized travel agent, nine (9) "open-dated" air passage tickets for the
Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of US$2,528.85 for their
economy and first class fares. Said tickets were bought at the then prevailing exchange rate
of P3.90 per US$1.00. The GANAS' also paid travel taxes of P100.00 for each passenger.
On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets
with other tickets for the same route. At this time, the GANAS were booked for the
Manila/Osaka segment on AIR FRANCE Flight 184 for 8 May 1970, and for the
Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22 May 1970. The aforesaid
tickets were valid until 8 May 1971, the date written under the printed words "Non valable
apres de" (meaning, "not valid after the").
The GANAS did not depart on 8 May 1970.

37
 Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a
Secretary of the Sta. Clara Lumber Company where Jose Gana was the Director and
Treasurer, for the extension of the validity of their tickets, which were due to expire on 8
May 1971. Teresita enlisted the help of Lee Ella, Manager of the Philippine Travel Bureau,
who used to handle travel arrangements for the personnel of the Sta. Clara Lumber
Company. Ella sent the tickets to Cesar Rillo, Office Manager of AIR FRANCE. The
tickets were returned to Ella who was informed that extension was not possible unless the
fare differentials resulting from the increase in fares triggered by an increase of the exchange
rate of the US dollar to the Philippine peso and the increased travel tax were first paid. Ella
then returned the tickets to Teresita and inf ormed her of the impossibility of extension.
In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day
before the expiry date. In the morning of the very day of their scheduled departure on the
first leg of their trip, Teresita requested travel agent Ella to arrange the revalidation of the
tickets. Ella gave the same negative answer and warned her that although the tickets could
be used by the GANAS if they left on 7 May 1971, the tickets would no longer be valid for
the rest of their trip because the tickets would then have expired on 8 May 1971. Teresita
replied that it will be up to the GANAS to make the arrangements. With that assurance,
Ella, on his own, attached to the tickets validating stickers for the Osaka/Tokyo flight, one
a JAL sticker and the other an SAS (Scandinavian Airways System) sticker. The SAS sticker
indicates thereon that it was "Revalidated by: the Philippine Travel Bureau, Branch No. 2"
38
(as shown by a circular rubber stamp) and signed "Ador", and the date is handwritten in
the center of the circle. Then appear under printed headings the notations: JL 108 (Flight),
16 May (Date), 1040 (Time), OK (status). Apparently, Ella made no more attempt to
contact AIR FRANCE as there was no more time.
Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7
May 1971 on board AIR FRANCE Flight 184 for Osaka, Japan. There is no question with
respect to this leg of the trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor
the tickets because of their expiration, and the G ANAS had to purchase new tickets. They
encountered the same difficulty with respect to their return trip to Manila as AIR FRANCE
also refused to honor their tickets. They were able to return only after pre-payment in
Manila, through their relatives, of the readjusted rates. They finally flew back to Manila on
separate Air France Flights on 19 May 1971 for Jose Gana and 26 May 1971 for the rest of
the family.
On 25 August 1971, the GANAS commenced before the then Court of First Instance of
Manila, Branch III, Civil Case No. 84111 for damages arising from breach of contract of
carriage.
AIR FRANCE traversed the material allegations of the Complaint and alleged that the
GANAS brought upon themselves the predicament they found themselves in and assumed
the consequential risks; that travel agent Ella's affixing of validating stickers on the tickets
39
without the knowledge and consent of AIR FRANCE, violated airline tariff rules and
regulations and was beyond the scope of his authority as a travel agent; and that AIR
FRANCE was not guilty of any fraudulent conduct or bad faith.
On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and
Additional Stipulations of Fact as well as on the documentary and testimonial evidence.
The GANAS appealed to respondent Appellate Court. During the pendency of the
appeal, Jose Gana, the principal plaintiff, died.
On 15 December 1980, respondent Appellate Court set aside and reversed the Trial
Court's judgment in a Decision, which decreed:
"WHEREFORE, the decision appealed from is set aside. Air France is hereby ordered to
pay appellants moral damages in the total sum of NINETY THOUSAND PESOS
(P90,000.00) plus costs."
"SO ORDERED."2
Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before
this instance, to which we gave due course.
The crucial issue is whether or not, under the environmental milieu, the GANAS have
made out a case for breach of contract of carriage entitling them to an award of damages,
We are constrained to reverse respondent Appellate Court's af firmative ruling thereon.
Pursuant to tariff rules and regulations of the International Air Transportation Association
(IATA), included in paragraphs 9, 10, and 11 of the Stipulations of Fact between the parties
40
in the Trial Court, dated 31 March 1973, an airplane ticket is valid for one year. 'The
passenger must undertake the final portion of his journey by departing from the last point
at which he has made a voluntary stop before the expiry of this limit (parag. 3.1.2) x x x
That is the time allowed a passenger to begin and to complete his trip (parags. 3.2 and 3.3.).
x x x A ticket can no longer be used for travel if its validity has expired before the passenger
completes his trip (parag. 3.5.1). x x x To complete the trip, the passenger must purchase a
new ticket for the remaining portion of the journey" (ibid.)3
From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of
contract when it dishonored the tickets of the GANAS after 8 May 1971 since those tickets
expired on said date; nor when it required the GANAS to buy new tickets or have their
tickets re-issued for the Tokyo/Manila segment of their trip. Neither can it be said that,
when upon sale of the new tickets, it imposed additional charges representing fare
differentials, it was motivated by self-interest or unjust enrichment considering that an
increase of fares took effect, as authorized by the Civil Aeronautics Board (CAB) in April,
1971. This procedure is well in accord with the IATA tariff rules which provide:
"6. TARIFF RULES
"3. APPLICABLE FARE ON THE DATE OF DEPARTURE
"3.1 General Rule.
"All journeys must be charged for at the fare (or charge) in effect on the date on which
transportation commences from the point of origin, Any ticket sold prior to a change of
41
fare or charge (increase or decrease) occurring between the date of commencement of the
journey, is subject to the above general rule and must be adjusted accordingly. A new ticket
must be issued and the difference is to be collected or refunded as the case may be. No
adjustment is necessary if the increase or decrease in fare (or charge) occurs when the
journey is already commenced"4
The GANAS cannot defend by contending lack of knowledge of those rules since the
evidence bears out that Teresita, who handled travel arrangements for the GANAS, was
duly informed by travel agent Ella of the advice of Rillo, the Office Manager of Air France,
that the tickets in question could not be extended beyond the period of their validity
without paying the fare differentials and additional travel taxes brought about by the
increased fare rate and travel taxes.
"ATTY. VALTE
"Q What did you
tell Mrs.
Manucdoc, in
turn, after being
told this by Mr.
Rillo?
"A I told her,
because that is
42
the reason why
they accepted
again the tickets
when we
returned the
tickets again,
thatthey could
not be
extended. They
could be
extended by
paying the
additional fare,
additional tax
and additional
exchange
during that
time.

43
"Q You said so to
Mrs.
Manucdoc?
"A Yes, sir." x x x5
The ruling relied on by respondent Appellate Court, therefore, in KLM vs. Court of
Appeals, 65 SCRA 237(1975), holding that it would be unfair to charge respondents therein
with automatic knowledge or notice of conditions in contracts of adhesion, is inapplicable.
To all legal intents and purposes, Teresita was the agent of the GANAS and notice to her
of the rejection of the request for extension of the validity of the tickets was notice to the
GANAS, her principals.
The SAS validating sticker for the Osaka/Tokyo flight affixed by Ella showing
reservations for JAL Flight 108 for 16 May 1971, without clearing the same with AIR
FRANCE allegedly because of the imminent departure of the GANAS on the same day so
that he could not get in touch with Air France,6was certainly in contravention of IATA
rules although as he had explained, he did so upon Teresita's assurance that for the onward
flight from Osaka and return, the G ANAS would make other arrangements.
"Q Referring you
to page 33 of
the transcript
of the last
44
session, I had
this question
which reads as
follows: 'But
did she say
anything to you
when you said
that the tickets
were about to
expire?' Your
answer was: 'I
amthe one who
asked her. At
that time I told
her if the
tickets being
used... I was
telling her what
about their
bookings on
45
 the return.
What about
their travel on
the return? She
told me it is up
for the Ganas
to make the
arrangement'
May I know
from you what
did you mean
by this
testimony of
yours?
"A That was on
the day when
they were
asking me on
May 7, 1971
when they were
46
checking the
tickets. I told
Mrs.
Manucdoc that
I was going to
get the tickets.
I asked her
what about the
tickets onward
from the return
from Tokyo,
and her answer
was it is up for
the Ganas to
make the
arrangement,
because I told
her that they
could leave on
the seventh,
47
 but they could
take care of
that when they
arrived in
Osaka.
"'Q What t do you
mean?
"A The Ganas will
make the
arrangement
from Osaka,
Tokyo and
Manila.
"Q What
arrangement?
"A The
arrangement
for the airline
because the
tickets would
48
 expire on May
7, and they
insisted on
leaving. I asked
Mrs. Manucdoc
what about the
return onward
portion
because they
would be
traveling to
Osaka, and her
answer was, it
is up for the
Ganas to make
the
arrangement.
"Q Exactly what
were the words
of Mrs.
49
 Manucdoc
when you told
her that? If you
can remember,
what were her
exact words?
"A Her words
only, it is up
for the Ganas
to make the
arrangement.
"Q This was in
Tagalog or in
English?
"A I think it was in
English. x x x7
The circumstance that AIR FRANCE personnel at the ticket counter in the airport allowed
the GANAS to leave is not tantamount to an implied ratification of travel agent Ella's
irregular actuations. It should be recalled that the GANAS left Manila the day before the
expiry date of their tickets and that "other arrangements" were to be made with respect to
50
the remaining segments. Besides, the validating stickers that Ella affixed on his own merely
reflect the status of reservations on the specified flight and could not legally serve to extend
the validity of a ticket or revive an expired one.
The conclusion is inevitable that the G ANAS brought upon themselves the predicament
they were in for having insisted on using tickets that were due to expire in an effort, perhaps,
to beat the deadline and in the thought that by commencing the trip the day before the
expiry date, they could complete the trip even thereafter. It should be recalled that AIR
FRANCE was even unaware of the validating SAS and JAL stickers that Ella had affixed
spuriously. Consequently, Japan Air Lines and AIR FRANCE merely acted within their
contractual rights when they dishonored the tickets on the remaining segments of the trip
and when AIR FRANCE demanded payment of the adjusted fare rates and travel taxes for
the Tokyo/Manila flight.
WHEREFORE, the judgment under review is hereby reversed and set aside, and the
Amended Complaint filed by private respondents hereby dismissed.
No costs.
SO ORDERED.
Teehankee (Chairman), Plana, Relova and Gutierrez, Jr.,JJ., concur.
Judgment set aside.
Notes.—One who assumes a contractual obligation and fails to perf orm the same on
account of his inability to meet certain bank requirements, which inability he knew and was
51
aware of when he entered into the contract, should be held liable in damages for breach of
contract. (Arrieta vs. National Rice and Corn Corporation, 10 SCRA 79.)
Air carriers are liable for damages for breaches of contract other than those enumerated
in the provisions of the Warsaw Convention of 1929. (Northeast Airlines, Inc. vs. Cuenca, 14
SCRA 1063.)
For one to recover exemplary damages, he must first show that he is entitled to moral,
temperate, liquidated or compensatory damages. (Yutuk vs. Manila Electric Company, 2 SCRA
537.)
The financial standing of a person responsible for breach of contract of carriage is
relevant to the evaluation of compensatory and moral damages, although financial capacity
does not determine the liability for damage. (Pangasinan Trans. Co. vs. Legaspi, 12 SCRA 592.)

52
 No. L-20136. June 23, 1965.
IN RE: PETITION FOR ISSUANCE OF SEPARATE CERTIFICATE, OF TITLE.
JOSE A. SANTOS Y DIAZ, petitioner-appellant, vs. ANATOLIO BUENCONSEJO, ET
AL., respondentsappellees.
Agency; Power of attorney cannot vest property right in attorney’s own name.—A special power of
attorney authorizing a person to act on behalf of the children of another cannot vest in the
said attorney any property right in his own name.
Same; Children without authority to execute power of attorney for parent.—The children have no
authority to execute a power of attorney for their father who is still alive.
Co-ownership; Co-owner cannot adjudicate a portion of property without conformity of other co-owner or
by judicial decree.—A co-owner pro indiviso cannot, without the conformity of the other co-
owner of a judicial decree of partition, adjudicate to himself in fee simple a determinate
portion of the property owned in common to the exclusion of the other co-owners.
APPEAL from an order of the Court of First Instance of Albay. Alcasid, J.
The facts are stated in the opinion of the Court.
Segundo C. Mastrili for petitioner-appellant.
Manuel Calleja, Rafael S. Lucila and Jose T. Rubio for respondents-appellees.
CONCEPCION, J.:
53
Petitioner Jose A. Santos y Diaz seeks the reversal of an order of the Court of First Instance
of Albay, denying his petition, filed in Cadastral Case No. M-2197, LRC Cad. Rec. No.
1035, for the cancellation of original certificate of title No. RO-3848 (25322), issued in the
name of Anatolio Buenconsejo, Lorenzo Bon and Santiago Bon, and covering Lot No.
1917 of the Cadastral Survey of Tabaco, Albay, and the issuance in lieu thereof, of a separate
transfer certificate of title in his name, covering part, of said Lot No. 1917, namely, Lot No.
1917-A of Subdivision Plan PSD-63379.
The main facts are not disputed. They are set forth in the order appealed from, from
which we quote:
“It appears that the aforementioned Lot No. 1917 covered by Original Certificate of Title
No. RO-3848 (25322) was originally owned in common by Anatolio Buenconsejo to the
extent of 1/2 undivided portion and Lorenzo Bon and Santiago Bon to the extent of the
other 1/2 (Exh. B) ; that Anatolio Buenconsejo’s rights, interests and participation over the
portion abovementioned were on January 3, 1961 and by a Certificate of Sale executed by
the Provincial Sheriff of Albay, transferred and conveyed to Atty. Tecla San Andres Ziga,
awardee in the corresponding auction sale conducted by said Sheriff in connection with the
execution of the decision of the Juvenile Delinquency and Domestic Relations Court in
Civil Case No. 25267, entitled ‘Yolanda Buenconsejo, et al. vs. Anatolio Buenconsejo’; that
on December 26, 1961 and by a certificate of redemption issued by the Provincial Sheriff
of Albay, the rights, interest, claim and/ or participation which Atty. Tecla San Andres Ziga
54
may have acquired over the property in question by reason of the aforementioned auction
sale award, were transferred and conveyed to the herein petitioner in his capacity as
Attorney-in-fact of the children of Anatolio Buenconsejo, namely, Anastacio Buenconsojo,
Elena Buenconsejo and Azucena Buenconsejo (Exh. C).”
It would appear, also, that petitioner Santos had redeemed the aforementioned share of
Anatolio Buenconsejo, upon the authority of a special power of attorney executed in his
favor by the children of Anatolio Buenconsejo; that relying upon this power of attorney
and redemption made by him, Santos now claims to have acquired the share of Anatolio
Buenconsejo in the aforementioned Lot No. 1917; that as the alleged present owner of said
share, Santos caused a subdivision plan of said Lot No. 1917 to be made, in which the
portion he claims as his share thereof has been marked as Lot No. 1917-A; and that he
wants said subdivision Lot No. 1917-A to be segregated from Lot No. 1917 and a certificate
of title issued in his name exclusively for said subdivision Lot No. 1917-A.
As correctly held by the lower court, petitioner’s claim is clearly untenable, for: (1) said
special power of attorney authorized him to act on behalf of the children of Anatolio
Buenconsejo, and, hence, it could not have possibly vested in him any property right in
his ownname; (2) the children of Anatolio Buenconsejo had no authority to execute said
power of attorney, because their father is still alive and, in fact, he and his wife opposed the
petition of Santos; (3) in consequence of said power of attorney (if valid) and redemption,
Santos could have acquired no more than the share pro indiviso of Anatolio Buenconsejo in
55
Lot No. 1917, so that petitioner cannot—without the conformity of the other co-owners
(Lorenzo and Santiago Bon), or a judicial decree of partition issued pursuant to the
provisions of Rule 69 of the new Rules of Court (Rule 71 of the old Rules of Court) which
have not been followed by Santos—adjudicate to himself in fee simple a determinate
portion of said Lot No. 1917, as his share therein, to the exclusion of the other co-owners.
Inasmuch as the appeal is patently devoid of merit, the order appealed from is hereby
affirmed, with treble costs against petitioner-appellant Jose A. Santos y Diaz. It is so
ordered.
Bengzon, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar,
JJ.,concur.
Bautista Angelo, Barreraand Paredes, JJ., took no part.
Order affirmed.

56
 No. 20726. December 20, 1923]
ALBALADEJO Y CÍA., S. en C., plaintiff and appellant, vs. The PHILIPPINE
REFINING Co., as successor to The Visayan Refining Co., defendant and appellant.
1. 1.CONTRACT; NEGLIGENCE IMPUTED TO DEFENDANT IN
PERFORMANCE OF CONTRACTUAL DUTY.—By contract between the
plaintiff and the Visayan Refining Company it was agreed that the latter would take,
at current prices, all the copra which the former should buy in a designated territory;
and it was made the duty of the Visayan Refining Company to send boats at opportune
times to convey the copra collected by the plaintiff to the point where it was to be
used in the manufacture of coconut oil. In its first cause of action the plaintiff alleged
that the company mentioned had at various times negligently failed to send boats to
transport the copra purchased by the plaintiff and that as a result of this delay the
copra awaiting shipment had unduly diminished in weight in the process of drying,
thereby inflicting heavy loss upon the plaintiff. The trial judge having found that
transportation had been supplied with reasonable promptitude, and that the company
mentioned had not been guilty of the alleged negligence, said finding is affirmed by
this court.

57
1. 2.ID.; CONTRACT ONE OF PURCHASE, NOT OF AGENCY.—Under the
contract of purchase above referred to the plaintiff was not the agent of the Visayan
Refining Company as regards the original purchase of copra by the plaintiff from the
producers. On the contrary those purchases were made by the plaintiff in its own
behalf. The defendant therefore was not liable to reimburse the plaintiff for expenses
incurred by the plaintiff in maintaining its purchasing organization intact over a period
during which the actual buying of copra was suspended.
1. 3.ID.; DETRIMENT INCURRED AT REQUEST OF ANOTHER; ABSENCE
OF INTENTION TO INCUR CONTRACTUAL LIABILITY.—The circumstance
that the Visayan Refining Company encouraged the plaintiff to keep its organization
intact during such period of suspension and suggested that when the company
resumed .buying (which was expected to occur at some time in the future) the plaintiff
would be compensated for all loss which it had suffered, "meaning that the profits
then to be made would justify such expenses, does not render the company liable for
such losses upon its subsequent failure to resume the buying of copra. The
inducements thus held out to the plaintiff were not intended to lay the basis of any
contractual liability, and the law will not infer the existence of a contract contrary to
the revealed intention of the parties.

58
APPEAL from a judgment of the Court of First Instance of Albay. Platon, J.
The facts are stated in the opinion of the court.
Eduardo Gutierrez Repide and Felix Socias for plaintiff-appellant.
Manly, Goddard & Lockwood for defendant-appellant
Fisher, DeWitt, Perkins & Bradyof counsel.
STREET, J.:
This action was instituted in the Court of First Instance of the Province of Albay by
Albaladejo y Cía., S. en C., to recover a sum of money from the Philippine Refining Co., as
successor to the Visayan Refining Co., two causes of action being stated in the complaint.
Upon hearing the cause the trial judge absolved the defendant from the first cause of action
but gave judgment for the plaintiff to recover the sum of P49,626.68, with costs, upon the
second cause of action. From this judgment the plaintiff appealed with respect to the action
taken upon the first cause of action, and the defendant appealed with respect to the action
taken upon the second cause of action. It results that, by the appeal of the two parties, the
decision of the lower court is here under review as regards the action taken upon both
grounds of action set forth in the complaint.
It appears that Albaladejo y Cía. is a limited partnership, organized in conformity with
the laws of these Islands, and having its principal place of business at Legaspi, in the

59
Province of Albay; and during the transactions which gave origin to this litigation said firm
was engaged in the buying and selling of the products of the country, especially copra, and
in the conduct of a general mercantile business in Legaspi and in other places where it
maintained agencies, or sub-agencies, for the prosecution of its commercial enterprises.
The Visayan Refining Co. is a corporation organized under the laws of the Philippine
Islands; and prior to July 9, 1920, it was engaged in operating its extensive plant at Opon,
Cebu, for the manufacture of coconut oil. On August 28, 1918, the plaintiff made a contract
with the Visayan Refining Co., the material parts of which are as follows:
"Memorandum of Agreement Re Purchase of Copra.—This memorandum of agreement, made
and entered into by and between Albaladejo y Compañía S. en C., of Legaspi, Province of
Albay, Philippine Islands, party of the first part, and the Visayan Refining Company, Inc.,
of Opon, Province of Cebu, Philippine Islands, party of the second part,
"Witnesseth That.—Whereas, the party of the first part is engaged in the purchase of copra
in the Province of Albay; and, Whereas, the party of the second part is engaged in the
business of the manufacture of coconut oil, for which purpose it must continually purchase
large quantities of copra; Now, Therefore, in consideration of the premises and covenants
hereinafter set forth, the said parties have agreed and do hereby contract and agree as
follows, to wit:

60
1. "1.The party of the first part agrees and binds itself to sell to the party of the second
part, and the party of the second part agrees and binds itself to buy from the party of
the first part, for a period of one (1) year from the date of these presents, all the copra
purchased by the party of the first part in the Province of Albay.
2. "2.The party of the second part agrees to pay the party of the first part for the said
copra the market price thereof in Cebu at date (of) purchase, deducting, however,
from such price the cost of transportation by sea to the factory of the party of second
part at Opon, Cebu, the amount deducted to be ascertained from the rates established,
from time to time, by the public utility commission, or such entity as shall succeed to
its functions, and also a further deduction for the shrinkage of the copra from the
time of its delivery to the party of the second part to its arrival at Opon, Cebu, plus
one-half of a realper picul in the event the copra is delivered to boats which will unload
it on the pier of the party of the second part at Opon, Cebu, plus one real per picul in
the event that the party of the first part shall employ its own capital exclusively in its
purchase.
3. "3.During the continuance of this contract the party of the second part will not
appoint any other agent for the purchase of copra in Legaspi, nor buy copra from any
vendor in Legaspi.
4. "4.The party of the second part will, so far as practicable, keep the party of the first
part advised of the prevailing prices paid for copra in the Cebu market.
61
 5. "5.The party of the second part will provide transportation by sea to Opon, Cebu, for
the copra delivered to it by the party of the first part, but the party of the first part
must deliver such copra to the party of the second part free on board the boats of the
latter's ships or on the pier alongside the latter's ships, as the case may be."
Pursuant to this agreement the plaintiff, during the year therein contemplated, bought copra
extensively for the Visayan Refining Co. At the end of said year both parties found
themselves satisfied with the existing arrangement, and they therefore continued by tacit
consent to govern their future relations by the same agreement. In this situation affairs
remained until July 9, 1920, when the Visayan Refining Co. closed down its factory at Opon
and withdrew from the copra market.
When the contract above referred to was originally made, Albaladejo y Cía. apparently
had only one commercial establishment, i. e., that at Legaspi; but the large requirements of
the Visayan Refining Co. for copra appeared so far to justify the extension of the plaintiff's
business that during the course of the next two or three years it established some twenty
agencies, or subagencies, in various ports and places of the Province of Albay and
neighboring provinces.
After the Visayan Refining Co. had ceased to buy copra, as above stated, of which fact
the plaintiff was duly notified, the supplies of copra already purchased by the plaintiff were
gradually shipped out and accepted by the Visayan Refining Co., and in the course of the
62
next eight or ten months the accounts between the two parties were liquidated. The last
account rendered by the Visayan Refining Co. to the plaintiff was for the month of April,
1921, and it showed a balance of P288 in favor of the defendant. Under date of June 25,
1921, the plaintiff company addressed a letter from Legaspi to the Philippine Refining Co.
(which had now succeeded to the rights and liabilities of the Visayan Refining Co.),
expressing its approval of said account. In this letter no dissatisfaction was expressed by
the plaintiff as to the state of affairs between the parties; but about six weeks thereafter the
present action was begun.
Upon reference to paragraph five of the contract reproduced above it will be seen that
the Visayan Refining Co. obligated itself to provide transportation by (sea to Opon, Cebu,
for the copra which should be delivered to it by the plaintiff; and the first cause of action
set forth in the complaint is planted upon the alleged negligent failure of the Visayan
Refining Co. to provide opportune transportation for the copra collected by the plaintiff
and deposited for shipment at various places. In this connection we reproduce the following
allegations from the complaint:
"6. That, from the month of September, 1918, until, the month of June, 1920, the plaintiff
opportunely advised the Visayan of the stocks that the former had for shipment, and, from
time to time, requested the Visayan to send vessels to take up said stocks; but that the
Visayan culpably and negligently allowed a great number of days to elapse before sending
the boats for the transportation of the copra to Opon, Cebu, and that due to the fault and
63
negligence of the Visayan, the stocks of copra prepared for shipment by the plaintiff had
to remain an unnecessary length of time in warehouses and could not be delivered to the
Visayan, nor could they be transmitted to this latter because of the lack of boats, and that
for this reason the copra gathered by the plaintiff and prepared for delivery to the Visayan
suffered the diminishment of weight herein below specified, through shrinkage or excessive
drying, and, in consequence thereof, an important diminishment in its value.
* * * * * * * *
"8. That the diminishment in weight suffered as shrinkage through excessive drying by
all the lots of copra sold by the plaintiff to the Visayan, due to the fault and negligence of
the Visayan in the sending of boats to take up said copra, represents a total of 9,695 piculs
and 56 cates, the just and reasonable value of which, at the rates fixed by the purchaser as
the price in its liquidation, is a total of two hundred and one thousand, five hundred and
ninety-nine pesos and fifty-three centavos (P201,599.53), Philippine currency, in which
amount the plaintiff has been damaged and injured by the negligent and culpable acts and
omissions of the Visayan, as herein above stated and alleged."
In the course of the appealed decision the trial judge makes a careful examination of the
proof relative to the movements of the fleet of boats maintained by the Visayan Refining
Co. for the purpose of collecting copra from the various ports where it was gathered for
said company, as well as of the movements of other boats chartered or hired by said
company for the same purpose; and upon consideration of all the facts revealed in evidence,
64
his Honor found that the Visayan Refining Co. had used reasonable promptitude in its
efforts to get out the copra from the places where it had been deposited for shipment,
notwithstanding occasional irregularities due at times to the condition of the weather as
related to transportation by .sea and at other times to the inability of the Visayan Refining
Co. to dispatch boats to the more remote ports. This finding of the trial judge, that no
negligence of the kind alleged can properly be imputed to the Visayan Refining Co., is in
our opinion supported by the proof.
Upon the point of the loss of weight of the copra by shrinkage, the trial judge found that
this is a product which necessarily undergoes considerable shrinkage in the process of
drying, and intelligent witnesses who are conversant with the matter testified at the trial that
shrinkage of copra varies from twenty to thirty per centum of the original gross weight. It
is agreed that the shrinkage shown in all of the copra which the plaintiff delivered to the
Visayan Refining Co. amounted to only 8.187 per centum of the whole, an amount which
is notably below the normal. This showing was undoubtedly due in part, as the trial judge
suggests, to the fact that in purchasing the copra directly from the producers the plaintiff's
buyers sometimes estimated the picul at sixty-eight kilos, or somewhat less, but in no case
at the true weight of 63.25 kilos. The plaintiff was therefore protected in a great measure
from loss by shrinkage by purchasing upon a different basis of weight from that upon which
he sold, otherwise the shrinkage shown in the result must have been much greater than that
which actually appeared. But even considering this fact, it is quite evident that the
65
demonstrated shrinkage of 8.187 per centum was an extremely moderate average; and this
fact goes to show that there was no undue delay on the part of the Visayan Refining Co. in
supplying transportation for the copra collected by the plaintiff.
In the course of his well-reasoned opinion upon this branch of the case, the trial judge
calls attention to the fact that it is expressly provided in paragraph two of the contract that
the shrinkage of copra from the time of its delivery to the party of the second part till its
arrival at Opon should fall upon the plaintiff, from whence it is to be inferred that the
parties intended that the copra should be paid for according to its weight upon arrival at
Opon regardless of its weight when first purchased; and such appears to have been the
uniform practice of the parties in settling their accounts for the copra delivered over a
period of nearly two years.
From what has been said it follows that the first cause of action set forth in the complaint
is not well founded, and the trial judge committed no error in absolving the plaintiff
therefrom.
It appears that in the first six months of the year 1919, the plaintiff found that its
transactions with the Visayan Refining Co. had not been productive of reasonable profit, a
circumstance which the plaintiff attributed to loss of weight or shrinkage in the copra from
the time of purchase to its arrival at Opon; and the matter was taken up with the officials
of said company, with the result that a bounty amounting to P15,610.41 was paid to the
plaintiff by the Visayan Refining Co. In the ninth paragraph of the complaint the plaintiff
66
alleges that this payment was made upon account of shrinkage, for which the Visayan
Refining Co. admitted itself to be liable; and it is suggested that the making of this payment
operated as a recognition on the part of the Visayan Refining Co. of the justice of the
plaintiff's claim with respect to the shrinkage in all subsequent transactions. With this
proposition we cannot agree. At most the payment appears to have been made in
recognition of an existing claim, without involving any commitment as to liability on the
part of the defendant in the future; and furthermore it appears to have been in the nature
of a mere gratuity given by the company in order to encourage the plaintiff and to assure
that the plaintiff's organization would be kept in an efficient state for future activities. It is
certain that no general liability for plaintiff's losses was assumed for the future; and the
defendant on more than one occasion thereafter expressly disclaimed liability for such
losses.
As already stated purchases of copra by the defendant were suspended in the month of
July, 1920. At this time the plaintiff had an expensive organization which had been built up
chiefly, we suppose, with a view to the buying of copra; and this organization was
maintained practically intact for nearly a year after the suspension of purchases by the
Visayan Refining Co. Indeed in October, 1920, the plaintiff added an additional agency at
Gubat to the twenty or more already in existence. As a second cause of action the plaintiff
seeks to recover the sum of P110,000, the alleged amount expended by the plaintiff in
maintaining and extending its organization as above stated. As a basis for the defendant's
67
liability in this respect it is alleged that said organization was maintained and extended at
the express request, or requirement, of the defendant, in conjunction with repeated
assurances that the defendant would soon resume activity as a purchaser of copra.
With reference to this cause of action the trial judge found that the plaintiff, as claimed,
had incurred expenses at the request of the def endant and upon its representation that the
plaintiff would be fully compensated therefor in the future. Instead, however, of allowing
the plaintiff the entire amount claimed, his Honor gave judgment for only thirty per centum
of said amount, in view of the fact that the plaintiff's transactions in copra had amounted
in the past only to about thirty per centum of the total business transacted by it. Estimated
upon this basis, the amount recognized as constituting a just claim was found to be
P49,626.68, and for this amount judgment was rendered against the defendant.
The discussion of this branch of the appeal involves the sole question whether the
plaintiff's expenses in maintaining and extending its organization for the purchase of copra
in the period between July, 1920, to July, 1921, were incurred at the instance and request of
the defendant, or upon any promise of the defendant to make that expenditure good. A
careful examination of the evidence, mostly of a documentary character, is, in our opinion,
convincing that the supposed liability does not exist.
By recurring to paragraph four of the contract between the plaintiff and the Visayan
Refining Co. it will be seen that the latter agreed to keep the plaintiff advised of the
prevailing prices paid for copra in the Cebu market. In compliance with this obligation the
68
Visayan Refining Co. was accustomed to send out "trade letters" from time to time to its
various clients in the southern provinces of whom the plaintiff was one. In these letters the
manager of the company was accustomed to make comment upon the state of the market
and to give such information as might be of interest or value to the recipients of the letters.
From the series of letters thus sent to Albaladejo y Cía. during the latter half of 1920, we
here reproduce the following excerpts:
(Letter of July 2, 1920, from K. B. Day, General Manager, of the Visayan Refining Co., to Albaladejo
y Cía.)
"The copra market is still very weak. I have spent the past two weeks in Manila studying
conditions and find that practically no business at all is being done. A few of the mills
having provincial agents are accepting small deliveries, but I do not suppose that 500 piculs
of copra are changing hands a day. Buyers are offering from P13 to P15, depending on
quality, and sellers are offering to sell at anywhere from P16 to P18, but no business can be
done for the simple reason that the banks will not lend the mills any money to buy copra
with at this time. "Reports from the United States are to the effect that the oil market is in
a very serious and depressed condition and that large quantities of oil cannot be disposed
of at any price.
* * * * * * * * *
"Under these conditions it is imperative that this mill buy no more copra than it can
possibly help at the present time. We are not anxious to compete, nor do we wish to
69
purchase same in competition with others. We do, however, desire to keep our agents doing
business and trust that they will continue to hold their parroquianos (customers), buying only
minimum quantities at present.
"The local market has not changed since last week, and our liquidating price is P14."
(Letter of July 9, 1920, from Visayan Refining Co. to Albaladejo y Cía.)
"Notify your subagents to drop out of the market temporarily. We do not desire to
purchase at present." (Letter of July 10, 1920, from K. B. Day, General Manager, to Albaladejo
y Cía.)
"The market continues to grow weaker. Conditions are so uncertain that this company
desires to drop out of the copra market until conditions have a chance to readjust
themselves. We request therefore that our agents drop out of active competition for copra
temporarily. Stocks that are at present on hand will, of course, be liquidated, but no new
stocks should be acquired, Agents should do their best to keep their organizations together
temporarily, for we expect to be in the market again soon stronger than ever. We expect
the cooperation of agents in making this effective; and if they give us this cooperation, we
will endeavor to see that they do not lose by the transaction in the long run. This company
has been receiving copra from its agents for a long time at prices which have netted it a
loss. The company has been supporting its agents during this period. It now expects the
same support from its agents. Agents having stocks actually on hand in their bodegas should

70
telegraph us the quantity immediately and we will protect same. But stocks not actually in
bodegas cannot be considered."
(Letter of July 17, 1920, from K. B. Day to Albaladejo y Cía.)
"Conditions have changed very little in the copra market since last reports. * *' * We are
in the same position as last week and are out of the market.
"For the benefit of our agents, we wish to explain in a few words just why we are out of
the market. Our tanks are full of oil and we have been forced to close down our mill until
the arrival of a boat to load some of our stocks on hand. We have large stocks of copra.
The market for oil is so uncertain that we do not care to increase these stocks until such
time as we know that the market has touched the bottom. As soon as this period of
uncertainty is over, we expect to be in the market again stronger than ever, but it is only the
part of business wisdom to play safe at such times as these.
"Owing to the very small amounts of copra now in the provinces, we do not think that
our agents will lose anything by our being out of the market. On the contrary, the producers
of copra will have a chance to allow their nuts to mature on the trees so that the quality of
copra which you will receive when we again are in the market should be much better than
what you have been receiving in the past. Due to the high prices and scarcity of copra a
large proportion of the copra we have received has been made from unripe coconuts and
in order to keep revenue coming in the producers have kept harvesting these coconuts
without giving them a chance to reach maturity. This period now should give them the
71
chance to let their nuts ripen and should give you a better copra in the future which will
shrink less and be more satisfactory both from your standpoint and ours. Please do all you
can to assist us at this time. We shall greatly appreciate your cooperation."
(Letter of August 7, 1920, from H. U, Umstead, Assistant General Manager, to Albaladejo y Cía.)
"The copra situation in Manila remains unchanged and the outlook is still uncertain.
Arrivals continue small.
"We are still out of the market and are not yet in a position to give you buying orders.
We trust, however, that within the next few weeks we may be able to reenter the market
and resume our former activity.
* * * * * * * * *
"While we are out of the market we have no objection whatever to our agents selling
copra to other purchasers, if by doing so they are able to keep themselves in the market
and retain their parroquianos (customers). We do not, however, wish you to use our money
for this purpose, nor do we want you to buy copra on speculation with the idea in mind
that we will take it off of your hands at high prices when we reenter the market. We wish
to warn you against this now so that you will not be working under any misapprehension.
"In this same mail, we are sending you a notice of change of organization. In your dealings
with us hereafter, will you kindly address all communications to the Philippine Refining
Corporation, Cebu, which you will understand will be delivered to us."
(Letter of August 21, 1920, from Philippine Refining Corporation, by K. B. Day, to Albaladejo y Cía.)
72
 "We are not yet in the market, but, as we have indicated before, are hopeful of renewing
our activities soon. We shall advise all our agents seasonably of our return to the market. *
**
"We are preparing new forms of agreement between ourselves and our agents and hope
to have them completed in time to refer them to our agents in the course of the next week
or ten days.
"All agents should endeavor to liquidate outstanding advances at this time because this is
a particularly good time to clean out old accounts and be on a business basis when we return
to the market. We request that our agents concentrate their attention on this point during
the coming week."
(Letter of October 16, 1920, from K. B. Day, Manager, to Albaladejo y Cía.)
"Copra in Manila and coconut oil in the United States have taken a severe drop during
the past week. The Cebu price seems to have remained unchanged, but we look for an early
drop in the local market.
"We have received orders from our president in New York to buy no more copra until
the situation becomes more favorable. We had hoped and expected to be in the market
actively before this time, but this most unexpected reaction in the market makes the date
of our entry in it more doubtful.
"With this in view, we hereby notify our agents that we can accept no more copra and
advance no more money until we have permission from our president to do so. We request,
73
therefore, that you go entirely out of the market, so far as we are concerned, with the
exception of receiving copra against outstanding accounts.
"In case any agent be compelled to take in copra and desire to send same to us, we will
be glad to sell same for him to the highest bidder in Cebu. We will make no charge for our
services in this connection, but the copra must be forwarded to us on consignment only so
that we will not appear as buyers and be required to pay the internal-revenue tax.
"We are extremely sorry to be compelled to make the present announcement to you, but
the market is such that our president does not deem it wise for us to purchase copra at
present, and, with this in view, we have no alternative other than to comply with his orders.
We hope that our agents will realize the spirit in which these orders are given, and will do
all they can to remain faithful to us until such time as we can reenter the market, which we
hope and believe will be within a comparatively short time."
(Special Letter of October 16, 1920, from Philippine Refining Corporation, by K. B. Day, to Albaladejo
y Cía.)
"We have received very strict instructions from New York temporarily to suspend the
purchase of copra, and of course we must comply therewith. However, should you find
yourselves obliged to buy copra in connection with your business activities, and cannot
dispose of it advantageously in Cebu, we shall be glad to receive your copra under the
condition that we shall sell it in the market on your account to the highest bidder, or, in
other words, we offer you our services free, to sell your copra to the best possible
74
advantages that the local market may offer, provided that, in doing so, we be not obliged
to accept your copra as a purchase when there be no market for this product.
"Whenever you find yourselves obliged to buy copra in order to liquidate pending
advances, we can accept it provided that, so long as present conditions prevail, we be not
required to make further cash advances."
We shall quote no further from letters written by the management of the Philippine
Refining Corporation to the plaintiff, as we find nothing in the correspondence which
reflects an attitude different from that reflected in the matter above quoted. It is only
necessary to add that the hope so frequently expressed in the letters, to the effect that the
Philippine Refining Corporation would soon enter the market as a buyer of copra on a
more extensive scale than its predecessor, was not destined to be realized, and the factory
at Opon remained closed.
But it is quite obvious that there is nothing in these letters on which to hold the defendant
liable for the expenses incurred by the plaintiff in keeping its organization intact during the
period now under consideration. Nor does the oral testimony submitted by the plaintiff
materially change the situation in any respect. Furthermore, the allegation in the complaint
that one agency in particular (Gubat) had been opened on October 1, 1920, at the special
instance and request of the defendant, is not at all sustained by the evidence.
We note that in his letter of July 10, 1920, Mr. Bay suggested that if the various purchasing
agents of the Visayan Refining Co. would keep their organization intact, the company
75
would endeavor to see that they should not lose by the transaction in the long run. These
words afford no sufficient basis for the conclusion, which the trial judge deduced
therefrom, that the defendant is bound to compensate the plaintiff f or the expenses
incurred in maintaining its organization. The correspondence sufficiently shows on its face
that there was no intention on the part of the company to lay a basis for contractual liability
of any sort; and the plaintiff must have understood the letters in that light. The parties could
undoubtedly have contracted about it, but there was clearly no intention to enter into
contractual relation; and the law will not raise a contract by implication against the intention
of the parties. The inducement held forth was that, when purchasing should be resumed,
the plaintiff would be compensated by the profits then to be earned for any expense that
would be incurred in keeping its organization intact. It is needless to say that there is no
proof showing that the officials of the defendant acted in bad faith in holding out this hope.
In the appellant's brief the contention is advanced that the contract between the plaintiff
and the Visayan Refining Co. created the relation of principal and agent between the parties,
and reliance is placed upon article 1729 of the Civil Code which requires the principal to
indemnify the agent for damages incurred in carrying out the agency. Attentive perusal of
the contract is, however, convincing to the effect that the relation between the parties was
not that of principal and agent in so far as relates to the purchase of copra by the plaintiff.
It is true that the Visayan Refining Co. made the plaintiff one of its instruments for the
collection of copra; but it is clear that in making its purchases from the producers the
76
plaintiff was buying upon its own account and that when it turned over the copra to the
Visayan Refining Co., pursuant to that agreement, a second sale was effected. In paragraph
three of the contract it is declared that during the continuance of this contract the Visayan
Refining Co. would not appoint any other agent for the purchase of copra in Legaspi; and
this gives rise indirectly to the inf erence that the plaintiff was considered its buying agent.
But the use of this term in one clause of the contract cannot dominate the real nature of
the agreement as revealed in other clauses, no less than in the caption of the agreement
itself. In some of the trade letters also the various instrumentalities used by the Visayan
Refining Co. for the collection of copra are spoken of as agents. But this designation was
evidently used for convenience; and it is very clear that in its activities as a buyer the plaintiff
was acting upon its own account and not as agent, in the legal sense, of the Visayan Refining
Co. The title to all of the copra purchased by the plaintiff undoubtedly remained in it until
it was delivered by way of subsequent sale to said company.
For the reasons stated we are of the opinion that no liability on the part of the defendant
is shown upon the plaintiff's second cause of action, and the judgment of the trial court on
this part of the case is erroneous. The appealed judgment will therefore be affirmed in so
far as it absolves the defendant from the first cause of action and will be reversed in so far
as it gives judgment against the def endant upon the second cause of action; and the
defendant will be completely absolved from the complaint. So ordered, without express
finding as to costs of either instance.
77
 Johnson, Malcolm, Avanceña, Villamor, Johns, and Romualdez, JJ., concur.
Judgment affirmed in part, and reversed in part.

[No. L-7041. February 21, 1957]

JESUS MA. CUI, ET AL., plaintiffs and appellants, vs. ANTONIO MA. CUI, ET AL.,
defendants and appellees.
1. 1.SALES; ANNULMENT OF; OLD AGE AND WEAKNESS OF MIND AS
GROUNDS FOR AVOIDING CONTRACT.—Weakness of mind alone, not
caused by insanity, is not a ground for avoiding a contract, for it is still necesary to
show that the person at the time of doing the act “is not capable of understanding
with reasonable clearness the nature and effect of the transaction in which he is
engaging” (Page on Contracts, Vol. III, p. 2810). Or, as well stated in the case of
Allore vs.Jewell, 24 Law Ed., 263–264, it is only when there is “great weakness of mind
in a person executing a conveyance of land, arising from age, sickness, or any other
cause”, can a person ask a court of equity to interfere in order to set aside the
conveyance. In the case at bar, although at the time of the sale the vendor was already
of advanced age, yet he was still physically fit and his mind was keen and clear as
78
 shown by the several letters and documents signed and executed by him many months
after the execution of the deed of sale in question.
1. 2.ID.; ID.; PROHIBITION AGAINST AGENT OR ADMINISTRATOR TO
BUY PROPERTY OF PRINCIPAL.—The prohibition of the law against an agent
or administrator from purchasing property in his hands for sale or management
contained in Article 1459 of the old Civil Code has already been removed. Under the
provisions of article 1491, section 2, of the new Civil Code, an agent may now buy
property placed in his hands for sale or administration, provided that the principal
gives his consent thereto. While, the new Code came into effect only on August 30,
1950, however, since this is a right that is declared for the first time, the same may be
given retroactive effect if no vested or acquired right is impaired (Article 2253, new
Civil Code). In the present case, during the lifetime of the vendor, particularly on the
date of the execution of the sale in question, the appellants could not claim any vested
or acquired right in the properties sold, as heirs, the most they had was a mere
expectancy. Therefore, the practical and liberal provision of the new Civil Code even
if the sale had taken place before its effectivity may be invoked.
1. 3.ID.; ID.; PROPERTIES ACQUIRED DURING MARRIAGE; PRESUMPTION
THAT PROPERTIES ARE CONJUGAL, REBUTTABLE,—While properties

79
 acquired during marriage are presumed to be conjugal properties (Art. 1407, old Civil
Code) however, the presumption is rebuttable. In the case at bar, there is conclusive
and strong evidence, testimonial as well as documentary, that the lots in question have
always been considered not only by the vendor, but his children and other relatives,
as his exclusive property, the same having been donated to him by his uncle and aunt
to the exclusion of his wife; consequently, the contention that, in disposing of said
property, the vendor has appropriated what belongs to his co-heirs, has completely
no foundation in the evidence.
APPEAL from a judgment of the Court of First Instance of Cebu. Saguin, J.
The facts are stated in the opinion of the Court.
Claro M. Recto, Jose P. Laureland Vicente Jayme for appellants.
Pimentel & Pimentel and Amador E. Gomez for appellees.
BAUTISTA ANGELO, J.:
On May 25, 1948, Jesus Ma. Cui and Jorge Ma. Cui brought an action in the Court of First
Instance of Cebu against Antonio Ma. Cui and Mercedes Cui de Ramas seeking the
annulment of the sale of three parcels of land against Antonio Ma. Cui and mercedes Cui
de Ramas of the latter and the partition of the same among the heirs who should inherit
them including the plaintiffs. The Rehabilitation Finance Corporation was included as party
80
defendant because the lands above-mentioned were mortgaged to it to secure a loan of
P130,000, the object being to have the mortgage declared null and void.
On March 19, 1949, Rosario Cui, daughter of Don Mariano Cui, filed in the same court
a petition for the appointment of a guardian of the person and properties of her father on
the ground of incompetency and, accordingly, he was declared incompetent on March 31,
1949 and one Victorino Reynes was appointed as his guardian.
On July 13, 1949, the complaint was amended by including as party plaintiffs the guardian
Victorino Reynes and the other children and relatives of Don Mariano, namely, Jose Ma.
Cui, Serafin Ma. Cui, Rosario Cui, her husband Irineo Encarnacion, Lourdes C. Velez,
Priscilla Velez and Federico Tamayo.
Defendants in their answer set up the defense that the sale mentioned in the complaint
is valid because it was executed when Don Mariano Cui was still in possession of his mental
faculties and that, while the sale was at first executed in favor of the defendants and their
sister Rosario Cui, the latter however resold her share to Don Mariano for reason stated in
the deed of resale executed to that effect. They prayed that the complaint be dismissed.
On May 22, 1951, after due hearing and the presentation of voluminous evidence on the
part of both parties, the court rendered its decision dismissing the complaint and sentencing
the plaintiffs to pay the costs of action, from which plaintiffs appealed in due time, and
because the value of the property involved exceeds the amount of P50,000, the case was

81
certified to us for decision by the Court of Appeals under section 1 of Republic Act No.
296.
Plaintiffs and defendants, with the exception of the Rehabilitation Finance Corporation,
are the legitimate children of Don Mariano Cui and Doña Antonia Perales who died
intestate in the City of Cebu on March 20, 1939. Plaintiffs in their complaint allege that
during the marriage of Don Mariano Cui and Doña Antonia Perales, the spouses acquired
certain properties in the City of Cebu, namely, Lots Nos. 2312, 2313 and 2319, with an
approximate area of 2,658 square meters, having an assessed value of P159,480, and a
market value of 120 per square meter; that upon the death of Doña Antonia Perales, the
conjugal partnership did not leave any indebtedness and the conjugal properties were placed
under the administration of Don Mariano Cui; that while the latter was 84 years of age and
under the influence of defendants, the latter, by means of deceit, secured the transfer to
themselves of the aforementioned lots without any pecuniary consideration; that in the deed
of sale executed on March 8, 1946, Rosario Cui appeared as one of the vendees, but on
learning of this fact she subsequently renounced her rights under the sale and returned her
portion to Don Mariano Cui by executing a deed of resale in his favor on October 11, 1946;
that defendants, fraudulently and with the desire of enriching themselves unjustly at the
expense of their father, Don Mariano Cui, and of their brothers and co-heirs, secured a
loan of P130,000 from the Rehabilitation Finance Corporation by encumbering the
aforementioned properties, and with the loan thus obtained, defendants constructed
82
thereon an apartment building of strong materials consisting of 14 doors, valued at
approximately P130,000, and another building on the same parcels of land, which buildings
were leased to some Chinese commercial firms a monthly rental of P7,600, which
defendants have collected and will continue to collect to the prejudice of the plaintiffs; and
because of this fraudulent and illegal transaction, plaintiffs prayed that the sale and
mortgage executed on the properties in question, in so far as the shares of the plaintiffs are
concerned, be declared null and void and the defendants be ordered to pay the plaintiffs
their shares in the rentals of the properties at the rate of P7,600 a month from November
1, 1947 up to the time of their full payment, together with whatever interest may be due
thereon and the expenses of litigation.
Defendants, on the other hand, aver that while the properties in question were acquired
during the marriage of Don Mariano Cui and Doña Antonia Perales, however, they were
entirely the exclusive property of Don Mariano Cui up to the time of their transfer to
defendants under the deed of Sale Exhibit A, having been acquired by him as a donation
from his uncle Don Pedro Cui and his aunt Doña Benigna Cui; that this fact was known to
the plaintiffs and to the guardian of Don Mariano, Victorino Reynes, because in the extra-
judicial partition executed between plaintiffs and defendants on December 6, 1946 of the
properties of the deceased Antonia Perales, the three lots in question did not form part of
the conjugal properties of the spouses Don Mariano Cui and Doña Antonia Perales; that
Don Mariano Cui, for a consideration, voluntarily and without deceit, pressure or influence
83
on the part of defendants, executed and signed the deed of sale Exhibit A; and that Don
Cariano Cui was at that time in full enjoyment of his mental faculties and only suffered loss
of memory several years later when he was declared by the court incompetent to manage
his properties.
Defendants denied that the building constructed on the three lots in question consisted
of 14 doors and alleged that it consisted of only 12 doors. They also denied that they
received the sum of P7,600 as monthly rental of said building because what they have been
receiving was only a monthly rental of P4,800. As a special defense, they aver that they are
the owners of the naked ownership of 2/3 of the three lots in question subject to the
usufruct over the rents or products thereof in f avor of Don Mariano Cui during his lifetime,
with the exception of the rents from the building constructed on the 2/3 portion belonging
to them; that the 2/3 of the lots in question did not produce any rent at the time of their
acquisiton by the defendants, for they produced rentals only after the defendants had
constructed the 12-door apartment now standing thereon; that subsequently and by verbal
agreement between Don Mariano Cui and the defendants, the usufruct of the former over
said 2/3 portion was fixed at P400 monthly, and this sum Don Mariano has been receiving
since then up to the present time. Defendants also aver that they are the exclusive owner
of the 12-door apartment constructed on the 2/3 portion of the lots in question, having
been constructed at their expense and by virtue of the authorization given to them in the
deed of sale Exhibit A; that the loan of P130,000 obtained from the Rehabilitation Finance
84
Corporation was solicited personally by def endants Antonio Ma. Cui and Mercedes Cui de
Ramas for their exclusive benefit and for the purpose of investing it in the construction of
said building; that since the property is undivided, Don Mariano Cui, as one of
thecoowners, consented to the execution of a mortgage thereon in favor of said corporation
to guarantee the payment of the loan jointly with his co-owners, the aforesaid defendants,
for the sole purpose of accommodating the latter and to enable them to obtain the loan;
that the plaintiffs-are in estoppel to claim that the lots in question belong to the conjugal
partnership of their parents Don Mariano Cui and Doña Antonia Perales, and that plaintiffs
instituted the present action because they do not like the manner in which their father had
disposed of said lots, especially Jesus Ma. Cui who was unsuccessful in his request that the
1/3 of said lots be sold to him. They prayed that the action be dismissed.
In this appeal, appellants now contended that the lower court erred: (1) “in not declaring
the deed of sale, Exhibit A, void or inexistent for lack of valid consent and consideration”;
(2) “in not declaring illegal the sale, evidenced by Exhibit A, on the ground that it was a
transaction between principal and agent, which is prohibited by paragraph (2), Article 1459
of the old Civil Code”; (3) “in not finding that the three lots conveyed by means of the
deed of sale, Exhibit A, belong to the unliquidated conjugal partnership of Don Mariano
Cui and his deceased wife Doña Antonia Perales, and that consequently Don Mariano Cui
could not validly sell the entire property”; and (4) “in not finding that the plaintiffs are

85
entitled to seven-eights (7/8) of the property in question and of the rentals thereof
beginning November 1, 1947." We will discuss these issues separately.
In support of their contention that Don Mariano Cui did not and could not have validly
consented to the deed of sale in question, appellants submitted the following propositions:
(a) Don Mariano was incapacitated to give his consent by reason of his age and ailment; (b)
Don Mariano acted under a mistake, and his signature was secured by means of deceit; and
(c) the sale Exhibit A is vitiated by undue influence.
In support of the first proposition, it is argued that Don Mariano, at the time he signed
the deed of sale Exhibit A on March 8, 1946, was already 83 years old, was sickly and infirm,
and frequently complained of ill health. It is also contended that six days before the sale, or
on March 2, 1946, he had executed a general power of attorney in favor of defendant
Antonio Cui, which act could only signify that Don Mariano himself realized that he was
no longer capacitated to administer his properties and found it necessary to relieve himself
of the task of dealing with other persons in connection therewith. It is also pointed out that
his children, Jorge, Jesus and Rosario Cui testified that he was ill, he was forgetful, he could
not read nor remember well what he read, and his letters show that he was no longer familiar
with the rules of orthography. In his letters he also complained about his illness and he
realized that his afflictions were due to his old age. It is also emphasized that as early as
August, 1944, Jesus Cui noted that his father was “muy debil * * * en cuestiones de
negocios” and that “en cuanto a su capacidad para administrar sus bienes en que tenia que
86
producir of estudiar, el (Don Mariano) no se acordaba.” Although he was not insane when
he signed the deed of sale Exhibit A, yet he was admittedly “incompentente para manejar
su dinero.” (pp. 85–86, Brief for Plaintiffs and Appellants.)
As regards the second propositon, it is insinuated that if Don Mariano, by reason of his
advanced age, his weak mind and body and feeble will and reason, was not capacitated to
give his consent, it would follow as a corollary that he could not fully understand the
contents of the deed of sale. He must have therefore labored under a mistake as to the true
nature of the transaction especially when it was written in a language which he did not
understand. Other insinuations leading to the same result are: Don Mariano must have
erroneously thought that the only way to pay his debt of P3,000 to Ramon Aboitiz was by
executing the sale, just as he gave his consent to the sale of his conjugal property on San
Jose St., Cebu City, because he thought it was the only available way to pay his indebtedness
to the Insular Life Assurance Co. Or he must have thought that the document he was made
to sign by Antonio Cui was not a sale but a mere authority to administer the property for
purposes of revenue, or he must have been induced to signing it after he was promised a
life annuity in the form of usufruct over the rents of the properties in question. In other
words, the insinuation is made that Antonio Cui employed deceit in securing the signature
of Don Mariano to the sale in question in order merely to satisfy his selfish ends. There
being, therefore, error and deceit, there is no valid consent which can give validity to the
sale on the part of Don Mariano.
87
 And with regard to the third proposition, the following circumstances are pointed out:
At the time of the sale, Don Mariano was already 83 years old, was infirm and was living
with the vendees, herein appellees. Antonio Cui was his lawyer and attorney in ex act and
there was between them confidential family and spiritual relations. Don Mariano was then
in financial distress as shown by the fact that he was worried about his debt to Ramon
Aboitiz, and way back in 1946 he had to borrow money from his daughter Rosario Cui
which remained unpaid even after the sale in question. The presence of undue influence is
ex urther shown, appellants contend, in the execution by Don Mariano of the mortgage in
favor of the Rehabilitation Finance Corporation, the extrajudicial partition Exhibit 1-a, the
partition of the property in question, the alleged oral waiver of usufructuary rights, and the
alleged explanatory statement Exhibit 34. These acts, which were allegedly masterminded
by Antonio Cui, show, appellants contend, that Antonio Cui could get from his father
whatever he wanted.
We do not believe the arguments advanced by appellants in an effort to nullify the deed
of sale Exhibit A sufficient in law to invalidate the same on the ground of lack of valid
consent on the part of Don Mariano for the simple reason that they are merely based on
surmises or conjectures or circumstances which, though they may show inferentially that
he was sickly or forgetful because of his advanced age, do not however point unremittingly
to the conclusion that at the time he signed said deed of sale he was not in full enjoyment
of his mental faculties as to disqualify him to do so or that he was not aware of the nature
88
of the transaction he was then undertaking. Although at the time of the sale he was already
83 years old, he was sickly and forgetful, as contended, yet, according to the authorities,
weakness of mind alone, not caused by insanity, is not a ground for avoiding a contract, for
it is still necessary to show that the person at the time of doing the act “is not capable of
understanding with reasonable clearness the nature and effect of the transaction in which
he is engaging” (Page on Contracts, Vol. III, p. 2810). Or, as well stated in the very case
cited by counsel for appellants only when there is “great weakness of mind in a person
executing a conveyance of land, arising from age, sickness, or any other cause”, can a person
ask a court of equity to interfere in order to set aside the conveyance (Allore vs. Jewell, 24
Law Ed., 263–264). And here the evidence shows that such is not the case, for the several
letters and documents signed and executed by Don Mariano many months after the
execution of the deed of sale Exhibit A clearly indicate that, while he was of an advanced
age, he was however still physically fit and his mind was keen and clear. This we will see in
the following discussion of the evidence.
One of such evidence is the testimony of Rosario Cui, one of the appellants herein. It
should be remembered that it was she who initiated the proceedings for the declaration of
incompetency of Don Mariano Cui in order that he may be placed under guardianship and
at the hearing held for that purpose, she was the main witness. When called upon to testify
as to the state of health and mental condition of Don Mariano, she stated that during the
period she had been living with her father in Calapan, Mindoro, which dates as far back as
89
the Japanese occupation, she had observed that the state of his mind was very good, he was
not yet so forgetful as he is now, and that she discovered his mental weakness which makes
him incompetent to manage his own affairs only sometime in the month of January, 1949
(pp. 5 and 6, Exhibit 9; p. 136, t.s.n.). And on the strength of her testimony, Don Mariano
was declared incompetent on March 31, 1949. This is an indication that, when the deed of
sale was executed on March 8, 1946, three years before his declaration of incompetency,
Don Mariano was still in the full enjoyment of his mental-faculties. It should be stated that
this testimony of Rosario Cui stands undisputed.
A circumstance which strongly corroborates this testimony of Rosario Cui is the letter
Exhibit 26 which Don Mariano wrote to Don Ramon Aboitiz on May 31, 1946, two months
after the execution of the deed of sale Exhibit A, in relation to the indebtedness he owed
him by reason of his having acted as the surety of his son Jesus Cui which the latter has not
been able to settle. This letter, which shows how lucid, keen, clear and analytical his mind
was, is herein reproduced for ready reference:
“Cebu, Mayo 31, 1946
Sr. Don RAMON ABOITIZ
CEBU
ESTIMADO AMIGO—

90
La portadora de la presente es mi hija Mercedes, esposa del Dr. Ramas, a quien he dado el
encargo de presentarse a Vd. con esta carta vs pagarle en mi nombre como fiador de mi
hijo Jesus Cui el saldo resultante de la liquidación hecha por Vd. el 5 de Diciembre de 1941
de la deuda que este contrajo, de Vd. por cierto prestamo en metalico que le dio bajo mi
garantia consistente en hipoteca.
Como Vd. trata de cobrar intereses sobre el mencionado saldo hasta la fecha en que se
pague el mismo a partir desde el 1.° de Enero de 1944, permitame que le suplique
encarecidamente apelando a su buen corazon vs reconocida generosidad, deje Vd. de
cobrarme esos intereses. En apoyo de esta suplica someto a su buen criterio lo siguiente:
1.°, mi buena voluntad, diligencia vs prontitud en finiquitar al citado saldo ; 2.° el motivo,
como Vd. lo sabe, se tuvo que contraer la citada deuda sin ningun provecho para mi, antes
bien me ha causada molestias vs apuros para pagarla completamente, vs 3.° durante la
ocupacion japonesa en Cebu vs estando yo ya refugiado en Manila le escribia de vez en
cuando a mi dicho hijo Jesus vs siempre le recordaba que procurara hacerlo por todos los
medios, sabiendo yo que el disponia de bastante dinero; lo cual demuestra a Vd. que la
prealudida deuda me ha tenido en constante preocupacion, realizandose por ultimo mis
temores de que al fin habria yo que pagar casi a la deuda entera. Como Vd. muy pronto se
va a marchar de este nuestro pais, concedame Vd. lo que le pido en la precedente suplica
como un recuerdo, imperecedero para mi, de nuestra buena amistad. Le deseo un feliz viaje,

91
asi como una feliz estancia en el pais donde establecerse, con buen exito ademas en sus
negocios. Disponga como gusto de affmo. amigo vs servidor.
(Fdo.)"
Scarcely four months before the execution of the deed of sale, Don Mariano was residing
in Calapan, Mindoro, in the house of Rosario Cui, and while there he received several letters
from his daughter-in-law, Carmen Gomez, wherein in a very expressive and persuasive
manner she asked her father-in-law, Don Mariano, to extend a helping hand to his son Jesus
Cui, who was then confined in the stockade of the military authorities in Leyte for
collaboration, so that he may get his provisional release by putting up a bail bond for him.
Because Jesus Cui. his son, had embarked him into some commercial venture even before
the war which resulted in a disastrous failure and made him suffer a loss of nearly P25,000,
aside from the undertaking he assumed as a surety ex or the payment of a loan of P3,000
which Jesus had contracted from Don Ramon Aboitiz on January 27, 1941 which Jesus
failed to pay, all of which made him bitter and resentful against his own son, Don Mariano
turned a deaf ear to the plea of Carmen stating in a language as ex orcef ul as it is clear the
reasons for his attitude. These reasons were expressed by Don Mariano in two letters dated
November 11, 1945 and November 22, 1945 which are also herein reproduced for ready
reference, omitting the letters of Carmen, which are referred to therein, for being
unnecessary for our purpose. Note that the person named Chong appearing in the letters
is the nickname given to Jesus, son of Don Mariano:
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 “Calapan, Mindoro
Nbre. 11, 1945
MI ESTIMADA MAMING—
Recibi el 9 del actual tu carta, fechada el 21 de Obre. ppdo vs me entere de su contenido.
Empiezo dandote las expressivas gracias por su interes vs buen deseo por mi salud, que ya
no es tan buena como antes; tengo ya mis achaques a causa de mi vejez que va avanzando
cada dia mas; no puedo esperar ya buena salud.
Me haces una apologia en favor de tu marido Chong, mi hijo, alabandole como un buen
hijo; comprendo que lo hagas, porque la pasion te ciega: pero no me lo digas a mi que
conozco muy afondo a Chong. Nunca le he conocido a Chong como buen hijo mio, pues
me ha dado el los mayores disgustos que he tenido en mi vida. Mis mejores amigos que
estaban al tanto de la vida de Chong vs de sus fracasos en los negocios vs con quienes a
veces me desahogaba, me echaban a mi la culpa porque era yo demasiado apasionado por
el. Ahora que llegado a ser pobre, 10 comprendo vs lo lamento, vs me recuerda de lo que
que me dijo a mi tia Benigna, ya difunta (q.e.p.d) un dia, muy formalmente vs en serio, que
presentia que yo a la vez me quedaria pobre vs me aconsejo que tuviera mucho cuidado en
administrar mis bienes con prudencia.

93
 Siento mucho tener que decirte que no me encuentro en condiciones para prestar la fianza
que me pides en favor de Chong; primero, porque no dispongo de bienes inmuebles para
constituir la fianza vs segundo, porque si bien es verdad que me quedan solares en la calle
Manalili de esa Ciudad, pero el gravamen de hipoteca sobre estos solares esta sin cancelarse
aun en el registro de propiedad, lo cual tendra aun bastante tiempo, vs por otra parte, me
reservo los mismos, siempre libres, para poder disponer de ellos cuando fuere necesario,
para atender mis gastos. Dispensame, pues, que no pueda complacerte en lo que me pides.
Ahora le escribo a nene para que te envie esta carta como me lo pides.
En retorno Yre vs Nenita te envian sus recuerdos.
Termino deseando a ti vs Nene siempre buena salud vs enviando a este un cariñoso beso
vs a ti.
En sincero afecto de tu suegro
MARIANO CUI"
Calapan, Mindoro
Nbre. 22, 1945
ME APRECIABLE MAMING—
Recibe el 20 del actual por correo tu carta escrita ya alli en Manila vs me apresuro a
contestartela.

94
 Ya habras recibido vs te habras enterado ya de mi carta, fecha 11 del actual. Contestando
la tuya anterior portador de aquella mi nieto Liling, que se marcho de aqui para alli el sabado
pasado.

Siento mucho tener que desirte que insisto en mi negativa de ser fiador de Chong en la
forma indirecta que se me propone por los que negocian en prestar fianzas; yo que he sido
juez conozco el alcance de esa fianza indirecta. Me he olvidado de decirte los solares mios
en la Calle Manalili, Cebu, estan aun ravadas por la fianza que yo otorgue a favor de Don
Ramon Aboitiz para garantir el prestamo, que este hizo a Chong, de TRES MIL PESOS,
que creo que estan sin pagar aun vs que yo como burro de carga tendre que pagarlos. Debes,
pues dejarme ya en paz porque tengo mala pata en ser fiador de Chong. Estoy pidiendo a
Dios que me de medios para poder ayudarle. Temo, además, que Dios me castigue haciendo
mal uso de los pocos bienes que me ha dejado para mantenerme durante los pocos anos de
vida que me va considiendo aun vs para no vivir pidiendo limosna, ya que de mis hijos poco
puedo esperar.
Agradezco mucho tu oferta de que cuando os establescias alli en Manila para residir
permanentemente me destinares una habitacion para mi, vs me reservo tal oferta para
cuando sea conveniente aceptarla.
Sin otra cosa más afectuoso recuerdos a Chong vs a ti mi aprecio sincero.
Tu suegro,”
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Rosario Cui not only testified that Don Mariano was still good and of sound mind when he
lived with her for eighteen months from September, 1944 up to February, 1946, and for
another four months from July, 1946 to October, 1946 in Calapan, Mindoro, but she also
sustained correspondence with Don Mariano even as late as the year 1947. Hereunder we
transcribe Don Mariano’s letter to Rosario on July 14, 1947:
“Cebu, Julio 14, 1947
Sra. ROSARIO C. DE ENCARNACION
CALAPAN, MINDORO
Ml QUERIDISIMA HlJA—
Siento mucho que el no haber tu recibido carta mia desde que he llegado aqui os haya
preocupado tanto artibuyendolo a mi falta de buena salud. Gracias a Dios no fué asi.
A la semana despues de haber llegado he recibido una carta tuya, disculpandote de no
haber tu podido despedirnos abordo del barco en que ibamos con motivo de las fuertes
lluvias que entonces cayeron. Te conteste que habias hecho muy bien, teniendo tu una salud
muy delicada para cogerte unas mojaduras de funestas consecuencias para ti.
A mediados de mayo ultimo calcule que estarias aun en Manila a consequencia aun de la
operacion de tu matriz; pero no sabiendo que direccion poner en mi carta a ti desisti de
escribirte.

96
 Cuanta bondad vs generosidad en el arreglo de mi cuarto of habitacion. Aunque no lo
veo aun, os lo agradezco ya de todo corazon. Debe de estar ya muy confortable, vs sin las
goteras que tanto me molestaban. Espero poder volver aun alli en cuanto se termine estos
asuntos.
Te deseo que se te desaparezca pronto la debilidad de tu corazon para que no tengas mas
inyecciones de alcampor.
Envio mis mas afectuosos recuerdos a Yre vs chiquillos.
Te da un fuerte abrazo tu padre que entranablemente te quiere.”
Another interesting circumstance is the discussion which Jesus Ma. Cui had with his father
Don Mariano on April 20, 1946 relative to the sale of the lots in question. It should be
noted that when Jesus came to know of that sale he could not refrain his anger feeling that
he had been ignored or the subject of discrimination on the part of his father and to give
vent to his feeling he wrote to him on March 20, 1947 a letter, copy of which was marked
Exhibit M-2, wherein he appealed to him (his father) to give him and his other children an
opportunity to buy the properties in question, to which letter Don Mariano answered with
another dated April 22, 1947 wherein he apparently gave in to the demand of Jesus subject
to certain condition. As the evidence shows, Don Mariano came to answer the letter of
Jesus in this manner: Don Mariano discussed the matter with his son Antonio showing to
him the letter of Jesus on which occasion Antonio said: “Bueno, papa, si tu crees que en
eso el esta empeñado vs si queres darle a el vs el ha dicho a ti que el va a hacer todos los
97
medios para conseguir dicho terreno, puedes hacer todo lo que quiera con tal de que me
devuelvas mi dinero que yo habia pagado porque era dinero de mi esposa.” To this Don
Mariano answered: “Vamos a ver primero, que es lo que van a contestar a la carta que voy
a mandar.”
The letter thus ref erred to is the one sent by Don Mariano to Jesus, Exhibit I, wherein
the former made known to Jesus that he was willing to give to all his children equal
opportunity to buy the lots in question subject to the condition that his son or daughter
who is not able to pay his debt or obligations or has no money with which to pay them
would be automatically excluded ex rom the sale. The evidence also shows that neither
Jesus nor the other children who wanted to participate in the sale took the trouble of
answering the letter nor made known their’ desire as to the proposition of their ex ather,
and such silence is undoubtedly due to the fact that they were not in a financial condition
to comply with the condition imposed in the letter. In fact, according to Antonio Cui, such
is the predicament in which his brothers were situated as shown by the fact that Jorge at
that time was indebted to his father in the amount of P6,000, Jesus in the amount of
P18,000, Jose in the amount of P14,000, while his other brothers did not have the necessary
means to take part in the sale. The facts unfolded in connection with this incident constitute
a clear indication of the state of mind then enjoyed by Don Mariano for he took the
precaution before answering the letter of Jesus of discussing the matter first with his son
Antonio who was the one mostly affected by the decison he was about to make considering
98
the menacing attitude and the incessant demand of Jesus regarding the transaction. Only a
person of sound mind could have adopted such precaution and circumspections.
The deed of sale Exhibit A was executed by Don Mariano Cui, Antonio Cui and Mercedes
Cui de Ramas on March 8, 1946 in the city of Cebu, and by Rosario Cui and her husband
Dr. Ireneo Encarnacion in the City of Manila on March 20, 1946. The consideration of the
sale was P64,000 plus the reservation of the right in favor of Don Mariano “to enjoy the
fruits and rents of the same” as long as he lives. It appears however that, while in said deed
of sale it is stated that Don Mariano has acknowledged receipt of said consideration of
P64,000, the same is not true with regard to the share of Rosario Cui. So Don Mariano
went to Calapan, Mindoro in July, 1946 to collect from Rosario her share of the purchase
price amounting to P20,000. Rosario then excused herself from going ahead with the sale
alleging as reason that she needed what money she had to rehabilitate her electric plant in
Calapan and also because Cebu was very far from Mindoro where they had already their
permanent residence. Not being able to pay her share in the consideration of the sale, Don
Mariano demanded from her the resale of her interest. This was done when she went to
Manila on October 11, 1946 to execute the deed of resale in favor of Don Mariano. This
attitude of Don Mariano is very significant in so far as his state of mind is concerned. It
shows that he was fully conscious of what was transpiring and of the transaction he was
executing so much so that he went to the extent of demanding from Rosario the resale of
her interest when she failed to pay her share in the consideration of the sale.
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 There are other letters and documents which Don Mariano had prepared and executed
in the neighborhood of the time the deed of sale in question was executed which also depict
the mental condition that he possessed at the time, and to show this we can do no better
than to quote what the lower court said on this point:
“Ademas de lo que ya dejamos expuesto, Don Mariano Cui ejecuto varios actos que
tambien impugnan la contension de que el ya estuvo mentalmente incapacitado al otorgar
el Exh. A. Poco antes vs tambien despues de otorgar dicha escritura, el escribio varias cartas
a sus hijos vs otorgo varios documentos. Entre las cartas figuran el Exh. 4, que esta dirigida
a Jorge, lleva la fecha 24 de marzo de 1945; Exh. 23, dirigida a su hija Mercedes, fechada 9
de septiembre de 1946; Exh. 26, dirigida a Don Ramon Aboitiz, fechada el 21 de mayo de
1946; Exhs. 36 vs 40 dirigidas a su hijo Antonio, vs fechadas 3 de julio p. 13 de agosto de
1945, respectivamente; Exhs. 41 vs 42, contestaciones de las cartas de Carmen, esposa de
Jesus, fechadas el 11 vs 22 de noviembre de 1945, respectivamente; vs Exh. 57, dirigida a
su hija Rosario, fechada Julio 14, 1947. Entre los documentos figuran; Exh. 1-a, escritura
de reparticion extrajudicial, otorgada el 6 de diciembre de 1946; Exh. 3-b, un affidavit de
fecha 20 de febrero de 1945; Exh. 24, recibo a favor de Gil Ramas, otorgado el 5 de marzo
de 1946; Exh. 34, constancia que fue suscrita vs jurada ante el Escribano de este Juzgado el
23 de febrero de 1948; Exh. 34, borrador del exhibit anterior con las correcciones hechas
de puno vs letra de Don Mariano Cui; Exh. 44, autorización a Mercedes vs Antonio para
hipotecar su participacion en los lotes en cuestion, fechada el 7 de enero de 1947; Exh. 45,
100
convenio entre Don Mariano, por una parte, vs Mercedes vs Antonio, por otra parte,
referente a los terrenos en cuestion, que lleva fecha 30 de septiembre de 1947; Exh. C.
escritura de hipoteca a favor de la RFC de fecha 15 de abril de 1947; vs Exh. S, un
memorandum que contiene algunas notas de sus ingresos vs gastos que comprende hasta
el mes de enero de 1949, poco antes de haber perdido su memoria.
Una lectura de las cartas arriba mencionadas dos lleva a la necesaria convicción de que
durante el periodo en que se escribieron las mismas, of sea hasta el mes de Julio de 1947,
Don Mariano Cui aun tenia el pleno goce de sus facultades mentales, pues de otro modo,
el no podia expresarse con tanta claridad vs precision en los asuntos que trataba en dichas
cartas. Con respecto a los documentos arriba referidos, los mismos, son de tal naturaleza e
importancia, que no se podian haber otorgardo por Don Mariano si el no estaba en su cabal
juicio. El Exh. S fue presentado por los mismos demandantes, vs esta circunstancia,
naturalmente, presupone que ellos admiten que Don Mariano Cui estuvo mentalmente sano
al anotar los asientos en dicho memorandum, muchos de los cuales tuvieron lugar ya
despues de otorgarse el documento en cuestión Exh. A."
It is obvious from the foregoing discussion that Don Mariano signed and executed the deed
of sale Exhibit A not only at a time when he was still in the full enjoyment of his mental
faculties, but also under conditions which indicate that he knew what he was doing and, as
a consequence, it cannot be said that he has entered into the transaction without his consent

101
or under a misapprehension that the document he was signing was not the sale of the
properties in question but one merely pertaining to their administration.
In connection with the contention that the deed of sale Exhibit A was executed by Don
Mariano under circumstances which point out that he has done so because of undue
influence on the part of the defendants, counsel for appellants mentions the following
circumstances: (1) Don Mariano was already 83 years old, he was the father of the vendees,
and at the time of the sale or long before it was consummated, he was living with the
vendees; (2) one of the vendees, Antonio Cui, was his attorney in fact and lawyer; (3) the
vendor and the vendees had had obviously confidential family and spiritual relations; (4)
the vendor was suffering from mental weakness; and (5) the vendor was in financial distress.
The presence of undue influence, according to appellants, is further shown by the execution
of the mortgage in favor of the Rehabilitation Finance Corporation, the extra-judicial
partition Exh. 1-a, the partition of the properties in question, the alleged oral waiver of
usufructuary rights, and the explanatory statement Exhibit 34, which acts, it is claimed, in
which Don Mariano was supposed to have taken part and which were all masterminded by
Antonio Cui, show that Antonio Cui could get from his father whatever he wanted.
There is however no concrete proof that may substantiate this claim of undue influence.
The only direct evidence on the matter is the testimony of Jesus Cui which in the main is
based on mere conjecture and not on actual facts. The circumstance that Don Mariano Cui
was then living in the house of Mercedes Cui when the deed of sale was signed does not
102
necessarily imply that he was made to sign it under the insidious machinations practiced on
him by his daughter. On the contrary, the evidence shows that Don Mariano lived most of
the time before the execution of the sale with his other children and not necessarily with
herein defendants. Thus, according to the testimony of Jesus Cui himself, during the
Japanese occupation, or from 1942 to 1943, his father lived in the City of Cebu. During the
month of September, 1943, he went to Manila and lived in the house of his daughter
Lourdes Cui de Velez, where he stayed up to September, 1944. Then he went to Calapan,
Mindoro to live in the house of his daughter Rosario where he stayed up to February, 1946
when he returned to Cebu. It was only then that he began living in the house of Mercedes
Cui. In other words, he was barely one month in the house of Mercedes Cui when the deed
of sale was executed on March 8, 1946. There is therefore no basis for concluding that said
deed of sale was executed simply under the undue influence of Antonio Cui and Mercedes
Cui. The fact that about six days before the sale Antonio Cui was made by Don Mariano
Cui his attorney in fact could not mean anything unusual for he was then getting old and
he needed one who could help him administer the properties of his deceased spouse, and
the choice fell on Antonio because he was the only lawyer in the family. And if to all this
we add that Don Mariano was then in full enjoyment of his mental faculties, as we have
already pointed out elsewhere, it would be presumptuous, if not unfair, on our part to
affirm, as appellants want us to do, that he allowed himself to do an act which is not fully
in accord with his free and voluntary will.
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 We will not take up the claim that the deed of sale Exhibit A was executed without
mediating any consideration on the part of the vendees. If this were true then said deed
would be void or inexistent for it would then be a fictitious or simulated contract. This
claim is merely predicated on the documents Exhibits G and H and the declarations of
Rosario Cui and Jesus Ma. Cui. We will briefly discuss this evidence.
Exhibit G is an alleged written statement made by Don Mariano Cui on January 24, 1949
which reads as follows:
“A quien corresponde:
Habiendome enterado que hoy existe un lio entre mis hijos en el Juzgado sobre mis
propiedades vs los de mi difunta esposa, vs sobre todo porque el transpaso de las misma a
mi hijo Antonio Ma. Cui vs a hija Mercedes Cui de Ramas no se halla aun pagado por los
mismos, es mi deseo que el pleito entre mis hijos sea inmediatamente zanjado vs todas
participen por igual dichos bienes.
Y para que asi consta firmo esta declaración en la Ciudad de Cebu, hoy a 24 de enero de
1949.
(Fdo.) MARIANO CUI"
Rosario Cui, testifying on the circumstances surrounding the preparation of said Exhibit
G, said as follows:
Sr. PIMENTEL:
P. Ayer declaro usted sobre este Exhibit G que, segun usted, esta firmado por su Padres?
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R, Si, señor.
P. Como llego a su poder este documento?
R. Esto me dio mi papa; sabe usted cuando estaba tratando con mi hermano, este me insulto
vs estaba vs llorando, vs despues se fueron al cine; vs entonces dijo el; Deja Vd. vs mande
preparar una orden mia de que yo quiero que se termine ese asunto vs que se arregle entre
ustedes vs no me gusta que haya pleito vs yo voy a firmar vs se preparo eso.
P. Usted mando preparar el exhibit G en la localidad?
R. Si, señor, con el Sr. Jayme.
P. Donde lo firmo este exhibit G?
R. En la casa de mi hermana Mercedes. Cuando lo firmo estabamos los dos, mi marido vs
yo.
P. Su hermano de usted estaba presente?
R. Estaba en casa mi hermana Mercedes, pero no estaba delante. Mi hermano estaba
ausente. Cuando se hizo este, debia haberse firmado el 24, pero era por suplica de mi
papa, vs habia mucha gente, vs ademas en aquel dia no queria dar disgustos, vs cuando
nos marchamos, le dije: “Papa, esta aqui el papel que me ha entregado, que voy a hacer”,
vs dijo: “voy a firmarlo.”
P. Eso fue cuando?
R. El enero 25.

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P. Sabiendo usted que su padre vivia en la casa de Mercedes por que no llamo usted a
Mercedes para ser mas legal?
R. No me acuerdo de eso.
P. Ni siquiera el esposo de su hermana, el Doctor, llamo usted para que presenciara la firma
de este Exhibit G?
R. No me acorde de eso. (pags. 162-B, 163 y164, transcripcion.)
If we would give credit to what document Exhibit G literally says, we would indeed come
to the conclusion that Antonio Ma. Cui and his sister Mercedes, vendees
of the property, have not as yet paid the consideration of the sale to their father Don
Mariano, but the testimony of Rosario Cui itself belies that such was the real intention of
Don Mariano when the statement was allegedly made, According to Rosario Cui, when
Don Mariano was informed that a case was brought to court to seek the annulment of the
sale of the Manalili property and she informed him of the attitude of the other children,
Don Mariano said: “Deje Vd. y mande preparar una orden mia de que yo quiero que se
termine el asunto vs se arregle entre ustedes vs no me gusta que haya pleito, vs yo voy a
firmar vs se preparo eso.” Then she caused that statement to be prepared by Atty. Jayme
which was signed by Don Mariano in the house of Mercedes. If we were to believe the
testimony of Rosario Cui, we would find that the only wish of Don Mariano was to have
the litigation terminated and amicably settled and that nothing was said about the alleged
non-payment of the consideration. And it is strange that the statement was signed in the
106
house of Mercedes Cui and the latter never came to know about it before it was presented
in court. It is apparent that the whole thing was a concoction of some of those interested
in winning the case which was already pending in court by inserting something that might
serve as basis for the nullification of the sale; and our suspicion is strengthened when we
consider that that statement was allegedly signed at a time when, according to Rosario Cui
herself, her father was already mentally infirm, so much so that about one month thereafter
he was declared incompetent and mentally incapacitated.
The document Exhibit H is an alleged letter of Don Mariano to his son-in-law, Dr. Irineo
Encarnacion, husband of Rosario, dated January 30, 1949, wherein Don Mariano apparently
added at the foot the following statement: “PD. Quizas te podre pagar cuando me paguen
ellos Nene los solares de Manalili.” If we will give credit to the above statement, we would
also conclude that the vendees have not paid the consideration of the sale of the Manalili
property. Again we can say that such cannot represent the clear will of Don Mariano if we
want to be consistent with our finding that at that time he was no longer in possession of
his mental faculties. Apparently, this is another scheme employed by Rosario Cui and her
husband to bolster up their case seeking the annulment of the sale.
But the most serious attempt to show that the def endants did not pay any consideration
for the sale of the lots in question is the story that is now being brought to bear on the sale
of the San Jose property by Don Mariano to his daughter-in-law, Elisa Quintos, wife of
Antonio Cui, on August 31, 1944 which, it is alleged, does not show on its face the true
107
consideration paid by Elisa to Don Mariano regarding said property. In relating the story
relative to this transaction, the picture which counsel for appellants wants to portray is that
the true consideration paid by Elisa to Don Mariano is the sum of P125,000, and not simply
P50,000 as it was made to appear therein, and, therefore, when the deed of sale was
executed on March 8, 1946 no actual consideration passed from Antonio Cui to Don
Mariano because the latter was not then owing any amount either to said Antonio or to his
wife Elisa Quintos.
Before discussing the details concerning the sale of the San Jose property as narrated by
counsel for appellants, let us first take note of the version of Antonio Cui as to how he
came to pay the consideration of P21,333 assigned to him in the transaction. Antonio Cui
testified that of the said sum of P21,333 representing his share in the consideration of the
sale, P1,333 was advanced in his favor by his sister Mercedes as shown by the receipt
Exhibit 24 issued by Don Mariano in favor of the latter. The balance of P20,000 represents
settlement of the debt his ex ather then owed to his wife Elisa. This indebtedness, according
to Antonio, arose in the following manner: On June 10, 1935, the conjugal partnership of
the spouses Don Mariano Cui and Doña Antonia Perales contracted an obligation of
P80,000 with the Filipinas Life Assurance Co., Ltd. secured by a mortgage on real estate
belonging both to the conjugal partnership and to the estate of Don Mariano. On March
23, 1942, the company made a demand on Don Mariano for the payment of the obligation
which was then increasing in view of the accumulation of the interests. In order that he
108
may settle this obligation, Don Mariano asked his son Jesus Cui to look for a buyer of the
San Jose property in Cebu City.
Apparently, Jesus made efforts to look for a buyer as shown by several letters and
telegrams he sent to his father regarding the matter so much so that Don Mariano,
acknowledging said efforts, sent to him on October 5, 1943 a letter thanking him for the
interest he was displaying and stating that he could keep for himself whatever amount he
might secure in excess of the sum of P90,000 which at that time was the totality of the
obligation (Exh. 49). But since two years had passed and nothing concrete came from the
efforts exerted by Jesus, Don Mariano had to turn ex or help to his son Antonio. Antonio
agree to help and said that he would talk to his wife about it. The best way he and his wife
found to raise the money was to sell the property his wife had in Malate, City of Manila, for
the sum of P300,000. Of this amount, they gave to his father the sum of P125,000 to cover
his needs and obligations. With this money, Don Mariano paid his debt to the insurance
company of P94,736.93, including interests, deducted the sum of P5,000 representing the
amount spent by him for the wedding of Antonio and Elisa, and applied P50,000 as
consideration ex or the sale to Elisa Quintos of the house and lot at San Jose street in Cebu
City. And in recognition of the help extended to him by Antonio and Elisa, Don Mariano
acknowledged in their favor the sum of P70,000 as a loan. The deed of sale of the San Jose
property to Elisa Quintos was executed by Don Mariano Cui on August 31, 1944 with two
of his children, Lourdes Cui de Velez and Jorge Cui as witnesses. And when the sale of the
109
lots in question came, it was agreed that the loan of P70,000 be reduced to P20,000,
Philippine currency, in deference to the request of Don Mariano, which amount, in addition
to the sum of P1,333 advanced by Mercedes, became the consideration paid by Antonio
Cui for his share in the transaction. This is the explanation given by Antonio of how he
came to pay the consideration of the sale, and apparently this is supported by the same deed
of sale wherein Don Mariano acknowledged having received the total consideration
(Exhibit A).
Appellants, however, do not seem to agree to this narration for they do not give faith and
credit to the explanation given by Antonio Cui as to how he came to pay his share in the
consideration of the sale, and to show that Antonio cannot be truthful and that the sale of
the San Jose property, as well as that of the lots in question, are but the product of his
insidious scheme and manipulations to serve his own selfish interests, they brought forth
in this case certain documents and telegrams tending to show that Don Mariano could not
have intended to sell the San Jose property for less than the amount of his obligation to the
insurance company more so when he had received offers for the purchase of said property
in the amount of not less than P150,000. Thus, an attempt was made to show that on
August 25, 1944, or five days before the sale to Elisa Quintos was consummated, Paulino
Gullas offered to buy the property for P150,000, There was also an attempt to show that
at about the time the sale was being made to Elisa Quintos of that property, Sergio Osmeña,
Jr. also made an offer in the same amount of P150,000.
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 While these facts are true because they are supported by unrefuted evidence, it is however
also true that those offers came when the negotiation between Don Mariano Cui and Elisa
Quintos had already been completed. It should be borne in mind that the authority given
by Don Mariano Cui to Jesus Cui to sell the property was given even as early as 1942 and
despite the lapse of two years nothing concrete came out in spite of the efforts made by
Jesus to look for a buyer, and so Elisa Quintos had to sell her property in Manila just to
please and accommodate her father-in-law, Don Mariano. The offer, therefore, of Paulino
Gullas or of Sergio Osmeña, Jr., even if for the sum of P150,000, came late, and under the
circumstances, Don Mariano had no other alternative, as any other decent man would have
done, than to reject the offers and maintain the sale he made to Elisa even at the sacrifice
of some material advantage in his favor. He wrote to Jesus on August 7, 1944 (Exhibit 52)
and told him that he had already sold the San Jose property to Elisa assuring him at the
same time that although the price paid for it was not high, still he considered the sale to his
advantage as Elisa and Antonio spontaneously reserved in his favor the right to occupy for
life any room he may choose in the same house included in the transaction when he should
return to Cebu to live there, a privilege which Don Mariano knew no other buyer would be
in a position to offer. This explains somewhat this apparent incongruity in the transaction.
This consideration may really appear low especially when done in Japanese currency, but at
the same time we cannot overlook the fact that some moral factor has played an important
part in the transaction. At any rate, that is the consideration that appears in the document
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(Exhibit R), and its genuineness and due execution is not now disputed. We are, therefore,
constrained to consider it on its face value.
The consideration paid by Mercedes Cui of her share in the sale in question is also
disputed by appellants who claim that she has not paid any amount and that the explanation
she has given as to how she came to pay said consideration is not worthy of credence.
Mercedes Cui, on this matter, testified that before her father Don Mariano left for Manila
in the month of July, 1943, he had been taking from her on several occasions sums of
money which reached a total of P14,000; that in February, 1946, her father returned to
Cebu and she again gave him the sum of P2,000, making a total of P16,000, the money
taken by her father; that after receiving the sum of P2,000, her father offered to sell her 1/3
of the interest in the three lots in question, which she accepted; that days before she signed
the deed of sale Exhibit A, she gave her father the sum of P6,666, of which P1,333 were
given for the account of her brother Antonio Cui, and the sum of P5,333 was applied to
cover the balance of her share in the consideration to complete the amount of P16,000
previously taken by her father; that in acknowledgment of the receipt from her of said
amounts, her father executed the receipt Exhibit 24 in his own handwriting, and days after,
she was made to sign said deed of sale; and that her father did not include in the sale her
other brothers and sisters because he knew their precarious financial situation.
The weakness which appellants find in this explanation given by Mercedes Cui lies in that
she has not been able to produce any receipt showing the deliveries of money she claimed
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to have made to her father. This may be true, but this was explained by her saying that it
has never been her habit to ask for receipt from her father for any money she may have
given him, unlike her sister Rosario who has the habit of asking for receipts. On the other
hand, she claims that her payment of the consideration cannot now be disputed for Don
Mariano has expressly acknowledged having received it in a document written in his own
handwriting, as evidenced by Exhibit 24, the genuineness of which is not disputed And
there is one circumstance that bolster up this claim, which also holds true with regard to
Antonio Cui, and that is the attitude shown by Don Mariano when Rosario Cui has not
paid her consideration in the sale. It should be recalled that when Don Mariano came to
know this fact, he went to Calapan, Mindoro, where Rosario was residing, to demand
payment from her, and when she failed, he asked her to execute a deed of resale in his favor.
If Antonio or Mercedes, as appellants now claim, has not paid his or her share in the
consideration, Don Mariano would have also demanded from any one of them the resale
of the property, in the same way that Rosario was required. The fact that Don Mariano did
not do so shows that both paid their shares to his full satisfaction.
But appellants are not yet satisfied with this reasoning. They insist that Mercedes has not
paid any consideration because, they contend, if it were true that she has given her father
the different sums of money she claims she has given, which amount to P16,000, the receipt
of said amounts would have been noted by Don Mariano in the diary Exhibit KK which
was kept by him during the years 1942 to 1945 wherein several entries appear of different
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sums of money received and disbursed by him for sundry expenses. When these alleged
sums were not noted down in said diary, they contend, it is because they are not true.
If we were to believe the testimony of Jesus Ma. Cui that his father had the habit of
writing down in said diary all the receipts and expenses he makes daily up to the last centavo,
the contention may be correct, considering that the sums of money delivered by Mercedes
do not appear in said diary. But that statement of Jesus Cui is an exaggeration for, as
affirmed by Antonio Cui, not all the entries appearing therein are in the handwriting of Don
Mariano, nor is it true that all the receipts and expenses he makes everyday are noted down
therein, for the truth is that there are many money transactions and expenses made by Don
Mariano during the period of 1942 to 1945 that have not been recorded therein. Thus, the
expenses and receipts had by Don Mariano while he was in Manila, do not appear therein,
nor those incurred by him in his travels from Manila to Calapan, and viceversa. Nor do
they appear therein the expenses incurred by Don Mariano for his son Jorge and his family
when they went to Calapan; neither does it appear the loan of P3,000 made to Miguel
Ortigas. It does not also appear the sum of P18,000 borrowed from him by Jorge while
they were in Manila as testified to by the latter.
In connection with this diary, we may also point out the suspicious circumstances
surrounding its presentation in court as evidence. It appears that this document was
presented by Rosario Cui who testified that she received it from her father after Mercedes
had already testified in this case, which was on September 30, 1949. According to her, Don
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Mariano on that occasion gave her instructions as to where to get said document and what
to do with it. She said that when she talked with her father about the claim of Antonio that
the consideration he paid was P70,000 which were reduced to P20,000 upon his request,
her father said: “despues me dijo mi papa que buscara en sus libros, porque el tenia un libro
diario donde apuntaba sus gastos vs tenia varios cuadernos todavia alli pero yo no quise
sacar todo; entonces el me dijo que yo lo llevara vs lo utilizara para comprobar los gastos
vs las entradas durante esos años.” (p. 112, Memorandum for Appellees). What Rosario has
attributed to her ex ather as regards the use of the diary Exhibit KK is hard to believe
considering that by that time, September 30, 1949, Don Mariano could no longer hold such
a coherent conversation and much less give instructions as to the best way they could make
use of the diary, considering that Don Mariano at that time has already been declared
mentally incapacitated. The presentation of said diary can have no other meaning than that
it is an eleventh hour attemp to bolster up the claim of appellants that the deed of sale
Exhibit A lacks consideration.
As an additional argument to nullify the deed of sale Exhibit A, even partially, in the
supposition that all their previous arguments would prove of no avail, appellants raise the
question that said sale should be invalidated at least in so far as the portion of the property
sold to Antonio Cui is concerned, for the reason that when that sale was effected, he was
then acting as the agent or administrator of the properties of Don Mariano Cui. In
advancing this argument, appellants lay stress on the power of attorney Exhibit L which
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was executed by Don Mariano in favor of Antonio Cui on March 2, 1946, wherein the
former has constituted the latter as his “true and lawful attorney” to perform in his name
and that of the intestate heirs of Doña Antonia Perales the following acts:
"* * * to administer, sell, mortgage, lease, demand, claim, represent me and the intestate
heirs, in all meetings of corporations, associations, of which my or their presence is
required, sue for, collect, cash, indorse checks drawn in my favor or of the intestate heirs
against any person or entity or bank, and sign all documents, that I and or the intestate heirs
to which I am the administrator are entitled to; giving and granting unto my said attorney
full power to perform and to make everything necessary to be done or which he believes
to be necessary or beneficial for me and the said heirs as fully and to all intents and purposes
as I might or could do if personally present, with full power of substitution, and revocation,
hereby granting ratifying all that he or his substitutes shall lawfully do or cause to be done
by virtue of these presents.”
While under article 1459 of the old Civil Code an agent or administrator is disqualified from
purchasing property in his hands for sale or management, and, in this case, the property in
question was sold to Antonio Cui while he was already the agent or administrator of the
properties of Don Mariano Cui, we however believe that this question can not now be
raised or invoked for the following reasons.
(1) This contention is being raised in this appeal for the first time. It was never raised in
the trial court. An examination of the complaints, both original as well as amended, will
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show that nowhere therein do they raise the invalidity of the sale on that ground nor ask as
an alternative relief the partial revocation of the sale in so far as Antonio’s share is
concerned because of the alleged relation of principal and agent between vendor and
vendee. It is undoubtedly for this reason that the trial court has not passed upon this
question in its decision. And considering that under Section 19, Rule 48, of our Rules of
Court, an appellant may only include “In his assignment of error any question of law or of
fact that has been raised in the court below and which is within the issues made by the
parties in their pleadings”, it follows that appellants are now prevented from raising this
question for the first time in this instance.
(2) The power of attorney in question is couched in so general a language that one cannot
tell whether it refers to the properties of Don Mariano or only to the conjugal properties
of the spouses. However, considering that the appointment was extended to Antonio Cui
by Don Mariano so that he may act as agent “for me and for the intestate heirs of the
deceased Antonia Perales”, one is led to believe that the power refers to the conjugal
properties wherein he had one-half interest and the heirs of Doña Antonia, the remaining
half. Moreover, the power of attorney was executed on March 2, 1940 while the deed of
sale was executed on March 8, 1946. They were therefore executed practically at the same
time, which makes it doubtful as to whether such sale can be deemed to be within the
prohibition of the law.

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 (3) The prohibition of the law is contained in article 1459 of the old Civil Code, but this
prohibition has already been removed. Under the provisions of article 1491, section 2, of
the new Civil Code, an agent may now buy property placed in his hands for sale or
administration, provided that the principal gives his consent thereto. While the new Code
came into effect only on August 30, 1950, however, since this is a right that is declared for
the first time, the same may be given retroactive effect if no vested or acquired right is
impaired (Article 2253, new Civil Code). During the lifetime of Don Mariano, and
particularly on March 8, 1946, the herein appellants could not claim any vested or acquired
right in these properties, for, as heirs, the most they had was a mere expectancy. We may,
therefore, invoke now this practical and liberal provision of our new Civil Code even if the
sale had taken place before its effectivity.
The remaining question to be determined refers to the nature of the properties in question
which appellants claim belong to the conjugal partnership of Don Mariano Cui and Doña
Antonia Perales while, on the other hand, appellees contend belong exclusively to Don
Mariano.
In support of their contention, appellants rely on the legal presumption that said
properties are conjugal because they were acquired by Don Mariano and his wife during
their marriage, and on the testimony of Jesus, Jorge and Rosario Cui, three of the children
of Don Mariano, who testified that said properties are conjugal because they have always

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been of the belief or impression that they belong to the conjugal partnership of their
parents. They have not presented any documentary evidence in support of their contention.
It is true that the properties in question were acquired during the marriage of Don
Mariano Cui and Doña Antonia. Perales and that the same were registered in the name of
Don Mariano “casado con Doña Antonia Perales”, and as such they are presumed to be
conjugal properties (Article 1407, old Civil Code), but this presumption appears here
rebutted by -conclusive and strong evidence to the contrary. It should be stated that these
properties originally belonged to Don Pedro Cui and Doña Benigna Cui, uncle and aunt,
respectively, of Don Mariano, which were donated by them to Don Mariano on April 12,
1912 on condition that the latter renounce any further inheritance he might have in the
intestate estate of the donors. And while appellees have not been able to introduce any copy
of the deed of donation because the same has already disappeared, the fact however remains
that it has been clearly established that such donation has been actually made exclusively to
Don Mariano by clear and satisfactory evidence. The following is a brief discussion of such
evidence which consists in the testimony of Marta Cui and Generosa Vda. de Jakosalem,
both nieces of the donors, and in numerous documents the genuineness of which is not
disputed.
Marta Cui, a woman 81 years old, testified that since she was 10 years of age, she lived in
the company of her uncle Pedro Cui and aunt Benigna Cui; that during their lifetime these
two made donations of their lands to their nephews and nieces subject to the condition that
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they should renounce whatever share they might have in their inheritance and among the
donees was Don Mariano Cui; that the donations were made exclusively to their nephews
and nieces, or without including their respective spouses; that the donation made in her
favor is contained in the document Exhibit 21; and that the lots in question were donated
to Don Mariano Cui to the exclusion of his spouse Antonia Perales. Examining said
donation Exhibit 21 one would find that it was really made exclusive in favor of Marta Cui
subject to the condition that she should renounce whatever inheritance she might have
from the donors.
Generosa Vda. de Jakosalem, another woman of advanced age who because of
unexpected illness was not able to continue testifying, also affirmed that the lots in question
were donated to Don Mariano by her uncle Pedro Cui and aunt Benigna Cui exclusively,
and this she knows personally because on the same date such donation was made, she also
received a donation from the same donors.
Antonio Ma. Cui, testifying on this matter, said: that while he was acting as private
secretary of his father Don Mariano before the war, he had an opportunity to see a copy of
the deed of donation of the lots in question in his favor (his father), which copy was
furnished by the clerk of court, and at the foot thereof there appears a note to the effect
that the original of said deed was on file in the record of the cadastral case covering the
property; that said document appears signed by the donors Pedro Cui and Benigna Cui, by
the donee Mariano Cui and the instrumental witnesses Victor Cui and Dionisio Jakosalem;
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that said copy having been lost, he went to see the clerk of court to inquire about the original
that was on file in the record of the cadastral case but the clerk of court told him that the
record was destroyed during the last war; that he then went to the office of the Bureau of
Archives to see if he could get a copy of the document but in said office he only found the
notarial register of the notary public Raymundo Enriquez wherein the deed of donation
appears recorded; that at his request the chief of said office issued photostatic copies of the
pages of the notarial register which contained the annotation relative not only to the deed
of donation in question but also to that which pertains to the other deeds of donation
executed by the donors Pedro Cui and Benigna Cui (Exhibits 31-a and 31-b) ; that the entry
No. 310 that appears in the copy marked Exhibit 31-b refers to the deed of donation of the
lots in question in favor of his father because said entry refers to a property situated in Plaza
Washington, Cebu, where his ex ather did not have any other property except that donated
to him by his relatives, which was later divided into three lots, and that it is of common
knowledge among members of the Cui family that all the nephews of Pedro Cui and
Benigna Cui received from them by way of donation several pieces of lands subject to the
condition that they should renounce their right to inherit from the donors.
Entry No. 310 which appears in photostatic copy Exhibit 31-b contains under the
heading “Nature of Instrument” the following annotation: “Donacion condicional que
hacen Pedro Cui vs Benigna Cui a favor de su sobrino Mariano Cui de un solar con todas
sus mejoras vs edificio en la plaza de Washington, Cebu; vs la aceptacion del donatario
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quien agradece a los donantes.” In the same entry there also appears that the document was
executed on April 12, 1912 by Pedro Cui, Benigna Cui and Mariano Cui, and attested by
Victor Cui and Dionisio Jakosalem.
In the photostatic copy Exhibit 31-a, there appear entries Nos. 301, 303, 304 and 305
which refer to the deeds of donation executed by Pedro Cui and Benigna Cui in favor of
their nephews and nieces Mauricio Cui, Marta Cui, Victor Cui, Angel Cui and Felicidad Cui.
Note that these donations were made exclusively in favor of the nephews and nieces
without including their respective spouses and were all executed on April 11, 1912, or one
day before the execution of the donation in favor of Don Mariano Cui. The two photostatic
copies Exhibits 31-a and 31-b corroborate the testimony of Marta Cui and Generosa Vda.
de Jakosalem to the effect that all the donations made by Don Pedro Cui and Benigna Cui
in favor of their nephews and nieces were made to them exclusively or without including
their respective spouses, and subject to the condition that they should renounce their right
to inherit from the donors.
In addition to the foregoing evidence, there are other documents which strengthen the
contention that the lots in question were donated exclusively to Don Mariano Cui. One of
them is the inventory prepared by Don Mariano of the properties which belonged to him
exclusively and those which belonged to the conjugal partnership, as a result of the death
of his wife Antonia Perales in 1939, copies of which were furnished to all the children of
Don Mariano. In this inventory marked Exhibit 8, under the heading “Bienes propios del
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esposo superviviente Don Mariano Cui,” the following appears: “1.—Un solar compuesto
de los lotes 2312, 2313 vs 2319, del Catastro de Cebu, con sus mejoras consistentes en una
casa de piedra vs madera con techo de teja vs con una azotea tambien de piedra vs madera.”
In the same inventory under the heading “Bienes gananciales habidos durante el
matrimonio de Don Mariano Cui vs Doña Antonia Perales,” there also appears the
following statement: “1. Un edificio mixto de concreto vs madera con techo de hierro
galvanizado *. *. *. construido un una porcion de terreno, de mil dosientos cincuenta (1,250)
metros cuadrados de superficie, mas of menos, la cual forma parte de un solar de mayor
extension, situado entre las Calles Manalili vs Calderon de la ciudad de Cebu, Cebu *. *. *.
vs pertenece en propiedad exclusiva al esposa superviviente Don Mariano Cui.” This
property is the one known as lots Nos. 2312, 2313, and 2319. This inventory was never
objected to by the heirs and shows clearly that while the land belongs exclusively to Don
Mariano Cui the building constructed thereon was considered as conjugal property.
Another important document is the extra-judicial partition of the properties pertaining to
the conjugal partnership of Don Mariano Cui and the deceased wife Antonia Perales,
marked Exhibit 1-a, which was signed by Don Mariano and all his children, with the
exception of Jorge Cui, who was then in Manila when the document was signed on
December 6, 1946. In said document mention is made of the inventory which was prepared
by Don Mariano of the conjugal properties belonging to him and his wife, as well as the
powers of attorney executed in favor of Don Mariano by his children authorizing him to
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administer the properties belonging to the conjugal partnership. It is interesting to note that
in this deed of partition a relation is made of the conjugal properties as well as of the debts
and obligations which were then existing against the partnership and the disposition made
of the properties to pay said debts and obligations. It is also interesting to note that the
three lots in question are not included in this deed of partition. The fact that all the heirs,
with the exception of Jorge, signed this deed of partition without any protest, is a clear
proof that they knew right along that said lots were the exclusive property of their father
and did not belong to the conjugal partnership. It is true that appellants Jesus Ma. Cui and
Rosario Cui, while admitting the authenticity and due execution of the above deed of
partition, now contend that they signed the same without being aware of its contents, but
this contention can hardly be given credit, for we can not suppose that, referring as it does
to an important document which concerns precisely a partition of inheritance, they should
sign the same without first ascertaining or satisfying themselves of the nature of the
transaction.
Other important documents that may have a bearing on this matter are the inheritance
tax return Exhibit 32 and the relation Exhibit 33 of the real properties of Don Mariano Cui
for the purposes required by law relative to the issuance of the Residence Certificate B. The
inheritance tax return was filed by Don Mariano Cui in 1939 in connection with the
hereditary property left by his wife Antonia Perales and in said return the lots in question
were not included, while the relation Exhibit 33 includes said lots because they were deemed
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by Don Mariano as his exclusive property and as such should be included in the assessment
to be made in connection with the issuance of the Residence Certificate B. These two
documents, which were prepared by Don Mariano Cui, clearly indicate that the lots in
question were always considered by him as his exclusive property.
There can therefore be no doubt, in the light of the overwhelming evidence, testimonial
as well as documentary, we have discussed in the preceding paragraphs, that these three lots
in question have always been considered not only by Don Mariano Cui, but by his children
and other relatives, as his exclusive property, the same having been donated to him by his
uncle Pedro Cui and aunt Benigna Cui to the exclusion of his wife Antonia Perales.
Consequently, the contention that, in disposing of said property, Don Mariano Cui has
appropriated what belongs to his co-heirs, has completely no foundation in the evidence.
Having reached the conclusion that the lots in question were the exclusive property of Don
Mariano Cui and that the deed of sale Exhibit A was executed by him freely, intelligently,
and with sufficient pecuniary consideration, we deem it unnecessary to dwell on the other
points discussed by both parties in their briefs and in their respective memoranda. While
these points, vehemently advocated by appellants’ counsel, may throw cloud on the due
execution of the sale, or may cast doubt on the sufficiency of its consideration, we are
however constrained to uphold its validity if we are to be consistent with our conclusion
that Don Mariano has executed it while still in the full enjoyment of his mental faculties,
considering that he never lifted a finger to dispute it, in the same manner he did with regard
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to Rosario Cui. No other conclusion is plausible and proper, considering all the
circumstances of the case.
Wherefore, we hereby affirm the decision appealed from, without pronouncement as to
costs.
Parás, C.J., Bengzon, Montemayor, Reyes, A., Labrador,Reyes, J.B. L., Endencia, and Felix,
JJ., concur.
Judgment affirmed.

Nos. L-22951 and L-22952. January 31, 1967.

ALLIED FREE WORKERS' UNION (PLUM), petitioner, vs.COMPAÑIA MARITIMA,
Manager JOSE C. TEVES. and COURT OF INDUSTRIAL RELATIONS, respondents.

No. L-22971. January 31, 1967.

COMPAÑIA MARITIMA and Manager JOSE C. TEVES, petitioners, vs. ALLIED FREE
WORKERS' UNION (PLUM) and COURT OF INDUSTRIAL RELATIONS,
respondents.
Industrial Peace Act; No unfair labor practice where there is no employer-employee relationship.—The
fact that a shipping company did not answer a union’s proposal for a collective bargaining
126
agreement does not mean that it is guilty of an unfair labor practice. Under the law, the
duty to bargain collectively arises only between the “employer” and its “employees”, Where
neither party is an employer nor an employee of the other, no such duty would exist. Where
there is no duty to bargain collectively, the refusal to bargain violates no right.
Independent contractor; Finding that union operated as a labor contractor under the “cabo” system.—
Where the Court of Industrial Relations found that the union, in performing arrastre and
stevedoring work for the shipping company operated as a labor contractor under the so-
called “cabo” system, and the union paid its own laborers, it is an independent contractor.
This finding cannot be disturbed on appeal. An independent contractor is not an employee.
Nor can the members of the union be considered employees of the shipping company since
there was no direct employment relationship between the company and the laborers. The
latter had no separate, individual contracts with the company.
Same; Employer and employee; Elements in determining employer-employee relationship.—Where the
union, through its officers, selected and hired the laborers, paid their wages, exercised
control and supervision over them and had the power to discipline and dismiss them, the
laborers are employees of the union and not of the shipping company with which the union
had entered into a contract. There is no legal impediment for a union to be an employer.
Same; Agency; Where union is not an agent of shipping company.—A union that entered into a
stevedoring contract with a shipping company cannot be regarded as an agent of the
company since an agent cannot represent two conflicting interest.
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 Same; Unilateral cancellation of employment contract.—A resolutory condition in a contract for
personal services permitting the cancellation of the contract by one of the contracting
parties is valid.
Same; Termination of stevedoring contract.—Where a shipping company terminated its
stevedoring contract with a union because of the latter’s inefficient service, it cannot be said
that the termination was in bad faith or as a retaliation for the union’s demand for a
collective bargaining contract. Nor can said termination be considered union interference.
Same; Employer-employee relationship cannot be imposed.—An employer-employee relationship
cannot be imposed against the will of a company. It would violate the company’s exclusive
prerogative to determine whether it should enter into an employment contract or not
(Pampanga Bus Co. vs. Pambusco Employees’ Union, 68 Phil. 541).
Same; Duty to bargain collectively.—The duty to bargain collectively exists only between the
“employer” and its “employees”. However, the actual negotiations—which may possibly
culminate in a concrete collective bargaining contract—are carried on between the
“employer” itself and the official representative of the “employees” (Secs. 12 [2] and 13,
Rep. Act No. 875)—in most cases, the majority labor union. In the case at bar, there being
no employer-employee relationship between the parties disputants, there is neither a “duty
to bargain collectively” to speak of. And there being no such duty, to hold certification
elections would be pointless. There is no reason to select a representative to negotiate when

128
there can be no negotiations in the first place. Where there is no duty to bargain collectively,
it is not proper to hold certification elections in connection therewith.
Same; Remedy against “cabo” system.—The “cabo” system, although not illegal, is
disadvantageous to laborers. However, the “cabo” system cannot be eliminated by
imposing an employer-employee relationship and forcing the holding of a certification
election which is not warranted. The end cannot justify the means. For an action to be
sanctioned by the courts, the purpose must not only be good but the means undertaken
must also be lawful. The remedy against the “cabo” system need not be sought in the courts
but in the laborers themselves who should organize into a closely-knit union which would
secure the privileges that the members desire through the election of officers among
themselves who would not exploit them.
PETITION for review by certiorari of a decision of the Court of Industrial Relations.
The facts are stated in the opinion of the Court. L-22951 and 22952:
Vicente A. Rafael and Associates for petitioner.
Rafael Dinglasan for respondents.
Mariano B. Tuason for respondent Court of Industrial Relations.
L-22971:

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 Rafael Dinglasan for petitioner.
Vicente A. Rafael and Associatesfor respondents.
Mariano B. Tuason for respondent Court of Industrial Relations.
BENGZON, J.P., J,:
The three cases before this Court are the respective appeals separately taken by the parties
hereto from an order1 of the Court of Industrial Relations en bancaffirming its trial judge’s
decision, rendered on November 4, 1963, in CIR Case 175-MC and CIR Case 426-ULP.
Thus L-22971 is the appeal of MARITIMA2 in CIR Case 175MC; L-22952
is AFWU’s appeal in the same case; and L-22951 refers to AFWU’s3 appeal in CIR Case
426-ULP. Since these cases were jointly tried and decided in the court a quo and they involve
the same fundamental issue—the presence or absence of employer-employee
relationship—they are jointly considered herein.
MARITIMA is a local corporation engaged in the shipping business. Teves is its branch
manager in the port of Iligan City. And AFWU is duly registered legitimate labor
organization with 225 members.
On August 11, 1952, MARITIMA, through Teves, entered into
a CONTRACT4 with AFWU, the terms of which We reproduce:
"—ARRASTRE AND STEVEDORING CONTRACT—
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“KNOW ALL MEN BY THESE PRESENTS:
“This contract made and executed this 11th day of August, 1952, in the City of Iligan,
Philippines, by and between the COMPAÑIA MARITIMA, Iligan Branch, represented by
its Branch Manager in Iligan City, and the ALLIED FREE WORKERS' UNION, a duly
authorized labor union, represented by its President:
“WITNESSETH:
“1.That the Compañia Maritima hereby engage the services of the Allied Free
Workers’ Union to do and perform all the work of stevedoring and arrastre services
of all its vessels or boats calling in the port of Iligan City, beginning August 12, 1952.
“2.That the Compañia Maritima shall not be liable for the payment of the services
rendered by the Allied Free Workers’ Union, for the loading, unloading and deliveries
of cargoes as same is payable by the owners and consignees of cargoes, as it has been
the practice in the port of Iligan City.
“3,That the Allied Free Workers’ Union shall be responsible for the damages that may
be caused to the cargoes in the course of their handling.

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 “4.That this contract. is good and valid for a period of one (1) month from August
12, 1952, but same may be renewed by agreement of the parties; however Compañia
Maritima reserves the right to revoke this contract even before the expiration of the
term, if and when the Allied Free Workers’ Union fails to render good service.
“IN WITNESS WHEREOF, we hereunto sign this presents in the City of Iligan,
Philippines, this 11th day of August, 1952.
(SGD) (SGD)
SALVADOR JOSE C.
T. LLUCH TEVES
President Branch
Manager
Allied Free Compañia
Workers’ Maritima
Union
Iligan City Iligan
City
“SIGNED IN THE PRESENCE OF:
1. 1.(SGD) JOSE CUETO
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 2. 2.(SGD) SERGIO OBACH"
During the first month of the existence of the CONTRACT. AFWU rendered satisfactory
service. So, MARITIMA, through Teves, verbally renewed the same. This harmonious
relations between MARITIMA and AFWU lasted up to the latter part of 1953 when the
former complained to the latter of unsatisfactory and inefficient service by the laborers
doing the arrastre and stevedoring work. This deteriorating situation was admitted as a fact
by AFWU’spresident. To remedy the situation—since MARITIMA’s business was being
adversely affected—Teves was forced to hire extra laborers from among “stand-by”
workers not affiliated to any union to help in the stevedoring and arrastre work. The wages
of these extra laborers were paid by MARITIMA through separate vouchers and not
by AFWU. Moreover, said wages were not charged to the consignees or owners of the
cargoes. On July 23, 1954, AFWU presented to MARITIMA a written proposal5 for a
collective bargaining agreement.
This demand embodied certain terms and conditions of employment different from the
provisions of the CONTRACT. No reply was made by MARITIMA.
On August 6, 1954, AFWUinstituted proceedings in the Industrial Court6 praying that it
be certified as the sole and exclusive bargaining agent in the bargaining unit composed of
all the laborers doing the arrastre and stevedoring work in connection

133
with MARITIMA’s vessels in Iligan City. MARITIMA answered, alleging lack of
employer-employee relationship between the parties.
On August 24, 1954, MARITIMAinformed AFWU of the termination of
the CONTRACT because of the inefficient service rendered by the latter which had
adversely affected its business. The termination was to take effect as of September 1,
1954. MARITIMA then contracted with the Iligan Stevedoring Union for the arrastre and
stevedoring work. The latter agreed to perform the work subject to the same terms and
conditions of the CONTRACT.The new agreement was to be carried out on September 1,
1954.
On August 26, 1954, upon the instance of AFWU, MARITIMAfound itself charged
before the Industrial Court7 of unfair labor practices under Sec. 4(a), (1), (3), (4) and (6) of
Rep. Act No. 875. MARITIMA answered, again denying the employer-employee
relationship between the parties.
On September 1. 1954, members of AFWU, together with those of the Mindanao
Workers Alliance—a sister union—formed a picket line at the wharf of Iligan City, thus
preventing the Iligan Stevedoring Union from carrying out the arrastre and stevedoring
work it contracted for.8 This picket lasted for nine days.
On September 9, 1954, MARITIMA filed an action9 to rescind
the CONTRACT, enjoin AFWU members from doing arrastre and stevedoring work in
connection with its vessels, and for recovery of damages against AFWUand its officers.
134
Incidentally, this civil case has been the subject of three proceedings already which have
reached this Court. The first10involved a preliminary injunction issued therein on September
9, 1954, by the trial court prohibiting AFWU from interfering in any manner with the
loading and unloading of cargoes from MARITIMA’s vessels. This injunction was lifted
that very evening upon the filing of a counterbond by AFWU.Subsequently, a motion to
dissolve said counterbond was filed by MARITIMA but the hearing on this incident was
enjoined by Us on March 15, 1955, upon the institution of the petition for prohibition and
injunction in said L-8876.11 Meanwhile, AFWUmembers-laborers were able to continue the
arrastre and stevedoring work in connection with MARlTIMA’s vessels.
On December 5, 1960, the CFI decision in the civil case was promulgated. It ordered the
rescission of the CONTRACT and permanently enjoined AFWUmembers from
performing work in connection with MARITlMA’svessels. AFWU then filed its notice of
appeal, appeal bond and record on appeal.12 The subsequent incidents thereto gave rise to
the two other proceedings which have previously reached Us here.
On January 6, 1961, upon motion of MARITIMA, an order of execution pending appeal
and a writ of injunction against AFWUwas issued by the trial court in the civil case. This
enabled MARITIMAto engage the services of the Mindanao Arrastre Service to do the
arrastre and stevedoring work on January 8, 1961. However, AFWU filed a petition for
certiorari, injunction and prohibition13 here and on January 18, 1961, was able to secure a
writ of preliminary injunction ordering the maintenance of the status quo prior to January 6,
135
1961. Thus, after January 18, 1961, AFWU laborers were again back doing the same work
as before.
The third incident that reached Us14 involved an order of the same trial court in the same
civil case, dated January 11, 1961, which amended some clerical errors in the original
decision of December 5, 1960. Upon motion of ‘MARITIMA,the trial court, on March 24,
1962, issued an order for the execution of the decision of January 11, 1961,
since AFWU did not appeal therefrom, and on March 31, 1962, a writ of execution ousting
the 225 AFWU members-laborers from their work in connection with the loading and
unloading of cargoes was issued and a levy on execution upon the properties of AFWU was
effected. Accordingly, on April 1, 1962, MARITIMA was again able to engage the services
of the Mindanao Arrastre Service.
On April 16, 1962, upon-the institution of the petition for certiorari, injunction,
prohibition and mandamus, a preliminary injunction ;was issued by Us against the orders
of March 24 and 31, 1962. But then, on May 16, 1962, upon motion of MARITIMA,this
preliminary injunction was lifted by Us insofar as it related to the execution of the order
ousting the AFWU laborers from the stevedoring and arrastre work in connection with
the MARITIMAvessels.15 Such then was the status of things. On November 4, 1963, after
almost 10 years of bearing the two cases jointly, the Industrial Court finally rendered its
decision. The dispositive part provided:

136
 “IN VIEW OF ALL THE FOREGOING CIRCUMSTANCES, the complaint of the
union for unfair labor practices against the Compañia Maritima and/or its agent Jose C.
Teves and the Iligan Stevedoring Union and/or Sergio Obach is hereby dismissed for lack
of substantial evidence and merit.
“In pursuance of the provisions of Section 12 of Republic Act 875 and the Rules of this
court on certification election, the Honorable, the Secretary of Labor or any of his
authorized representative is hereby requested to conduct certification election among all
the workers and/or stevedores working in the wharf of Iligan City who are performing
stevedoring and arrastre service aboard Compañia Maritima vessels docking at Iligan City
port in order to determine their representative for collective bargaining with the employer,
whether their desire to be represented by the petitioner Allied Free Workers Union or
neither [sic]; and upon termination of the said election, the result thereof shall forthwith be
submitted to this court for further consideration. The union present payroll may be utilized
in determining the qualified voters, with the exclusion of all supervisors.
“SO ORDERED."
As already indicated, the fundamental issue involved in these cases before Us consists in
whether there is an employer-employee relationship between MARITIMA, on the one
hand, and AFWU and/or its members-laborers who do the actual stevedoring and arrastre
work, on the other hand.

137
THE UNFAIR LABOR PRACTICE CASE
(L-22951* [CIR Case 426-ULP])
Petitioner AFWU’s proposition is that the court a quo erred (1) in concluding
that MARITIMA had not refused to bargain collectively with it, as the majority union; (2)
in not finding that MARITIMA had committed acts of discrimination, interferences and
coercions upon its members-laborers, and (3) in concluding that’ the CONTRACTmay not
be interferred with even if contrary to law or public policy.
It is true that MARITIMAadmits that it did not answer AFWU’s proposal for a collective
bargaining agreement. From this it does not necessarily follow that it is guilty of unfair labor
practice. Under the law16 the duty to bargain collectively arises only between the “employer”
and its “employees”. Where neither party is an “employer” nor an “employee” of the other,
no such duty would exist. Needless to add, where there is no duty to bargain collectively
the refusal to bargain violates no right. So, the question is: Under the CONTRACT, was
MARITIMA the “employer” and AFWU and/or its members the “employees” with
respect to one another?
The court a quo held that under the CONTRACT, AFWU was an independent contractor
of MARITIMA. This conclusion was based on the following findings of fact, which We
can no longer disturb, stated in the CIR decision:
“7. x x x The petitioner union operated as a labor contractor under the so-called ‘cabo’ system; and as
such it has a complete set of officers and office personnel (Exhs. ‘F' and ‘F-1') and its
138
organizational structure includes the following: General President, with the following under
him—one vice-president, legal counsel, general treasurer, general manager and the board
of directors. Under the general manager is the secretary, the auditor, and the office staff
composing of the general foreman, general checker, general timekeeper, and the respective
subordinates like assistant foreman, capataz, assistant general checker, field checker, office
timekeeper, and field timekeeper all appointed by the general manager of the union and are paid in
accordance with the union payroll exclusively prepared by the union in the office. (See t.s.n, pp. 32–36,
June 9, 1960; pp. 78–80, February 16, 1961; pp. 26–28? August 9, 1960). The payrolls where
laborers are listed and paid were prepared by the union itself without the intervention or control of the
respondent company and/or its agent at Iligan City. The respondent never had any knowledge of the
individual names of laborers and/or workers listed in the union payroll or in their roster of membership.
“8. The union engaged the services of their members in undertaking the work of arrastre and
stevedoring either to haul shippers’ goods from their warehouses in Iligan City to the Maritima
boat or from the boat to the different consignees. The charges for such service were known by the
union and collected by them through their bill collector. This is shown by the preparation of the
union forms known as ‘conduci’ or delivery receipts. These ‘conduci’ or receipts contain
informations as to the number and/or volume of cargoes handled by the union, the invoice
number, the name of the vessel and the number of bills of lading covering the cargoes to
be delivered. Those delivery receipts are different and separate from the bills of lading and
delivery receipts issued by the company to the consignees or shippers. Cargoes carried from
139
the warehouses to the boat or from the boat to the consignees were always accompanied
by the union checker who hand-carry the ‘conduci.’ Once goods are delivered to their destination
the union through its bill collectors prepare the bills of collection and the charges thereon are collected by the
union bill collectors who are employees of the union and not of the respondent. The respondent had no
intervention whatsoever in the collection of those charges as the same are clearly indicated
and described in the labor contract, Exhibit ‘A'. There were, however, instances when the
respondents were requested to help the union in the collection of charges for services
rendered by members of the union when fertilizers and gasoline drums were loaded aboard
the Compañia Maritima boats. This was necessary in order to facilitate the collection of
freight and handling charges from the government for auditing purposes. When cargoes
are to be loaded, the shipper usually notifies the petitioner union when to load their cargoes
aboard Compañia Maritima boats calling in the port of Iligan City; and when a boat docks
in said port, the union undertakes to haul the said shipper’s goods to the boat. In doing this
work, the union employs their own trucks or other vehicles or conveyance from shipper’s warehouse to the
boat or vice-versa. The respondent has no truck of any kind for the service of hauling cargoes because such
service is included in the contract executed between the parties. (See Exh. ‘A').
“9. The union members who were hired by the union to perform arrastre and stevedoring work on
respondents’ vessels at Iligan port were being supervised and controlled by the general foreman of the petitioner
union or by any union assistant or capataz responsible for the execution of the labor contract when
performing arrastre and/or stevedoring work aboard vessels of the Compañia Maritima
140
docking at Iligan City. The foreman assigned their laborers to perform the required work
aboard vessels of the respondent. For instance, when a boat arrives, the general foreman
requests the cargo report from the chief mate of the vessel in order to determine where the
cagoes are located in the hold of the boat and to know the destination of these cargoes. All
the laborers and/or workers hired for said work are union members and are only responsible to their
immediate chief who are officers and/or employees of the union. The respondent firm have their own
separate representatives like checkers who extend aid to the union officers and members in
checking the different cargoes unloaded or loaded aboard vessels of the Compañia
Maritima. There were no instances where officers and employees of the respondent Compañia Maritima
and/or its agent had interferred in the giving of instructions to the laborers performing the arrastre and/or
stevedoring work either aboard vessels or at the wharf of Iligan City. As contractor, the union does not
receive instructions as to what to do, how to do, and works without specific instructions. They have no fixed
hours of work required by the Maritima.
“10. While cargoes were in transit either from the warehouse to the boat or f rom the
boat to the different consignees, any losses or damages caused with the said cargoes were
charged to the account of the union; and the union likewise imposed the penalty or fine to
any employee who caused or committed the damages to cargoes in transit. Other disciplinary
measures imposed on laborers performing the said work were exercised by the general foreman of the union
who has blanket authority from the union general manager to exercise disciplinary control over their members
who were assigned to perform the work in a group of laborers assigned by the union to perform loading or
141
unloading cargoes when a Compañia Maritima boat docked at Iligan City. The respondents have not at
any time interferred in the imposition of disciplinary action upon the laborers who are members of the union.
In one instance, under this situation, the president of the union himself dismissed one inefficient laborer
found to have been performing inefficient service at the time (t.s.n. pp. 17–18, February 15, 1961).
x x x x x x x
“13. Erring laborers and/or workers who are affiliates of the union were directly
responsible to the union and never to the respondent. Respondent cannot, therefore, discipline
and/ or dismiss these erring workers of the union.” (Italics supplied)
And in absolving MARITIMA of the unfair labor charge on this point, the court a
quo concluded:
“From the foregoing circumstances and findings, the Court is of the opinion that no
substantial evidence has been presented to sustain the charge of unfair labor practice acts
as alleged to have been committed by herein respondent. The Court finds no interference in the
union activities, if any, of the members of the Allied Free Workers Union as these persons engaged in the
stevedoring and arrastre service were employed by the Allied Free Workers Union as independent contractor
subject to the terms and conditions of their then’ existing laborcontract Exhibit ‘A'. To construe the
contract otherwise would tend to disregard the rights and privileges of the parties intended
by them in their contract. (Exhibit ‘A'). This Court believes that it may not interfere in the

142
implementation of the said labor contract in the absence of abuse by one party to the
prejudice of the other. x x x
“Further, the Court finds that the petitioner, aside from its labor contract (See Exhibit ‘A') with the
respondent Compañia Maritima also has other labor contracts with other shipping firms on the stevedoring
and arrastre work; and that this contract obligated the petitioner as an independent labor contractor to
undertake the arrastre and stevedoring service on Compañia Maritima boats docking at Iligan City
Port. The petitioner is an independent contractor as defined in the contract Exhibit ‘A' and
in the evidence submitted by the parties. ‘An independent contractor is one who, in
rendering services, exercises an independent employment or occupation and represents the
will of his employer only as to the results of his work and not as to the means whereby it is
accomplished; one who exercising an independent employment, contracts to do a piece of
work according to his own methods, without being subject to the control of his employer
except as to the result of his work; and who engaged to perform a certain service for
another, according to his own manner and methods, free from the control and direction of
his employer in all matters connected with the performance of the service except as to the
result of the work.’ (see 56 C.J.S. pp. 41–43; Cruz, et al. vs. Manila Hotel, et al., G.R. No.
L-9110, April 30, 1957). These factors were present in the relation of the parties as described in their
contract Exhibit ‘A'.
x x x x x x x
143
“In Viaña vs. Al Lagadan, et al., G.R. No. L-8967, May 31, 1956, the Supreme Court states
the rule as follows: “‘ln determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection and engagement of
the employees; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
control the employee’s conduct—although the latter is the most important element (35 Am.
Jur. 445). Assuming that the share received by the deceased could partake of the nature of
wages -—on which we need not and do not express our view—and that the second element,
therefore, exists in the case at bar, the record does not contain any specific data regarding
the third and fourth elements.’
“The clear implication of the decision of the Supreme Court is that if the defendant has no power of
control—which, according to the Supreme Court, is the ‘most important element’—there is no employer-
employee relationship.”(Italics supplied)
The conclusion thus reached by the court a quo is in full accord with the facts and the
applicable jurisprudence. We totally agree with the court a quo that AFWUwas an
independent contractor. And an independent contractor is not an “employee".17
Neither is there any direct employment relationship between MARITIMA and the
laborers. The latter have no separate individual contracts with MARITIMA. In fact, the
court a quo found that it was AFWU that hired them. Their only possible connection
with MARITIMA is through AFWUwhich contracted with the latter. Hence, they could
not possibly be in a better class than AFWU which dealt with MARITIMA.18
144
 In this connection, it is interesting to note that the facts as found by the court a
quo strongly indicate that it is AFWU itself who is the “employer” of those laborers. The
facts very succinctly show that it was AFWU, through its officers, which (1) selected and
hired the laborers, (2) paid their wages, (3) exercised control and supervision over them,
and (4) had the power to discipline and dismiss them. These are the very elements
constituting an employer-employee relationship.19
Of course there is no legal impediment for a union to be an “employer".20 Under the
particular facts of this case, however, AFWUappears to be more of a distinct and
completely autonomous business group or association. Its organizational structure and
operational system is no different from other commercial entities on the same line. It even
has its own bill collectors and trucking facilities. And that it really is engaged in business is
shown by the fact that it had arrastre and stevedoring contracts with other shipping firms
in Iligan City.
Now, in its all-out endeavor to make an “employer” out of MARITIMA, AFWU, citing
an impressive array of jurisprudence, even goes to the extent of insisting that it be
considered a mere “agent” of MARITIMA. Suffice it to say on this point that an agent can
not represent two conflicting interests that are diametrically opposed. And that the cases
sought to be relied upon did not involve representatives of opposing interests.
Anent the second point raised: AFWU claims that the court a quofound that acts of
interferences and discriminations were committed by MARITIMA against the former’s
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members simply for their union affiliation.21 However, nowhere in the 32-page decision of
the court a quo can any such finding be found. On the contrary, said court made the
following finding:
“18. There is no showing that this new union, the lligan Stevedoring Union, was organized with the help
of the branch manager Jose C. Teves. The organizer of the union like Messrs. Sergio Obach,
Labayos and Atty. Obach and their colleagues have never sought the intervention, help or
aid of the respondent Compañia Maritima or its branch manager Teves in the formation
and/or organization of the said Iligan Stevedoring Union. It appears that these people have
had previous knowledge and experience in handling stevedoring and in the arrastre service
prior to the employment of the Allied Free Workers Union in the Iligan port. The charge of
union interference and domination finds no support from the evidence” (Italics supplied)
More worthy of consideration is the suggestion that the termination of
the CONTRACT was in bad faith. First of all, contrary to AFWU’ssweeping statement, the
court a quo did not find that the termination of the CONTRACT was “in retaliation”
to AFWU’s demand for collective bargaining. On the contrary, the court a quo held
that MARITIMA’s authority to terminate the contract was rightfully exercised:
“21. The evidence does not show substantially any act of interference in the union membership or activities
of the petitioner union. The rescission of their contract is not a union interference contemplated in the law.
x x x x x x x
146
 “x x x Further, the Court is satisfied that there is no act or acts of discrimination as claimed by herein
petitioner to have been committed by the respondent firm or its branch manager Teves. Evidence is clear
that Teves, in representation of the principal, the respondent Compañia Maritima, has also
acted in good faith in implementing the provisions of their existent contract (Exhibit ‘A'),
and when he advised the union of the rescission of the said contract effective August 31,
1954, he did so in the concept that the employer firm may so terminate their contract
pursuant to paragraph 4 of Exhibit ‘A' which at the time was the law controlling between
them. x x x” (Italics supplied)
We are equally satisfied that the real reason for the termination of
the CONTRACT was AFWU’sinefficient service. The court a quodrew its conclusion from
the following findings:
“11. During the first month of the existence of the labor contract Exhibit ‘A', the petitioner
union rendered satisfactory service. Under this situation, the Compañia Maritima’s
representative at Iligan City was authorized to renew verbally with the extension of the
contract Exhibit ‘A' from month to month basis after the first month of its expiration. This
situation of harmony lasted up to the latter part of 1953 when the Compañia Maritima and its branch
manager agent complained to the union of the unsatisfactory service of the union laborers hired to load and
unload cargoes aboard Compañia Maritima boats. This deteriorating situation was admitted as a fact by
the union president (See Exhs. ‘3', ‘3-A' and ‘3-B'; See also t.s.n. pp, 65–66, August 9, 1960).

147
 “12. There was a showing that the laborers employed by the union were inefficient in performing their
jobs, and the business of the respondent company in Iligan City suffered adversely during the year 1954;
and this was due to the fact that respondents’ vessels were forced to leave cargoes behind in order not to
disrupt the schedule of departures. The union laborers were slow in loading and/or unloading freight from
which the respondent Compañia Maritima secured its income and/or profits. At times, cargoes were
left behind because of the union’s failure to load them before vessel’s departure. In order
to solve this inefficiency of the complaining union, the branch manager of the Compañia
Maritima was forced to hire extra laborers from among ‘stand-by’ workers not affiliated to
any union for the purpose of helping in the stevedoring and arrastre work on their vessels
because, at that time, the union was not performing and/or rendering efficient service in
the loading and unloading of cargoes. x x x
x x x x x x x
“14. Because of the deterioration of the service rendered to the respondent, the branch manager of the
respondent Compañia Maritima informed the union of its intention to rescind the contract Exhibit ‘A'
because the company had been suffering losses for such inefficient service. (See Exhibit ‘N').
Respondent Teves reported to the Maritima’s head office on the financial losses of the
company in its operations. (See Exhibits ‘Y', ‘Y-1' to ‘X-5').

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 “15. On August 24, 1954, branch manager Jose C. Teves of the Iligan City Maritima
Branch, wrote the petitioner union informing them of the termination of their contract,
Exhibit ‘A'. (See Exhibit ‘N'). This step was taken after the company found the union lagging behind
their work under the contract, so much so that Maritima boats have to leave on schedule without loading
cargoes already contracted to be transported” (Italics supplied)
Perhaps, AFWU might say that this right to terminate appearing in paragraph 4 of
the CONTRACT is contrary to law, morals, good customs, public order, or public
policy.22 However, it has not adduced any argument to demonstrate such point. Moreover,
there is authority to the effect that the insertion in a contract for personal services of a
resolutory condition permitting the cancellation of the contract by one of the contracting
parties is valid.23Neither would the termination constitute “unionbusting”. Oceanic Air
Products vs. CIR,24 cited by AFWU, is not in point. That case presupposes an employer-
employee relationship between the parties disputants—a basis absolutely wanting in this
case.
AFWU’s third point is again that MARITIMA’s act of terminating
the CONTRACT constituted union interference. As stated, the court a- quo found as a fact
that there is no sufficient evidence of union interference. And no reason or argument has
been advanced to show that the fact of said termination alone constituted union
interference.

149
THE CERTIFICATION ELECTION CASE
(L-22952* & L-22971 [CIR Case No. 175-MC])
In the certification election case, the court a quo directed the holding of a certification
election among the laborers then doing arrastre and stevedoring work. Both
MARITIMA and AFWU have appealed from that ruling. The latter maintains that the
lower court should have directly certified it as the majority union, entitled to represent all the
workers in the arrastre and stevedoring work unit, whereas MARITIMA contends that said
court could not even have correctly ordered a certification election considering that there
was an absence of employer-employee relationship between it and said laborers.
There is no question that certification election could not have been proper during the
existence of the CONTRACT in view of the court a quo’s finding that there was no
employment relationship thereunder between the parties. But after the termination of
the CONTRACT on August 31, 1954, what was the nature of the relationship
between MARITIMAand the laborers-members of AFWU?
From the finding that after the rescission of the CONTRACT, MARITIMA continued
to avail of the services of AFWU, the court a quo concluded that there came about an
implied employer-employee relationship between the parties. This conclusion cannot be
sustained.

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 First of all, it is contradicted by the established facts. In its findings of fact, the court a
quo observed that after the rescission, the AFWUlaborers continued working in
accordance” with’ the “cabo” system, which was the prevailing custom in the place. Said the court:
“20. After the rescission of the contract Exhibit ‘A' on August 31, 1954, the Allied Free Workers
Union and its members were working or performing the work of arrastre and stevedoring service aboard
‘vessels of the Compañia Maritima docking at Iligan City port under the ‘cabo system’ then prevailing in
that territory; and the customs and conditions then prevailing were observed by the parties
without resorting to the conditions of the former labor contract Exhibit ‘A'. (Italics
supplied)
Under the “Cabo” system, the union was an independent contractor. This is shown by the
court a quo’sown finding that prior to
the CONTRACT between MARITIMAand AFWU, the former had an oral arrastre and
stevedoring agreement with another union. This agreement was also based on the “cabo”
system. As found by the court a quo:
“4.That prior to the execution of Exhibit ‘A', the arrastre and stevedoring work was
performed by the Iligan Wharf Laborers Union headed by one Raymundo Labayos
under a verbal agreement similar to the nature and contents of Exhibit ‘A'; and this
work continued from 1949 to 1952.

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“5.Under the oral contract, the Iligan Laborers Union acting as an independent labor contractor
engaged[in] the services of its members as laborers to perform the contract work of arrastre and
stevedoring service aboard vessels of the Compañia Maritima calling and docking at Iligan City; and
for the services therein rendered the union charged shippers and/or consignees in accordance with the
consignment or place, and the proceeds thereof shall be shared by the union members in accordance
with the union’s internal rules and regulations. This system of work is locally known as the ‘cabo
system’. The laborers who are members of the union and hired for the arrastre and stevedoring work
were paid on union payrolls and the Compañia Maritima has had nothing to do with the preparation
of the same.
“6.Because of unsatisfactory service rendered by the Iligan Wharf Labor Union
headed by Labayos, the Compañia Maritima through its agent in Iligan City cancelled
their oral contract and entered into a new contract, Exhibit ‘A' with the Allied Free
Workers Union (PLUM) now petitioner in this case. The terms and conditions of the same
continued and was similar to the oral contract entered into with the union headed by Labayos. x x x
“7.The cancellation of the oral contract with the Iligan Wharf Labor Union headed
by Laba os was due to the inefficient service rendered by the said union. The labor
contract entered into by the petitioner herein (Exh. ‘A') was negotiated through the
intervention of Messrs. Salvador Lluch, Mariano Ll. Badelles, Laurentino Ll. Badelles,

152
 Nicanor T. Halivas and Raymundo Labayos. The contract was prepared by their legal panel
and after several negotiations, respondent Teves reluctantly signed the said written contract with the
union with the assurance however that the same arrangement previously had with the former union
regarding the performance and execution of the arrastre and stevedoring contract be followed in
accordance with the custom of such kind of work at Iligan City. The petitioner union, operated
as a labor contractor under the so-called ‘cabo’ system; x x x” (Italics supplied)
From the above findings, it is evident that, insofar as the working arrangement was
concerned, there was no real difference between the CONTRACT and the prior oral
agreement. Both were based on the “cabo” system. Under both, (1) the union was an
independent contractor which engaged the services of its members as laborers; (2) the
charges against the consignees and owners of cargoes were made directly by the union; and
(3) the laborers were paid on union payrolls and MARITIMA had nothing to do with the
preparation of the same. These are the principal characteristics of the “cabo” system on
which the parties based their relationship after the termination of the CONTRACT.
Hence, since the parties observed the “cabo” system after the rescission of
the CONTRACT,and since the characteristics of said system show that the contracting
union was an independent contractor, it is reasonable to assume that AFWU continued
being an independent contractor of MARITIMA. And, being an independent contractor,

153
it could not qualify as an “employee”. With more reason would be true with respect to the
laborers.
Moreover, there is no evidence at all regarding the characteristics of the working
arrangement between AFWU and MARITIMA after the termination of
the CONTRACT. All we have to go on is the court a quo’sfinding that the “cabo” system
was observed—a system that negatives employment relationship. The four elements generally
regarded as indicating the employer-employee relationship—or at the very least, the
element of “contror”—must be shown to sustain the conclusion that there came about
such relationship. The lack of such a showing in the case at bar is fatal
to AFWU’s contention.
Lastly, to uphold the court a quo’s conclusion would be tantamount to the imposition of
an employer-employee relationship against the will of MARITIMA.This cannot be done,
since it would violate MARITIMA’s exclusive prerogative to determine whether it should
enter into an employment contract or not, i.e., whether it should hire others or
not.25 In Pampanga Bus Co. vs. Pambusco Employees’ Union,26 We said:
“x x x The general right to make a contract in relation to one’s business is an essential part
of the liberty of the citizens protected by the due process clause of the constitution. The
right of a laborer to sell his labor to such person as he may choose is, in its essence, the same as the right of
an employer to purchase labor from any person whom it chooses. The employer and the employee
have thus an equality of right guaranteed by the constitution. ‘If the employer can compel the
154
employee to work against the latter’s will, this is servitude. If the employee can compel the employer to give
him work against the employer’s will, this is oppression.’ " " (Italics supplied)
Therefore, even if the AFWUlaborers continued to perform arrastre and stevedoring work
after August 31, 1954, it cannot be correctly concluded—as did the court a quo—that an
employer-employee relationship—even impliedly at that—arose when before there never
had been any. Indeed, it would appeal unreasonable and unjust to force such a relationship
upon MARITIMA when it had clearly and continuously manifested its intention not to
have any more business relationship whatsoever with AFWU because of its inefficient
service. It was only to comply with injunctions and other judicial mandates
that MARITIMAcontinued to abide by the statusquo, extending in fact and in effect the
operation of the MARITIMAAFWU contract.
The only remaining question now is whether, in the particular context of what We have
said, the lower court’s ruling ordering a certification election can be sustained. As already
stated, the duty to bargain collectively exists only between the “employer” and its
“employees”. However, the actual negotiations—which may possibly culminate in a
concrete collective bargaining contract—are carried on between the “employer” itself and
the official representativeof the “employees"27—in most cases, the majority labor union. Since
the only function of a certification election is to determine, with judicial sanction, who this
official representative or spokesman of the “employees” will be,28 the order for certification
election in question cannot be sustained. There being no employeremployee relationship
155
between the parties disputants, there is neither a “duty to bargain collectively” to speak of.
And there being no such duty, to hold certification elections would be pointless. There is
no reason to select a representative to negotiate when there can be no negotiations in the
first place. We therefore hold that where—as in this case—there is no duty to bargain
collectively, it is not proper to hold certification elections in connection therewith.
The court a quo’s objective in imposing the employeremployee relationship may have
been to do away with the “cabo” system which, although not illegal, is in its operation
regarded as disadvantageous to the laborers and stevedores. The rule however remains that
the end cannot justify the means. For an action to be sanctioned by the courts, the purpose
must not only be good but the means undertaken must also be lawful.
A true and sincere concern for the welfare of AFWU members-laborers would call for
reforms within AFWU itself, if the evil of the so-called “cabo” system is to be eliminated.
As We suggested in Bermiso vs. Hijos de Escaño,29 the remedy against the “cabo” system need
not be sought in the courts but in the laborers themselves who should organize into a
closely-knit union “which would secure the privileges that the members desire thru the
election of officers among themselves who would not exploit them.”
Wherefore, the appealed decision of the Court of Industrial Relations is hereby affirmed
insofar as it dismissed the charge of unfair labor practice in CIR Case 426-ULP, but
reversed and set aside insofar as it ordered the holding of a certification election in CIR

156
Case No. 175-MC, and the petition for certification in said case should be, as it is hereby,
dismissed. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L, Dizon, Regala, Makalintal, Zaldivar, Sanchez and Castro,
JJ.,concur.
Decision modified.

[No. L-7144. May 31, 1955]

FAR EASTERN EXPORT & IMPORT Co., petitioner, vs. LIM TECK SUAN,
respondent.
1.PURCHASE AND SALE; WHEN TRANSACTION NOT AN AGENCY OR
BROKERAGE.—Where the agreement speaks of the items (merchandise) therein
involved as sold and the sale was even confirmed by the export company, the agents
U. T. Co. and the export company dealt directly with local merchants V. and S.
without expressly indicating or revealing their principals, there was no privity of
contract between the buyers S. and V. and the suppliers F. I. C. and A. J. W. C.,
respectively, no commission or monetary consideration was paid or agreed to be paid
by the buyers to the export company and the U. T. Co., proof that there was no agency
or brokerage and that the profit of the latter undoubtedly the difference between the
157
 price listed to the buyers and the net special price quoted to the sellers, by the
suppliers. Held; that the transaction entered into is one of purchase and sale.
2.PRINCIPAL AND AGENT; AGENT OF FOREIGN COMPANY MAY NOT
ACT AS AGENT OF LOCAL BUYERS.—Where a foreign company has an agent
here selling its goods and merchandise, that same agent could not very well act as
agent for local buyers, because the interests of his foreign principal and those of the
buyers would be in direct conflict. He could not serve two masters at the same time.
(The doctrine in Gonzalo Puyat & Sons, Inc., vs. Arco Amusement, 72 Phil. 402,
reiterated.)
PETITION for review by certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Juan Nabong and Crisolito Pascual for petitioner.
Jose P. Laurel, Marciano Almario and Jose T. Lojom for respondent.
MONTEMAYOR, J.:
This is a petition for certiorari to review a decision of the Court of Appeals dated September
25, 1953, reversing the decision of the Court of First Instance of Manila, and sentencing
the defendant-petitioner Far Eastern Export & Import Co. later referred to as export

158
company, to pay the plaintiff-respondent Lim Teck Suan later to be referred to as Suan, the
sum of P11,476.60, with legal interest from the date of the filing of the complaint and to
pay the costs.
As to the facts and the issue in the case we are reproducing the findings of the Court of
Appeals, which findings are binding on this Tribunal in case of similar appeals:
"Sometime in November, 1948, Ignacio Delizalde, an agent of the Far Eastern Export &
Import Company, went to the store of Lim Teck Suan situated at 267 San Vicente Street,
Manila, and offered to sell textile, showing samples thereof, and having arrived at an
agreement with Bernardo Lim, the General Manager of Lim Teck Suan, Delizalde returned
on November 17 with the buyer's order, Exhibit A, already prepared which reads:
FAR EASTERN EXPORT &
IMPORT COMPANY
75 Escolta 2nd Floor Brias Roxas Bldg.,
Manila
Ship to LIM TECK Date
SUAN Written
11/17/48
475 Nueva St., Your No.
Manila

159
 Our No.
276
I hereby commission you to procure for me the following merchandise, subject to the terms
and conditions listed below:
Quantity Unit Particulars Amount
10,000— yds Ashtone
Acetate &
Rayon—
No. 13472
Width:
41/42
inches;
Weight: Ap
proximately
8 oz. per
yd; Ten
(10)
colors,
buyers
choice, as
160
Quantity Unit Particulars Amount
per
attached
samples,
equally
assorted; at
$1.13
per yard $11,500.00
F.A.S. New
York U. S
Item herein sold
are FOB—FAS
X C. & F
CIF
TERMS AND CONDITIONS
Acceptance
This Buyer's Order is subject to confirmation by the exporter.

161
' Shipment
Period of Shipment is to be within December. Bank Documents should be for a line of 45
days to allow for presentation and payment against "ON BOARD" bills of lading. Partial
shipments permitted.
Payment
Payment will be by "Confirmed Irrevocable Letter of Credit" to be opened in favor of
Frenkel International Corporation, 52 Broadway, New York, 4, N.Y.
for the full amount of the above cost of merchandise plus (approximately) for export
packing: insurance, freight, documentation, forwarding, etc. which are for the buyers
accounts, IMMEDIATELY upon written Confirmation. Our Guarantee In case shipment
is not effected, seller agrees to reimburse buyer for all banking expenses.
Signed Nov.
........................................................ 17,
1948
Authorized official

Confirmed
Accepted (Sgd.) Illegible Date Nov. 1948 to be signed by our representative upon
confirmation.
162
 "In accordance with said Exhibit A, plaintiff established a letter of credit No. 6390
(Exhibit B) in favor of Frenkel International Corporation through the Hongkong and
Shanghai Banking Corporation, attached to the agreed statement of facts. On February 11,
1949, the textile arrived at Manila on board the vessel M.S. Arnold Maersk, covered by bill
of lading No. 125 (Exhibit C), Invoice No. 1684-M (Exhibit D) issued by Frenkel
International Corporation direct to the plaintiff. The plaintiff complained to the defendant
of the inferior quality of the textile received by him and had them examined by Marine
Surveyor Del Pan & Company. Said surveyor took swatches of the textile and had the same
analyzed by the Institute of Science (Exhibit E—1) and submitted a report of survey under
date of April 9, 1949 (Exhibit E). Upon instructions of the defendants plaintiff deposited
the goods with the United Warehouse Corporation (Exhibits H, H-1 to H-6. As per
suggestion of the Far Eastern Export and Import Company contained in its letter dated
June 16, 1949, plaintiff withdrew from the United Bonded Warehouse, Port Area, Manila,
the fifteen cases of Ashtone Acetate and Rayon Suiting for the purpose of offering them
for sale which netted P11,907.30. Deducting this amount from the sum of P23,686.96
which included the amount paid by plaintiff for said textile and the warehouse expenses, a
difference of P11,476.66 is left, representing the net direct loss.
"The defense set up is that the Far Eastern Export and Import Company only acted as a
broker in this transaction; that after placing the order the defendants took no further action
and the cargo was taken directly by the buyer Lim Teck Suan, the shipment having been
163
made to him and all the documents were also handled by him directly without any
intervention on the part of the defendants; that upon receipt of Lim Teck Suan's complaint
the defendants passed it to its principal, Frenkel International Corporation, for comment,
and the latter maintained that the merchandise was up to standard called for.
"The lower court acquitted the defendants from the complaint asking for damages in the
sum of P19,500.00 representing the difference in price between the textile ordered and
those received, plus profits unrealized and the cost of this suit, and dismissed the
counterclaim filed by the defendants without pronouncement as to costs."
As already stated, the Court of Appeals reversed the judgment entered by the Court of First
Instance of Manila, basing its decision of reversal on the case of Jose Velasco, vs. Universal
Trading Co., Inc., 45 Off. Gaz. 4504 where the transaction therein involved was found by
the court to be one of purchase and sale and not of brokerage or agency. We have carefully
examined the Velasco case and we agree with the Court of Appeals that the facts in that
case are very similar to those in the present case. In the case of Velasco, we have the
following statement by the court itself which we reproduced below:
"Prior to November 8, 1945 a salesman or agent of the Universal Trading Co., Inc.
informed Jose Velasco, Jr. that his company was in a position to accept and fill in orders
for Panamanian Agewood Bourbon Whisky because there were several thousand cases of
this article ready for shipment to the company by its principal office in America. Acting
upon this offer and representation Velasco went to the Universal Trading Co., Inc., and
164
after a conversation with the latter's official entered into an agreement couched in the
following terms:
'Agreement is hereby made between Messrs. Jose Velasco, Jr., 340 Echague, Manila, and
the Universal Trading Company, Manila, for order as follows and under the following
terms:
Quantity Merchan Unit. Unit Amount
dise and Price
Description
100 Panamanian Agewood Bourbon
Whisky Case $17.00 __$1,700
.....................................
Total amount of order $1,700
.....................................
Terms of Agreement:
1. '1.That the Universal Trading Company agrees to order the above merchandise from
their Los Angeles Office at the price quoted above, C.I.F. Manila, for December
shipment;
2. '2.That Messrs. Jose Velasco, Jr., 340 Echague, Manila, obligates myself/themselves
to take the above merchandise when advised of its arrival from the United States and
165
 to pay in cash the full amount of the order in Philippine Currency at the office of the
Universal Trading Company;
3. '3.This order may be subject to delay because of uncertain shipping conditions. War
risk insurance, transhipping charges, if any, port charges, and any storage that may be
incurred due to your not taking delivery of the order upon being notified by us that
the order is ready for delivery, and government taxes, are all for your account;
4. '4.The terms of this agreement will be either of the following:
1. 'a.To open up irrevocable letter of credit for the value of the order with any of the
local banks, or thru bills of lading payable to A. J. Wilson Company, 1263 South North
Avenue, Los Angeles, Calif ornia;
2. 'b.To put up a cash deposit equivalent to 50% of the order;
1. '5.Reasonable substitute, whenever possible, will be shipped in lieu of items called for,
if order is not available.'
"Accordingly, Velasco deposited with the defendant the sum of $1,700 which is 50% of
the price of the whisky pursuant to agreement made, instead of 'to open up irrevocable
letter of credit for the value of the order with any of the local banks, or through bills of
lading payable to A. J. Wilson Company.' On November 6, 1945, the same date that the
contract or agreement, Exhibit A, was signed an invoice under the name of the Universal
166
Trading Co., Inc. was issued to Velasco for the 100 cases of Panamanian Agewood Bourbon
Whisky for the price of $1,700 which invoice manifested that the article was sold to Jose
Velasco, Jr. On January 15, 1946 another invoice was issued containing besides the list price
of $1,700 or P3,400, a statement of bank charges, customs duties, internal revenue taxes,
etc., giving a total amount of P5,690.10 which after deducting the deposit of $1,700, gives
a balance of P3,990.01.
"On January 25, 1946 the Universal Trading Co., Inc. wrote Exhibit 4 to Mr. Velasco
advising him that the S.S. Manoeran had docked and that they would appreciate it if he
would pay the amount of P3,990.10 direct to them. It turned out, however, that after the
ship arrived, what the Universal Trading Co., Inc. tried to deliver to Velasco was not
Panamanian Agewood Bourbon Whisky but Panamanian Agewood Blended Whisky.
Velasco refused to receive the shipment and in turn filed action against the defendant for
the return of his deposit of $1,700 with interest. For its defense, defendant contends that it
merely acted as agent for Velasco and could not be held responsible for the substitution of
Blended Whisky for Bourbon Whisky and that furthermore the Blended Whisky was a
reasonable substitute for Bourbon. After due hearing the Court of First Instance of Manila
held that the transaction was purchase and sale and ordered the defendant to refund to the
plaintiff his deposit of P1,700 with legal interest from the date of the filing of the suit with
costs, which decision on appeal was affirmed by this Court."

167
We notice the following similarities. In the present case, the export company acted as agent
for Frenkel International Corporation, presumably the supplier of the textile sold. In the
Velasco case, the Universal Trading Co., was acting as agent for A. J. Wilson Company,
also the supplier of the whisky sold. In the present case, Suan according to the first part of
the agreement is said merely to be commissioning the Export Company to procure for him
the merchandise in question, just as in the other case, Velasco was supposed to be ordering
the whisky thru the Universal Trading Co. In the present case, the price of the merchandise
bought was paid for by Suan by means of an irrevocable letter of credit opened in favor of
the supplier, Frenkel International Corporation. In the Velasco case, Velasco was given the
choice of either opening a similar irrevocable letter of credit in favor of the supplier A. J.
Wilson Company or making a cash deposit. It is true that in the Velasco case, upon the
arrival of the whisky and because it did not conform to specifications, Velasco refused to
receive it; but in the present case although Suan received the merchandise he immediately
protested its poor quality and it was deposited in the warehouse and later withdrawn and
sold for the best price possible, all at the suggestion of the Export company. The present
case is in our opinion a stronger one than that of Velasco for holding the transaction as one
of purchase and sale because as may be noticed from the agreement (Exhibit "A"), the same
speaks of the items (merchandise) therein involved as sold, and the sale was even confirmed
by the Export company. In both cases, the agents Universal Trading Co. and the export
company dealt directly with the local merchants Velasco and Suan without expressly
168
indicating or revealing their principals. In both cases there was no privity of contract
between the buyers—Suan and Velasco and the suppliers Frenkel International
Corporation and A. J. Wilson Company, respectively. In both cases no commission or
monetary consideration was paid or agreed to be paid by the buyers to the Export company
and the Universal Trading Co., proof that there was no agency or brokerage, and that the
profit of the latter was undoutedly the difference between the price listed to the buyers and
the net or special price quoted to the sellers, by the suppliers. As already stated, it was held
in the Velasco case that the transaction therein entered into was one of purchase and sale,
and for the same reasons given there, we agree with the Court of Appeals that the
transaction entered into here is one of purchase and sale.
As was held by this Tribunal in the case of Gonzalo Puyat & Sons Incorporated vs. Arco
Amusement, 72 Phil. 402, where a foreign company has an agent here selling its goods and
merchandise, that same agent could not very well act as agent for local buyers, because the
interests of his foreign principal and those of the buyer would be in direct conflict. He
could not serve two masters at the same time. In the present case, the Export company
being an agent of Frenkel International Corporation could not, as it claims, have acted as
an agent or broker for Suan.
Finding no reversible error in the decision appealed from, the same is hereby affirmed,
with costs.
Pablo, Bengzon, Reyes, A., Bautista Angelo, Labrador,Concepcion, and Reyes, J. B. L., JJ.,concur.
169
 Decision affirmed.

No. L-21601. December 28, 1968.

NIELSON & COMPANY, INC., plaintiff-appellant, vs. LEPANTO CONSOLIDATED
MINING COMPANY, defendant-appellee.
Pleading and practice; Appeal; Change of theory on appeal not allowable.—It is the rule, and the
settled doctrine, that a party cannot change his theory on appeal—that is, that a party cannot
raise in the appellate court any question of law or of fact that was not raised in the court
below or which was not within the issue made by the parties in their pleadings (Sec. 19,
Rule 49, old Rules of Court; Sec. 18 of Revised Rules of Court; Hautea v. Magallon, L-
20345, Nov. 28, 1964; Northern Motors, Inc. v.Prince Line, L-13884, Feb. 29, 1960;
American Express Co. v. Natividad, 46 Phil. 207; Agoncillo v. Javier, 38 Phil. 424;
Molina v. Somes, 24 Phil. 49).
Civil Law; Contracts; "Agency" and "lease of service" compared and distinguished.—In both agency
and lease of services one of the parties binds himself to render some service to the other
party. Agency, however, is distinguished from lease of work or services in that the basis of
agency is representation, while in the lease of work or services the basis is employment. The
lessor of services does not represent his employer, while the agent represents his principal.

170
Agency is a preparatory contract, as agency "does not stop with the agency because the
purpose is to enter into other contracts." The most characteristic feature of an agency
relationship is the agent's power to bring about business relations between his principal and
third persons. "The agent is destined to execute juridical acts (creation, modification or
extinction of relations with .third parties). Lease of services contemplate only material (non-
juridical) acts." (Reyes & Puno, An Outline of Philippine Civil Law, Vol. V, p. 277).
Same; Obligations and contracts; Moratorium law; Republic Act No. 342 not applicable to debts
contracted during the war.—Republic Act No. 342 does not apply to debts contracted during
the war and did not lift the moratorium in relation thereto (Uy v.Kalaw Katigbak, L-1830,
Dec. 31, 1949; Sison v. Mirasol, L-4711, Oct. 3, 1952; Compañia Maritima v. Court of
Appeals, L-14949, May 30, 1960). Said Rep. Act No. 342, however, modified Executive
Order No. 32 as to pre-war debts, making the protection available only to debtors who had
war damage claims (Sison v. Mirasol, L-4711, Oct. 3, 1952, cited in Abraham, et
al. v.Intestate Estate of Ysmael, et al., L-16741, Jan. 31, 1962).
Corporation law; Shares of stock; Consideration for which shares of stock may be issued; A share of
stock coming from stock dividends declared cannot be issued to one who is not a stockholder of a
corporation.—From the provision of Section 16 of the Corporation Law, the consideration
for which shares of stock may be issued are: (1) cash; (2) property; and (3) undistributed
profits. Shares of stock are given the special name "stock dividends" only if they are issued
in lieu of undistributed profits. If shares of stocks are issued in exchange of cash or property
171
then those shares do not fall under the category of "stock dividends". A corporation may
legally issue shares of stock in consideration of services rendered to it by a person not a
stockholder, or in payment of its indebtedness. It is the shares of stock ,that are originally
issued by the corporation and forming part of the capital that can be exchanged for cash or
services rendered, or property; that is, if the corporation has original shares of stock unsold
or unsubscribed, either coming from the original capitalization or f rom the increased
capitalization. Those shares of stock may be issued to a person who is not a stockholder,
or to a person already a stockholder in exchange for services rendered or for cash or
property. But a share of stock coming from stock dividends declared cannot be issued to
one who is not a stockholder of a corporation.
Under Section 16 of the Corporation Law stock dividends can not be issued to a person
who is not a stockholder in payment of services rendered.
Same; "Stock dividend"; "Dividend"; Concept and nature.—A "stock dividend" is any dividend
payable in shares of stock of the corporation declaring or authorizing such dividend. It is,
as what the term itself implies, a distribution of the shares of stock of the corporation
among the stockholders as dividends. A stock dividend of a corporation is a dividend paid
in shares of stock instead of cash, and is properly payable only out of surplus profits (Sec.
16, Corporation Law). So, a stock dividend is actually two things: (1) a dividend, and (2) the
enforced use of the dividend money to purchase additional shares of stock at par. (Words
and Phrases, p. 270). When a corporation issues stock dividends, it shows that the
172
corporation's accumulated profits have been capitalized instead of distributed to the
stockholders or retained as surplus available f or distribution, in money or kind, should
opportunity offer. Far from being a realization of profits for the stockholder, it tends rather
,to postpone said realization, in ,that the fund represented by the new stock has been
transferred from surplus to assets and no longer available for actual distribution
(Fisher v. Trinidad, 43 Phil. 973). Thus, it is apparent that stock dividends are issued only
to stockholders. This is so because only stockholders are entitled to dividends. They are the
only ones who have a right to a proportional share in that part of the surplus which is
declared as dividends. A stock dividend really adds nothing to the interest of the
stockholder; the proportional interest of each stockholder remains the same
(Towne v. Eisner, 62 L. Ed. 372). If a stockholder is deprived of his stock dividends—and
this happens if the shares of stock f orming part of the stock dividends are issued to a
nonstockholder—then the proportion of the stockholder's interest changes radically. Stock
dividends are civil fruits of the original investment, and to the owners of the shares belong
the civil fruits (Art. 441, Civil Code). The term "dividend" both in the technical sense and
its ordinary acceptation, is that part or portion of the profits of the enterprise which the
corporation, by its governing agents, sets apart for ratable division among the holders of
the capital stock. It means the fund actually set aside, and declared by the directors of the
corporation as a dividend, and duly ordered by the directory, or by the stockholders, at a

173
corporate meeting, to be divided or distributed among the stockholders according to their
respective interests (7 Thompson on Corporations 134135).
MOTION FOR RECONSIDERATION of a Supreme Court decision.
The facts are stated in the resolution of the Court.
RESOLUTION*
ZALDIVAR, J.:
Lepanto seeks the reconsideration of the decision rendered on December 17, 1966. The
motion for reconsideration is based on two sets of grounds—the first set consisting of four
principal grounds, and the second set consisting of five alternative grounds, as follows:
Principal Grounds:
1.The court erred in overlooking and failing to apply the proper law applicable to the
agency or management contract in question, namely, Article 1733 of the Old Civil
Code (Article 1920 of the new), by virtue of which said agency was effectively revoked
and terminated in 1945 when, as stated in paragraph 20 of the complaint, "defendant
voluntarily x x x prevented plaintiff from resuming management and operation of said
mining properties."

174
2.The court erred in holding that paragraph II of the management contract (Exhibit
C) suspended the period of said contract.
3.The court erred in reversing the ruling of the trial judge, based on well-settled
jurisprudence of this Supreme Court, that the management agreement was only
suspended but not extended on account of the war.
4.The court erred in reversing the finding of the trial judge that Nielson's action had
prescribed, but considering only the first claim and ignoring the prescriptibility of the
other claims.
Alternative Grounds:
5.The court erred in holding that the period of suspension of the contract on account
of the war lasted from February 1942 to June 26, 1948.
6.Assuming arguendo that Nielson is entitled to any relief, the court erred in awarding
as damages (a) 10% of the cash dividends declared and paid in December, 1941; (b)
.the management fee of P2,500.00 for the month of January, 1942; and (c) the full
contract price for the extended period of sixty months, since these damages were

175
 neither demanded nor proved and, in any case, not allowable under the general law of
damages.
7.Assuming arguendo that appellant is entitled to any relief, the court erred in ordering
appellee to issue and deliver to appellant shares of stock together with fruits thereof.
8.The court erred in awarding to appellant an undetermined amount of shares of stock
and/or cash, which award cannot be ascertained and executed without further
litigation.
9.The court erred in rendering judgment for attorney's fees.
We are going to dwell on these grounds in the order they are presented.
1. In its first principal ground Lepanto claims that its own counsel and this Court had
overlooked the real nature of the management contract entered into by and between
Lepanto and Nielson, and the law that is applicable on said contract. Lepanto now asserts
for the first time—and this is done in a motion for reconsideration—that the management
contract in question is a contract of agency such that it has the right to revoke and terminate
the said contract, as it did terminate the same, under the law of agency, and particularly
pursuant to Article 1733 of the Old Civil Code (Article 1920 of the New Civil Code).

176
 We have taken note that Lepanto is advancing a new theory. We have carefully examined
the pleadings filed by Lepanto in the lower court, its memorandum and its brief on appeal,
and never did it assert the theory that it has the right to terminate the management contract
because that contract is one of agency which it could terminate at will. While it is true that
in its ninth and tenth special affirmative defenses, in its answer in the court below, Lepanto
pleaded that it had the right to terminate the management contract in question, that plea of
its right to terminate was not based upon the ground that the relation between Lepanto and
Nielson was that of principal and agent but upon the ground that Nielson had allegedly not
complied with certain terms of the management contract. If Lepanto had thought of
considering the management contract as one of agency it could have amended its answer
by stating exactly its position. It could have asserted its theory of agency in its memorandum
for the lower court and in its brief on appeal. This, Lepanto did not do. It is the rule, and
the settled doctrine of this Court, that a party cannot change his theory on appeal—that is,
that a party cannot raise in the appellate court any question of law or of fact that was not
raised in the court below or which was not within the issue made by the parties in their
pleadings (Section 19, Rule 49 of the old Rules of Court, and also Section 18 of the new
Rules of Court; Hautea vs. Magallon, L-20345, November 28, 1964; Northern Motors, Inc.
vs. Prince Line, L-13884, February 29, 1960; American Express Co. vs. Natividad, 46 Phil.
207; Agoncillo vs. Javier, 38 Phil. 424 and Molina vs. Somes, 24 Phil 49).

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 At any rate, even if we allow Lepanto to assert its new theory at this very late stage of the
proceedings, this Court cannot sustain the same.
Lepanto contends that the management contract in question (Exhibit C) is one of agency
because: (1) Nielson was to manage and operate the mining properties and mill on behalf,
and for the account, of Lepanto; and (2) Nielson was authorized to represent Lepanto in
entering, on Lepanto's behalf, into contracts for the hiring of laborers, purchase of supplies,
and the sale and marketing of the ores mined. All these, Lepanto claims, show that Nielson
was, by the terms of the contract, destined to execute juridical acts not on its own behalf
but on behalf of Lepanto under the control of the Board of Directors of Lepanto "at all
times". Hence Lepanto claims that the contract is one of agency. Lepanto then maintains
that an agency is revocable at the will of the principal (Article 1733 of the Old Civil Code),
regardless of any term or period stipulated in the contract, and it was in pursuance of that
right that Lepanto terminated the contract in 1945 when it took over and assumed exclusive
management of the work previously entrusted to Nielson under the contract. Lepanto
finally maintains that Nielson as an agent is not entitled to damages since the law gives to
the principal the right to terminate the agency at will.
Because of Lepanto's new theory We consider it necessary to determine the nature of the
management contract—whether it is a contract of agency or a contract of lease of services.
Incidentally, we have noted that the lower court, in the decision appealed from, considered
the management contract as a contract of Iease of services.
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 Article 1709 of the Old Civil Code, defining contract of agency, provides:
"By the contract of agency, one person binds himself to render some service or do
something for the account or at the request of another."
Article 1544, defining contract of lease of service, provides:
"In a lease of work or services, one of the parties binds himself to make or construct
something or to render a service to the other for a price certain."
In both agency and lease of services one of the parties binds himself to render some service
to the other party. Agency, however, is distinguished from lease of work or services in that
the basis of agency is representation, while in the lease of work or services the basis is
employment. The lessor of services does not represent his employer, while the agent
represents his principal. Manresa, in his "Commentarios al Codigo Civil Español" (1931,
Tomo IX, pp. 372-373), points out that the element of representation distinguishes agency
from lease of services, as follows:
" "Nuestro art. 1.709 como el art. 1.984 del Código de Napoleón y cuantos textos legales
citamos en las concordancias, expresan claramente esta idea de la representación, 'hacer alguna
cosa por cuenta o encargo de otra' dice nuestro Código; 'poder de hacer alguna cosa para
el mandante o en su nombre' dice el Código de Napoleón, y en tales palabras aparece vivo
y luminoso el concepto y la teoria de la representación, tan fecunda en enseñanzas, que a
su sola luz es como se explican las diferencias que separan el mandato del arrendamiento
de servicios, de los contratos inominados, del consejo y de !a gestión de negocios.
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 "En efecto, en el arrendamiento de servicios al obligarse para su ejecución, se trabaja, en
verdad, para el dueño que remunera la labor, pero ni se le representa ni se obra en su
nombre x x x."
On the basis of the interpretation of Article 1709 of the old Civil Code, Article 1868 of the
new Civil Code has defined the contract of agency in more explicit terms, as follows:
"By the contract of agency a person binds himself to render some service or' to do
something in representation or on behalf of another, with the consent or authority of the latter."
There is another obvious distinction between agency and lease of services. Agency is a
preparatory contract, as agency "does not stop with the agency because the purpose is to
enter into other contracts." The most characteristic feature of an agency relationship is the
agent's power to bring about business relations between his principal and third persons.
"The agent is destined to execute juridical acts (creation, modification or extinction of
relations with third parties). Lease of services contemplate only material (non-juridical)
acts." (Reyes and Puno, "An Outline of Philippine Civil Law," Vol. V, p. 277).
In the light of the interpretations we have mentioned in the foregoing paragraphs, let us
now determine the nature of the management contract in question. Under the contract,
Nielson had agreed, for a period of five years, with the right to renew for a like period, to
explore, develop and operate the mining claims of Lepanto, and to mine, or mine and mill,
such pay ore as may be found therein and to market the metallic products recovered
therefrom which may prove to be marketable, as well as to render for Lepanto other
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services specified in the contract. We gather from the contract that the work undertaken by
Nielson was to take complete charge, subject at all times to the general control of the Board
of Directors of Lepanto, of the exploration and development of the mining claims, of the
hiring of a sufficient and competent staff and of sufficient and capable laborers, of the
prospecting and development of the mine, of the erection and operation of the mill, and of
the beneficiation and marketing of the minerals found on the mining properties; and in
carrying out said obligation Nielson should proceed diligently and in accordance with the
best mining practice. In connection with its work Nielson was to submit reports, maps,
plans and recommendations with respect to the operation and development of the mining
properties, make recommendations and plans on the erection or enlargement of any
existing mill, dispatch mining engineers and technicians to the mining properties as from
time to time may reasonably be required to investigate and make recommendations without
cost or expense to Lepanto. Nielson was also to "act as purchasing agent of supplies.
equipment and other necessary purchases by Lepanto, provided, however, that no purchase
shall be made without the prior approval of Lepanto; and provided further, that no
commission shall be claimed or retained by Nielson on such purchase"; and "to submit all
requisition for supplies, all contracts and arrangement with engineers, and staff and all
matters requiring the expenditures of money, present or future, for prior approval by
Lepanto; and also to make contracts subject to the prior approval of Lepanto for the sale

181
and marketing of the minerals mined from said properties, when said products are in a
suitable condition for marketing."1
It thus appears that the principal and paramount undertaking of Nielson under the
management contract was the operation and development of the mine and the operation
of the mill. All the other undertakings mentioned in the contract are necessary or incidental
to the principal under-taking—these other undertakings being dependent upon the work
on the development of the mine and the operation of the mill. In the performance of this
principal undertaking Nielson was not in any way executing juridical acts for Lepanto,
destined to create, modify or extinguish business relations between Lepanto and third
persons. In other words, in performing its principal undertaking Nielson was not acting as
an agent of Lepanto, in the sense that the term agent is interpreted under the law of agency,
but as one who was performing material acts for an employer, for a compensation.
It is true that the management contract provides that Nielson would also act as purchasing
agent of supplies and enter into contracts regarding the sale of mineral, but the contract
also provides that Nielson could not make any purchase, or sell the minerals, without the
prior approval of Lepanto. It is clear, therefore, that even in these cases Nielson could not
execute juridical acts which would bind Lepanto without first securing the approval of
Lepanto. Nielson, then, was to act only as an intermediary, not as an agent.
Lepanto contends that the management contract in question being one of agency it had
the right to terminate the contract at will pursuant to the provision of Article 1733 of the
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old Civil Code. We find, however, a proviso in the management contract which militates
against this stand of Lepanto. Paragraph XI of the contract provides:
"Both parties to this agreement fully recognize that the terms of this Agreement are made
possible only because of the faith or confidence that the Officials of each company have in
the other; therefore, in order to assure that such confidence and faith shall abide and
continue, NIELSON agrees that LEPANTO may cancel this Agreement at any time upon
ninety (90) days written notice, in the event that NIELSON for any reason whatsoever,
except acts of God, strike and other causes beyond its control, shall cease to prosecute the
operation and development of the properties herein described in good faith and in
accordance with approved mining practice."
It is thus seen, from the above-quoted provision of paragraph XI of the management
contract, that Lepanto could not terminate the agreement at will. Lepanto could terminate
or cancel the agreement by giving notice of termination ninety days in advance only in the
event that Nielson should prosecute in bad faith and not in accordance with approved
mining practice the operation and development of the mining properties of Lepanto.
Lepanto could not terminate the agreement if Nielson should cease to prosecute the
operation and development of the mining properties by reason of acts of God, strike and
other causes beyond the control of Nielson.
The phrase "Both parties to this agreement fully recognize that the terms of this
agreement are made possible only because of the faith and confidence of the officials of
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each company have in the other" in paragraph XI of the management contract does not
qualify the relation between Lepanto and Nielson as that of principal and agent based on
trust and confidence, such that the contractual relation may be terminated by the principal
at any time that the principal loses trust and confidence in the agent. Rather, that phrase
simply implies the circumstance that brought about the execution of the management
contract. Thus, in the annual report for 19362, submitted by Mr. C. A. Dewit, President of
Lepanto, to its stockholders, under date of March 15, 1937, we read the following: "To the
Stockholders:
xxx xxx xxx
"The incorporation of our Company was effected as a result of negotiations with Messrs.
Nielson & Co., Inc., and an offer by these gentlemen to Messrs. C. I. Cookes and V. L.
Lednicky, dated August 11, 1936, reading as follows:
'Messrs. Cookes and Lednicky,
'Present
'Re: Mankayan Copper Mines.
'GENTLEMEN:
'After an examination of your property by our engineers, we have decided to offer. as we
hereby offer to underwrite the entire issue of stock of a corporation to be formed for the
purpose of taking over said properties, said corporation to have an authorized capital of
P1,750,-000.00, of which P700,000.00 will be issued in escrow to the claimowners in
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exchange for their claims, and the balance of P1,050,000.00 we will sell to the public at par
or take ourselves.
'The arrangement will be under the following conditions:
1. '1.The subscriptions for cash shall be payable 50% at time of subscription and the
balance subject to the call of the Board of Directors of the proposed corporation.
2. '2.We shall have an underwriting and brokerage commission of 10% of the
P1,050,000.00 to be sold for cash to the public, said commission to be payable from
the first payment of 50% on each subscription.
3. '3.We will bear the cost of preparing and mailing any prospectus that may be required,
but no such prospectus will be sent out until the text thereof has been first approved
by the Board of Directors of the proposed corporation.
4. '4.That after the organization of the corporation, all operating contract be entered into
between ourselves and said corporation, under the terms which the property will be
developed and mined and a mill erected, under our supervision, our compensation to
be P2,000.00 per month until the property is put on a profitable basis and P2,500.00
per month plus 10% of the net profits for a period of five years thereafter.
5. '5.That we shall have the option to renew said operat-ing contract for an additional
period of five years, on the same basis as the original contract, upon the expiration
thereof.
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 'lt is understood that the development and mining operations on said property, and the
erection of the mill thereon, and the expenditures therefor shall be subject to the general
control of the Board of Directors of the proposed corporation, and, in case you accept
this proposition, that a detailed operating contract will be entered into, covering the
relationships between the parties.
Yours very truly,
(Sgd.) L. R. Nielson'"
"Pursuant to the provisions of paragraph 2 of this offer, Messrs. Nielson & Co., took
subscriptions for One Million Fifty Thousand Pesos (P1,050,000.00) in shares of our
Company and their underwriting and brokerage commission has been paid. More than fifty
per cent of these subscriptions have been paid to the Company in cash. The claimowners
have transferred their claims to the Corporation, but the P700,000.00 in stock which they
are to receive therefor, is as yet held in escrow.
"Immediately upon the formation of the Corporation Messrs. Nielson & Co., assumed
the Management of the property under the control of the Board of Directors. A
modification in the Management Contract was made with the consent of all the then
stockholders, in virtue of which the compensation of Messrs. Nielson & Co., was
increased toP2,500.00 per month when mill construction began. The formal Management
Contract was not entered into until January 30, 1937."
X X X X
186
 "Manila, March 15, 1937
(Sgd.) "C. A. DeWitt
"President"
We can gather from the foregoing statements in the annual report for 1936, and from the
provision of paragraph XI of the Management contract, that the employment by Lepanto
of Nielson to operate and manage its mines was principally in consideration of the know-
how and technical services that Nielson offered Lepanto. The contract thus entered into
pursuant to the offer made by Nielson and accepted by Lepanto was a "detailed operating
contract". It was not a contract of agency. Nowhere in the record is it shown that Lepanto
considered Nielson as its agent and that Lepanto terminated the management contract
because it had lost its trust and confidence in Nielson.
The contention of Lepanto that it had terminated the management contract in 1945,
following the liberation of the mines from Japanese control, because the relation between
it and Nielson was one of agency and as such it could terminate the agency at will, is,
therefore, untenable. On the other hand, it can be said that, in asserting that it had
terminated or cancelled the management contract in 1945, Lepanto had thereby violated
the express terms of the management contract. The management contract was renewed to
last until January 31, 1947, so that the contract had yet almost two years to go—upon the
liberation of the mines in 1945. There is no showing that Nielson had ceased to prosecute
the operation and development of the mines in good faith and in accordance with approved
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mining practice which would warrant the termination of the contract upon ninety days
written notice. In fact there was no such written notice of termination. It is an admitted
fact that Nielson ceased to operate and develop the mines because of the war—a cause
beyond the control of Nielson.
Indeed, if the management contract in question was intended to create a relationship of
principal and agent between Lepanto and Nielson, paragraph XI of the contract should not
have been inserted because, as provided in Article 1733 of the old Civil Code, agency is
essentially revocable at the will of the principal—that means, with or without cause. But
precisely said paragraph XI was inserted in the management contract to provide for the
cause for its revocation. The provision of paragraph XI must be given effect.
In the construction of an instrument where there are several provisions or particulars,
such a construction is, if possible, to be adopted as will give effect to all,3and 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.4
It is Our considered view that by express stipulation of the parties, the management
contract in question is not revocable at the will of Lepanto. We rule that this management
contract is not a contract of agency as defined in Article 1709 of the old Civil Code, but a
contract of lease of services as defined in Article 1544 of the same Code. This contract can
not be unilaterally revoked by Lepanto.
The first ground of the motion for reconsideration should, therefore, be brushed aside.
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 2. In the second, third and fifth grounds of its motion for reconsideration, Lepanto
maintains that this Court erred, in holding that paragraph II of the management contract
suspended the period of said contract, in holding that the agreement was not only
suspended but was extended on account of the war, and in holding that the period of
suspension on account of the war lasted from February, 1942 to June 26, 1948. We are
going to discuss these three grounds together because they are inter-related.
In our decision we have dwelt lengthily on the points that the management contract was
suspended because of the war, and that the period of the contract was extended for a period
-equivalent to the time when Nielson was unable to perf orm the work of mining and
milling because of the adverse effects of the war on the work of mining and milling.
It is the contention of Lepanto that the happening of those events, and the effects of
those events, simply suspended the perf ormance of the obligations by either party in the
contract, but did not suspend the period of the contract, much less extended the period of
the contract.
We have conscientiously considered the arguments of Lepanto in support of these three
grounds, but We are not persuaded to reconsider the rulings that We made in Our decision.
We want to say a little more on these points, however. Paragraph II of the management
contract provides as follows:
"In the event of inundation, flooding of the mine, typhoon, earthquake or any other force
majeure, war, insurrection, civil commotion, organized strike, riot, fire, injury to the
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machinery or other event or cause reasonably beyond the control of NIELSON and which
adversely affects the work of mining and milling; NIELSON shall report such fact to
LEPANTO and without liability or breach of ,the terms of this Agreement, the same shall
remain in suspense, wholly or partially during the terms of such inability." (Italics supplied)
A reading of the above-quoted paragraph II cannot but convey the idea that upon the
happening of any of the events enumerated therein, which adversely affects the work of
mining and milling, the agreement is deemed suspended for as long as Nielson is unable to
perform its work of mining and milling because of the adverse effects of the happening of
the event on the work of mining and milling. During the period when the adverse effects
on the work of mining and milling exist, neither party in the contract would be held liable
f or non-compliance of its obligation under the contract. In other words, the operation of
the contract is suspended for as long as the adverse effects of the happening of any of those
events had impeded or obstructed the work of mining and milling. An analysis of the
phraseology of the above-quoted paragraph II of the management contract readily supports
the conclusion that it is the agreement, or the contract, that is suspended. The phrase "the
same" can refer to no other than the term "Agreement" which immediately precedes it. The
"Agreement" may be wholly or partially suspended, and this situation will depend on
whether the event wholly or partially affected adversely the work of mining and milling. In
the instant case, the war had adversely affected—and wholly at that—the work of mining
and milling. We have clearly stated in Our decision the circumstances brought about by the
190
war which caused the whole or total suspension of the agreement or of the management
contract.
LEPANTO itself admits that the management contract was suspended. We quote from
the brief of LEPANTO:
"Probably, what Nielson meant was, it was prevented by Lepanto to assume again the
management of the mine in 1945, at the precise time when defendant was at the feverish
phase of rehabilitation and although the contract had already been suspended." (Lepanto's
Brief, p. 9).
"x x x it was impossible, as a result of the destruction of the mine, for the plaintiff to
manage and operate the same and because, as provided in the agreement, the contract was
suspended by reason of the war." (Lepanto's Brief, pp. 9-10).
"Clause II, by its terms, is clear that the contract is suspended in case fortuitous event or
force majeure, such as war, adversely affects the work of mining and milling." (Lepanto's
Brief, p. 49).
Lepanto is correct when it said that the obligations under the contract were suspended upon
the happening of any of the events enumerated in paragraph II of the management contract.
Indeed, those obligations were suspended because the contract itself was suspended. When
we talk of a contract that has been suspended we certainly mean that the contract
temporarily ceased to be operative, and the contract becomes operative again upon the

191
happening of a condition—or when a situation obtains—which warrants the termination
of the suspension of the contract.
In Our decision We pointed out that the agreement in the management contract would be
suspended when two conditions concur, namely: (1) the happening of the event constituting
a force majeure that was reasonably beyond the control of Nielson, and (2) that the event
constituting the force majeure adversely affected the work of mining and milling. The
suspension, therefore, would last not only while the event constituting the force majeure
continued to occur but also for as long as the adverse effects of the force majeure on the
work of mining and milling had not been eliminated. Under the management contract the
happening alone of the event constituting the force majeure which did not affect adversely
the work of mining and milling would not suspend the period of the contract. It is only
when the two conditions concur that the period of the agreement is suspended.
It is not denied that because of the war, in February 1942, the mine, the original mill, the
original power plant, the supplies and equipment, and all installations at the Mankayan
mines of Lepanto, were destroyed upon order of the United States Army, to prevent their
utilization by the enemy. It is not denied that for the duration of the war Nielson could not
undertake the work of mining and milling. When the mines were liberated from the enemy
in August, 1945, the condition of the mines, the mill, the power plant and other installations,
was not the same as in February 1942 when they were ordered destroyed by the US army.
Certainly, upon the liberation of the mines from the enemy, the work of mining and milling
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could not be undertaken by Nielson under the same favorable circumstances that obtained
before February 1942. The work of mining and milling, as undertaken by Nielson in
January, 1942, could not be resumed by Nielson soon after liberation because of the adverse
effects of the war, and this situation continued until June of 1948. Hence, the suspension
of the management contract did not end upon the liberation of the mines in August, 1945.
The mines and the mill and the installations, laid waste by the ravages of war, had to be
reconstructed and rehabilitated, and it can be said that it was only on June 26, 1948 that the
adverse effects of the war on the work of mining and milling had ended, because it was on
that date that the operation of the mines and the mill was resumed. The period of
suspension should, therefore, be reckoned from February 1942 until June 26, 1948, because
it was during this period that the war and the adverse effects of the war on the work of
mining and milling had lasted. The mines and the installations had to be rehabilitated
because of the adverse effects of the war. The work of rehabilitation started soon after the
liberation of the mines in August, 1945 and lasted until June 26, 1948 when, as stated in
Lepanto's annual report to its stockholders for the year 1948, "June 28, 1948 marked the
official return to operation of this company at its properties at Mankayan, Mountain
province, Philippines" (Exh. F-1).
Lepanto would argue that if the management contract was suspended at all the suspension
should cease in August of 1945, contending that the effects of the war should cease upon
the liberation of the mines from the enemy. This contention cannot be sustained, because
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the period of rehabilitation was still a period when the physical effects of the war—the
destruction of the mines and of all the mining installations—adversely affected, and made
impossible, the work of mining and milling. Hence, the period of the reconstruction and
rehabilitation of the mines and the installations must be counted as part of the period of
suspension of the contract.
Lepanto claims that it would not be unfair to end the period of suspension upon the
liberation of the mines because soon after the liberation of the mines Nielson insisted to
resume the management work, and that Nielson was under obligation to reconstruct the
mill in the same way that it was under obligation to construct the mill in 1937. This
contention is untenable. It is true that Nielson insisted to resume its management work
after liberation, but this was only for the purpose of restoring the mines, the mill, and other
installations to their operating and producing condition as of February 1942 when they
were ordered destroyed. It is not shown by any evidence in the record, that Nielson had
agreed, or would have agreed, that the period of suspension of the contract would end upon
the liberation of the mines. This is so because, as found by this Court, the intention of the
parties in the management contract, and as understood by them, the management contract
was suspended for as long as the adverse effects of the force majeure on the work of mining
and milling had not been removed, and the contract would be extended for as long as it
was suspended. Under the management contract Nielson had the obligation to erect and

194
operate the mill, but not to re-erect or reconstruct the mill in case of its destruction by force
majeure.
It is the considered view of this court that it would not be fair to Nielson to consider the
suspension of the contract as terminated upon the liberation of the mines because then
Nielson would be placed in a situation whereby it would have to suffer the adverse effects
of the war on the work of mining and milling. The evidence shows that as of January 1942
the operation of the mines under the management of Nielson was already under beneficial
conditions, so much so that dividends were already declared by Lepanto for the years 1939,
1940 and 1941. To make the management contract immediately operative after the
liberation of the mines from the Japanese, at the time when the mines and all its installations
were laid waste as a result of the war, would be to place Nielson in a situation whereby it
would lose all the benefits of what it had accomplished in placing the Lepanto mines in
profitable operation before the outbreak of the war in December, 1941. The record shows
that Nielson started its management operation way back in 1936, even before the
management contract was entered into. As early as August 1936 Nielson negotiated with
Messrs. C. I. Cookes and V. L. Lednicky for the operation of the Mankayan mines and it
was the result of those negotiations that Lepanto was incorporated; that it was Nielson that
helped to capitalize Lepanto, and that after the formation of the corporation (Lepanto)
Nielson immediately assumed the management of the mining properties of Lepanto. It was

195
not until January 30, 1937 when the management contract in question was entered into
between Lepanto and Nielson (Exhibit A ).
A contract for the management and operation of mines calls for a speculative and risky
venture on the part of the manager-operator. The manager-operator invests its technical
know-how, undertakes back-breaking efforts and tremendous spade-work, so to say, in the
first years of its management and operation of the mines, in the expectation that the
investment and the efforts employed might be rewarded later with success. This expected
success may never come. This had happened in the very case of the Mankayan mines where,
as recounted by Mr. Lednicky of Lepanto, various persons and entities of different
nationalities, including Lednicky himself, invested all their money and failed. The manager-
operator may not strike sufficient ore in the first, second, third, or fourth year of the
management contract, or he may not strike ore even until the end of the fifth year. Unless
the manager-operator strikes sufficient quantity of ore he cannot expect profits or reward
for his investment and efforts. In the case of Nielson, its corps of competent engineers,
geologists, and technicians begun working on the Mankayan mines of Lepanto since the
latter part of 1936, and continued their work without success and profit through 1937, 1938,
and the earlier part of 1939. It was only in December of 1939 when the efforts of Nielson
started to be rewarded when Lepanto realized profits and the first dividends were declared.
From that time on Nielson could expect profit to come to it—as in fact Lepanto declared
dividends for 1940 and 1941—if the development and operation of the mines and the mill
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would continue unhampered. The operation, and the expected profits, however, would still
be subject to hazards due to the occurrence of fortuitous events, fires, earthquakes, strikes,
war, etc., constituting force majeure, which would result in the destruction of the mines and
the mill. One of these diverse causes, or one after the other, may consume the whole period
of the contract, and if it should happen that way the manager-operator would reap no profit
to compensate for the first years of spade-work and investment of efforts and know-how.
Hence, in fairness to the manager-operator, so that he may not be deprived of the benefits
of the work he had accomplished, the force majeure clause is incorporated as a standard
clause in contracts for the management and operation of mines.
The nature of the contract for the management and operation of mines justifies the
interpretation of the force majeure clause, that a period equal to the period of suspension
due to force majeure should be added to the original term of the contract by way of an
extension. We, therefore, reiterate the ruling in Our decision that the management contract
in the instant case was suspended from February, 1942 to June 26, 1948, and that from the
latter date the contract had yet five years to go.
3. In the fourth ground of its motion for reconsideration, Lepanto maintains that this
Court erred in reversing the finding of the trial court that Nielson's action has prescribed,
by considering only the first claim and ignoring the prescriptibility of the other claims.
This ground of the motion for reconsideration has no merit.

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 In Our decision We stated that the claims of Nielson are based on a written document,
and, as such, the cause of action prescribes in ten years.5 Inasmuch as there are different
claims which accrued on different dates the prescriptive periods for all the claims are not
the same. The claims of Nielson that have been awarded by this Court are itemized in the
dispositive part of the decision.
The first item of the awards in Our decision refers to Nielson's compensation in the sum
of P17,500.00, which is equivalent to 10 % of the cash dividends declared by Lepanto in
December, 1941. As We have stated in Our decision, this claim accrued on December 31,
1941, and the right to commence an action thereon started on January 1, 1942. We declared
that the action on this claim did not prescribe although the complaint was filed on February
6, 1958—or after a lapse of 16 years, 1 month and
We declared that under the applicable decisions of this Court6the moratorium period of 8
years, 2 months and 8 days should be deducted from the period that had elapsed since the
accrual of the cause of action to the date of the filing of the complaint, so that there is a
period of less than 8 years to be reckoned for the purpose of prescription.
This claim of Nielson is covered by Executive Order No. 32, issued on March 10, 1945,
which provides as follows:
''Enforcement of payments of all debts and other monetary obligations payable in the Philippines,
except debts and other monetary obligations entered into in any area after declaration by
Presidential Proclamation that such area has been freed from enemy occupation and
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control, is temporarily suspended pending action by the Commonwealth Government." (41
O.G. 56-57; Italics supplied)
Executive Order No. 32 covered all debts and monetary obligation contracted before the
war (or before December 8, 1941) and those contracted subsequent to December 8, 1941
and during the Japanese occupation. Republic Act No. 342, approved on July 26, 1948,
lifted the moratorium provided for in Executive Order No. 32 on pre-war (or preDecember
8, 1941) debts of debtors who had not filed war damage claims with the United States War
Damage Commission. In other words, after the effectivity of Republic Act No. 342, the
debt moratorium was limited: (1) to debts and other monetary obligations which were
contracted after December 8, 1941 and during the Japanese occupation, and (2) to those
pre-war (or pre-December 8, 1941) debts and other monetary obligations where the debtors
filed war damage claims. That was the situation up to May 18, 1953 when this Court
declared Republic Act No. 342 unconstitutional.7 It has been held by this Court, however,
that from March 10, 1945 when Executive Order No. 32 was issued, to May 18, 1953 when
Republic Act No. 342 was declared unconstitutional—or a period of 8 years, 2 months and
8 days—the debt moratorium was in force, and had the effect of suspending the period of
prescription.8
Lepanto is wrong when in its motion for reconsideration it claims that the moratorium
provided for in Executive Order No. 32 was continued by Republic Act No. 342 "only with
respect to debtors of pre-war obligations or those incurred prior to December 8, 1941,"
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and that "the moratorium was liftedand terminated with respect to obligations incurred after
December 8, 1941,"9
This Court has held that Republic Act No. 342 does not apply to debts contracted during
the war and did not lift the moratorium in relations thereto.10 In the case of Abraham, et al.
vs. Intestate Estate of Juan C. Ysmael, el al., L-16741, Jan. 31, 1962, this Court said:
"Respondents, however, contend that Republic Act No. 342, which took 'effect on July 26,
1948, lifted the moratorium on debts contracted during the Japanese occupation. The court
has already held that Republic Act No. 342 did not lift the moratorium on debts contracted
during the war (Uy vs. Kalaw Katigbak, G.R. No. L-1830, Dec. 31, 1949) but modified
Executive Order No. 32 as to pre-war debts, making the protection available only to debtors
who had war damage claims (Sison v. Mirasol, G.R. No. L-4711, Oct. 3, 1952)."
We therefore reiterate the ruling in Our decision that the claim involved in the first item
awarded to Nielson had not prescribed.
What we have stated herein regarding the non-prescription of the cause of action of the
claim involved in the first item in the award also holds true with respect to the second item
in the award, which refers to Nielson's claim for management fee of P2,500.00 for January,
1942. Lepanto admits that this second item, like the first, is a monetary obligation. The right
of action of Nielson regarding this claim accrued on January 31, 1942.
As regards items 3, 4, 5, 6 and 7 in the awards in the decision, the moratorium law is not
applicable. That is the reason why in Our decision We did not discuss the question of
200
prescription regarding these items. The claims of Nielson involved in these items are based
on the management contract, and Nielson's cause of action regarding these claims
prescribes in ten years. Corollary to Our ruling that the management contract was
suspended from February, 1942 until June 26, 1948, and that the contract was extended for
five years from June 26, 1948, the right of action of Nielson to claim for what is due to it
during that period of extension accrued during the period from June 26,1948 till the end of
the five-year extension period—or until June 26, 1953. And so, even if We reckon June 26,
1948 as the starting date of the ten-year period in connection with the prescriptibility of the
claims involved in items 3, 4, 5, 6 and 7 of the awards in the decision, it is obvious that
when the complaint was filed on February 6, 1958 the ten-year prescriptive period had not
yet lapsed.
In Our decision We have also ruled that the right of action of Nielson against Lepanto
had not prescribed because of the arbitration clause in the Management contract. We are
satisf ied that there is evidence that Nielson had asked for arbitration, and an arbitration
committee had been constituted. The arbitration committee, however, failed to bring about
any settlement of the differences between Nielson and Lepanto. On June 25, 1957 counsel
for Lepanto definitely advised Nielson that they were not entertaining any claim of Nielson.
The complaint in this case was filed on February 6, 1958.
4. In the sixth ground of its motion for reconsideration, Lepanto maintains that this Court
"erred in awarding as damages (a) 10% of the cash dividends declared and paid in
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December, 1941; (b) the management fee of P2,500.00 for the month of January 1942; and
(c) the full contract price for the extended period of 60 months, since the damages were
never demanded nor proved and, in any case, not allowable under the general law on
damages."
We have stated in Our decision that the original agreement in the management contract
regarding the compensation of Nielson was modif ied, such that instead of receiving a
monthly" compensation of P2,500.00 plus 10% of the net profits from the operation of the
properties for the preceding month,11 Nielson would receive a compensation of P2,500.00
a month, plus (1) 10 % of the dividends declared and paid, when and as paid, during the
period of the contract, and at the end of each year, (2) 10% of any depletion reserve that
may be set up, and (3) 10% of any amount expended during the year out of surplus earnings
for capital account.
It is shown that in December, 1941, cash dividends amounting to P175,000.00 was
declared by Lepanto.12 Niel-son, therefore, should receive the equivalent of 10% of this
amount, or the sum of P17,500.00. We have found that this amount was not paid to
Nielson.
In its motion for reconsideration, Lepanto inserted a photographic copy of page 127 of
its cash disbursement book, allegedly for 1941, in an effort to show that this amount of
P17,500.00 had been paid to Nielson. It appears, however, in this photographic copy of
page 127 of the cash disbursement book that the sum of P17,500.00 was entered on
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October 29 as "surplus a/c Nielson & Co. Inc." The entry does not make any reference to
dividends or participation of Nielson in the profits. On the other hand, in the photographic
copy of page 89 of the 1941 cash disbursement book, also attached to the motion for
reconsideration, there is an entry for P17,500.00 on April 23, 1941 which states "Accts. Pay.
Particip. Nielson & Co. Inc." This entry for April 23, 1941 may really be the participation
of Nielson in the profits based on dividends declared in April 1941 as shown in Exhibit L.
But in the same Exhibit L it is not stated that any dividend was declared in October 1941.
On the contrary it is stated in Exhibit L that dividends were declared in December 1941.
We cannot entertain this piece of evidence for several reasons: (1) because this evidence
was not presented during the trial in the court below; (2) there is no showing that this piece
of evidence is newly discovered and that Lepanto was not in possession of said evidence
when this case was being tried in the court below; and (a) according to Exhibit L cash
dividends of P175,000.00 were declared in December, 1941, and so the sum of P17,500.00
which appears to have been paid to Nielson in October 1941 could not be payment of the
equivalent of 10% of the cash dividends that were later declared in December, 1941.
As regards the management fee of Nielson corresponding to January, 1942, in the sum
of P2,500.00, We have also found that Nielson is entitled to be paid this amount, and that
this amount was not paid by Lepanto to Nielson. Whereas, Lepanto was able to prove that
it had paid the management fees of Nielson for November and December, 1941,13 it was

203
not able to present any evidence to show that the management fee of P2,500.00 for January,
1942 bad been paid.
It having been declared in Our decision, as well as in this resolution, that the management
contract had been extended for 5 years, or sixty months, from June 27, 1948 to June 26,
1953, and that the cause of action of Nielson to claim for its compensation during that
period of extension had not prescribed, it follows that Nielson should be awarded the
management fees during the whole period of extension, plus the 10% of the value of the
dividends declared during the said period of extension, the 10% of the depletion reserve
that was set up, and the 10% of any amount expended out of surplus earnings for capital
account.
5. In the seventh ground of its motion for reconsideration, Lepanto maintains that this
Court erred in ordering Lepanto to issue and deliver to Nielson shares of stock together
with fruits thereof.
In Our decision, We declared that pursuant to the modified agreement regarding the
compensation of Nielson which provides, among others, that Nielson would receive 10%
of any dividends declared and paid, when and as paid, Nielson should be paid 10% of the
stock dividends declared by Lepanto during the period of extension of the contract.
It is not denied that on November 28, 1949, Lepanto declared stock dividends worth
P1,000,000.00; and on August 22, 1950, it declared stock dividends worth P2,-000,000.00.
In other words, during the period of extension Lepanto had declared stock dividends worth
204
P3,000,-000.00. We held in Our decision that Nielson is entitled to receive 10% of the stock
dividends declared, or shares of stock worth P300,000.00 at the par value of P0.10 per
share. We ordered Lepanto to issue and deliver to Nielson those shares of stocks as well as
all the fruits or dividends that accrued to said shares.
In its motion for reconsideration, Lepanto contends that the payment to Nielson of stock
dividends as compensation for its services under the management contract is a violation of
the Corporation Law, and that it was not, and it could not be, the intention of Lepanto and
Nielson—as contracting parties—that the services of Nielson should be paid in shares of
stock taken out of stock dividends declared by Lepanto. We have assiduously considered
the arguments adduced by Lepanto in support of its contention, as well as the answer of
Nielson in this connection, and We have arrived at the conclusion that there is merit in the
contention of Lepanto.
Section 16 of the Corporation Law, in part, provides as follows:
"No corporation organized under this Act shall create or issue bills, notes or other evidence
of debt, for circulation as money, and no corporation shall issue stock or bonds except in
exchange for actual cash paid to the corporation or for: (1) property actually received by it
at a fair valuation equal to the par or issued value of the stock or bonds so issued; and in
case of disagreement as to their value, the same shall be presumed to be the assessed value
or the value appearing in invoices or other commercial documents, as the case may be; and
the burden or proof that the real present value of the property is greater than the assessed
205
value or value appearing in invoices or other commercial documents, as the case may be,
shall be upon the corporation, or for (2) profits earned by it but not distributedamong its
stockholders or members; Provided, however, That no stock or bond dividend shall be issued
without the approval of stockholders representing not less than two-thirds of all stock then
outstanding and entitled to vote at a general meeting of the corporation or at a special
meeting duly called for the purpose.
x x x x
"No corporation shall make or declare any dividend except from the surplus profits arising from its
business, or divide or distribute its capital stock or property other than actual profits among
its members or stockholders until after the payment of its debts and the termination of its
existence by limitation or lawful dissolution: Provided, That banking, savings and loan, and
trust corporations may receive deposits and issue certificates of deposit, checks, drafts, and
bills of exchange, and the like in the transaction of the ordinary business of banking, savings
and loan, and trust corporations." (As amended by Act No. 2792, and Act No. 3518; Italics
supplied.)
From the above-quoted provision of Section 16 of the Corporation Law, the consideration
for which shares of stock may be issued are: (1) cash; (2) property; and (3) undistributed
profits. Shares of stock are given the special name "stock dividends" only if they are issued
in lieu of undistributed prof its. If shares of stocks are issued in exchange of cash or
property then those shares do not fall under the category of "stock dividends". A
206
corporation may legally issue shares of stock in consideration of services rendered to it by
a person not a stockholder, or in payment of its indebtedness. A share of stock issued to
pay for services rendered is equivalent to a stock issued in exchange of property, because
services is equivalent to property.14 Likewise a share of stock issued in payment of
indebtedness is equivalent to issuing a stock in exchange for cash. But a share of stock thus
issued should be part of the original capital stock of the corporation upon its organization,
or part of the stocks issued when the increase of the capitalization of a corporation is
properly authorized. In other words, it is the shares of stock that are originally issued by
the corporation and forming part of the capital that can be exchanged for cash or services
rendered, or property; that is, if the corporation has original shares of stock unsold or
unsubscribed, -either coming from the original capitalization or from the increased
capitalization. Those shares of stock may be issued to a person who is not a stockholder,
or to a person already a stockholder in exchange for services rendered or for cash or
property. But a share of stock coming from stock dividends declared cannot be issued to
one who is not a stockholder of a corporation.
A "stock dividend" is any dividend payable in shares of stock of the corporation declaring
or authorizing such dividend. It is, what the term itself implies, a distribution of the shares
of stock of the corporation among the stockholders as dividends. A stock dividend of a
corporation is a dividend paid in shares of stock instead of cash, and is properly payable
only out of surplus profits.15 So, a stock dividend is actually two things: (1) a dividend, and
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(2) the enforced use of the dividend money to purchase additional shares of stock at
par.16When a corporation issues stock dividends, it shows that the corporation's
accumulated profits have been capitalized instead of distributed to the stockholders or
retained as surplus available for distribution, in money or kind, should opportunity offer.
Far from being a realization of profits for the stockholder, it tends rather to postpone said
realization, in that the fund represented by the new stock has been transferred from surplus
to assets and no longer available for actual distribution.17Thus, it is apparent that stock
dividends are issued only to stockholders. This is so because only stockholders are entitled
to dividends. They are the only ones who have a right to a proportional share in that part
of the surplus which is declared as dividends. A stock dividend really adds nothing to the
interest of the stockholder; the proportional interest of each stockholder remains the
same.18 If a stockholder is deprived of his stock dividends—and this happens if the shares
of stock f orming part of the stock dividends are issued to a non-stockholder—then the
proportion of the stockholder's interest changes radically. Stock dividends are civil fruits of
the original investment, and to the owners of the shares belong the civil fruits.19
The term "dividend" both in the technical sense and its ordinary acceptation, is that part
or portion of the profits of the enterprise which the corporation, by its governing agents,
sets apart for ratable division among the holders of the capital stock. It means the f und
actually set aside, and declared by the directors of the corporation as a dividends, and duly

208
ordered by the director, or by the stockholders at a corporate meeting, to be divided or
distributed among the stockholders according to their respective interests.20
It is Our considered view, therefore, that under Section 16 of the Corporation Law stock
dividends can not be issued to a person who is not a stockholder in payment of services
rendered. And so, in the case at bar Nielson can not be paid in shares of stock which form
part of the stock dividends of Lepanto for services it rendered under the management
contract. We sustain the contention of Lepanto that the understanding between Lepanto
and Nielson was simply to make the cash value of the stock dividends declared as the basis
for determining the amount of compensation that should be paid to Nielson, in the
proportion of 10% of the cash value of the stock dividends declared. And this conclusion
of Ours finds support in the-record.
We had adverted to in Our decision that in 1940 there was some dispute between Lepanto
and Nielson regarding the application and interpretation of certain provisions of the
original contract particularly with regard to the 10%participation of Nielson in the net
profits, so that some adjustments had to be made. In the minutes of the meeting of the
Board of Directors of Lepanto on August 21. 1940, We read the following:
"The Chairman stated that he believed that it would be better to tie the computation of the 10%
participation of Nielson & Company, Inc. to the dividend, because Nielson will then be able to definitely
compute its net participation by the amount of the dividends declared. In addition to the dividend, we
have been setting up a depletion reserve and it does not seem fair to burden the 10%
209
participation of Nielson with the depletion reserve, as the depletion reserve should not be
considered as an operating expense. After a prolonged discussion, upon motion duly made
and seconded, it was—
"RESOLVED, That the President, be, and he hereby is, authorized to enter into an
agreement with Nielson & Company, Inc., modifying Paragraph V of management contract
of January 30, 1937, effective January 1, 1940, in such a way that Nielson & Company, Inc.
shall receive 10% of any dividends declared and paid, when and as paid during the period
of the contract and at the end of each year, 10% of any depletion reserve that may be set
up and 10% of any amount expended during the year out of surplus earnings for capital
account." (Italics supplied.)
From the sentence, "The Chairman stated that he believed that it would be better to tie the
computation of the 10% participation of Nielson & Company, Inc. to the dividend, because
Nielson will then be able to definitely compute its net participation by the amount of the
dividends declared" the idea is conveyed that the intention of Lepanto, as expressed by its
Chairman C. A. DeWitt, was to make the value of the dividends declared—whether the
dividends were in cash or in stock—as the basis for determining the amount of
compensation that should be paid to Nielson, in the proportion of 10% of the cash value
of the dividends so declared. It does not mean, however, that the compensation of Nielson
would be taken from the amount actually declared as cash dividend to be distributed to the
stockholder, nor f rom the shares of stocks to be issued to the stockholders as stock
210
dividends, but from the other assets or funds of the corporation which are not burdened
by the dividends thus declared. In other words, if, for example, cash dividends of
P300,000.00 are declared. Nielson would be entitled to a compensation of P30,000.00, but
this P30,000.00 should not be taken from the P300,000.00 to be distributed as cash
dividends to the stockholders but from some other funds or assets of the corporation which
are not included in the amount to answer for the cash dividends thus declared. This is so
because if the P30,000.00 would be taken out f rom the P300,-000.00 declared as cash
dividends, then the stockholders would not be getting P300,000.00 as dividends but only
P270,000.00. There would be a dilution of the dividend that corresponds to each share of
stock held by the stockholders. Similarly, if there were stock dividends worth one million
pesos that were declared, which means an issuance of ten million shares at the par value of
ten centavos per share, it does not mean that Nielson would be given 100,000 shares. It
only means that Nielson should be given the equivalent of 10% of the aggregate cash value
of those shares issued as stock dividends. That this was the understanding of Nielson itself
is borne out by the fact that in its appeal brief Nielson urged that it should be paid
"P300,000.00 being 10% of the P3,000,000.00 stock dividends declared on November 28,
1949 and August 20, 1950 x x x,"21
We, therefore, reconsider that part of Our decision which declares that Nielson is entitled
to shares of stock worth P300,000.00 based on the stock dividends declared on November
28, 1949 and on August 20, 1950, together with all the fruits accruing thereto. Instead, We
211
declare that Nielson is entitled to payment by Lepanto of P300,000.00 in cash, which is
equivalent to 10% of the money value of the stock dividends worth P3,000,000.00 which
were declared on November 28, 1949 and on August 20, 1950, with interest thereon at the
rate of 6% from February 6, 1958.
6. In the eighth ground of its motion for reconsideration Lepanto maintains that this
Court erred in awarding to Nielson an undetermined amount of shares of stock and/or
cash, which award can not be ascertained and executed without further litigation.
In view of Our ruling in this resolution that Nielson is not entitled to receive shares of
stock as stock dividends in payment of its compensation under the management contract,
We do not consider it necessary to discuss this ground of the motion for reconsideration.
The awards in the present case are all reduced to specific sums of money.
7. In the ninth ground of its motion for reconsideration Lepanto maintains that this Court
erred in rendering judgment or attorney's fees.
The matter of the award of attorney's fees is within the sound discretion of this Court. In
Our decision We have stated the reason why the award of P50,000.00 for attorney's fees is
considered by this Court as reasonable.
Accordingly, We resolve to modify the decision that We rendered on December 17, 1966,
in the sense that instead of awarding Nielson shares of stock worth P300,000.00 at the par
value of ten centavos (P0.10) per share based on the stock dividends declared by Lepanto
on November 28, 1949 and August 20, 1950, together with their fruits, Nielson should be
212
awarded the sum of P300,000.00 which is an amount equivalent to 10% of the cash value
of the stock dividends thus declared, as part of the compensation due Nielson under the
management contract. The dispositive portion of the decision should, therefore, be
amended, to read as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the
decision of the court a quo and enter in lieu thereof another, ordering the appellee Lepanto
to pay the appellant Nielson the different amounts as specified hereinbelow:
(1)Seventeen thousand five hundred pesos (P17,500.00), equivalent to 10% of the
cash dividends of December, 1941, with legal interest thereon f rom the date of the f
iling of the complaint;
(2)Two thousand five hundred pesos (P2,500.00), as management fee for January,
1942, with legal interest thereon from the date of the filing of the complaint;
(3)One hundred fifty thousand pesos (P150.000.00), representing management fees
for the sixty-month period of extension of the management contract, with legal
interest thereon from the date of the f iling of the complaint;

213
 (4)One million four hundred thousand pesos (?1,400,000.00), equivalent to 10% of
the cash dividends declared during the period of extension of the management
contract, with legal interest thereon from the date of the filing of the complaint;
(5)Three hundred thousand pesos (P300,000.00), equivalent to 10% of the cash value
of the stock dividends declared on November 28, 1949 and August 20, 1950, with
legal interest thereon from the date of the filing of the complaint;
(6)Fifty three thousand nine hundred twenty eight pesos and eighty eight centavos
(P53,928.88), equivalent to 10% of the depletion reserve set up during the period of
extension, with legal interest thereon from the date of the filing of the complaint;
(7)Six hundred ninety four thousand three hundred sixty four pesos and seventy six
centavos (P694,364.76), equivalent to 10% of the expenses for capital account during
the period of extension, with legal interest thereon from the date of the filing of the
complaint;
(8)Fifty thousand pesos (P50,000.00) as attorney's fees; and
(9)The costs.
It is so ordered.
214
 Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchezand Castro, JJ., concur.
Fernando, Capistrano, Teehankee and Barredo. JJ., did not take part.
Decision reversed.

[No. L-8169. 29 January 1957]

THE SHELL COMPANY OF THE PHILIPPINES, LTD., petitioner, vs. FIREMEN’S
INSURANCE COMPANY OF NEWARK, NEW JERSEY COMMERCIAL CASUALTY
INSURANCE CO., SALVADOR SlSON, PORFIRIO DE LA FUENTE and THE
COURT OF APPEALS (First Division), respondents.
1.PRINCIPAL AND AGENT; WHEN AGENCY EXISTS AND NOT AN
INDEPENDENT CONTRACTOR.—Where the operator of a gasoline and service
station owed his position to the company and the latter could remove him or
terminate his services at will; that the service station belonged to the company and
bore its tradename and the operator sold only the products of the company; that the
equipment used by the operator belonged to the company and were just loaned to the
operator and the company took charge of their repair and maintenance; that an
employee of the company supervised the operator and conducted periodic inspection
of the company’s gasoline and service station; that the price of the products sold by
215
 the operator was fixed by the company and not by the operator; and that the receipts
signed by the operator indicated that he was a mere agent. Held: that the operator is
an agent of the company and not an independent contractor.
2.CONTRACTS; NATURE OF CONTRACT; COURTS NOT BOUND UPON
THE NAME GIVEN BY PARTIES.—To determine the nature of a contract courts
do not have or are not bound to rely upon the name or title given it by the contracting
parties, should there be a controversy as to what they really had intended to enter into,
but the way the contracting parties do or perform their respective obligations
stipulated or agreed upon may be shown and inquired into, and should such
performance conflict with the name or title given the contract by the parties, the
former must prevail over the latter.
PETITION for review by certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Ross, Selph, Carrascoso & Janda for petitioner.
J.A. Wolfson and Manuel Y. Macias for respondents.
PADILLA, J.:

216
Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals which
reversed that of the Court of First Instance of Manila and sentenced "* * * the defendants-
appellees to pay, jointly and severally, the plaintiffs-appellants the sum of P1,651.38, with
legal interest from December 6, 1947 (Gutierrez vs. Gutierrez, 56 Phil., 177, 180), and the
costs in both instances.”
The Court of Appeals found the following:
Inasmuch as both the Plaintiffs-Appellants and the Defendant-Appellee, the Shell
Company of the Philippine Islands, Ltd. accept the statement of facts made by the trial
court in its decision and appearing on pages 23 to 37 of the Record on Appeal, we quote
hereunder such statement:
“This is an action for recovery of sum of money, based on alleged negligence of the
defendants.
“It is a fact that a Plymouth car owned by Salvador R. Sison was brought, on September
3, 1947 to the Shell Gasoline and Service Station, located at the corner of Marqués de
Comillas and Isaac Peral Streets, Manila, for washing, greasing and spraying. The operator
of the station, having agreed to do service upon payment of P8.00, the car was placed on
the hydraulic lifter under the direction of the personnel of the station.
“What happened to the car is recounted by Perlito Sison, as follows:
‘Q. Will you please describe how they proceeded to do the work?

217
 A. Yes, sir. The first thing that was done, as I saw, was to drive the car over the lifter.
Then by the aid of the two greasemen they raised up my car up to six feet high, and then
washing was done. After washing the next step was greasing. Before greasing was finished,
there is a part near the shelf of the right fender, right front fender, of my car to be greased,
but the greasemen cannot reach that part, so the next thing to be done was to loosen the
lifter just a few feet lower. Then upon releasing the valve to make the car lower, a little bit
lower . . .
Q. Who released the valve?
A. The greaseman, for the escape of the air. As the escape of the air is too strong for my
ear I faced backward. I faced toward Isaac Peral Street, and covered my ear. After the escape
of the air has been finished, the air coming out from the valve, I turned to face the car and
I saw the car swaying at that time, and just for a few second the car fell., (t.s.n., pp. 22–23.)
The case was immediately reported to the Manila Adjustor Company, the adjustor for the
Firemen’s Insurance Company and the Commercial Casualty Insurance Company, as the
car was insured with these insurance companies. After having been inspected by one Mr.
Baylon, representative of the Manila Adjustors Company, the damaged car was taken to the
shops of the Philippine Motors, Incorporated, for repair upon order of the Firemen’s
Insurance Company and the Commercial Casualty Company, with the consent of Salvador
R. Sison. The car was restored to running condition after repairs amounting to P1,651.38,
and was delivered to Salvador R. Sison, who, in turn made assignment of his rights to
218
recover damages in ex avor of the Firemen’s Insurance Company and the Commercial
Casualty Insurance Company.
“On the other hand, the fall of the car from the hydraulic lifter has been explained by
Alfonse M. Adriano, a greaseman in the Shell Gasoline and Service Station, as follows:
‘Q. Were you able to lift the car on the hydraulic lifter on the occasion, September 3,
1947?
A. Yes, sir.
Q. To what height did you raise more or less?
A. More or less five feet, sir.
Q. After lifting that car that height, what did you do with the car?
A. I also washed it, sir.
Q. And after washing?
A. I greased it.
Q. On that occasion, have you been able to finish greasing and washing the car?
A. There is one point which I could not reach.
Q. And what did you do then?
A. I lowered the lifter in order to reach that point.
Q. After lowering it a little, what did you do then?
A. I pushed and pressed the valve in its gradual pressure.

219
 Q. Were you able to reach. the portion which you were not able toreach while it was
lower?
A. No more, sir.
Q. Why?
A. Because when I was lowering the lifter I saw that the car was swinging and it fell.
THE COURT. Why did the car swing and fall?
WITNESS: That is what I do not know, sir.’ (t.s.n., p. 67.)"
The position of Defendant Porfirio de la Fuente is stated in his counter-statement of facts
which is hereunder also reproduced:
“In the afternoon of September 3, 1947, an automobile belonging to the plaintiff Salvador
Sison was brought by his son, Perlito Sison, to the gasoline and service station at the corner
of Marqués de Comillas and Isaac Peral Streets, City of Manila, Philippines, owned by the
defendant The Shell Company of the Philippine Islands, Limited, but operated by the
defendant Porfirio de la Fuente, for the purpose of having said car washed and greased for
a consideration of P8.00. (t.s.n., pp. 19–20.) , Said car was insured against loss or damage
by Firemen’s Insurance Company of Newark, New Jersey, and Commercial Casualty
Insurance Company jointly for the sum of P10,000 (Exhibits “A", “B", and “D").
“The job of washing and greasing was undertaken by defendant Porfirio de la Fuente
through his two employees, Alfonso M. Adriano, as greaseman and one surnamed de los
Reyes, a helper and washer (t.s.n., pp. 65–67). To perform the job the car was carefully and
220
centrally placed on the platform of the lifter in the gasoline and service station
aforementioned before raising up said platform to a height of about 5 feet and then the
servicing job was started. After more than one hour of washing and greasing, the job was
about to be completed except for an ungreased portion underneath the vehicle which could
not be reached by the greasemen. So, the lifter was lowered a little by Alfonso M. Adriano
and while doing so, the car for unknown reason accidentally fell and suffered damage to
the value of P1,651.38 (t.s.n., pp. 65–67).
“The insurance companies after paying the sum of P1,651.38 for the damage and charging
the balance of P1 00.00 to Salvador Sison in accordance with the terms of the insurance
contracts, have filed this action together with said Salvador Sison for the recovery of the
total amount of the damage from the defendants on the ground of negligence (Record on
Appeal, pp. 1–6).
“The defendant Porfirio de la Fuente denied negligence in the operation of the lifter in
his separate answer and contended further that the accidental fall of the car was caused by
unforseen event (Record on Appeal, pp. 17–19)."
The owner of the car forthwith notified the insurers who ordered their adjustor, the Manila
Adjustors Company, to investigate the incident and after such investigation the damaged
car, upon order of the insurers and with the consent of the owner, was brought to the shop
of the Philippine Motors, Inc. The car was restored to running condition after repairs
thereon which amounted to P1,651.38 and returned to the owner who assigned his right to
221
collect the aforesaid amount to the Firemen’s Insurance Company and the Commercial
Casualty Insurance Company.
On 6 December 1947 the insurers and the owner of the car brought an action in the
Court of First Instance of Manila against the Shell Company of the Philippines, Ltd. and
Porfirio de la Fuente to recover from them, jointly and severally, the sum of P1,651.38,
interest thereon at the legal rate from the filing of the complaint until fully paid, and costs.
After trial the Court dismissed the complaint. The plaintiffs appealed. The Court of Appeals
reversed the judgment and sentenced the defendant to pay the amount sought to be
recovered, legal interest and costs, as stated at the beginning of this opinion.
In arriving at the conclusion that on 3 September 1947 when the car was brought to the
station for servicing Porfirio de la Fuente, the operator of the gasoline and service station,
was an agent of the Shell Company of the Philippines, Ltd., the Court of Appeals found
that—
* * * De la Fuente owed his position to the Shell Company which could remove him or
terminate his services at any time from the said Company, and he undertook to sell the
Shell Company’s products exclusively at the said Station. For this purpose, De la Fuente
was placed in possession of the gasoline and service station under consideration, and was
provided with all “the equipments needed to operate it, by the said Company, such as the
tools and articles listed on Exhibit 2 which included the hydraulic lifter (hoist) and
accessories, from which Sison’s automobile fell on the date in question (Exhibits 1 and 2).
222
These equipments were delivered to De la Fuente on a so-called loan basis. The Shell
Company took charge of its care and maintenance and rendered to the public or its
customers at that station for the proper functioning of the equipment. Witness Antonio
Tiongson, who was sales superintendent of the Shell Company, and witness Augusto
Sawyer, foreman of the same Company, supervised the operators and conducted periodic
inspections of the Company’s gasoline and service stations, the service station in question
inclusive. Explaining his duties and responsibilities and the reason for the loan, Tiongson
said: “mainly on the supervision of sales or (of) our dealers and routinary inspection of the
equipment loaned by the company” (t.s.n., 107); “we merely inquire about how the
equipments are, whether they have complaint, and whether if said equipments are in proper
order * * *", (t.s.n., 110); station equipments are “loaned for the exclusive use of the dealer
on condition that all supplies to be sold by said dealer should be exclusively Shell, so as a
concession we loan equipments for their use * * *," “for the proper functioning of the
equipments, we answer and see to it that the equipments are in good running order and
usable condition * * *," “with respect to the public.” (t.s.n., 111–112). De la Fuente, as
operator, was given special prices by the Company for the gasoline products sold therein.
Exhibit 1—Shell, which was a receipt by Antonio Tiongson and signed by De la Fuente,
acknowledging the delivery of equipments of the gasoline and service station in question
was subsequently replaced by Exhibit 2—Shell, an official ex orm of the inventory of the
equipment which De la Fuente signed above the words: “Agent’s signature” And the service
223
station in question had been marked “SHELL, and all advertisements therein bore the same
sign. * * *.
* * * De la Fuente was the operator of the station “by grace” of the Defendant Company
which could and did remove him as it pleased; that all the equipments needed to operate
the station was owned by the Defendant Company which took charge of their proper care
and maintenance, despite the fact that they were loaned to him; that the Defendant
company did not leave the fixing of price for gasoline to De la Fuente; on the other hand,
the Defendant company had complete control thereof; and that Tiongson, the sales
representative of the Defendant Company, had supervision over De la Fuente in the
operation of the station, and in the sale of Defendant Company’s products therein. * * *.
Taking into consideration the fact that the operator owed his position to the company and
the latter could remove him or terminate his services at will; that the service station
belonged to the company and bore its tradename and the operator sold only the products
of the company; that the equipment used by the operator belonged to the company and
were just loaned to the operator and the company took charge of their repair and
maintenance; that an employee of the company supervised the operator and conducted
periodic inspection of the company’s gasoline and service station; that the price of the
products sold by the operator was fixed by the company and not by the operator; and that
the receipts signed by the operator indicated that he was a mere agent, the finding of the

224
Court of Appeals that the operator was an agent of the company and not an independent
contractor should not be disturbed.
To determine the nature of a contract courts do not have or are not bound to rely upon
the name or title given it by the contracting parties, should there be a controversy as to
what they really had intended to enter into, but the way the contracting parties do or
perform their respective obligations stipulated or agreed upon may be shown and inquired
into, and should such performance conflict with the name or title given the contract by the
parties, the former must prevail over the latter.
It was admitted by the operator of the gasoline and service station that “the car was
carefully and centrally placed on the platform of the lifter * * *" and the Court of Appeals
found that—
* * * the fall of Appellant Sison’s car from the hydraulic lift and the damage caused therefor,
were the result of the jerking and swaying of the lift when the valve was released, and that
the jerking was due to some accident and unforeseen shortcoming of the mechanism itself,
which caused its faulty or defective operation or functioning, and that—
* * * the servicing job on Appellant Sison’s automobile was accepted by De la Fuente in
the normal and ordinary conduct of his business as operator of his co-appellee’s service
station, and that the jerking and swaying of the hydraulic lift which caused the fall of the
subject car were due to its defective condition, resulting in its faulty operation. * * *.

225
As the act of the agent or his employees acting within the scope of his authority is the act
of the principal, the breach of the undertaking by the agent is one for which the principal
is answerable. Moreover, the company undertook to “answer and see to it that the
equipments are in good running order and usable condition;” and the Court of Appeals
found that the Company’s mechanic failed to make a thorough check up of the hydraulic
lifter and the check up made by its mechanic was “merely routine” by raising “the lifter
once or twice and after observing that the operation was satisfactory, he (the mechanic) left
the place.” The latter was negligent and the company must answer for the negligent act of
its mechanic which was the cause of the fall of the car from the hydraulic lifter.
The judgment under review is affirmed, with costs against the petitioner.
Parás, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.
L., Endencia, and Felix, JJ., concur.
Decision affirmed.

Nos. L-41182–3. April 15, 1988.*

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitionersappellants, vs. THE
COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S. CANILAO,
and SEGUNDINA NOGUERA, respondents-appellees.

226
 Labor; Employer-employee relation; No uniform test to determine the existence of an employer-employee
relation; Court relied on the socalled right of control test, the existing economic conditions prevailing between
the parties.—In this jurisdiction, there has been no uniform test to determine the existence
of an employer-employee relation. In general, we have relied on the so-called right of
control test, “where the person for whom the services are performed reserves a right to
control not only the end to be achieved but also the means to be used in reaching such
end.” Subsequently, however, we have considered, in addition to the standard or right-of-
control, the existing economic conditions prevailing between the parties, like the inclusion
of the employee in the payrolls, in determining the existence of an employeremployee
relationship.
Same;Same; Not a case of employer-employee relation.—The records will show that the
petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist World
Service, Inc., either as to the result of the enterprise or as to the means used in connection
therewith. In the first place, under the contract of lease covering the Tourist World’s Ermita
office, she had bound herself in solidum as and for rental payments, an arrangement that
would belie claims of a master-servant relationship. True, the respondent Court would later
minimize her participation in the lease as one of mere guaranty, that does not make her an
employee of Toiirist World, since in any case, a true employee cannot be made to part with
his own money in pursuance of his employer’s business, or otherwise, assume any liability

227
thereof. In that event, the parties must be bound by some other relation, but certainly not
employment.
Same; Same; Same; it cannot be said that Sevilla was under the control of Tourist World Service,
Inc.—In the second place, and as found by the Appellate Court, "[w]hen the branch office
was opened, the same was run by the herein appellant Lina O. Sevilla payable to Tourist
World Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina Sevilla.”
Under these circumstances, it cannot be said that Sevilla was under the control of Tounst
World Service. Inc. “as to the means used.” Sevilla in pursuing the business, obviously relied
on her own gifts and capabilities.
Same; Same; Same; Same; Fact that Sevilla was not in the company’s payroll admitted.—It is
further admitted that Sevilla was not in the company’s payroll. For her efforts, she retained
4% in commissions from airline bookings, the remaining 3% going to Tourist World.
Unlike an employee then, who earns a fixed salary usually, she earned compensation in
fluctuating amounts depending on her booking successes.
Same; Same; Same; Same; Fact that Sevilla was designated “branch manager” does not make her
Tourist World’s employee.—The fact that Sevilla had been designated “branch manager” does
not make her, ergo, Tounst World’s employee. As we said, employment is determined by
the right-of-control test and certain economic parameters. But titles are weak indicators.
Civil Law; Partnership; Lina Sevilla’s own argument that the par-ties had embarked on a joint venture
or otherwise a partnership rejected.—In rejecting Tourist World Service, Inc.'s arguments
228
however, we are not, as a consequence, accepting Lina Seviila’s own, that is, that the parties
had embarked on a joint venture or otherwise, a partnership. And apparently, Sevilla herself
did not recognize the existence of such a relation. In her letter of November 28, 1961, she
expressly “concedes your [Tourist World Service, Inc.'s] right to stop the operation of your
branch office,” in effect, accepting Tourist World Service, Inc.'s control over the manner
in which the business was run. A joint venture, including a partnership, presupposes
generally a parity of standing between the joint co-venturers or partners, in which each
party has an equal proprietary interest in the capital or property contributed and where each
party exercises equal rights in the conduct of the business. Furthermore, the parties did not
hold themselves out as partners, and the building itself was embellished with the electric
sign “Toimst World Service, Inc.," in lieu of a distinct partnership name.
Same;Agency; The parties had contemplated a principal-agent relationship rather than a joint
management or a partnership.—It is the Court’s considered opinion, that when the petitioner,
Lina Sevilla, agreed to (wo)man the private respondent, Tourist World Service, Inc.'s Ermita
office, she must have done so pursuant to a contract of agency. It is the essence of this
contract that the agent renders services “in representation or on behalf of another.” In the
case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal,
Touriat World Servioe, Inc. As compensation, she received 4% of the proceeds in the
concept of commissions. And as we said, Sevilla herself, based on her letter of November
28,1961, presumed her printipaTs authority as owner of the business undertaking. We are
229
convinced, considering the circumstances and from the respondent Court’s recital of facts,
that the parties had contemplated a principalagent relationship, rather than a joint
management or a partnership.
Same; Same; Same; The agency being one coupled with an interest cannot be revoked at wilL—But
unlike simple grants of a power of attorney, the agency that we hereby declare to be
compatible witJb the intent of the parties, cannot be revoked at will. The reason is that it is
one coupled with an interest, the agency having been created for the mutual interest of the
agent and the principal. It appears that Lina Sevilla is a bona fide travel agent herself, and
as such, she had acquired an interest in the business entrusted to her. Moreover, she had
assumed a personal obligation for the operation thereof, holding herself solidarily liable for
the payment of rentals. She continued the business, using her own name, after Tourist
World had stopped further operations. Her interest, obviously, is not limited to the
commissions she earned as a result of her business transactions. but one that extendB to
the very subject matter of the power of management delegated to her. It is an agency that,
as we said, cannot be revoked at the pleasure of the principal. Accordingly, the revocation
complained of should entitle the petitioner, Lina Sevilla, to damages.
Same; Same; Damages; For unwarranted revocation of the contract of agency, Tourist World Service,
Inc. should be sentenced to pay damages.—We rule, therefore, that for its unwarranted revocation
of the contract of agency, the private respondent, Tourist Worid Service, Inc., should be

230
sentenced to pay damages. Under the CivU Code, moral damages may be awarded for
“breaches of contract where the defendant acted ... in bad faith.”
Same; Same; Same; Same; Respondeni Eliseo Canilao likewise ordered to respond for the same
damages in a solidary capacity.—Therespondent, Eliseo Canilao, as a joint tortfeasor, is likewise
hereby ordered to respond for the same damages in a solidary capacity.
APPEAL by certiorari to review the decision of the Court of Appeals.
The facts are stated in the opinion of theCuwrt.
Roman P. Mosqueda for petitioners-appellants.
Felipe Magat for respondents-appellees.
SARMIENTO, J.:
The petitioners invoke the provisions on human relations of the Civil Code in this appeal
by certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees)
entered into on Oct. 19,1960 by and betweenMrs. Segundina Noguera, party of the first
part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party of the
second part, and hereinafter reJerred to as appellants, the Tourist Woxid Service, Inc. leased

231
the premises belonging to the party of the first part at Mabini St., Manila for the former’s
use as a branch office. In the said contract the party of the third part held herself solidarily
liable with the party of the second part for the prompt payment of the monthly rental agreed
on. When the branch office was opened, the same was run by the herein appellant Lina O.
Sevilla payable to Tonrist World Service Inc. by any airline for any fare brought in on the
efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the
Tourist World Service, Inc.
On or about November 24,1961 (Exhibit 16) the Tourist World Service, Inc. appears to
have been informed that Lina Sevilla was connected with a rival firm, the Philippine Travel
Bureau, and, since the branch office was anyhow losing, the Tourist World Service
considered closing down its office. This was firmed up by two resolutions of the board of
directors of Tourist World Service, Inc. dated Dec; 2, 1961 (Exhibits 12 and 13), the first
abolishing the office of the manager and vice-president of the Tourist World Service, Inc,,
Ermita Branch, and the second, authorizing the corporate secretary to receive the proper-
ties of the Tonrist World Service then located at the said branch office. It further appears
that on Jan. 3,1962, the contract with the appellees for the use of the Branch Office
premises was terminated and while the effectivity thereof was Jan. 31,1962, the appellees
no longer used it. As a matter of fact appellants used it since Nov. 1961. Because of this,
and to comply with the mandate of the Tourist World Service, the corporate secretary
Gabino Canilao went over to the branch office, and, finding the premises locked, and, being
232
unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the
interests of the Tourist World Service. When neither the appellant Lina Sevilla nor any of
her employees could enter the locked premises, a complaint was filed ,by the herein
appellants against the appellees with a prayer for the issuance of mandatory preliminary
injunction. Both appellees answered with counterclaims. For apparent lack of interest of
the parties therein, the trial court ordered the dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the order dismissing her
counterclaim which the court M. quo, in an order dated June 8, 1963, granted permitting her
to present evidence in support of her counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and
after the issues were joined, the reinstated counterclaim of Segundina Noguera and the new
complaint of appellant Lina Sevilla were jointly heard following which the court a
quoordered both cases dismissed for lack of merit, on the basis of which was elevated the
instant appeal on the following assignment of errors:
1. “I.THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE
OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA’S COMPLAINT.
2. “II.THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS.
LINA O. SEVILLA’S ARRANGEMENT (WITH APPELLEE TOURIST WORLD
SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE
233
 RELATION AND IN FAILING TO HOLD THAT THE SAID
ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE.
3. “III.THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-
APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING
THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE
TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.
4. “IV.THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES
HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM
THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN
HANDS.
5. “V.THE LOWER COURT ERRED IN NOT CONSIDERING AT ALL
APPELLEE NOGUERA’S RESPONSIBILITY FOR APPELLANT MRS. LINA
O. SEVILLA’S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.
6. “VI.THE LOWER COURT ERRED IN FINDING THAT APPELLANT MRS.
LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS."
On the foregoing facts and in the light of the errors assigned the issues to be resolved are:
1. 1.Whether the appellee Tourist World Service unilaterally disconnected the telephone
line at the branch office on Ermita;

234
 2. 2.Whether or not the padlocking of the office by the Tourist World Servioe was
actionable or not; and
3. 3.Whether or not the lessee to the office premises belonging to the appeUee Noguera
was appeUee TWS or TWS and the appellant.
In this appeal, appellant Lina Sevilla claims that a joint business venture was entered into
by and between her and appellee TWS with offices at the Ermita branch office and that she
was not an employee of the TWS to the end that her relationship with TWS was one of a
joint business venture appeUant made declarations showing:
“1. Appellant Mrs. Lina O. Sevilla, a prominent social figure and wife of an eminent eye,
ear and nose specialist as well as a society columnist, had been in the travel business prior
to the establishment of the joint business venture with appellee Tourist World Service, Inc.
and appellee Eliseo Canilao, her compadre, she being the godmother of one of his children,
with her own clientele, coming mostly from her own social circle (pp. 3–6 tsn. February
16,1965).
“2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960
(Exh. “A") covering the premises at A, Mabini St., she expressly warranting and holding
[sic] herself ‘solidarily’ liable with appellee Tourist World Service, Inc. for the prompt
payment of the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14–15, tsn.
Jan. 18,1964).
235
 “3. Appellant Mrs. Sevilla did not receive any salary from appellee Totuist World Service,
Inc., which had its own separate office located at the Trade & Commerce Building; nor was
she an employee thereof, having no participation in nor connection with said business at
the Trade & Commerce Building (pp. 16–18 tsn. id.).
“4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own
bookings, her own business (and not for any of the business of appeUee Tourist World
Service, Inc.) obtained from the airline companies. She shared the 7% commissions given by
the airline companies, giving appellee Tourist World Service, Inc. 3% thereof and retaining
4% for herself (pp. 18 tsn. id.)
“5, Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini
St. office, paying for the salary of an office secretary, Miss Obieta, and other sundry
expenses, aside from designing the office furniture and supplying some office furnishings
(pp. 15, 18 tsn. April 6, 19650, appelle Tourist World Service, Inc., shouldering the rental
and other expenses in apeellant Mrs. Sevilla (p. 35 tsn. Feb. 16, 19650.
“6. It was the understanding between them that appellant Mrs. Sevilla would be given the
title of branch manager for appearance’s sake only (p. 31 tsn. id.), appellee Eliseo Canilao
admitting that it was just a title for dignity (p. 36 tsn. June 18, 1965—testimony of appellee
Eliseo Canilao; pp. 38–39 tsn. April 6, 1965—testimony of corporate secretary Gabino
Canilao). "(pp. 2–5, Appellnat’s Reply Brief)

236
Upon the other hand, Appelle TWS contend that the appellant was an employee of the
appellee Tourist Worls Service, Inc., and as such was designated manager."1
xxx xxx xxx
The trial court2 geld for the private respondents on the premise that the private respondent,
Tourist World Service, Inc., being the true lessee, it was within its prerogative to terminate
the lease and padlock the premises.3 It likewise found the petitioner. Lina Sevilla, to be a
mere employee of said Tourist World Service, Inc., and as much, she was bound by the acts
of her employer.4 The respondent Court of Appeals5 rendered an affirmance.
The petitioner now claim that the respondent Court, in sustaining the lower court, erred.
Specially, they state:
I.
THE COURT OF APPLEAS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN HOLDING THAT “THE PADLOCKING OF THE
PREMISES BY TOURIST WORLD SERVICE, INC., WITHOUT THE
KNOWLEDGE AND CONSENT OF THE APPELLANT LINE SEVILLA X X X
WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES
AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILLA),
WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN

237
CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD
SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID
OFFICE), IN THEIR ATTEMPT TO AMICABLY SETTLE THE CONTROVERSY
BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE
X X X (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES"
(ANNEX “A" PP. 7, 8 AND ANNEX “B" P. 2)—A DECISION AGAINST DUE
PROCESS WHICH ADHERES TO THE RULE OF LAW.
II.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF
BECAUSE SHE HAD “OFFERED TO WITHDRAW HER COMPLAINT
PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH
APPELLEES WERE WITHDRAWN." (ANNEX “A" P. 8)
III.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN DENYING—IN FACT NOT PASSING AND

238
RESOLVING—APPELLANT SEVILLA’S CAUSE OF ACTION FOUNDED ON
ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON HUMAN RELATIONS.
IV.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF YET
NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH
TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH
AN INTEREST WfflCH COULD NOT BE TERMINATED OR REVOKED
UNILATERALLY BY TOURIST WORLD SERVICE INC.6
As a preliminary inquiry, the Court is asked to declare the true nature of the relation
between Lina Sevilla and Tourist World Service, Inc. The respondent Court of Appeals did
not see fit to rule on the question, the crucial issue, in its opinion being “whether or not
the padlocking of the premises by the Tourist World Service, Inc. without the knowledge
and consent of the appellant Lina Sevilla entitled the latter to the relief of damages prayed
for and whether or not the evidence for the said appellant supports the contention that the
appellee Tourist World Service, Inc. unilaterally and without the consent of the appellant
disconnected the telephone lines of the Ermita branch office of the appellee Tourist World
Service, Inc."7 Tourist World Service, Inc., insists, on the other hand, that Lina Sevilla was

239
a mere employee, being “branch manager” of its Ermita “branch” office and that
inferentially, she had no say on the lease executed with the private respondent, Segundina
Noguera. The petitioners contend, however, that relation between the parties was one of
joint venture, but concede that “whatever might have been the true relationship betwemSeviila and
Tourist World Service,” the Rule of Law enjoined Tourist World Service and Canilao from
taking the law into their own hands,"8 in reference to the padlocking now questioned.
The Court finds the resolution of the issue material, for if, as the private respondent,
Tourist World Service, Inc., maintains, that the relation between the parties was in the
character of employer and employee, the courts would have been without jurisdiction to
try the case, labor disputes being the exclusive domain of the Court of Industrial Relations,
later, the Bureau of Labor Relations, pursuant to statutes then in force.9
In this jurisdiction, there has been no uniform test to determine the existence of an
employer-employee relation. In general, we have relied on the so-caUed right of control
test, “where the person for whom the services are performed reserves a right to control
not only the end to be achieved but also the means to be used in reaching such
end.10 Subsequently, however, we have considered, in addition to the standard of right-of-
control, the existing economic conditions prevailing between the parties, like the inclusion
of the employee in the payrolls, in determining the existence of an employer-employee
relationship.11

240
 The records will show that the petitioner, Lina Sevilla, was not subject to control by the
private respondent Tourist World Service, Inc., either as to the result of the enterprise or
as to the means used in connection therewith. In the first place, under the contract of lease
covering the Tourist World’s Ermita office, she had bound herself in solidum as and for
rental payments, an arrangement that would belie claims of a master-servant relationship.
True, the respondent Court would later minimize her participation in the lease as one of
mere guaranty,12that does not make her an employee of Tourist World, since in any case, a
true employee cannot be made to part with his own money in pursuance of his employer’s
business, or otherwise, assume any liability thereof. In that event, the parties must be bound
by some other relation, but certainly not employment.
In the second place, and as found by the Appellate Court, "[w]hen the branch office was
opened, the same was run by the herein appellant Lina O. Sevilla payable to Tourist World
Service, Inc. by any airline for any fare brought in on the eSbrt of Mrs. Lina Sevilla."13 Under
these circumstances, it cannot be said that Sevilla was under the control of Tourist World
Service, Inc. “as to the means used.” Sevilla in pursuing the business, obviously relied on
her own gifts and capabilities.
It is further admitted that Sevilla was not in the company’s payroll. For her efforts, she
retained 4% in commissions from airline bookings, the remaining 3% going to Tourist
World. Unlike an employee then, who earns a fixed salary usually, she earned compensation
in fluctuating amounts depending on her booking successes.
241
 The fact that Sevilla had been designated “branch manager” does not make her. ergo,
Tourist World’s employee. As we said, employment is determined by the right-of-control
test and certain economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a
consequence, accepting Lina Sevilla’s own, that is, that the parties had embarked on a joint
venture or otherwise, a partnership. And apparently, Sevilla herself did not recognize the
existence of such a relation. In her letter of November 28, 1961, she expressly “concedes
your [Tourist World Service, Inc.'s] right to stop the operation of your branch office,"14 in
effect, accepting Tourist World Service, Inc.'s control over the manner in which the
business was run. A joint venture, including a partnership, presupposes generally a parity
of standing between the joint co-venturers or partners, in which each party has an equal
proprietary interest in the capital or property contributed15and where each party exercises
equal rights in the conduct of the business.16 Furthermore, the parties did not hold
themselves out as partners, and the building itself was embellished with the electric sign
“Tourist World Service, Inc.,"17in lieu of a distinct partnership name. It is the Court’s
considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private
respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant
to a contract of agency. It is the essence of this contract that the agent renders services “in
representation or on behalf of another."18 In the case at bar, Sevilla solicited airline fares,
but she did so for and on behalf of her principal, Tourist World Service, Inc. As
242
compensation, she received 4% of the proceeds in the concept of commissions. And as we
said, Sevilla herself, based on her letter of November 28,1961, presumed her principal’s
authority as owner of the business undertaking. We are convinced, considering the
circumstances and from the respondent Court’s recital of facts, that the parties had
contemplated a principal-agent relationship, rather than a joint management or a
partnership.
But unlike simple grants of a power of attorney, the agency that we hereby declare to be
compatible with the intent of the parties, cannot be revoked at will. The reason is that it is
one coupled with an interest, the agency having been created for the mutual interest of the
agent and the prinripal.19 It appears that Lina Sevilla is a bona fide travel agent herself, and as
such, she had acquired an interest in the business entrusted to her. Moreover, she had
assumed a personal obligation for the operation thereof, holding herself solidarily liable for
the payment of rentals. She continued the business, using her own name, after Tourist
World had stopped further operations. Her interest, obviously, is not limited to the
commissions she earned as a result of her business transactions, but one that extends to the
very subject matter of the power of management delegated to her. It is an agency that, as
we said, cannot be revoked at the pleasure of the principal Accordingly, the revocation
complained of should entitle the petitioner, Lina Sevilla, to damages.
As we have stated, the respondent Court avoided this issue, confining itself to the
telephone disconnection and padlocking incidents. Anent the disconnection issue, it is the
243
holding of the Court of Appeals that there is “no evidence showing that the Tourist World
Service, Inc. disconnected the telephone lines at the branch office."20 Yet, what cannot be
denied is the fact that Tourigt World Service, Inc. did not take pains to have them
reconnected. Assuming, therefore, that it had no hand in the disconnection now
complained of, it had clearly condoned it, and as owner of the telephone lines, it must
shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect to the padlocking
incident. For the fact that Tourist World Service, Inc. was the lessee named in the lease
contract did not accord it any authority to terminate that contract without notice to its
actual occupant, and to padlock the premises in such blitzkrieg fashion. As this Court has
ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the business itself, and
necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not a stranger to
that contract having been explicitly named therein as a third party in charge of rental
payments (solidarily with Tourist World, Inc.). She could not be ousted from possession as
summarily as one would eject an interloper.
The Court is satisfied that from the chronicle of events, there was indeed some
malevolent design to put the petitioner, Lina Sevilla, in a bad light following disclosures
that she had worked for a rival firm. To be sure, the respondent court speaks of alleged
business losses to justify the closure,21 but there is no clear showing that Tourist World
Ermita Branch had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit
244
for another company. What the evidence discloses, on the other hand, is that following
such an information (that Sevilla was working for another company), Tourist WorlcTs
board of directors adopted two resolutions abolishing the office of “manager” and
authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the takeover
of its branch office properties. On January 3,1962, the private respondents ended the lease
over the branch office premises, incidentally, without notice to her.
It was only on June 4, 1962, and after office hours significantly, that the Ermita office
was padlocked, personally by the respondent Canilao, on the pretext that it was necessary
“to protect the interests of the Tourist World Service."22 It is strange indeed that Tourist
World Service, Inc. did not find such a need when it cancelled the lease five months earlier.
While Tourist World Service, Inc. would not pretend that it sought to locate Sevilla to
inform her of the closure, but surely, it was aware that after office hours, she could not
have been anywhere near the premises. Capping these series of “offensives,”it cut the
office’s telephone lines, paralyzing completely its business operations, and in the process,
depriving Sevilla of her participation therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish
Sevilla for what it had perceived to be disloyalty on her part. It is offensive, in any event, to
elementary norms of justice and fair play.
We rule, therefore, that for its unwarranted revocation of the contract of agency, the
private respondent, Tourist World Service, Inc., should be sentenced to pay damages.
245
Under the Civil Code, moral damages may be awarded for “breaches of contract where the
defendant acted ... in bad faith."23
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral
injury done to Lina Sevilla arising from its brazen conduct subsequent to the cancellation
of the power of attorney granted to her on the authority of Article 21 of the Civil Code, in
relation to Article 2219 (10) thereof:
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.
ART. 2219. Moral damages may be recovered in the following and analogouB cases:
xxx xxx xxx
(10) Acts and actions referred to in articles 21 , 21, 26,27,28,29,30, 32,34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor, is likewise hereby ordered to respond
for the same damages in a solidary capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned, no
evidence has been shown that she had connived with Tourist Worid Service, Inc. in the
disconnection and padlocking incidents. She cannot therefore be held liable as a co-
tortfeasor.

246
 The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as
exemplary damages,25 and P5,000.00 as nominal26 and/or temperaie27damages, to be just,
fair, and reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution
issued on July 31,1975, by the respondent Court of Appeals is hereby REVERSED and
SET ASIDE. The private respondent, Tourist World Service, Inc., and Eliseo Canilao, are
ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of
P25,000.00 as and for moral damages, the sum of P10,000.00, as and for exemplary
damages, and the sum of P5,000.00, as and for nominal and/or temperate damages.
Costs against said private respondents.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ.,concur.
Decision and resolution reversed and set aside.
Note.—In determining the existence of employer-employee relationship, the following
elements are generally considered, namely: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control
the employee’s conduct. (Shipside, Incorporated vs. National LaborRelations Commission, 118
SCRA 99.)
No. L-34338. November 21, 1984.*

247
LOURDES VALERIO LIM, petitioner, vs. PEOPLE OF THE PHILIPPINES,
respondent.
Criminal Law; Contracts; Where a person obliged himself to pay to another the proceeds of the latter’s
tobacco as soon as they are disposed of, a period exists for payment of the obligation and, therefore, Art.
1197, N.C.C. does not apply.—It is clear in the agreement, Exhibit “A”, that the proceeds of
the sale of the tobacco should be turned over to he complainant as soon as the same was
sold, or, that the obligation was immediately demandable as soon as the tobacco was
disposed of. Hence, Article 1197 of the New Civil Code, which provides that the courts
may fix the duration of the obligation if it does not fix a period, does not apply.
Same; Same; Agency; Estafa is present where contract to sell constituted another as mere agent.—
Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent
in selling Ayroso’s tobacco, the appellant herself admitted that there was an agreement that
upon the sale of the tobacco she would be given something. The appellant is a
businesswoman, and it is unbelievable that she would go to the extent of going to Ayroso’s
house and take the tobacco with a jeep which she had brought if she did not intend to make
a profit out of the transaction. Certainly, if she was doing a favor to Maria Ayroso and it
was Ayroso who had requested her to sell her tobacco, it would not have been the appellant
who would have gone to the house of Ayroso, but it would have been Ayroso who would
have gone to the house of the appellant and deliver the tobacco to the appellant.”

248
 Same; Same; Same; Sale; There is no contract of sale, but mere agency to sell, where agreement was to
pay over to tobacco owner the proceeds thereof as soon as it was sold.—The fact that appellant received
the tobacco to be sold at P1.30 per kilo and the proceeds to be given to complainant as
soon as it was sold, strongly negates transfer of ownership of the goods to the petitioner.
The agreement (Exhibit “A”) constituted her as an agent with the obligation to return the
tobacco if the same was not sold.
PETITION for certiorari to review the judgment of the Court of Appeals.
The facts are stated in the opinion of the Court.
RELOVA, J.:
Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced
“to suffer an imprisonment of four (4) months and one (1) day as minimum to two (2) years
and four (4) months as maximum, to indemnify the offended party in the amount of
P559.50, with subsidiary imprisonment in case of insolvency, and to pay the costs.” (p. 14,
Rollo)
From this judgment, appeal was taken to the then Court of Appeals which affirmed the
decision of the lower court but modified the penalty imposed by sentencing her “to suffer
an indeterminate penalty of one (1) month and one (1) day of ar-resto mayor as minimum

249
to one (1) year and one (1) day of pri-sion correccional as maximum, to indemnify the
complainant in the amount of P550.50 without subsidiary imprisonment, and to pay the
costs of suit.” (p. 24, Rollo)
The question involved in this case is whether the receipt, Exhibit “A”, is a contract of
agency to sell or a contract of sale of the subject tobacco between petitioner and the
complainant, Maria de Guzman Vda. de Ayroso, thereby precluding criminal liability of
petitioner for the crime charged.
The findings of facts of the appellate court are as follows:
“x x x The appellant is a businesswoman. On January 10, 1966, the appellant went to the
house of Maria Ayroso and proposed to sell Ayroso’s tobacco. Ayroso agreed to the
proposition of the ap-pellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The
appellant was to receive the overprice for which she could sell the tobacco. This agreement
was made in the presence of plaintiff’s sister, Salud G. Bantug. Salvador Bantug drew the
document, Exh. A, dated January 10, 1966, which reads:
‘To Whom It May Concern:
This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso, of
Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be sold at P1.30 per kilo.

250
The proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100 (P799.50)
will be given to her as soon as it was sold.’
This was signed by the appellant and witnessed by the complainant’s sister, Salud Bantug,
and the latter’s maid, Genoveva Ruiz. The appellant at that time was bringing a jeep, and
the tobacco was loaded in the jeep and brought by the appellant. Of the total value of
P799.50, the appellant had paid to Ayroso only P240.00, and this was paid on three
different times. Demands for the payment of the balance of the value of the tobacco were
made upon the appellant by Ayroso, and particularly by her sister, Salud Bantug. Salud
Bantug further testified that she had gone to the house of the appellant several times, but
the appellant often eluded her; and that the ‘camarin’ of the appellant was empty.
Although the appellant denied that demands for payment were made upon her, it is a fact
that on October 19, 1966, she wrote a letter to Salud Bantug which reads as follows:
‘Dear Salud,
‘Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang nasisingil kong
pera, magintay ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo. Gosto ko
Salud ay makapagbigay man lang ako ng marami para hindi masiadong kahiyahiya sa iyo.
Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. Pupunta lang kami ni Mina
sa Maynila ngayon. Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng pera.
251
 ‘Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki
ko ng puesto. Huwag kang mabahala at tiyak na babayaran kita.
‘Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).
Ludy’
“Pursuant to this letter, the appellant sent a money order for P100.00 on October 24,
1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on April 18,
1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of P240.00. As no
further amount was paid, the complainant filed a complaint against the appellant for estafa.”
(pp. 14, 15, 16, Rollo)

In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions
of law, to wit:
1.Whether or not the Honorable Court of Appeals was legally right in holding that
the foregoing document (Exhibit “A”) “fixed a period” and “the obligation was
therefore, immediately demandable as soon as the tobacco was sold” (Decision, p. 6)
as against the theory of the petitioner that the obligation does not fix a period, but
from its nature and the circumstances it can be inferred that a period was intended in
which case the only action that can be maintained is a petition to ask the court to fix
the duration thereof;
252
 2.Whether or not the Honorable Court of Appeals was legally right in holding that
“Art. 1197 of the New Civil Code does not apply” as against the alternative theory of
the petitioner that the foregoing receipt (Exhibit “A”) gives rise to an obligation
wherein the duration of the period depends upon the will of the debtor in which case
the only action that can be maintained is a petition to ask the court to fix the duration
of the period; and
3.Whether or not the Honorable Court of Appeals was legally right in holding that
the foregoing receipt is a contract of agency to sell as against the theory of the
petitioner that it is a contract of sale, (pp. 3-4, Rollo)
It is clear in the agreement, Exhibit “A”, that the proceeds of the sale of the tobacco should
be turned over to the complainant as soon as the same was sold, or, that the obligation was
immediately demandable as soon as the tobacco was disposed of. Hence, Article 1197 of
the New Civil Code, which provides that the courts may fix the duration of the obligation
if it does not fix a period, does not apply.
Anent the argument that petitioner was not an agent because Exhibit “A” does not say
that she would be paid the commission if the goods were sold, the Court of Appeals
correctly resolved the matter as follows:

253
“x x x Aside from the fact that Maria Ayroso testified that the appellant asked her to be her
agent in selling Ayroso’s tobacco, the appellant herself admitted that there was an
agreement that upon the sale of the tobacco she would be given something. The appellant
is a businesswoman, and it is, unbelievable that she would go to the extent of going to
Ayroso’s house and take the tobacco with a jeep which she had brought if she did not
intend to make a profit out of the transaction. Certainly, if she was doing a favor to Maria
Ayroso and it was Ayroso who had requested her to sell her tobacco, it would not have
been the appellant who would have gone to the house of Ayroso, but it would have been
Ayroso who would have gone to the house of the appellant and deliver the tobacco to the
appellant.” (p. 19, Rollo)
The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds
to be given to complainant as soon as it was sold, strongly negates transfer of ownership of
the goods to the petitioner. The agreement (Exhibit “A’) constituted her as an agent with
the obligation to return the tobacco if the same was not sold.
ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit.
With costs.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Gutier-rez, Jr. and De la Fuente, JJ.,concur.
Petition dismissed.

254
 Notes.—In estafa under Article 315, paragraph 1(b) of the Revised Penal Code which is
committed with abuse of confidence previous demand is necessary; whereas in paragraph
2(a) no demand is necessary. (Balitaan vs. Court of First Instance of Batangas, 115 SCRA 729.)
Elements of estafa by means of issuing bouncing checks are different from estafa by
means of false pretenses or by means of misappropriation. (Ko Bu Len vs. Court of
Appeals, 118 SCRA 573.)
After the filing of information for estafa, liability of accused cannot be novated into a
civil one anymore by the parties’ compromise agreement. (Ong vs. Court of Appeals, 124
SCRA 578.)

No. L-19265. May 29, 1964

MOISES SAN DIEGO, SR., petitioner, vs. ADELO NOMBRE and PEDRO
ESCANLAR, respondents.
Executors and administrators; Judicial administrator may lease property without prior judicial
approval.—A judicial administrator can validly lease property of the estate without prior
judicial authority and approval.
Same; Non-applicability of provisions of New Civil Code on agency to judicial administrators.—The
provisions on agency (Art. 1878, C.C.), should not apply to a judicial administrator. A
judicial administrator is appointed by the Court. He is not only the representative of said
255
Court, but also the heirs and creditors of the estate (Chua Tan vs. Del Rosario, 57 Phil.
411), A judicial administrator before entering into his duties, is required to file a bond.
These circumstances are not true in case of agency. The agent is only answerable to his
principal. The protection which the law gives the principal, in limiting the powers and rights
of an agent, stems from the fact that control by the principal can only be true agreements,
whereas the acts of a judicial administrator are subject to specific provisions of law and
orders of the appointing court,
APPEAL from a decision of the Court of First Instance of Negros Occidental.
The facts are stated in the opinion of the Court.
A. R, Castañeda and M. S. Roxas for petitioner.
Amado B. Parreño Law Officefor respondents.
PAREDES, J.:
The case at bar had its origin in Special Proceedings No. 7279 of the CFI of Negros
Occidental, wherein respondent Adelo Nombre was the duly constituted judicial
administrator. On May 1, 1960, Nombre, in his capacity as judicial administrator of the
intestate estate subject of the Sp. Proc. stated above, leased one of the properties of the
estate (a fishpond identified as Lot No. 1617 of the cadastral survey of Kabangkalan,
Negros Occidental), to Pedro Escanlar, the other respondent. The terms of the lease was
for three (3) years, with a yearly rental of P3,000.00 to expire on May 1, 1968, the transaction
having been done, admittedly, without previous authority or approval of the Court where
256
the proceedings was pending'. On January 17, 1961, Nombre was removed as administrator
by Order of the court and one Sofronio Campillanos was appointed in his stead. The appeal
on the Order of Nombre's removal is supposedly pending with the Court of Appeals.
Respondent Escanlar was cited for contempt, allegedly for his refusal to surrender the
fishpond to the newly appointed administrator.
On March 20, 1961, Campillanos filed a motion asking for authority to execute a lease
contract of the same fishpond, in favor of petitioner herein, Moises San Diego, Sr., for 5
years from 1981, at a yearly rental of P5,000.00. Escanlar was not notified of such motion.
Nombre, the deposed administrator, presented a written opposition to the motion of
Campillanos on April 11, 1964, pointing out that the f ishpond had been leased by him to
Escanlar for 3 years, the period of which was going to expire on May 1, 1963. In a
supplemental opposition, he also invited the attention of the Court that to grant the motion
of the new administrator would in effect nullify the contract in favor of Escanlar, a person
on whom the Court had no jurisdiction. He also intimated that the validity of the lease
contract entered into by a judicial administrator, must be recognized unless so
declared voidin a separate action. The opposition notwithstanding, the Court on April 8,
1961, in effect declared that the contract in favor of Escanlar was null and void, for want
of judicial authority and that unless he would offer the same as or better conditions than
the prospective lessee, San Diego, there was no good reason why the motion for authority
to lease the property to San Diego should not be granted. Nombre moved to reconsider the
257
Order of April 8, stating that Escanlar was willing to increase the rental of P5,000.00, but
only after the termination of his original contract. The motion for reconsideration was
denied on April 24, 1961, the trial judge stating that the contract in favor of Escanlar was.
executed in bad faith and was fraudulent because of the imminence of Nombre's removal
as administrator, one of the causes of which was his indiscriminate leasing of the property
with. inadequate rentals.
From this Order, a petition for Certiorari asking for the annulment of the Orders of April
8 and 24, 1981. was presented by Nombre and Escanlar with the Court of Appeals. A Writ
of preliminary injunction was likewise prayed for to restrain the new administrator
Campillanos from possessing the fishpond and from executing a new lease contract
covering it; requiring: him to return the possession thereof to Escanlar, plus damages and
attorney's fees in the amount of P 10,000.00 and costs. The Court of Appeals issued the
injunctive writ and required respondents therein to Answer. Campillanos insisted on the
invalidity of the contract in favor of Escanlar; the lower court alleged that it did not exactly
annul or invalidate the lease in his questioned orders but suggested merely that Escanlar
"may file a separate ordinary action in the Court of general jurisdiction."
The Court of Appeals, in dismissing the petition for certiorari, among others said—
"The controlling issue in this case is the legality of the contract of lease entered into by the
former administrator, Nombre, and Pedro Escanlar on May 1, 1960,

258
 Respondents contend that this contract, not having been authorized or approved by the
Court, is null and void and cannot be an obstacle to the execution of another contract of
lease by the new administrator, Campillanos. This contention is without merit. x x x. It has
been held that even in the absence of such special power, a contract of lease for more than
6 years is not entirely invalid; it is invalid only in so far as it exceeds the six-year limit
(Enrique v. Watson Company, et al., 6 Phil. 84).1
No such limitation on the power of a judicial administrator to grant a lease of property
placed under his custody is provided for in the present law. Under Article 1647 of the
present Civil Code, it is only when the lease is to be recorded in the Registry of Property that it
cannot be instituted without special authority. Thus, regardless of the period of lease, there
is no need of special authority unless the contract is to be recorded in the Registry of
Property. As to whether the contract in favor of Escanlar is to be so recorded is not material
to our inquiry.
On the contrary, Rule 85, Section 3, of the Rules of Court authorizes a judicial
administrator, among other things, to administer the estate of the deceased not disposed of
by will. Commenting on this Section in the light of several Supreme Court decisions (Jocson
de Hilado v. Nava, 69 Phil. 1; Gamboa v. Gamboa, 68 Phil, 304: Ferraris v. Rodas, 65 Phil.
732; Rodriguez v. Borromeo, 43 Phil. 479), Moran says: 'Under this provision, the executor
or administrator has the power of administering the estate of the deceased for purposes of
liquidation and distribution. He may, therefore, exercise all acts of administration without
259
special authority of the Court. For instance, he may lease the property without securing
previously any permission from the court And where the lease has formally been entered
into, the court cannot, in the same proceeding, annul the same, to the prejudice of the
lessee, over whose person it had no jurisdiction. The proper remedy would be a separate
action by the administrator or the heirs to annul the lease. x x x."
On September 13, 1961, petitioner herein Moises San Diego, Sr., who was not a party in
the case, intervened and moved for a reconsideration of the above judgment. The original
parties (the new administrator and respondent judge) also filed motions for reconsideration,
but we do not find them in the record. On November 18, 1961, the Court of Appeals
denied the motions for reconsideration. With the denial of the said motions, only San,
Diego, appealed therefrom, raising' legal questions, which center on "whether a judicial
administrator can validly lease property of the estate without prior judicial authority and
approval", and "whether the provisions of the New Civil Code on Agency should apply to
judicial
The Rules of Court provide that—
"An executor or administrator shall have the right to the possession of the real as well as
the personal estate of the deceased so long as it is necessary for the payment of the debts
and the expenses of administration, and shall administer the estate of the deceased not
disposed of by his will." (Sec. 3, Rule 85, old Rules).

260
Lease has been considered an act of administration (Jocson v. Nava; Gamboa v.
Gamboa; Rodriguez v. Borromeo; Ferraris v. Rodas, supra).
The Civil Code, on lease, provides:
"lf a lease is to be recorded in the Registry of Property, the following: persons cannot
constitute the same without proper authority, the husband with respect to the wife's
paraphernal real estate, the father or guardian as to the property of the minor or ward, and
the manager without special power." (Art. 1647),
The same Code on Agency, states:
"Special powers of attorneys are necessary in the followingcases:
(8) To lease any real property to another person for more than one year." (Art. 1878)

Petitioner contends, that No. 8, Art, 1878 is the limitation to the right of a judicial
administrator to lease real property without prior court authority and approval, if it exceeds
one year, The lease contract in favor of Escanlar being for 3 years and without such court
approval and authority is, therefore, null and void. Upon the other hand, respondents
maintain that there is no limitation of such right; and that Article 1878 does not apply in
the instant case.
We believe that the Court of Appeals was correct in sustaining the validity of the contract
of lease in favor of Escanlar, notwithstanding the lack of prior authority and approval. The
law and prevailing jurisprudence on the matter militates in favor of this view. While it may
261
be admitted that the duties of a judicial administrator and an agent (petitioner alleges that
both act in representative capacity), are in some respects, identical, the provisions on agency
(Art. 1878, C.C.), should not apply to a judicial administrator. A judicial administrator is
appointed by the Court. He is not only the representative of said Court, but also the heirs
and creditors of the estate (Chua Tan v. Del Rosario, 57 Phil. 411). A judicial administrator
before entering into his duties, is required to file a bond. These circumstances are not true
in case of agency. The agent is only answerable to his principal. The protection which the
law gives the principal, in limiting the powers and rights of an agent, stems from the fact
that control by the principal can only be thru agreements, whereas the acts of a judicial
administrator are subject to specific provisions of law and orders of the appointing court.
The observation of former Chief Justice Moran, as quoted in the decision of the Court of
Appeals, is indeed sound, and We are not prone to alter the same, at the moment.
We, likewise, seriously doubt petitioner's legal standing to pursue this appeal. And, if We
consider the fact that after the expiration of the original period of the lease contract
executed by respondent Nombre in favor of Escanlar, a new contract in favor of said
Escanlar, was executed on May 1, 1963, by the new administrator Campillanos, who,
incidentally, did not take any active participation in the present appeal, the right of petitioner
to the fishpond becomes a moot and academic issue, which We need not pass upon.
WHEREFORE, the decision appealed from should be, as it is hereby affirmed, in all
respects, with costs against petitioner Moises San Diego, Sr.
262
 Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Regala and Makalintal,
JJ.,concur.
Padilla, Labrador and Dizon, JJ., took no part.
Decision affirmed.
Note.—Cf. Araneta v. Perez, L-18872, July 15, 1966, where a testamentary trustee, who was
subject to the supervision of the Court, was allowed to donate the property under
trusteeship.

No. 6906. September 27, 1911.]

FLORENTINO RALLOS ET AL., plaintiffs and appellees, vs.TEODORO R. YANGCO,
defendant and appellant.
1.PRINCIPAL AND AGENT; TERMINATION OF THE AGENCY; DUTY OF
PRINCIPAL TO GIVE DUE NOTICE.—The defendant having advertised the fact
that C was his agent, having given special notice to the plaintiffs of the agency, and
having also given them a special invitation to deal with such agent, it became the
defendant's duty, upon the termination of the relationship of principal and agent, to
give due and timely notice thereof to the plaintiffs.
263
 2.ID; ID.; ID.; LIABILITY OF PRINCIPAL.—The general rule is that, when the
relationship of principal and agent is established, and the principal gives notice of the
agency and holds out the agent as his authorized representative, upon the termination
of the agency it is the duty of the principal to give due and timely notice thereof,
otherwise, he will be held liable to third parties acting in good faith and properly
relying upon such agency.
APPEAL from a judgment of the Court of First Instance of Cebu. Wislizenus, J.
The facts are stated in the opinion of the court.
Mariano Escueta, for appellant.
Martin M. Levering, for appellees.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of the Province of Cebu,
the Hon. Adolph Wislizenus presiding, in favor of the plaintiffs, in the sum of P1,537.08,
with interest at 6 per cent per annum from the month of July, 1909, with costs. The
defendant in this case on the 27th day of November, 1907, sent to the plaintiff Florentino
Rallos, among others, the following letter:
"ClRCULAR NO. 1.

264
"MANILA, November 27, 1907.
"Mr. FLORENTINO RALLOS, Cebú.
"DEAR SIR: I have the honor to inform you that I have on this date opened in my
steamship office at No. 163 Muelle de la Reina, Binondo, Manila, P. I., a shipping and
commission department for buying and selling leaf tobacco and other native products,
under the f following conditions:
"1.When the consignment has been received, the consignor thereof will be credited
with a sum not to exceed two-thirds of the value of the goods shipped, which may be
made available by acceptance of a draft or written order of the consignor on five to
ten days' sight, or by his ordering at his option a bill of goods. In the latter case he
must pay a commission of 2 per cent.
"2.No draft or written order will be accepted without previous notice forwarding the
consignment of goods to guarantee the same.
"3.Expenses of freight, hauling and everything necessary f or duly executing the
commission will be charged in the commission.

265
"4.All advances made under sections (1) and (3) shall bear interest at 10 per cent a
year, counting from a month after the making thereof, until liquidated by the sale of
the goods shipped or by remittance of the amount thereof.
"5.A commission of 2½ per cent will be collected on the amount realized from the
sale of the goods shipped.
"6.Payment will be made immediately after collection of the price of the goods
shipped.
"7.Orders will be taken for the purchase of general merchandise, ship-stores, cloths,
etc., upon remittance of the amount with the commission of 2 per cent on the total
value of the goods bought. Expenses of freight, hauling, and everything necessary f
or properly executing the commission will be charged to the consignor.
"8.The consignor of the goods may not fix upon the consignee a longer period than f
our months, counting f from the date of receipt, for selling the same; with the
understanding that after such period the consignee is authorized to make the sale, so
as to prevent the advance and cost of storage from amounting to more than the actual
value of said goods, as has often happened.

266
 "9.The shipment to the consignors of the goods ordered on account of the amount
realized f rom the sale of the goods consigned and of the goods bought on remittance
of the value thereof, under sections (1) and (3), will not be Insured against risk by sea
and land except on written order of the interested parties.
"10.On all consignments of goods not insured according to the next preceding
section, the consignors will bear the risk.
"11.All the foregoing conditions will take effect only after this office has
acknowledged the consignor's previous notice.
"12,All other conditions and details will be furnished at the office of the undersigned.
"If you care to favor me with your patronage, my office is at No. 163 Muelle de la Reina,
Binondo, Manila, P. I., under the name of 'Teodoro R. Yangco.' In this connection it gives
me great pleasure to introduce to you Mr. Florentino Collantes, upon whom I have
conferred public power of attorney before the notary, Mr. Perfecto Salas Rodriguez, dated
November 16, 1907, to perform in my name and on my behalf all acts necessary for carrying
out my plans, in the belief that through his knowledge and long experience in the business,
along with my commercial connections with the merchants of this city and of the provinces,

267
I may hope to secure the most advantageous prices for my patrons. Mr. Collantes will sign
by power of attorney, so I beg that you make due note of his signature hereto affixed.
"Very respectfully,
(Sgd.) "T. R. YANGCO.
(Sgd.) "F. COLLANTES."
Accepting this invitation, the plaintiffs proceeded to do a considerable business with the
defendant through the said Collantes, as his factor, sending to him as agent for the
defendant a good deal of produce to be sold on commission. Later, and in the month of
February, 1909, the plaintiffs sent to the said Collantes, as agent for the defendant, 218
bundles of tobacco in the leaf to be sold on commission, as had been other produce
previously. The said Collantes received said tobacco and sold it for the sum of P1,744. The
charges for such sale were P206.96, leaving in the hands of said Collantes the sum of
P1,537.08 belonging to the plaintiffs. This sum was, apparently, converted to his own use
by said agent.
It appears, however, that prior to the sending of said tobacco the defendant had severed
his relations with Collantes and that the latter was no longer acting as his factor. This fact
was not known to the plaintiffs; and it is conceded in the case that no notice of any kind

268
was given by the defendant to the plaintiffs of the termination of the relations between the
defendant and his agent. The defendant refused to pay the said sum upon demand of the
plaintiffs, placing such refusal upon the ground that at the time the said tobacco was
received and sold by Collantes he was acting personally and not as agent of the defendant.
This action was brought to recover said sum.
As is seen, the only question for our decision is whether or not the plaintiffs, acting in
good faith and without knowledge, having sent produce to sell on commission to the
former agent of the defendant, can recover of the defendant under the circumstances above
set forth. We are of the opinion that the defendant is liable. Having advertised the fact that
Collantes was his agent and having given special notice to the plaintiffs of that fact, and
having given them a special invitation to deal with such agent, it was the duty of the def
endant on the termination of the relationship of principal and agent to give due and timely
notice thereof to the plaintiff s. Failing to do so, he is responsible to them for whatever
goods may have been in good f aith and without negligence sent to the agent without
knowledge, actual or constructive, of the termination of such relationship.
For these reasons the judgment appealed from is affirmed, without special finding as to
costs.
Torres, Mapa, Johnson, and Carson, JJ., concur.
Judgment affirmed.

269
 [No. 2945. October 28, 1905.]
B. H. MACKE ET AL., plaintiffs, vs. JOSÉ CAMPS, defendant.
INJUNCTION; EXECUTION PENDING PREPARATION OF BILL OF
EXCEPTIONS.—The Supreme Court will not interfere to modify, control, or inquire
into the exercise of the discretion of the Court of First Instance to direct by special order
that execution issue upon a final judgment before the period for preparing a bill of
exceptions has expired, unless it appears that there has been an abuse or excess of
authority on the part of the trial judge, or unless it appears that, since the issuance of the
order, conditions have so far changed as to necessitate the intervention of the appellate
court to protect the interests of the parties against contingencies which were not
contemplated by the trial court at the time of the issuance of the order.
PETITION for preliminary injunction.
The facts are stated in the opinion of the court.
Manuel Gavieres and Enrique Llopis, for defendant.
CARSON, J.:
This is in effect an application for an injunction to restrain the Hon. John C. Sweeney, judge
of the Court of First Instance of Manila, and the sheriff of the said city from taking any

270
further steps to enforce the execution of a judgment rendered in said court in the case of B.
H. Macke et al. vs. José Camps.
The only question submitted at this time is the prayer for preliminary injunction, which
we are of opinion must be denied.
Passing over certain defects of form in the application, it is sufficient cause for denial of
the preliminary injunction that it does not appear from the facts set up in the complaint
that the principal relief prayed for should be granted. It appears from the allegations
contained in the complaint that judgment has heretofore been rendered in the above-
mentioned cause in favor of the plaintiff, and that the defendant? who is the applicant in
these proceedings, has given notice of appeal, and is actually engaged in the preparation of
his bill of exceptions. It appears further, that execution has issued on the judgment by
special order of the court; and the purpose of these proceedings is to prevent the levy of
that execution, pending appeal.
Section 144 of the Code of Civil Procedure provides that—
"Except by special order of the court, no execution shall issue upon a final judgment
rendered in the Court of First Instance until after the period for perfecting a bill of
exceptions has expired."
Thus the legislator has placed the issuance of the order complained of in the discretion of
the trial court, and this court will not interfere to modify, control, or inquire into the
exercise of this discretion, which is thus conferred by statute, unless it be alleged and proven
271
that there has been an abuse or excess of authority on the part of the trial judge, or unless
it appears that since the issuance of the order conditions have so far changed as to
necessitate the intervention of the appellate court to protect the interests of the parties
against contingencies which were not contemplated by the trial judge at the time of the
issuance of the order (Jerome vs. McCarter, 21 Wallace, U. S., 17; 1 ;1 Calvo vs.Gutierrez et
al.,2 4 Off. Gaz., 193.)
It does not appear from the complaint in this case that any of these reasons exist as a
basis for relief, and therefore the prayer for preliminary injunction should be denied. So
ordered.
Arellano, C. J., Torres, Mapa,and Johnson, JJ., concur.
Willard, J., concurs in the result.
Petition denied.

No. L-40242. December 15, 1982.*

DOMINGA CONDE, petitioner, vs.THE HONORABLE COURT OF APPEALS,
MANILA, PACIENTE CORDERO, together with his wife, NICETAS ALTERA,
RAMON CONDE, together with his wife, CATALINA T. CONDE, respondents.
272
 Civil Law; Agency; Implied agency created from silence or lack of action or failure to repudiate the
agency.—If, as opined by both the Court a quo and the Appellate Court, petitioner had done
nothing to formalize her repurchase, by the same token, neither have the vendees-a-retro
done anything to clear their title of the encumbrance therein regarding petitioner’s right to
repurchase. No new agreement was entered into by the parties as stipulated in the deed of
pac to de retro,if the vendors a retro failed to exercise their right of redemption after ten years.
If, as alleged, petitioner exerted no effort to procure the signature of Pio Altera after he had
recovered from his illness, neither did the Alteras repudiate the deed that their son-in-law
had signed. Thus, an implied agency must be held to have been created from their silence
or lack of action, or their failure to repudiate the agency.
Same; Laches; Respondent’s delay for 24 years in instituting action for quieting of title and adverse and
uninterrupted possession of the lot by the petitioner renders respondent guilty of laches.—Possession of
the lot in dispute having been adversely and uninterruptedly with petitioner from 1945
when the document of repurchase was executed, to 1969, when she instituted this action,
or for 24 years, the Alteras must be deemed to have incurred in laches.
Same; Sale; Purchaser in bad faith; Vendors who bought property despite being put on notice of the
condition in the title that the property was subject to repurchase deemed purchasers in bad faith.—Private
respondents Ramon Conde and Catalina Conde, to whom Pio Altera sold the disputed
property in 1965, assuming that there was, indeed, such a sale, cannot be said to be
purchasers in good faith. OCT No. 534 in the name of the Alteras specifically contained
273
the condition that it was subject to the right of repurchase within 10 years from 1938.
Although the ten-year period had lapsed in 1965 and there was no annotation of any
repurchase by petitioner, neither had the title been cleared of that encumbrance. The
purchasers were put on notice that some other person could have a right to or interest in
the property. It behooved Ramon Conde and Catalina Conde to have looked into the right
of redemption inscribed on the title, and particularly the matter of possession, which, as
also admitted by them at the pre-trial, had been with petitioner since 1945.
Same; Same; Contracts; Interpretation; Vendors bound by clear terms of memorandum of repurchase;
Where contract is plain and unequivocal in its terms, vendors are bound thereby; Duty of every contracting
party to learn and know contents of document before he signs and delivers it.—Private respondent must
be held bound by the clear terms of the Memorandum of Repurchase that he had signed
wherein he acknowledged the receipt of P165.00 and assumed the obligation to maintain
the repurchasers in peaceful possession should they be “disturbed by other persons”. It was
executed in the Visayan dialect which he understood. He cannot now be allowed to dispute
the same. “x x x If the contract is plain and unequivocal in its terms he is ordinarily bound
thereby. It is the duty of every contracting party to learn and know its contents before he
signs and delivers it.”
Same; Same; Same; Same; Parol evidence rule; Oral testimony cannot prevail over a written agreement
of the document of repurchase; Purpose of parol evidence rule.—There is nothing in the document of
repurchase to show that Paciente Cordero had signed the same merely to indicate that he
274
had no objection to petitioner’s right of repurchase. Besides, he would have had no
personality to object. To uphold his oral testimony on that point, would be a departure
from the parol evidence rule and would defeat the purpose for which the doctrine is
intended. “x x x The purpose of the rule is to give stability to written agreements, and to
remove the temptation and possibility of perjury, which would be afforded if parol evidence
was admissible.”
APPEAL by certiorari to review the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
MELENCIO-HERRERA, J.:
An appeal by Certiorari from the Decision of respondent Court of Appeals1 (CA-G.R. No.
48133-R) affirming the judgment of the Court of First Instance of Leyte, Branch IX,
Tacloban City (Civil Case No. B-110), which dismissed petitioner’s Complaint for Quieting
of Title and ordered her to vacate the property in dispute and deliver its possession to
private respondents Ramon Conde and Catalina Conde.
The established facts, as found by the Court of Appeals, show that on 7 April 1938,
Margarita Conde, Bernardo Conde and the petitioner Dominga Conde, as heirs of Santiago
Conde, sold with right of repurchase, within ten (10) years from said date, a parcel of

275
agricultural land located in Maghubas, Burauen, Leyte, (Lot 840), with an approximate area
of one (1) hectare, to Casimira Pasagui, married to Pio Altera (hereinafter referred to as the
Alteras), for P165.00. The “Pacto de Retro Sale” further provided:
“x x x (4) if at the end of 10 years the said land is not repurchased, a new agreement shall
be made between the parties and in no case title and ownership shall be vested in the hand
of the party of the SECOND PART” (the Alteras).
x x x x x x” (Exhibit ‘B’)
On 17 April 1941, the Cadastral Court of Leyte adjudicated Lot No. 840 to the Alteras
“subject to the right of redemption by Dominga Conde, within ten (10) years counting from
April 7, 1983, after returning the amount of P165.00 and the amounts paid by the spouses
in concept of land tax x x x” (Exhibit “1”). Original Certificate of Title No. N-534 in the
name of the spouses Pio Altera and Casimira Pasagui, subject to said right of repurchase,
was transcribed in the “Registration Book” of the Registry of Deeds of Leyte on 14
November 1956 (Exhibit “2”).
On 28 November 1945, private respondent Paciente Cordero, son-in-law of the Alteras,
signed a document in the Visayan dialect, the English translation of which reads:
“MEMORANDUM OF REPURCHASE OVER A PARCEL OF LAND SOLD WITH
REPURCHASE WHICH DOCUMENT GOT LOST

276
 WE, PIO ALTERA and PACIENTE CORDERO, both of legal age, and residents of
Burauen, Leyte, Philippines, after having been duly sworn to in accordance with law free
from threats and intimidation, do hereby depose and say:
1. 1.That I, PIO ALTERA bought with the right of repurchase two parcels of land from
DOMINGA CONDE, BERNARDO CONDE AND MARGARITA CONDE, all
brother and sisters.
2. 2.That these two parcels of land were all inherited by the three.
3. 3.That the document of SALE WITH THE RIGHT OF REPURCHASE got lost in
spite of the diligent efforts to locate the same which was lost during the war.
4. 4.That these two parcels of land which was the subject matter of a Deed of Sale with
the Right of Repurchase consists only of one document which was lost.
5. 5.Because it is about time to repurchase the land, I have allowed the representative of
Dominga Conde, Bernardo Conde and Margarita Conde in the name of EUSEBIO
AMARILLE to repurchase the same.
6. 6.Now, this very day November 28, 1945, I or We have recieved together with
Paciente Cordero who is my son-in-law the amount of ONE HUNDRED SIXTY-
FIVE PESOS (P165.00) Philippine Currency of legal tender which was the
consideration in that sale with the right of repurchase with respect to the two parcels
of land.
277
 That we further covenant together with Paciente Cordero who is my son-in-law that from
this day the said Dominga Conde, Bernardo Conde and Margarita Conde will again take
possession of the aforementioned parcel of land because they repurchased the same from
me. If and when their possession over the said parcel of land be disturbed by other persons,
I and Paciente Cordero who is my son-in-law will defend in behalf of the herein brother
and sisters mentioned above, because the same was already repurchased by them.
IN WITNESS WHEREOF, I or We have hereunto affixed our thumbmark or signature
to our respective names below this document or memorandum this 28th day of November
1945 at Burauen, Leyte, Philippines, in the presence of two witnesses.
WITNESSES:
1. (SGD.) TEODORO C. AGUILLON”
To be noted is the fact that neither of the vendees-a-retro, Pio Altera nor Casimira Pasagui,
was a signatory to the deed. Petitioner maintains that because Pio Altera was very ill at the
time, Paciente Cordero executed the deed of resale for and on behalf of his father-in-law.
Petitioner further states that she redeemed the property with her own money as her co-
heirs were bereft of funds for the purpose.
The pacto de retro document was eventually found.

278
 On 30 June 1965 Pio Altera sold the disputed lot to the spouses Ramon Conde and
Catalina T. Conde, who are also private respondents herein. Their relationship to petitioner
does not appear from the records. Nor has the document of sale been exhibited.
Contending that she had validly repurchased the lot in question in 1945, petitioner filed,
on 16 January 1969, in the Court of First Instance of Leyte, Branch IX, Tacloban City, a
Complaint (Civil Case No. B-110), against Paciente Cordero and bis wife Nicetas Altera,
Ramon Conde and his wife Catalina T. Conde, and Casimira Pasagui (Pio Altera having
died in 1966), for quieting of title to real property and declaration of ownership.
Petitioner’s evidence is that Paciente Cordero signed the Memorandum of Repurchase in
representation of his father-in-law Pio Altera, who was seriously sick on that occasion, and
of his mother-in-law who was in Manila at the time, and that Cordero received the
repurchase price of P165.00.
Private respondents, for their part, adduced evidence that Paciente Cordero signed the
document of repurchase merely to show that he had no objection to the repurchase; and
that he did not receive the amount of P165.00 from petitioner inasmuch as he had no
authority from his parents-in-law who were the vendees-a-retro.
After trial, the lower Court rendered its Decision dismissing the Complaint and the
counterclaim and ordering petitioner “to vacate the property in dispute and deliver its
peaceful possession to the defendants Ramon Conde and Catalina T. Conde”.

279
 On appeal, the Court of Appeals upheld the findings of the Court a quo that petitioner
had failed to validly exercise her right of repurchase in view of the fact that the
Memorandum of Repurchase was signed by Paciente Cordero and not by Pio Altera, the
vendee-a-retro, and that there is nothing in said document to show that Cordero was
specifically authorized to act for and on behalf of the vendee a retro, Pio Altera.
Reconsideration having been denied by the Appellate Court, the case is before us on
review.
There is no question that neither of the vendees-a-retro signed the “Memorandum of
Repurchase”, and that there was no formal authorization from the vendees for Paciente
Cordero to act for and on their behalf.
Of signifance, however, is the fact that from the execution of the repurchase document
in 1945, possession, which heretofore had been with the Alteras, has been in the hands of
petitioner as stipulated therein. Land taxes have also been paid for by petitioner yearly from
1947 to 1969 inclusive (Exhibits “D” to “D-15”; and “E”. If, as opined by both the Court a
quoand the Appellate Court, petitioner had done nothing to formalize her repurchase, by
the same token, neither have the vendees-a-retro done anything to clear their title of the
encumbrance therein regarding petitioner’s right to repurchase. No new agreement was
entered into by the parties as stipulated in the deed of pacto de retro, if the vendors a
retro failed to exercise their right of redemption after ten years. If, as alleged, petitioner
exerted no effort to procure the signature of Pio Altera after he had recovered from his
280
illness, neither did the Alteras repudiate the deed that their son-in-law had signed. Thus, an
implied agency must be held to have been created from their silence or lack of action, or
their failure to repudiate the agency.2
Possession of the lot in dispute having been adversely and uninterruptedly with petitioner
from 1945 when the document of repurchase was executed, to 1969, when she instituted
this action, or for 24 years, the Alteras must be deemed to have incurred in laches.3That
petitioner merely took advantage of the abandonment of the land by the Alteras due to the
separation of said spouses, and that petitioner’s possession was in the concept of a tenant,
remain bare assertions without proof.
Private respondents Ramon Conde and Catalina Conde, to whom Pio Altera sold the
disputed property in 1965, assuming that there was, indeed, such a sale, cannot be said to
be purchasers in good faith. OCT No. 534 in the name of the Alteras specifically contained
the condition that it was subject to the right of repurchase within 10 years from 1938.
Although the ten-year period had lapsed in 1965 and there was no annotation of any
repurchase by petitioner, neither had the title been cleared of that encumbrance. The
purchasers were put on notice that some other person could have a right to or interest in
the property. It behooved Ramon Conde and Catalina Conde to have looked into the right
of redemption inscribed on the title, and particularly the matter of possession, which, as
also admitted by them at the pre-trial, had been with petitioner since 1945.

281
 Private respondent must be held bound by the clear terms of the Memorandum of
Repurchase that he had signed wherein he acknowledged the receipt of P165.00 and
assumed the obligation to maintain the repurchasers in peaceful possession should they be
“disturbed by other persons”. It was executed in the Visayan dialect which he understood.
He cannot now be allowed to dispute the same. “x x x If the contract is plain and
unequivocal in its terms he is ordinarily bound thereby. It is the duty of every contracting
party to learn and know its contents before he signs and delivers it.”4
There is nothing in the document of repurchase to show that Paciente Cordero had
signed the same merely to indicate that he had no objection to petitioner’s right of
repurchase. Besides, he would have had no personality to object. To uphold his oral
testimony on that point, would be a departure from the parol evidence rule5 and would
defeat the purpose for which the doctrine is intended.
“x x x The purpose of the rule is to give stability to written agreements, and to remove the
temptation and possibility of perjury, which would be afforded if parol evidence was
admissible.”6
In sum, although the contending parties were legally wanting in their respective actuations,
the repurchase by petitioner is supported by the admissions at the pre-trial that petitioner
has been in possession since the year 1945, the date of the deed of repurchase, and has been
paying land taxes thereon since then. The imperatives of substantial justice, and the

282
equitable principle of laches brought about by private respondents’ inaction and neglect for
24 years, loom in petitioner’s favor.
WHEREFORE, the judgment of respondent Court of Appeals is hereby REVERSED
and SET ASIDE, and petitioner is hereby declared the owner of the disputed property. If
the original of OCT No. N-534 of the Province of Leyte is still extant at the office of the
Register of Deeds, then said official is hereby ordered to cancel the same and, in lieu thereof,
issue a new Transfer Certificate of Title in the name of petitioner, Dominga Conde.
No costs.
SO ORDERED.
Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
Judgment reversed and set aside.
Notes.—The right of redemption provided for by Section 6, Act No. 3135, like any other
property, maybe transferred or assigned by its owner. (Gorospe vs. Santos, 69 SCRA 191.)
Where petitioners’ contention that they should possess the property pendente lite has no
leg to stand on and where the private respondent has in the meantime secured a writ of
possession from another court by virtue of the redemption made by it of the property in
question, the orderly administration of justice that, pending judgment in the three cases
between the same parties over the same property, the possession thereof should be given
to respondent. (Sambajon vs. Tutoan, 78 SCRA 87.)

283
 The attestation clause duly signed is the best evidence as to the date of signing of the will
because it preserves in permanent form a recital of all the material facts attending the
execution of the will. (Gonzales vs. Court of Appeals, 90 SCRA 183.)
Secondary evidence is admissible where the records of adoption proceedings were
actually lost or destroyed. Prior to the introduction of the secondary evidence however, the
proponent must established the former existence of the instrument. (Lazatin vs. Campos,
Jr., 92 SCRA 250.)
Pedigree testimony is not admissible to prove adoption of child. (Lazatin vs. Campos, Jr., 92
SCRA 250.)
A statement that has not been offered in evidence cannot be taken up in evidence no
matter what its purpose was. Appellate court cannot take up as evidence a statement
annexed in a motion in the trial court which was not formally offered in evidence. (People
vs. Court of Appeals, 116 SCRA 505.)
The examination, docket and service cards of the Civil Service Commission are public
records and are admissible under the rule on admission of secondary evidence when the
original has been lost or destroyed. (Buentipo vs. Civil Service Commission, 9 SCRA 856.)
It is not necessary to prove the loss of the original document beyond all possibility of
mistake. A reasonable probability of its loss is sufficient if it is shown that despite diligent

284
search in the place the document is likely to be found, location thereof had been futile.
(Paylago vs. Jarabe, 22 SCRA 1247.)
G.R. No. 94753. April 7, 1993.*
MANOTOK BROTHERS, INC., petitioner, vs. THE HONORABLE COURT OF
APPEALS, THE HONORABLE JUDGE OF THE REGIONAL TRIAL COURT OF
MANILA (Branch VI), and SALVADOR SALIGUMBA, respondents.
Civil Law; Agency; Private respondent, as efficient procuring cause in bringing about sale, is entitled to
agent’s commission.—At first sight, it would seem that private respondent is not entitled to
any commission as he was not successful in consummating the sale between the parties, for
the sole reason that when the Deed of Sale was finally executed, his extended authority had
already expired. By this alone, one might be misled to believe that this case squarely falls
within the ambit of the established principle that a broker or agent is not entitled to any
commission until he has successfully done the job given to him. Going deeper however
into the case would reveal that it is within the coverage of the exception rather than of the
general rule, the exception being that enunciated in the case of Prats vs. Court of Appeals. In
the said case, this Court ruled in favor of claimant-agent, despite the expiration of his
authority, when a sale was finally consummated. In its decision in the abovecited case, this
Court said, that while it was respondent court’s (referring to the Court of Appeals) factual
findings that petitioner Prats (claimant-agent) was not the efficient procuring cause in

285
bringing about the sale (prescinding from the fact of expiration of his exclusive authority),
still petitioner was awarded compensation for his services. And We quote:
“In equity, however, the Court notes that petitioner had diligently taken steps to bring back
together respondent Doronila and the SSS. x x x x x x Under the circumstances, the Court
grants in equity the sum of One Hundred Thousand Pesos (P100,000.00) by way of
compensation for his efforts and assistance in the transaction, which however was finalized
and consummated after the expiration of his exclusive authority x x x.” (Italics supplied.) From the
foregoing, it follows then that private respondent herein, with more reason, should be paid
his commission.
Same; Same; Same.—Contrary to what petitioner advances, the case of Danon vs. Brimo, on
which it heavily anchors its justification for the denial of private respondent’s claim, does
not apply squarely to the instant petition. Claimant-agent in said case fully comprehended
the possibility that he may not realize the agent’s commission as he was informed that
another agent was also negotiating the sale and thus, compensation will pertain to the one
who finds a purchaser and eventually effects the sale. Such is not the case herein. On the
contrary, private respondent pursued with his goal of seeing that the parties reach an
agreement, on the belief that he alone was transacting the business with the City
Government as this was what petitioner made it to appear.
PETITION for certiorari of the decision of the Court of Appeals.
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The facts are stated in the opinion of the Court.
Antonio C. Ravelo for petitioner.
Remigio M. Trinidad for private respondent.
CAMPOS, JR., J.:
Petitioner Manotok Brothers, Inc., by way of the instant Petition docketed as G.R. No.
94753 sought relief from this Court’s Resolution dated May 3, 1989, which reads:
“G.R. No. 78898 (Manotok Brothers, Inc. vs. Salvador Saligumba and Court of
Appeals).—Considering the manifestation of compliance by counsel for petitioner dated
April 14, 1989 with the resolution of March 13, 1989 which required the petitioner to locate
private respondent and to inform this Court of the present address of said private
respondent, the Court Resolved to DISMISS this case, as the issues cannot be joined as
private respondent’s and counsel’s addresses cannot be furnished by the petitioner to this
court.”1
In addition, petitioner prayed for the issuance of a preliminary injunction to prevent
irreparable injury to itself pending resolution by this Court of its cause. Petitioner likewise
urged this Court to hold in contempt private respondent for allegedly adopting sinister ploy
to deprive petitioner of its constitutional right to due process.

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 Acting on said Petition, this Court in a Resolution2 dated October 1, 1990 set aside the
entry of judgment made on May 3, 1989 in case G.R. No. 78898; admitted the amended
petition; and issued a temporary restraining order to restrain the execution of the judgment
appealed from.
The amended petition3 admitted by this Court sought relief from this Court’s Resolution
abovequoted. In the alternative, petitioner begged leave of court to re-file its Petition for
Certiorari4(G.R. No. 78898) grounded on the allegation that petitioner was deprived of its
opportunity to be heard.
The facts as found by the appellate court, revealed that petitioner herein (then defendant-
appellant) is the owner of a certain parcel of land and building which were formerly leased
by the City of Manila and used by the Claro M. Recto High School, at M.F. Jhocson Street,
Sampaloc Manila.
By means of a letter5 dated July 5, 1966, petitioner authorized herein private respondent
Salvador Saligumba to negotiate with the City of Manila the sale of the aforementioned
property for not less than P425,000.00. In the same writing, petitioner agreed to pay private
respondent a five percent (5%) commission in the event the sale is finally consummated
and paid.
Petitioner, on March 4, 1967, executed another letter6 extending the authority of private
respondent for 120 days. Thereafter, another extension was granted to him for 120 more
days, as evidenced by another letter7 dated June 26, 1967.
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 Finally, through another letter8dated November 16, 1967, the corporation with Rufino
Manotok, its President, as signatory, authorized private respondent to finalize and
consummate the sale of the property to the City of Manila for not less than P410,000.00.
With this letter came another extension of 180 days.
The Municipal Board of the City of Manila eventually, on April 26, 1968, passed
Ordinance No. 6603, appropriating the sum of P410,816.00 for the purchase of the
property which private respondent was authorized to sell. Said ordinance however, was
signed by the City Mayor only on May 17, 1968, one hundred eighty three (183) days after
the last letter of authorization.
On January 14, 1969, the parties signed the deed of sale of the subject property. The
initial payment of P200,000.00 having been made, the purchase price was fully satisfied with
a second payment on April 8, 1969 by a check in the amount of P210,816.00.
Notwithstanding the realization of the sale, private respondent never received any
commission, which should have amounted to P20,554.50. This was due to the refusal of
petitioner to pay private respondent said amount as the former does not recognize the
latter’s role as agent in the transaction.
Consequently, on June 29, 1969, private respondent filed a complaint against petitioner,
alleging that he had successfully negotiated the sale of the property. He claimed that it was
because of his efforts that the Municipal Board of Manila passed Ordinance No. 6603
which appropriated the sum for the payment of the property subject of the sale.
289
 Petitioner claimed otherwise. It denied the claim of private respondent on the following
grounds: (1) private respondent would be entitled to a commission only if the sale was
consummated and the price paid within the period given in the respective letters of
authority; and (2) private respondent was not the person responsible for the negotiation
and consummation of the sale, instead it was Filomeno E. Huelgas, the PTA president for
1967-1968 of the Claro M. Recto High School. As a counterclaim, petitioner (then
defendant-appellant) demanded the sum of P4,000.00 as attorney’s fees and for moral
damages.
Thereafter, trial ensued. Private respondent, then plaintiff, testified as to the efforts
undertaken by him to ensure the consummation of the sale. He recounted that it first began
at a meeting with Rufino Manotok at the office of Fructuoso Ancheta, principal of C.M.
Recto High School. Atty. Dominador Bisbal, then president of the PTA, was also present.
The meeting was set precisely to ask private respondent to negotiate the sale of the school
lot and building to the City of Manila. Private respondent then went to Councilor Mariano
Magsalin, the author of the Ordinance which appropriated the money for the purchase of
said property, to present the project. He also went to the Assessor’s Office for appraisal of
the value of the property. While these transpired and his letters of authority expired, Rufino
Manotok always renewed the former’s authorization until the last was given, which was to
remain in force until May 14, 1968. After securing the report of the appraisal committee,
he went to the City Mayor’s Office, which indorsed the matter to the Superintendent of
290
City Schools of Manila. The latter office approved the report and so private respondent
went back to the City Mayor’s Office, which thereafter indorsed the same to the Municipal
Board for appropriation. Subsequently, on April 26, 1968, Ordinance No. 6603 was passed
by the Municipal Board for the appropriation of the sum corresponding to the purchase
price. Petitioner received the full payment of the purchase price, but private respondent did
not receive a single centavo as commission.
Fructuoso Ancheta and Atty. Dominador Bisbal both testified acknowledging the
authority of private respondent regarding the transaction.
Petitioner presented as its witnesses Filomeno Huelgas and the petitioner’s President,
Rufino Manotok. Huelgas testified to the effect that after being inducted as PTA president
in August, 1967 he followed up the sale from the start with Councilor Magsalin until after
it was approved by the Mayor on May 17, 1968. He also said that he came to know Rufino
Manotok only in August, 1968, at which meeting the latter told him that he would be given
a “gratification” in the amount of P20,000.00 if the sale was expedited.
Rufino Manotok confirmed that he knew Huelgas and that there was an agreement
between the two of them regarding the “gratification”.
On rebuttal, Atty. Bisbal said that Huelgas was present in the PTA meetings from 1965
to 1967 but he never offered to help in the acquisition of said property. Moreover, he
testified that Huelgas was aware of the fact that it was private respondent who was
negotiating the sale of the subject property.
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 Thereafter, the then Court of First Instance (now, Regional Trial Court) rendered
judgment sentencing petitioner and/or Rufino Manotok to pay unto private respondent the
sum of P20,540.00 by way of his commission fees with legal interest thereon from the date
of the filing of the complaint until payment. The lower court also ordered petitioner to pay
private respondent the amount of P4,000.00 as and for attorney’s fees.9
Petitioner appealed said decision, but to no avail. Respondent Court of Appeals affirmed
the said ruling of the trial court.10
Its Motion for Reconsideration having been denied by respondent appellate court in a
Resolution dated June 22, 1987, petitioner seasonably elevated its case on Petition for
Review on Certiorari on August 10, 1987 before this Court, docketed as G.R. No. 78898.
Acting on said Petition, this Court issued a Minute Resolution11dated August 31, 1987
ordering private respondent to comment on said Petition.
It appearing that the abovementioned Resolution was returned unserved with the
postmaster’s notation Unclaimed”, this Court in another Resolution12dated March 13, 1989,
required petitioner to locate private respondent and to inform this Court of the present
address of private respondent within ten (10) days from notice. As petitioner was
unsuccessful in its efforts to locate private respondent, it opted to manifest that private
respondent’s last address was the same as that address to which this Court’s Resolution was
forwarded.

292
 Subsequently, this Court issued a Resolution dated May 3, 1989 dismissing petitioner’s
case on the ground that the issues raised in the case at bar cannot be joined. Thus, the
above-entitled case became final and executory by the entry of judgment on May 3, 1989.
Thereafter, on January 9, 1990 private respondent filed a Motion to Execute the said
judgment before the court of origin. Upon discovery of said development, petitioner
verified with the court of origin the circumstances by which private respondent obtained
knowledge of the resolution of this Court. Sensing a fraudulent scheme employed by private
respondent, petitioner then instituted this instant Petition for Relief, on August 30, 1990.
On September 13, 1990, said petition was amended to include, in the alternative, its petition
to re-file its Petition for Certiorari (G.R. No. 78898).
The sole issue to be addressed in this petition is whether or not private respondent is
entitled to the five percent (5%) agent’s commission.
It is petitioner’s contention that as a broker, private respondent’s job is to bring together
the parties to a transaction. Accordingly, if the broker does not succeed in bringing the
minds of the purchaser and the vendor to an agreement with respect to the sale, he is not
entitled to a commission.
Private respondent, on the other hand, opposes petitioner’s position maintaining that it
was because of his efforts that a purchase actually materialized between the parties.
We rule in favor of private respondent.

293
 At first sight, it would seem that private respondent is not entitled to any commission as
he was not successful in consummating the sale between the parties, for the sole reason
that when the Deed of Sale was finally executed, his extended authority had already expired.
By this alone, one might be misled to believe that this case squarely falls within the ambit
of the established principle that a broker or agent is not entitled to any commission until
he has successfully done the job given to him.13
Going deeper however into the case would reveal that it is within the coverage of the
exception rather than of the general rule, the exception being that enunciated in the case
of Prats vs. Court of Appeals.14 In the said case, this Court ruled in favor of claimant-agent,
despite the expiration of his authority, when a sale was finally consummated.
In its decision in the abovecited case, this Court said, that while it was respondent court’s
(referring to the Court of Appeals) factual findings that petitioner Prats (claimant-agent)
was not the efficient procuring cause in bringing about the sale (prescinding from the fact
of expiration of his exclusive authority), still petitioner was awarded compensation for his
services. And We quote:
“In equity, however, the Court notes that petitioner had diligently taken steps to bring back
together respondent Doronila and the SSS,
xxx xxx
The court has noted on the other hand that Doronila finally sold the property to the
Social Security System at P3.25 per square meter which was the very same price counter-
294
offered by the Social Security System and accepted by him in July, 1967 when he alone was
dealing exclusively with the said buyer long before Prats came into the picture but that on the
other hand Prats’ efforts somehow were instrumental in bringing them together again and finally
consummating the transaction at the same price of P3.25 per square meter, although such
finalization was after the expiration of Prats’ extended exclusive authority.
xxx xxx
Under the circumstances, the Court grants in equity the sum of One Hundred Thousand
Pesos (P100,000.00) by way of compensation for his efforts and assistance in the
transaction, which however was finalized and consummated after the expiration of his exclusive
authority x x x.”15 (Italics supplied.)
From the foregoing, it follows then that private respondent herein, with more reason,
should be paid his commission. While in Prats vs. Court of Appeals, the agent was not even
the efficient procuring cause in bringing about the sale, unlike in the case at bar, it was still
held therein that the agent was entitled to compensation. In the case at bar, private
respondent is the efficient procuring cause for without his efforts, the municipality would
not have anything to pass and the Mayor would not have anything to approve.
In an earlier case,16 this Court ruled that when there is a close, proximate and causal
connection between the agent’s efforts and labor and the principal’s sale of his property,
the agent is entitled to a commission.

295
 We agree with respondent Court that the City of Manila ultimately became the purchaser
of petitioner’s property mainly through the efforts of private respondent. Without
discounting the fact that when Municipal Ordinance No. 6603 was signed by the City Mayor
on May 17, 1968, private respondent’s authority had already expired, it is to be noted that
the ordinance was approved on April 26, 1968 when private respondent’s authorization was
still in force. Moreover, the approval by the City Mayor came only three days after the
expiration of private respondent’s authority. It is also worth emphasizing that from the
records, the only party given a written authority by petitioner to negotiate the sale from July
5, 1966 to May 14, 1968 was private respondent.
Contrary to what petitioner advances, the case of Danon vs. Brimo,17 on which it heavily
anchors its justification for the denial of private respondent’s claim, does not apply squarely
to the instant petition. Claimant-agent in said case fully comprehended the possibility that
he may not realize the agent’s commission as he was informed that another agent was also
negotiating the sale and thus, compensation will pertain to the one who finds a purchaser
and eventually effects the sale. Such is not the case herein. On the contrary, private
respondent pursued with his goal of seeing that the parties reach an agreement, on the belief
that he alone was transacting the business with the City Government as this was what
petitioner made it to appear.
While it may be true that Filomeno Huelgas followed-up the matter with Councilor
Magsalin, the author of Municipal Ordinance No. 6303 and Mayor Villegas, his intervention
296
regarding the purchase came only after the ordinance had already been passed—when the
buyer has already agreed to the purchase and to the price for which said property is to be
paid. Without the efforts of private respondent then, Mayor Villegas would have nothing
to approve in the first place. It was actually private respondent’s labor that had set in motion
the intervention of the third party that produced the sale, hence he should be amply
compensated.
WHEREFORE, in the light of the foregoing and finding no reversible error committed
by respondent Court, the decision of the Court of Appeals is hereby AFFIRMED. The
temporary restraining order issued by this Court in its Resolution dated October 1, 1990 is
hereby lifted.
SO ORDERED.
Narvasa (C.J., Chairman), Padilla, Regalado and Nocon, JJ.,concur.
Decision affirmed.
Note.—Revocation of agency does not prevent earning of sales commission where the
contract of sale had already been perfected and partly executed (Siasat v. Intermediate Appellate
Court, 139 SCRA 238).
No. L-30573. October 29, 1971.
VICENTE M. DOMINGO,represented by his heirs, ANTONINA RAYMUNDO VDA.
DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE

297
and JOSELITO, all surnamed DOMINGO, petitioners-appellants,vs. GREGORIO M.
DOMINGO,respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent.
Agency; Obligations of an agent.—–Articles 1891 and 1909 of the Civil Code demand the
utmost good faith, fidelity, honesty, candor and fairness on the part of the agent to his
principal. The agent has an absolute obligation to make a full disclosure or complete
account to his principal of all his transactions and other material facts relevant to the agency,
so much so that the law as amended does not countenance any stipulation exempting the
agent from such an obligation and considers such an exemption as void.
Same; Failure of agent to make full disclosure makes him guilty of breach of his loyalty to the
principal.—–An agent who takes a secret profit in the nature of a bonus, gratuity or personal
benefit from the vendee, without revealing the same to bis principal is guilty of a breach of
his loyalty to the latter and forfeits his right to collect the commission that may be due him,
even if the principal does not suffer any injury by reason of such breach of fidelity, or that
he obtained better results or that the agency is a gratuitous one, or that usage or custom
allows it; because the rule is to prevent the possibility of any wrong, not to remedy or repair
an actual damage.
Same; Duty of fidelity when not applicable.—–The duty embodied in Article 1891 of the Civil
Code does not apply if the agent or broker acted only as a middleman with the task of
merely bringing together the vendor and vendee, who themselves thereafter will negotiate
on the terms and conditions of the transaction.
298
PETITION for review by certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as intervenor-respondent.
MAKASIAR, J.:
Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs,
Antonina Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion,
Irene and Joselito, all surnamed Domingo, sought the reversal of the majority decision
dated March 12, 1969 of the Special Division of Five of the Court of Appeals affirming the
judgment of the trial court, which sentenced the said Vicente M. Domingo to pay Gregorio
M. Domingo P2,307.50 and the intervenor Teofilo P. Purisima P2,607.50 with legal interest
on both amounts from the date of the filing of the complaint, to pay Gregorio Domingo
Pl,000.00 as moral and exemplary damages and P500.00 as attorney’s fees plus costs.
The following facts were found to be established by the majority of the Special Division
of Five of the Court of Appeals:
In a document Exhibit “A” executed on June 2, 1956, Vicente M. Domingo granted
Gregorio Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of
299
Piedad Estate with an area of about 88,477 square meters at the rate of P2.00 per square
meter (or for P176,-954.00) with a commission of 5% on the total price, if the property is
sold by Vicente or by anyone else during the 30-day duration of the agency or if the property
is sold by Vicente within three months from the termination of the agency to a purchaser
to whom it was submitted by Gregorio during the continuance of the agency with notice
to Vicente. The said agency contract was in triplicate, one
133
VOL. 42, 133
OCTOBER
29,1971
Domingo vs. Domingo
copy was given to Vicente, while the original and another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a
buyer, promising him one-half of the 5% commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective
buyer.
Oscar de Leon submitted a written offer which was very much lower than the price of
P2.00 per square meter (Exhibit “B”). Vicente directed Gregorio to tell Oscar de Leon to
raise his offer. After several conferences between Gregorio and Oscar de Leon, the latter

300
raised his offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit “C”, to which
Vicente agreed by signing Exhibit “C”. Upon demand of Vicente, Oscar de Leon issued to
him a check in the amount of Pl,000.00 as earnest money, after which Vicente advanced to
Gregorio the sum of P300.00. Oscar de Leon confirmed his former offer to pay for the
property at P1.20 per square meter in another letter, Exhibit “D”. Subsequently, Vicente
asked for an additional amount of P1,000.00 as earnest money, which Oscar de Leon
promised to deliver to him. Thereafter, Exhibit “C” was amended to the effect that Oscar
de Leon will vacate on or about September 15, 1956 his house and lot at Denver Street,
Quezon City which is part of the purchase price. It was again amended to the effect that
Oscar will vacate his house and lot on December 1, 1956, because his wife was on the
family way and Vicente could stay in lot No. 883 of Piedad Estate until June 1, 1957, in a
document dated June 30, 1956 (the year 1957 therein is a mere typographical error) and
marked Exhibit “D”. Pursuant to his promise to Gregorio, Oscar gave him as a gift
or propina the sum of One Thousand Pesos (Pl,000.00) for succeeding in persuading Vicente
to sell his lot at P1.20 per square meter or a total in round figure of One Hundred Nine
Thousand Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not
disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the additional amount of
One Thousand Pesos (P1,000.00) by way of earnest money. When the deed of sale was not
executed on August 1, 1956 as stipulated in Exhibit “C” nor on August 15, 1956 as extended
by Vicente, Oscar told Gregorio that he did not receive his money from his brother in the
301
United States, for which reason he was giving up the negotiation including the amount of
One Thousand Pesos (P1,000.00) given as earnest money to Vicente and the One Thousand
Pesos (P1,000.00) given to Gregorio as propina or gift. When Oscar did not see him after
several weeks, Gregorio sensed something fishy. So, he went to Vicente and read a portion
of Exhibit “A” marked Exhibit “A-1”to the effect that Vicente was still committed to pay
him 5% commission, if the sale is consummated within three months after the expiration
of the 30-day period of the exclusive agency in his favor from the execution of the agency
contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente during the said 30-
day period. Vicente grabbed the original of Exhibit “A” and tore it to pieces. Gregorio held
his peace, not wanting to antagonize Vicente further, because he had still the duplicate of
Exhibit “A”. From his meeting with Vicente, Gregorio proceeded to the office of the
Register of Deeds of Quezon City, where he discovered Exhibit “G”, a deed of sale
executed on September 17, 1956 by Aaraparo Diaz, wife of Oscar de Leon, over their house
and lot at No. 40 Denver Street, Cubao, Quezon City, in favor of Vicente as down payment
by Oscar de Leon on the purchase price of Vicente’s lot No. 883 of Piedad Estate. Upon
thus learning that Vicente sold his property to the same buyer, Oscar de Leon and his wife,
he demanded in writing payment of his commission on the sale price of One Hundred Nine
Thousand Pesos (P109.000.00), Exhibit “H”. He also conferred with Oscar de Leon, who
told him that Vicente went to him and asked him to eliminate Gregorio in the transaction
and that he would sell his property to him for One Hundred Four Thousand Pesos
302
(P104,000.00). In Vicente’s reply to Gregorio’s letter, Exhibit “H”, Vicente stated that
Gregorio is not entitled to the 5 % commission because he sold the property not to
Gregorio’s buyer, Oscar de Leon, but to another buyer, Amparo Diaz, wife of Oscar de
Leon.
The Court of Appeals found from the evidence that Exhibit “A”, the exclusive agency
contract, is genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon, the
sale by Vicente of his property is practically a sale to Oscar de Leon since husband and wife
have common or identical interests; that Gregorio and intervenor Teofilo Purisima were
the efficient cause in the consummation of the sale in favor of the spouses Oscar de Leon
and Amparo Diaz; that Oscar de Leon paid Gregorio the sum of One Thousand Pesos
(P1,000.00) as “propina” or gift and not as additional earnest money to be given to the
plaintiff, because Exhibit “66”, Vicente’s letter addressed to Oscar de Leon with respect to
the additional earnest money, does not appear to have been answered by Oscar de Leon
and therefore there is no writing or document supporting Oscar de Leon’s testimony that
he paid an additional earnest money of One Thousand Pesos (P1,000.00) to Gregorio for
delivery to Vicente, unlike the first amount of One Thousand Pesos (P1,000.00) paid
byOscar de Leon to Vicente as earnest money, evidenced by the letter Exhibit “4”; and that
Vicente did not even mention such additional earnest-money in his two replies Exhibits “I”
and “J” to Gregorio’s letter of demand of the 5% commission.

303
 The three issues in this appeal are (1) whether the failure on the part of Gregorio to
disclose to Vicente the payment to him by Oscar de Leon of the amount of One Thousand
Pesos (P1,000.00) as gift or “propina” for having persuaded Vicente to reduce the purchase
price from P2.00 to P1.20 per square meter, so constitutes fraud as to cause a forfeiture of
his 5% commission on the sale price; ‘(2) whether Vicente or Gregorio should be liable
directly to the intervenor Teofilo Purisima for the latter’s share in the expected commission
of Gregorio by reason of the sale; and (3) whether the award of legal interest, moral and
exemplary damages, attorney’s fees and costs, was proper.
Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred
in by Justice Juan Enriquez did not touch on these issues which were extensively discussed
by Justice Magno Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his
concurring opinion, affirmed that it does not constitute breach of trust or fraud on the part
of the broker and regarded the same as merely part of the whole process of bringing about
the meeting of the minds of the seller and the purchaser and that the commitment from
the prospective buyer that he would give a reward to Gregorio if he could effect better
terms for him from the seller, independent of his legitimate commission, is not fraudulent,
because the principal can reject the terms offered by the prospective buyer if he believes
that such terms are onerous or disadvantageous to him. On the other hand, Justice
Gatmaitan, with whom Justice Antonio Cañizares concurred, held the view that such an act

304
on the part of Gregorio was fraudulent and constituted a breach of trust, which should
deprive him of his right to the commission.
The duties and liabilities of a broker to his employer are essentially those which an agent
owes to his principal.1
Consequently, the decisive legal provisions are found in Articles 1891 and 1909 of the
New Civil Code.
“Art. 1891. Every agent is bound to render an account of his transactions and to deliver to
the principal whatever he may have received by virtue of the agency, even though it may
not be owing to the principal.
“Every stipulation exempting the agent from the obligation to render an account shall be
void.”
x x x x x x x
“Art. 1909. The agent is responsible not only for fraud, but also for negligence, which
shall be judged with more or less rigor by the courts, according to whether the agency was
or was not for a compensation.”
Article 1891 of the New Civil Code amends Article 1720 of the old Spanish Civil Code
which provides that:
“Art. 1720. Every agent is bound to give an account of his transaction and to pay to the
principal whatever he may have received by virtue of the agency, even though what he has
received is not due to the principal.”
305
The modification contained in the first paragraph of Article 1891 consists in changing the
phrase “to pay” to “to deliver”, which latter term is more comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is
required to an agent—– condemning as void any stipulation exempting the agent from the
duty and liability imposed on him in paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the
old Spanish Civil Code which reads thus:
“Art. 1726. The agent is liable not only for fraud, but also for negligence, which shall be
judged with more or less severity by the courts, according to whether the agency was
gratuitous or for a price or reward.”
The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and
fairness on the part of the agent, the real estate broker in this case, to his principal, the
vendor. The law imposes upon the agent the absolute obligation to make a full disclosure
or complete account to his principal of all his transactions and other material facts relevant
to the agency, so much so that the law as amended does not countenance any stipulation
exempting the agent from such an obligation and considers such an exemption as void. The
duty of an agent is likened to that of a trustee. This is not a technical or arbitrary rule but a
rule founded on the highest and truest principle of morality as well as of the strictest justice.2
Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal
benefit from the vendee, without revealing the same to his principal, the vendor, is guilty
306
of a breach of his loyalty to the principal and forfeits his right to collect the commission
from his principal, even if the principal does not suffer any injury by reason of such breach
of fidelity, or that he obtained better results or that the agency is a gratuitous one, or that
usage or custom allows it; because the rule is to prevent the possibility of any wrong, not
to remedy or repair an actual damage.3 By taking such profit or bonus or gift or propina
from the vendee, the agent thereby assumes a position wholly inconsistent with that of
being an agent for his principal, who has a right to treat him, insofar as his commission is
concerned, as if no agency had existed. The fact that the principal may have been benefited
by the valuable services of the said agent does not exculpate the agent who has only himself
to blame for such a result by reason of his treachery or perfidy.
This Court has been consistent in the rigorous application of Article 1720 of the old
Spanish Civil Code. Thus, for failure to deliver sums of money paid to him as an insurance
agent for the account of his employer as required by said Article 1720, said insurance agent
was convicted of estafa.4 An administrator of an estate was likewise liable under the same
Article 1720 for failure to render an account of his administration to the heirs unless the
heirs consented thereto or are estopped by having accepted the correctness of his account
previously rendered.5
Because of his responsibility under the aforecited Aricle 1720, an agent is likewise liable
for estafa for failure to deliver to his principal the total amount collected by him in behalf

307
of his principal and cannot retain the commission pertaining to him by subtracting the same
from his collections.6
A lawyer is equally liable under said Article 1720 if he fails to deliver to his client all the
money and property received by him for his client despite his attorney’s lien.7 The duty of
a commission agent to render a full account of his operations to his principal was reiterated
in Duhart, etc. vs. Macias.8
The American jurisprudence on this score is well-nigh unanimous.
“Where a principal has paid an agent or broker a commission while ignorant of the fact
that the latter has been unfaithful, the principal may recover back the commission paid,
since an agent or broker who has been unfaithful is not entitled to any compensation.
x x x x x x x
“In discussing the right of the principal to recover commissions retained by an unfaithful
agent, the court inLittle vs. Phipps (1911) 208 Mass. 331, 94 NE 260, 34 LRA(NS) 1046,
said: ‘It is well settled that the agent is bound to exercise the utmost good faith in his
dealings with his principal. As Lord Cairns said, this rule “is not a technical or arbitrary rule.
It is a rule founded on the highest and truest principles of morality.” Parker vs. McKenna
(1874) LR 10 Ch(Eng) 96, 118... If the agent does not conduct himself with entire fidelity
towards his principal, but is guilty of taking a secret profit or commission in regard the
matter in which he is employed, he loses his right to compensation on the ground that he
has taken a position wholly inconsistent with that of agent for his employer, and which
308
gives his employer, upon discovering it, the right to treat him so far as compensation, at
least, is concerned as if no agency had existed. This may operate to give to the principal the
benefit of valuable services rendered by the agent, but the agent has only himself to blame
for that result.’
x x x x x x x
“The intent with which the agent took a secret profit has been held immaterial where the
agent has in fact entered into a relationship inconsistent with his agency, since the law
condemns the corrupting tendency of the inconsistent relationship. Little vs. Phipps (1911)
94 NE 260.”9
“As a general rule, it is a breach of good faith and loyalty to his principal for an agent,
while the agency exists, so to deal with the subject matter thereof, or with information
acquired during the course of the agency, as to make a profit out of it for himself in excess
of his lawful compensation; and if he does so he may be held as a trustee and may/ be
compelled to account to his principal for all profits, advantages, rights, or privileges acquired by him in such
dealings, whether in performance or in violation of his duties, and be required to transfer them to his principal
upon being reimbursed for his expenditures for the same, unless the principal has consented to or ratified the
transaction knowing that benefit or profit would accrue, or had accrued, to the agent, or unless with such
knowledge he has allowed the agent so as to change his condition that he cannot be put in status quo. The
application of this rule is not affected by the fact that the principal did not suffer any injury by reason of the

309
agent’s dealings, or that he in fact obtained better results; nor is it affected by the fact that there is a usage
or custom to the contrary, or that the agency is a gratuitous one.” (Italics supplied.)10
In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift or
propina in the amount of One Thousand Pesos (Pl,000.00) from the prospective buyer
Oscar de Leon, without the knowledge and consent of his principal, herein petitioner-
appellant Vicente Domingo. His acceptance of said substantial monetary gift corrupted his
duty to serve the interests only of his principal and undermined his loyalty to his principal,
who gave him a partial advance of Three Hundred Pesos (P300.00) on his commission. As
a consequence, instead of exerting his best to persuade his prospective buyer to purchase
the property on the most advantageous terms desired by his principal, the broker, herein
defendant-appellee Gregorio Domingo, succeeded in persuading his principal to accept the
counter-offer of the prospective buyer to purchase the property at P1.20 per square meter
or One Hundred Nine Thousand Pesos (P109,000.00) in round figure for the lot of 88,477
square meters, which is very much lower than the price of P2.00 per square meter or One
Hundred Seventy-Six Thousand Nine Hundred Fifty-Four Pesos (P176.954.00) for said lot
originally offered by his principal.
The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or
broker acted only as a middleman with the task of merely bringing together the vendor and
vendee, who themselves thereafter will negotiate on the terms and conditions of the
transaction. Neither would the rule apply if the agent or broker had informed the principal
310
of the gift or bonus or profit he received from the purchaser and his principal did not object
thereto.11 Herein defendant-appellee Gregorio Domingo was not merely a middleman of
the petitioner-appellant Vicente Domingo and the buyer Oscar de Leon. He was the broker
and agent of said petitioner-appellant only. And therein petitioner-appellant was not aware
of the gift of One Thousand Pesos (Pl,000.00) received by Gregorio Domingo from the
prospective buyer; much less did he consent to his agent’s accepting such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar
de Leon, does not materially alter the situation; because the transaction, to be valid, must
necessarily be with, the consent of the husband Oscar de Leon, who is the administrator of
their conjugal assets including their house and lot at No. 40 Denver Street, Cubao, Quezon
City, which were given as part of and constituted the down payment on, the purchase price
of herein petitioner-appellant’s lot No. 883 of Piedad Estate. Hence, both in law and in
fact, it was still Oscar de Leon who was the buyer.
As a necessary consequence of such breach of trust, defendant-appellee Gregorio
Domingo must forfeit his right to the commission and must return the part of the
commission he received from his principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio
Domingo his one-half share of whatever amounts Gregorio Domingo received by virtue of
the transaction as his sub-agency contract was with Gregorio Domingo alone and not with
Vicente Domingo, who was not even aware of such sub-agency. Since Gregorio Domingo
311
received from Vicente Domingo and Oscar de Leon respectively the amounts of Three
Hundred Pesos (P300.00) and One Thousand Pesos (P1,000.00) or a total of One
Thousand Three Hundred Pesos (P1,300.00)one-half of the same, which is Six Hundred
Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo Purisima.
Because Gregorio Domingo’s clearly unfounded complaint
caused Vicente Domingo mental anguish and serious anxiety as well as wounded feelings,
petitioner-appellant Vicente Domingo should be awarded moral damages in the reasonable
amount of One Thousand Pesos (P1,000.00) and attorney’s fees in the reasonable amount
of One Thousand Pesos (P1,000.00), considering that this case has been pending for the
last fifteen (15) years from its filing on October 3, 1956.
WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of
Appeals and directing the defendant-appellee Gregorio Domingo: (1) to pay to the heirs of
Vicente Domingo the sum of One Thousand Pesos (P1,000.00) as moral damages and One
Thousand Pesos (P1,000.00) as attorney’s fees; (2) to pay Teofilo Purisima the sum of Six
Hundred Fifty Pesos (P650.00); and (3) to pay the costs.
Concepcion, C.J., Reyes,
J.B.L., Makalintal, Zaldivar,Castro, Fernando, Teehankee, Barredo and Villamor, JJ., concur.
Judgment reversed.

312
 No. L-67889. October 10, 1985.*
PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners, vs. INTERMEDIATE
APPELLATE COURT and TERESITA NACIANCENO, respondents.
Civil Law; Agency; General Agency; Where general words were employed in an agreement that no
restrictions were intended as to the manner the agency was to be carried out or in the place where it was to
be executed, a general agency is constituted.—One does not have to undertake a close scrutiny of
the document embodying the agreement between the petitioners and the respondent to
deduce that the latter was instituted as a general agent. Indeed, it can easily be seen by the
way general words were employed in the agreement that no restrictions were intended as
to the manner the agency was to be carried out or in the place where it was to be executed.
The power granted to the respondent was so broad that it practically covers the negotiations
leading to, and the execution of, a contract of sale of petitioners' merchandise with any
entity or organization.
Same; Same; Same; Contract of agency, not entered through fraudulent representations where no efforts
were exerted to limit the scope of the agency; Case at bar.—lf the circumstances were as claimed by
the petitioners, they would have exerted efforts to protect their interests by limiting the
respondent's authority. There was nothing to prevent the petitioners from stating in the
contract of agency that the respondent could represent them only in the Visayas. Or to state
that the Department of Education and Culture and the Department of National Defense,
which alone would need a million pesos worth of flags, are outside the scope of the agency.
313
As the trial court opined, it is incredible that they could be so careless after being in the
business for fifteen years.
Same; Same; Same; Evidence; General rule that when the terms of an agreement have been reduced to
writing, it is to be considered as construing all such terms and there can be between the parties and their
successors-in-interest no evidence of the terms of the agreement other than the contents of the writing.—
A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules of Court
states that "when the terms of an agreement have been reduced to writing, it is to be
considered as containing all such terms, and, therefore, there can be between the parties
and their successors-in-interest, no evidence of the terms of the agreement other than the
contents of the writing", except in cases specifically mentioned in the same rule. Petitioners
have failed to show that their agreement falls under any of these exceptions. The respondent
was given ample authority to transact with the Department in behalf of the petitioners.
Same; Same; Same; Contracts; Fact that there were two purchase orders and two deliveries of
merchandise does not involve two separate contracts but only one transaction; Case at bar.—The
petitioners' evidence does not necessarily prove that there were two separate transactions.
Exhibit "6" is a general indorsement made by Secretary Manuel for the purchase of the
national flags for public schools. It contains no reference to the number of flags to be
ordered or the amount of funds to be released. Exhibit "7" is a letter request for a "similar
authority" to purchase flags from the United Flag Industry. This was, however, written by
Dr. Narciso Albarracin who was appointed Acting Secretary of the Department after
314
Secretary Manuel's tenure, and who may not have known the real nature of the transaction.
If the contracts were separate and distinct from one another, the whole or at least a
substantial part of the government's supply procurement process would have been
repeated. In this case, what were issued were mere indorsements for the release of funds
and authorization for the next purchase.
Same; Same; Same; Entitlement of agent to her stipulated commission on the second delivery of the
merchandise despite revocation of the agency effected after the first delivery as only one transaction is involved;
Revocation of agency does not prevent earning of sales commission where the contract of sale had already been
perfected and partly executed.—Since only one transaction was involved, we deny the petitioners'
contention that respondent Nacianceno is not entitled to the stipulated commission on the
second delivery because of the revocation of the agency effected after the first delivery. The
revocation of agency could not prevent the respondent from earning her commission
because as the trial court opined, it came too late, the contract of sale having been already
perfected and partly executed.
Same; Same; Same; Same; Forged Signature; Fact that the agent signed certain documents using her
full name does not rule out the possibility of her signing a mere acknowledgment with her initial for the given
name and the surname written in full.—The stated basis is inadequate to sustain the respondent's
allegation of forgery. A variance in the manner the respondent signed her name can not be
considered as conclusive proof that the questioned signature is a forgery. The mere fact
that the respondent signed thirteen documents using her full name does not rule out the
315
possibility of her having signed the notation "Fully Paid", with her initial for the given name
and the surname written in full. What she was signing was a mere acknowledgment.
Same; Same; Same; Same; Forgery cannot be presumed, but must be proved.—While the experts
testified in a civil case, the principles developed in criminal cases involving forgery are
applicable. Forgery cannot be presumed. It must be proved.
Same; Same; Same; Revocation of agency; Absence of fraud and bad faith in revocation of agency by the
principal; Fraud and bad faith are not presumed, but must be alleged with sufficient facts; Revocation of
agency, not done by principal to avoid payment of the commission.—Fraud and bad faith are matters
not to be presumed but matters to be alleged with sufficient facts. To support a judgment
for damages, facts which justify the inference of a lack or absence of good faith must be
alleged and proven. (Bacolod-Murcia Milling Co., Inc. v. First Farmers Milling Co., Inc.,
Etc., 103 SCRA 436). There is no evidence on record from which to conclude that the
revocation of the agency was deliberately effected by the petitioners to avoid payment of
the respondent's commission. What appears before us is only the petitioner's use in court
of such a factual allegation as a defense against the respondent's claim. This alone does not
per se make the petitioners guilty of bad faith for that defense should have been fully
litigated.
Same; Same; Damages; Moral damages, cannot be awarded, absent a wrongful act or omission or of
fraud or bad faith.—Moral damages cannot be awarded in the absence of a wrongful act or
omission or of fraud or bad faith. (R & B Surety & Insurance Co., Inc. v. Intermediate
316
Appellate Court, 129 SCRA 736). We therefore, rule that the award of P 25,000.00 as moral
damages is without basis.
Same; Same; Same; A ttorney 's Fees; No award of attorney's fees where the agent did not come to court
with clean hands and that the principals believed they could legally revoke the agency and did not have to
pay a commission for the second delivery of the merchandise.—The underlying circumstances of this
case lead us to rule out any award of attorney's fees. For one thing, the respondent did not
come to court with completely clean hands. For another, the petitioners apparently believed
they could legally revoke the agency in the manner they did and deal directly with education
officials handling the purchase of Philippine flags. They had reason to sincerely believe they
did not have to pay a commission for the second delivery of flags.
Same; Same; 30% commission or P300,000 fee for a P1 million price for purchase of flags awarded to
an agent of the merchandise or the facilitator of documents, abhorred; Procurement policies of the Department
of Education in its purchase of Philippine flags thru an agent instead of directly through the
manufacturers, not proper.—We cannot close this case without commenting adversely on the
inexplicably strange procurement policies of the Department of Education and Culture in
its purchase of Philippine flags. There is no reason why a shocking 30% of the taxpayers'
money should go to an agent or facilitator who had no flags to sell and whose only work
was to secure and handcarry the indorsements of education and budget officials. There are
only a few manufacturers of flags in our country with the petitioners claiming to have
supplied flags for our public schools on earlier occasions. If public bidding was deemed
317
unnecessary, the Department should have negotiated directly with flag manufacturers.
Considering the sad plight of underpaid and overworked classroom teachers whose pitiful
salaries and allowances cannot sometimes be paid on time, a P300,000.00 fee for a
P1,000,000.00 purchase of flags is not only clearly unnecessary but a scandalous waste of
public funds as well.
PETITION for certiorari to review the decision of the Intermediate Appellate Court.
The facts are stated in the opinion of the Court.
Payawal, Jimenez & A ssociates for petitioners.
Nelson A Loyola for private respondent.
GUTIERREZ, JR., J.:
This is a petition for review of the decision of the Intermediate Appellate Court affirming
in toto the judgment of the Court of First Instance of Manila, Branch XXI, which ordered
the petitioner to pay respondent the thirty percent (30%) commission on 15,666 pieces of
Philippine flags worth P936,960.00, moral damages, attorney's fees and the costs of the suit.
Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing officials of
the then Department of Education and Culture, hereinafter called Department, to purchase
without public bidding, one million pesos worth of national flags for the use of public

318
schools throughout the country. The respondent was able to expedite the approval of the
purchase by handcarrying the different indorsements from one office to another, so that
by the first week of September, 1974, all the legal requirements had been complied with,
except the release of the purchase orders, When Nacianceno was informed by the Chief of
the Budget Division of the Department that the purchase orders could not be released
unless a formal offer to deliver the flags in accordance with the required specifications was
first submitted for approval, she contacted the owners of the United Flag Industry on
September 17, 1974. The next day, after the transaction was discussed, the following
document (Exhibit A) was drawn up:
"Mrs. Tessie Nacianceno,
"This is to formalize our agreement for you to represent United Flag Industry to deal
with any entity or organization, private or government in connection with the marketing of
our products—flags and all its accessories.
"For your service, you will be entitled to a commission of thirty (30%) percent.
Signed
Mr. Primitivo Siasat
Owner and Gen. Manager"
On October 16, 1974, the first delivery of 7,933 flags was made by the United Flag Industry.
The next day, on October 17, 1974, the respondent's authority to represent the United Flag
Industry was revoked by petitioner Primitivo Siasat.
319
 According to the findings of the courts below, Siasat, after receiving the payment of
P469,980.00 on October 23, 1974 for the first delivery, tendered the amount of P23,900.00
or five percent (5%) of the amount received, to the respondent as payment of her
commission. The latter allegedly protested. She refused to accept the said amount insisting
on the 30% commission agreed upon. The respondent was prevailed upon to accept the
same, however, because of the assurance of the petitioners that they would pay the
commission in full after they delivered the other half of the order. The respondent states
that she later on learned that petitioner Siasat had already received payment for the second
delivery of 7,833 flags. When she confronted the petitioners, they vehemently denied
receipt of the payment, at the same time claiming that the respondent had no participation
whatsoever with regard to the second delivery of flags and that the agency had already been
revoked.
The respondent originally filed a complaint with the Complaints and Investigation Office
in Malacañang but when nothing came of the complaint, she filed an action in the Court of
First Instance of Manila to recover the following commissions: 25% as balance on the first
delivery and 30% on the second delivery.
The trial court decided in favor of the respondent. The dispositive portion of the decision
reads as follows:
"WHEREFORE, judgment is hereby rendered sentencing Primitivo Siasat to pay to the
plaintiff the sum of P281,988.00, minus the sum P23,900.00, with legal interest from the
320
date of this decision, and ordering the defendants to pay jointly and solidarily the sum of
P25,000.00 as moral damages, and P25,000.00 as attorney's fees, also with legal interest
from the date of this decision, and the costs."
The decision was affirmed in toto by the Intermediate Appellate Court. After their motion
for reconsideration was denied, the petitioners went to this Court on a petition for review
on August 6,1984.
In assailing the appellate court's decision, the petition tenders the following arguments:
first, the authorization making the respondent the petitioner's representative merely states
that she could deal with any entity in connection with the marketing of their products for
a commission of 30%. There was no specific authorization for the sale of 15,666 Philippine
flags to the Department; second, there were two transactions involved evidenced by the
separate purchase orders and separate delivery receipts, Exhibit 6-C for the purchase and
delivery on October 16, 1974, and Exhibits 7 to 7-C, for the purchase and delivery on
November 6, 1974. The revocation of agency effected by the parties with mutual consent
on October 17, 1974, therefore, forecloses the respondent's claim of 30% commission on
the second transaction; and last, there was no basis for the granting of attorney's fees and
moral damages because there was no showing of bad faith on the part of the petitioner. It
was respondent who showed bad faith in denying having received her commission on the
first delivery. The petitioner's counterclaim, therefore, should have been granted.

321
 This petition was initially dismissed for lack of merit in a minute resolution. On a motion
for reconsideration, however. this Court gave due course to the petition on November 14,
1984.
After a careful review of the records, we are constrained to sustain with some
modifications the decision of the appellate court.
We find petitioners' argument regarding respondent's incapacity to represent them in the
transaction with the Department untenable. There are several kinds of agents. To quote a
commentator on the matter:
"An agent may be (1) universal; (2) general, or (3) special. A universal agent is one
authorized to do all acts for his principal which can lawfully be delegated to an agent. So
far as such a condition is possible, such an agent may be said to have universal authority.
(Mec. Sec. 58).
"A general agent is one authorized to do all acts pertaining to a business of a certain kind
or at a particular place, or all acts pertaining to a business of a particular class or series. He
has usually authority either expressly conferred in general terms or in effect made general
by the usages, customs or nature of the business which he is authorized to transact.
"An agent, therefore, who is empowered to transact all the business of his principal of a
particular kind or in a particular place, would, for this reason, be ordinarily deemed a general
agent. (Mec. Sec. 60).

322
 "A special agent is one authorized to do some particular act or to act upon some particular
occasion. He acts usually in accordance with specific instructions or under limitations
necessarily implied from the nature of the act to be done." (Mec. Sec. 61) (Padilla, Civil
Law, The Civil Code Annotated, Vol. VI, 1969 Edition, p. 204).
One does not have to undertake a close scrutiny of the document embodying the agreement
between the petitioners and the respondent to deduce that the latter was instituted as a
general agent. Indeed, it can easily be seen by the way general words were employed in the
agreement that no restrictions were intended as to the manner the agency was to be carried
out or in the place where it was to be executed. The power granted to the respondent was
so broad that it practically covers the negotiations leading to, and the execution of, a
contract of sale of petitioners' merchandise with any entity or organization.
There is no merit in petitioners' allegations that the contract of agency between the parties
was entered into under fraudulent representation because respondent "would not disclose
the agency with which she was supposed to transact and made the petitioner believe that
she would be dealing with the Visayas", and that "the petitioner had known of the
transactions and/or project for the said purchase of the Philippine flags by the Department
of Education and Culture and precisely it was the one being f ollowed up also by petitioner.''
If the circumstances were as claimed by the petitioners, they would have exerted efforts to
protect their interests by limiting the respondent's authority. There was nothing to prevent
the petitioners from stating in the contract of agency that the respondent could represent
323
them only in the Visayas. Or to state that the Department of Education and Culture and
the Department of National Defense, which alone would need a million pesos worth of
flags, are outside the scope of the agency. As the trial court opined, it is incredible that they
could be so careless af ter being in the business for fifteen years.
A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules of Court
states that "when the terms of an agreement have been reduced to writing, it is to be
considered as containing all such terms, and, therefore, there can be between the parties
and their successors-in-interest, no evidence of the terms of the agreement other than the
contents of the writing", except in cases specifically mentioned in the same rule. Petitioners
have failed to show that their agreement falls under any of these exceptions. The respondent
was given ample authority to transact with the Department in behalf of the petitioners.
Equally without merit is the petitioners' proposition that the transaction involved two
separate contracts because there were two purchase orders and two deliveries.
The petitioners' evidence is overcome by other pieces of evidence proving that there was
only one transaction. The indorsement of then Assistant Executive Secretary Roberto
Reyes to the Budget Commission on September 3, 1974 (Exhibit "C") attests to the fact
that out of the total budget of the Department for the fiscal year 1975, "P1,000,000.00 is
for the purchase of national flags." This is also reflected in the Financial and Work Plan
Request for Allotment (Exhibit "F") submitted by Secretary Juan Manuel for fiscal year
1975 which however, divided the allocation and release of the funds into three,
324
corresponding to the second, third, and fourth quarters of the said year. Later
correspondence between the Department and the Budget Commission (Exhibits "D" and
"E") show that the first allotment of P500,000.00 was released during the second quarter.
However, due to the necessity of furnishing all of the public schools in the country with
the Philippine flag, Secretary Manuel requested for the immediate release of the
programmed allotments intended for the third and fourth quarters. These circumstances
explain why two purchase orders and two deliveries had to be made on one transaction.
The petitioners' evidence does not necessarily prove that there were two separate
transactions. Exhibit "6" is a general indorsement made by Secretary Manuel for the
purchase of the national flags for public schools. It contains no reference to the number of
flags to be ordered or the amount of funds to be released. Exhibit "7" is a letter request for
a "similar authority" to purchase flags from the United Flag Industry. This was, however,
written by Dr. Narciso Albarracin who was appointed Acting Secretary of the Department
after Secretary Manuel's tenure, and who may not have known the real nature of the
transaction.
If the contracts were separate and distinct from one another, the whole or at least a
substantial part of the government's supply procurement process would have been
repeated. In this case, what were issued were mere indorsements for the release of funds
and authorization for the next purchase.

325
 Since only one transaction was involved, we deny the petitioners' contention that
respondent Nacianceno is not entitled to the stipulated commission on the second delivery
because of the revocation of the agency effected after the first delivery. The revocation of
agency could not prevent the respondent from earning her commission because as the trial
court opined, it came too late, the contract of sale having been already perf ected and partly
executed.
In Macondray & Co. v. Sellner(33 Phil. 370, 377), a case analogous to this one in principle,
this Court held:
"We do not mean to question the general doctrine as to the power of a principal to revoke
the authority of his agent at will, in the absence of a contract fixing the duration of the
agency (subject, however, to some well defined exceptions). Our ruling is that at the time
fixed by the manager of the plaintiff company for the termination of the negotiations, the
defendant real estate agent had already earned the commissions agreed upon, and could not
be deprived thereof by the arbitrary action of the plaintiff company in declining to execute
the contract of sale for some reason personal to itself."
The principal cannot deprive his agent of the commission agreed upon by cancelling the
agency and, thereafter, dealing directly with the buyer. (Infante v. Cunanan, 93 Phil. 691).
The appellate court's citation of its previous ruling in Heimbrod, et al v. Ledesma (C.A. 49
O.G. 1507) is correct:

326
"The appellee is entitled to recovery. No citation is necessary to show that the general law
of contracts the equitable principle of estoppel, and the expense of another, uphold
payment of compensation for services rendered."
There is merit, however, in the petitioners' contention that the agent's commission on the
first delivery was fully paid. The evidence does not sustain the respondent's claim that the
petitioners paid her only 5% and that their right to collect another 25% commission on the
first delivery must be upheld.
When respondent Nacianceno asked the Malacañang Complaints and Investigation
Office to help her collect her commission, her statement under oath referred exclusively to
the 30% commission on the second delivery, The statement was emphatic that "now" her
demand was for the 30% commission on the second release of P469,980.00. The demand
letter of the respondent's lawyer dated November 13, 1984 asked petitioner Siasat only for
the 30% commission due from the second delivery. The fact that the respondent demanded
only the commission on the second delivery without reference to the alleged unpaid
balance—which was only slightly less than the amount claimed—can only mean that the
commission on the first delivery was already fully paid. Considering the sizeable sum
involved, such an omission is too glaringly remiss to be regarded as an oversight.
Moreover, the respondent's authorization letter (Exhibit "5") bears her signature with the
handwritten words "Fully Paid'', inscribed above it.

327
 The respondent contested her signature as a forgery. Handwriting experts from two
government agencies testified on the matter. The reason given by the trial court in ruling
for the respondent is too flimsy to warrant a finding of forgery.
The court stated that in thirteen documents presented as exhibits, the private respondent
signed her name as "Tessie Nacianceno" while in this particular instance, she signed as "T.
Nacianceno."
The stated basis is inadequate to sustain the respondent's allegation of forgery. A variance
in the manner the respondent signed her name can not be considered as conclusive proof
that the questioned signature is a forgery. The mere fact that the respondent signed thirteen
documents using her full name does not rule out the possibility of her having signed the
notation. "Fully Paid", with her initial for the given name and the surname written in full.
What she was signing was a mere acknowledgment.
This leaves the expert testimony as the sole basis for the verdict of f orgery.
In support of their allegation of full payment as evidenced by the signed authorization
letter (Exhibit "5-A"), the petitioners presented as witness Mr. Francisco Cruz, Jr. a senior
document examiner of the Philippine Constabulary Crime Laboratory. In rebuttal, the
respondent presented Mr. Arcadio Ramos, a junior document examiner of the National
Bureau of Investigation.
While the experts testified in a civil case, the principles developed in criminal cases
involving forgery are applicable. Forgery cannot be presumed. It must be proved.
328
 In Borromeo v. Court of Appeals(131 SCRA 318, 326) we held that:
xxx xxx xxx
"x x x Where the evidence, as here, gives rise to two probabilities, one consistent with the
defendant's innocence and another indicative of his guilt, that which is favorable to the
accused should be considered. The constitutional presumption of innocence continues until
overthrown by proof of guilt beyond reasonable doubt, which requires moral certainty
which convinces and satisfies the reason and conscience of those who are to act upon it.
(People v. Clores, et al., 125 SCRA 67; People v. Bautista, 81 Phil. 78).
We ruled in another case that where the supposed expert's testimony would constitute the
sole ground for conviction and there is equally convincing expert testimony to the contrary,
the constitutional presumption of innocence must prevail. (Lorenzo Ga. Cesar v. Hon.
Sandiganbayan and People of the Philippines, 134 SCRA 105) In the present case, the
circumstances earlier mentioned taken with the testimony of the PC senior document
examiner lead us to rule against forgery.
We also rule against the respondent's allegation that the petitioners acted in bad faith
when they revoked the agency given to the respondent.
Fraud and bad faith are matters not to be presumed but matters to be alleged with
sufficient facts. To support a judgment for damages, facts which justify the inference of a
lack or absence of good faith must be alleged and proven. (BacolodMurcia Milling Co., Inc.
vs. First Farmers Milling Co., Inc., Etc., 103 SCRA 436).
329
 There is no evidence on record from which to conclude that the revocation of the agency
was deliberately effected by the petitioners to avoid payment of the respondent's
commission. What appears before us is only the petitioner's use in court of such a factual
allegation as a defense against the respondent's claim. This alone does not per se make the
petitioners guilty of bad f aith f or that defense should have been fully litigated.
Moral damages cannot be awarded in the absence of a wrongful act or omission or of
fraud or bad faith. (R & B Surety & Insurance Co., Inc. vs. Intermediate Appellate
Court, 129 SCRA 736).
We therefore, rule that the award of P25,000.00 as moral damages is without basis.
The additional award of P25,000.00 damages by way of attorney's fees, was given by the
courts below on the basis of Article 2208, Paragraph 2, of the Civil Code, which provides:
"When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interests;" attorney's fees may be awarded as
damages. (Pirovano, et al. v. De la Rama Steamship Co., 96 Phil. 335).
The underlying circumstances of this case lead us to rule out any award of attorney's fees.
For one thing, the respondent did not come to court with completely clean hands. For
another, the petitioners apparently believed they could legally revoke the agency in the
manner they did and deal directly with education officials handling the purchase of
Philippine flags. They had reason to sincerely believe they did not have to pay a commission
for the second delivery of flags.
330
 We cannot close this case without commenting adversely on the inexplicably strange
procurement policies of the Department of Education and Culture in its purchase of
Philippine flags. There is no reason why a shocking 30% of the taxpayers' money should
go to an agent or facilitator who had no flags to sell and whose only work was to secure
and handcarry the indorsements of edacation and budget officials. There are only a few
manufacturers of flags in our country with the petitioners claiming to have supplied flags
for our public schools on earlier occasions. If public bidding was deemed unnecessary, the
Department should have negotiated directly with flag manufacturers. Considering the sad
plight of underpaid and overworked classroom teachers whose pitiful salaries and
allowances cannot sometimes be paid on time, a P300,000.00 fee for a P1,000,000.00
purchase of flags is not only clearly unnecessary but a scandalous waste of public funds as
well.
WHEREFORE, the decision of the respondent court is hereby MODIFIED. The
petitioners are ordered to pay the respondent the amount of ONE HUNDRED FORTY
THOUSAND NINE HUNDRED AND NINETY FOUR PESOS (P140,994.00) as her
commission on the second delivery of flags with legal interest from the date of the trial
court's decision, No pronouncement as to costs.
SO ORDERED.
Relova, De la Fuente and Patajo, JJ., concur.

331
 Teehankee, J., Let copy hereof be furnished the Commission on Audit for appropriate
remedial action, as it may take.
Melencio-Herrera, J., on leave.
Plana, J., no part.
Decision modified.
Note.—By the contract of agency a person binds himself to render some service or to
do something in representation or on behalf of another with the consent or authority of
the latter (Article 1868, Civil Code). Representation constitutes the principal basis of
agency, its purpose is to extend the personality of the principal and the result is to convert
real absence into juridical presence. Agency creates a fiduciary relation. Its characteristics
are: (1) Consensual—because it is perfected by mere consent (Article 1869, par. 2 Civil
Code) except in the case of sale of land or an interest therein where the authority of the
agent must be in writing otherwise the sale is void (Article 1874); (2) Unilateral if it is
gratuitous and bilateral if it is for a compensation, but the presumption is that it is for a
compensation (Article 1875); (3) Preparatory—because the purpose is to enter into other
contracts.

[No. 32977. November 17, 1930]

332
THE MUNICIPAL COUNCIL OF ILOILO, plaintiff and appellee, vs.JOSE
EVANGELISTA ET AL., defendants and appellees. TAN ONG SZE VDA. DE TAN
Toco, appellant.
1.PRINCIPAL AND AGENT; POWER OF AGENT; PAYMENTS OF AT-
TORNEYS' FEES.—An agent or attorney-in-fact empowered to pay the debts of the
principal, and to employ attorneys to defend the latter's interests, is impliedly
empowered to pay the attorneys' fees for services rendered in the interests of said
principal, and may satisfy them by an assignment of a judgment rendered in favor of
said principal.
2.ID.; APPOINTMENT OF Two AGENTS.—When a person appoints two agents
independently, the consent of one will not be required to validate the acts of the other,
unless that appears positively to have been the principal's intention.
3.JUDGMENT; ASSIGNMENT OF AMOUNT FOR PROFESSIONAL
SERVICES.—The assignment of the amount of a judgment made by a person to his
attorney, who has not taken any part in the case wherein said judgment was rendered,
made in payment of professional services in other cases, does not contravene the
prohibition of article 1459, case 5, of the Civil Code.

333
APPEAL from a judgment of the Court of First Instance of Iloilo. Rovira, J.
The facts are stated in the opinion of the court.
Treñas & Laserna, for defendant-appellant.
Provincial Fiscal Blanco of Iloilofor plaintiff-appellee.
Felipe Ysmael for appellee Mauricio Cruz & Co.
No appearance for other appellees.
VILLA-REAL, J.:
This is an appeal taken by the defendant Tan Ong Sze Vda. de Tan Toco from the judgment
of the Court of First Instance of Iloilo, providing as follows:
"Wherefore, judgment is hereby rendered, declaring valid and binding the deed of
assignment of the credit executed by Tan Toco's widow, through her attorney-in-fact Tan
Buntiong, in favor of the late Antero Soriano; likewise the assignment executed by the latter
during his lifetime in favor of the defendant Mauricio Cruz & Co., Inc., and the plaintiff is
hereby ordered to pay the said Mauricio Cruz & Co., Inc., the balance of f=30,966.40; the
plaintiff is also ordered to deposit said sum in a local bank within the period of ninety days
from the time this judgment shall become final, at the disposal of the aforesaid Mauricio
Cruz & Co., Inc., and in case that the plaintiff shall not make such deposit in the manner
indicated, said amount shall bear the legal interest of six per cent per annum from the date

334
when the plaintiff shall fail to make the deposit within the period herein set forth, until fully
paid.
"Without special pronouncement of costs."
In support of its appeal, the appellant assigns the following alleged errors as committed by
the trial court in its decision, to wit:
"1.The lower court erred in rejecting as evidence Exhibit 4-A, Tan Toco, and Exhibit
4-B, Tan Toco.
"2.The lower court erred in sustaining the validity of the deed of assignment of the
credit, Exhibit 2-Cruz, instead of finding that said assignment made by Tan Buntiong
to Attorney Antero Soriano was null and void.
"3.The lower court erred in upholding the assignment of that credit by Antero Soriano
to Mauricio Cruz & Co., Inc., instead of declaring it null and void.
"4.The court below erred in holding that the balance of the credit against the
municipality of Iloilo should be adjudicated to the appellant herein, Tan Toco's
widow.

335
 "5.The lower court erred in denying the motion for a new trial filed by the defendant-
appellant."
The facts of the case are as follows:
On March 20, 1924, the Court of First Instance of Iloilo rendered judgment in civil case
No. 3514 thereof, wherein the appellant herein, Tan Ong Sze Vda. de Tan Toco was the
plaintiff, and the municipality of Iloilo the defendant, and the former sought to recover of
the latter the value of a strip of land belonging to said plaintiff taken by the defendant to
widen a public street; the judgment entitled the plaintiff to recover P42,966.40, representing
the value of said strip of land, from the defendant (Exhibit A). On appeal to this court (G.
R. No. 22617)1 the judgment was affirmed on November 28, 1924 (Exhibit B).
After the case was remanded to the court of origin, and the judgment rendered therein
had become final and executory, Attorney Jose Evangelista, in his own behalf and as
counsel for the administratrix of Jose Ma. Arroyo's intestate estate, filed a claim in the same
case for professional services rendered by him, which the court, acting with the consent of
the appellant widow, fixed at 15 per cent of the amount of the judgment (Exhibit 22—
Soriano).
At the hearing on said claim, the claimants appeared, as did also the Philippine National
Bank, which prayed that the amount of the judgment be turned over to it because the land
taken over had been mortgaged to it. Antero Soriano also appeared claiming the amount of
336
the judgment as it had been assigned to him, and by him, in turn, assigned to Mauricio Cruz
& Co., Inc.
After hearing all the adverse claims on the amount of the judgment, the court ordered
that the attorney's lien in the amount of 15 per cent of the judgment, be recorded in favor
of Attorney Jose Evangelista, in his own behalf and as counsel for the administratrix of the
deceased Jose Ma. Arroyo, and directed the municipality of Iloilo to file an action of
interpleading against the adverse claimants, the Philippine National Bank, Antero Soriano,
Mauricio Cruz & Co., Jose Evangelista, and Jose Arroyo, as was done, the case being filed
in the Court of First Instance of Iloilo as civil case No. 7702.
After due hearing, the court rendered the decision quoted from at the beginning.
On March 29, 1928, the municipal treasurer of Iloilo, with the approval of the auditor, of
the provincial treasurer of Iloilo, and of the Executive Bureau, paid the late Antero Soriano
the amount of P6,000 in part payment of the judgment mentioned above, assigned to him
by Tan Boon Tiong, acting as attorney-in-fact of the appellant herein, Tan Ong Sze Vda.
de Tan Toco:
On December 18, 1928, the municipal treasurer of Iloilo deposited with the clerk of the
Court of First Instance of Iloilo the amount of P6,000 on account of the judgment rendered
in said civil case No. 3514. In pursuance of the resolution of the court below -ordering that
the attorney's lien in the amount of 15 per cent of the judgment be recorded in favor of
Attorney Jose Evangelista, in his own behalf and as counsel for the late Jose Ma. Arroyo,
337
the said clerk of court delivered on the same date to said Attorney Jose Evangelista the said
amount of P6,000. At the hearing of the instant case, the co-defendants of Attorney Jose
Evangelista agreed not to discuss the payment made to the latter by the clerk of the Court
of First Instance of Iloilo of the amount of P6,000 mentioned above in consideration of
said lawyer's waiver of the remainder of the 15 per cent of said judgment amounting to
P444.69.
With these two payments of P6,000 each making a total of P12,000, the judgment for
P42,966.44 against the municipality of Iloilo was reduced to P30,966.40, which was
adjudicated by said court to Mauricio Cruz & Co.
This appeal, then, is confined to the claim of Mauricio Cruz & Co. as alleged assignee of
the rights of the late Attorney Antero Soriano by virtue of the said judgment in payment of
professional services rendered by him to the said widow and her co-heirs.
The only question to be decided in this appeal is the legality of the assignment made by
Tan Boon Tiong, as attorney-in-fact of the appellant Tan Ong Sze Viuda de Tan Toco, to
Attorney Antero Soriano, of all the credits, rights and interests belonging to said appellant
Tan Ong Sze Viuda de Tan Toco by virtue of the judgment rendered in civil case No. 3514
of the Court of First Instance of Iloilo, entitled Viuda de Tan Toco vs. The Municipal
Council of Iloilo, adjudicating to said widow the amount of P42,966.40, plus the costs of
court, against said municipal council of Iloilo, in consideration of professional services

338
rendered by said attorney to said widow of Tan Toco and her co-heirs, by virtue of the deed
Exhibit 2.
The appellant contends, in the first place, that said assignment was not made in
consideration of professional services by Attorney Antero Soriano, for they had already
been satisfied before the execution of said deed of assignment, but in order to facilitate the
collection of the amount of said judgment in favor of the appellant, for the reason that,
being Chinese, she had encountered many difficulties in trying to collect.
In support of her contention on this point, the appellant alleges that the payments
admitted by the court in its judgment, as made by Tan Toco's widow to Attorney Antero
Soriano for professional services rendered to her and to her co-heirs, amounting to P2,900,.
must be added to the P700 evidenced by Exhibits 4-A, Tan Toco, and 4-B, Tan Toco,
respectively, which exhibits the court below rejected as evidence, on the ground that they
were considered as payments made for professional services rendered, not by Antero
Soriano personally, but by the firm of Soriano & Arroyo.
A glance at these receipts shows that those amounts were received by Attorney Antero
Soriano for the firm of Soriano & Arroyo, which is borne out by the stamp on said receipts
reading, "Bufete Soriano & Arroyo," and the manner in which said attorney receipted for
them, "Soriano & Arroyo, by A. Soriano."
Therefore, the appellant's contention that the amounts of P200 and P500 evidenced by
said receipts should be considered as payments made to Attorney Antero Soriano for
339
professional services rendered by him personally to the interests of the widow of Tan Toco,
is untenable.
Besides, if at the time of the assignment to the late Antero Soriano, his professional
services to the appellant widow of Tan Toco had already been paid for, no reason can be
given why it was necessary to wire him money in payment of professional services on March
14, 1928 (Exhibit 5-G Tan Toco) and December 15, of the same year (Exhibit 5-H Tan
Toco) after the deed of assignment, (Exhibit 2-Cruz) dated September 27, 1927, had been
executed. In view of the fact that the amounts involved in the cases prosecuted by Attorney
Antero Soriano as counsel for Tan Toco's widow, some of whi6h cases have been appealed
to this court, run into the hundreds of thousands of pesos, and considering that said
attorney had won several of those cases for his clients, the sum of P10,000 to date paid to
him for professional services is wholly inadequate, and shows, even if indirectly, that the
assignment of the appellant's rights and interests made to the late Antero Soriano and
determined in the judgment aforementioned, was made in consideration of the professional
services rendered by the latter to the aforesaid widow and her co-heirs. , ,. the deed deed of
The defendant-appellant also contends that the deed of assignment Exhibit 2-Cruz was
drawn up in contravention of the prohibition contained in article 1459, case 5, of the Civil
Code, which reads as follows:
"ART. 1459. The following persons cannot take by purchase, even at a public or judicial
auction, either in person or through the mediation of another:
340
 * * * * * * *
"5. Justices, judges, members of the department of public prosecution, clerks of superior
and inferior courts, and other officers of such courts, the property and rights in litigation
before the court within whose jurisdiction or territory they perform their respective duties.
This prohibition shall include the acquisition of such property by assignment.
"Actions between equal concerning the hereditary property, assignments in payment of
debts, or to secure the property of such persons, shall be excluded from this rule.
"The prohibition contained in this paragraph shall include lawyers and solicitors with
respect to any property or rights involved in any litigation in which they may take part by
virtue of their profession and office."
It does not appear that Attorney Antero Soriano was counsel for the herein appellant in
civil case No. 3514 of the Court of First Instance of Iloilo, which she instituted against the
municipality of Iloilo, Iloilo, for the recovery of the value of a strip of land expropriated by
said municipality for the widening of a certain public street. The only lawyers who appear
to have represented her in that case were Arroyo and Evangelista,, who filed a claim for
their professional fees. When the appellant's credits right, and interests in that case were
assigned by her attorney-in-fact Tan Boon Tiong, to Attorney Antero Soriano in payment
of professional services rendered by the latter to theappellant and her co-heirs in connection
with other cases, that particular case had been decided, and the only thing left to do was to
collect the judgment. There was no relation of attorney and client, then, between Antero
341
Soriano and the appellant, in the case where that judgment was rendered; and therefore the
assignment of her credit, right and interests to said lawyer did not violate the prohibition
cited above.
As to whether Tan Boon Tiong, as attorney-in-fact of the appellant; was empowered by
his principal to make an assignment of credits, rights, and interests, in payment of debts for
professional services rendered by lawyers, in paragraph VI of the power of attorney, Exhibit
5-Cruz, Tan Boon Tiong is authorized to employ and contract for the services of lawyers
upon such conditions as he may deem convenient, to take charge of any actions necessary
or expedient for the interests of his principal, and to def end suits brought against her. This
power necessarily implies the authority to pay for the professional services thus engaged.
In the present case, the assignment made by Tan Boon Tiong, as attorney-in-fact for the
appellant, in favor of Attorney Antero Soriano for professional services rendered in other
cases in tHe interests of the appellant and her co-heirs, was that credit which she had against
the municipality of Iloilo, and such assignment was equivalent to the payment of the
amount of said credit to Antero Soriano for professional services.
With regard to the failure of the other attorney-in-fact of the appellant, Tan Montano,
authorized by Exhibit 1—Tan Toco, to consent to the deed of assignment, the latter being
also authorized to pay, in the name and behalf of the principal, all her debts and the liens
and encumbrances on her property, the very fact that different letters of attorney were given
to each of these two representatives shows that it was not the principal's intention that they
342
should act jointly in order to make their acts valid. Furthermore, the appellant was aware
of that assignment and she not only did not repudiate it, but she continued employing
Attorney Antero Soriano to represent her in court.
For the foregoing considerations, the court is of opinion and so holds: (1) That an agent
or attorney-in-fact empowered to pay the debts of the principal, and to employ lawyers to
defend the latter's interests, is impliedly empowered to pay the lawyer's fees for services
rendered in the interests of said principal, and may satisfy them by an assignment of a
judgment rendered in favor of said principal; (2) that when a person appoints two attorneys-
in-fact independently, the consent of the one will not be required to validate the acts of the
other unless that appears positively to have been the principal's intention; and (3) that the
assignment of the amount of a judgment made by a person to his attorney, who has not
taken any part in the case wherein said judgment was rendered, made in payment of
professional services in other cases, does not contravene the prohibition of article 1459,
case 5, of the Civil Code.
By virtue whereof, and finding no error in the judgment appealed from, the same is
affirmed in its entirety, with costs against the. appellant. So ordered.
Avanceña, C. J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns, and Romualdez,
JJ., concur.
Judgment affirmed.

343
 No. L-39059. September 30,1974.*
ANTONIO CABALLERO and CONCORDIA CABALLERO, plaintiffs-
appellants, vs. ALMA DEIPARINE, TOMAS RAGA, OLIMPIO RAGA, ADRIANO
RAGA, and MAGDALENA RAGA, defendants-appellees.
Attorneys; Attorney and Client; Authority of attorney to bind client; Attorney cannot, without special
authority, compromise his client's litigation or make admissions related to the cause of action, the claim or
demand sued upon, and the subject matter of litigation; Case at bar.—The stipulation of facts is a
compromise agreement. In such stipulation of facts, the attorney made an admission. The
attorney in making such admission went beyond the scope of his authority as counsel and
practically gave away his client's case. The admission does not refer to a matter of judicial
procedure related to the enforcement of the remedy. It related to the very subject matter
of the cause of action, or to a matter on which the client alone can make the admission
binding on him. The employment of itself confers upon the attorney no implied or apparent
power or authority over the subject matter of the cause of action or defense; and, unless
the attorney has expressly been granted authority with respect thereto, the power to deal
with or surrender these matters is regarded as remaining exclusively in the client. The cause
of action, the claim or demand sued upon, and the subject matter of the litigation are all
within the exclusive control of a client; and an attorney may not impair, compromise, settle,
surrender, or destroy them without his client's consent.

344
 Same; Same; Duty of lawyer to protect the interests of his client; Conduct of a lawyer who enters into a
compromise agreement or stipulation of facts which practically confesses judgment without the consent of his
client, a reprehensible act which amounts to fraud.—The conduct of counsel in entering into a
compromise agreement or stipulation of facts which practically confesses judgment,
without the consent and conformity of his clients, is not in keeping with the sworn duty of
a lawyer to protect the interest of his clients. It is a grossly reprehensible act which amounts
to fraud. The stipulation of facts should not have been tolerated by the trial court by giving
its seal of approval thereto.
APPEAL from a decision of the Court of First Instance of Cebu. Villasor, J.
The facts are stated in the opinion of the Court.
Porfirio D. Ellescas for plaintiffs-appellants.
Hilaro G. Davide, Jr. for defendants-appellees.
ESGUERRA, J.:
This case was originally appealed to the Court of Appeals which certified it to this Court
by resolution of its Fifth Division, dated June 14, 1974, for the reason that it involves purely
legal questions which are within the exclusive jurisdiction of this Court to adjudicate. The
two legal questions raised are (1) whether the written stipulation of facts entered into by

345
the counsel for both parties without the signature of the latter is valid and binding, and (2)
whether a motion for new trial and to amend the complaint may be granted after a decision
is rendered by the trial court on the basis of said stipulation of facts.
I. Statement of the Case
On March 21, 1967, plaintiffs Antonio Caballero and Concordia Caballero filed a complaint
against defendants Alma Deiparine, Tomas Raga, Olimpio Raga, Adriano Raga and
Magdalena Raga alleging, among other things:
1.That plaintiffs Antonio Caballero and Concordia Caballero are the children by the
first marriage, and the defendants, Tomas Raga, Olimpio Raga, Adriano Raga and
Magdalena Raga, are the children by second marriage of Vicenta Bucao, now deceased,
who died sometime in February, 1943 in Tabunoc, Talisay, Cebu;
2.That Vicenta Bucao in her lifetime and Tomas Raga acquired by joint purchase a
parcel of land from the TalisayMinglanilla Friar Lands Estate identified as Lot 2072
situated in Tabunoc, Talisay, Cebu and now more particularly described in Transfer
Certificate of Title No. Rt-2485 (T-17232) of the Registry of Deeds of Cebu and
further declared for taxation purposes under Tax Declaration No. 5954 and assessed
at 100.00;

346
3.That sometime in 1932, defendant Tomas Raga and Vicenta Bucao jointly sold 1/4
of said Lot 2072 to plaintiff Antonio Caballero, which sale was evidenced by a deed
of sale; and since the title to said lot at the time of the conveyance to him had not as
yet been issued to them they held the subject portion in trust for said Antonio
Caballero until its title could be delivered to the latter;
4.That plaintiff Antonio Caballero had been paying the yearly land tax for the subject
portion thru his mother, Vicenta Bucao, from the time of his acquisition thereof until
Vicenta's death in 1943;
5.That long before the death of Vicenta Bucao in 1943, plaintiff Antonio Caballero
had been asking the former to deliver the title to the portion sold to him, but he was
told by his mother to wait, as after all, according to her, he (plaintiff) was already in
possession thereof and, besides, his mother was then still living;
6.That after the death of Vicenta Bucao in 1943, plaintiff Antonio Caballero asked
defendant Tomas Raga to deliver the title to the portion sold to him from Lot 2072,
but he (Tomas Raga) told him to wait until it could be segregated and that there was
no hurry since he (Antonio) was already in possession thereof, and, being his brother,
he would protect him (Antonio) from any claim of third persons thereto, should the
occasion arise;
347
7.That plaintiff Antonio Caballero had been in the continuous, open, peaceful and
adverse possession of the subject portion and had built a house thereon way back in
1941 which is still existing up to the present and used as his dwelling;
8.That the share of Vicenta Bucao to Lot 2072 consisting of 207 square meters, more
or less, in which the plaintiffs Antonio Caballero and Concordia Caballero own an
undivided 1/6 share each, had not been partitioned among her heirs by the first and
second marriages, respectively;
9.That sometime on May 11, 1965, plaintiff Antonio Caballero received from
defendant Alma Deiparine a letter demanding that he vacate the portion of Lot 2072
which he was holding for she had bought it from defendant Tomas Raga, and as the
new owner she would like to construct a house thereon and would further improve
said lot;
10.That upon refusal of the plaintiff to vacate the portion in question defendant Alma
Deiparine brought an action for ejectment against him in the Municipal Court of
Talisay, and after trial said Court rendered judgment in favor of Antonio Caballero,
the plaintiff herein;

348
11.That defendant Alma Deiparine appealed the decision of the Municipal Court in
the ejectment case to the Court of First Instance of Cebu where she again lost but she
elevated the decision of the Court of First Instance to the Court of Appeals where it
is pending;
12.That in the light of the foregoing facts Transfer Certificate of Title No. 9934 is
fraudulent and questionable for having deliberately included in the sale made by
defendant Tomas Raga to defendant Alma Deiparine the portion previously sold to
herein plaintiff Antonio Caballero as well as the plaintiffs' share inherited from their
deceased mother, Vicenta Bucao;
13.That the defendants Tomas Raga, Olimpio Raga, Adriano Raga and Magdalena
Raga have willfully and falsely misrepresented themselves by declaring in the
instrument of declaration of heirs and confirmation of sale they executed on March
18, 1963, that they are the sole heirs of Vicenta Bucao, thereby deliberately and
willfully excluding the plaintiffs herein from succeeding to the share of their mother,
Vicenta Bucao, in Lot 2072;
14.That defendant Tomas Raga, Olimpio Raga, Adriano Raga and Magdalena Raga
have willfully and with deliberate falsehood misrepresented themselves when they
stated in the instrument of declaration of heirs and confirmation of sale that Vicenta
349
 Bucao's share in Lot 2072 was sold to Tomas Raga, for there was in fact no such sale
between them, the truth of the matter being that long before Vicenta Bucao's death
in the early part of 1943 the said defendants had earlier evacuated from Tabunoc in
the later part of 1942 and were in hiding when the Japanese forces occupied Talisay,
leaving behind the herein plaintiff to minister alone to their sickly mother, Vicenta
Bucao, during the last days of her life until her death in 1943 and she died without the
presence of even one of her children by the second marriage;
15.That the deed of sale executed by defendant Tomas Raga over Lot 2072 in favor
of defendant Alma Deiparine has been delivered to the latter but the possession of
the property in question has not been delivered and still remains in the possession of
the herein plaintiff s;
16.That the plaintiffs herein discovered the fraudulent conveyance of Lot 2072 to
defendant Alma Deiparine only upon the receipt of the latter's letter dated May
11,1965.
Defendant Alma Deiparine answered the complaint alleging, among other things:
1. 1.That the alleged sale between Antonio Caballero on one hand and Vicenta Bucao
and defendant Tomas Raga on the other hand was only made known to her after she
350
 had already filed an action for ejectment against Antonio Caballero; at the time she
purchased the lot in question on March 28, 1963, the certificate of title to the land
was free of any encumbrance and she purchased it in good faith for a valuable
consideration without any knowledge or information about the alleged sale to plaintiff
Caballero of a portion thereof; the office of the register of deeds does not show that
said deed of sale was registered and from the time she purchased the land on the date
aforesaid until Antonio Caballero filed his answer to the ejectment case she filed,
Antonio Caballero never made mention of said deed of sale although he had already
received a letter of ejectment as well as oral demands to vacate; hence, the deed of
sale in his favor is fictitious as confirmed by Antonio's conduct in keeping the same
in secrecy for more than 30 years;
2. 2.That the Transfer Certificate of Title No. 9934 issued to her is valid, legal,
enforceable and regular, no fraud having committed in its issuance.
Defendants Tomas Raga, Olimpio Raga, Adriano Raga and Magdalena Raga also answered
plaintiffs' complaint alleging, among other things:
1. 1.That it is not true that Tomas Raga and Vicenta Bucao sold 1/4 of the land in
question to Antonio Caballero;

351
2. 2.That before the 1/2 of the land in question was sold by Vicenta Bucao to Tomas
Raga it was Vicenta and Tomas who were paying the taxes and after the sale it was
Tomas alone who paid the same;
3. 3.That Antonio Caballero never made demands because he know and still knows that
he is not the owner of any portion of the land in question; while it is true that he is
occupying a portion of the subject land where his house now stands, the same is by
mere tolerance by Vicenta and Tomas for they took pity upon him when he needed a
place where to build his house;
4. 4.That the land in question was sold by Tomas Raga in good faith to defendant Alma
Deiparine;
5. 5.That the sale in favor of defendant Alma Deiparine is valid and did not prejudice
Antonio Caballero since he has no right whatsoever in and over the land in question
or in any portion thereof;
6.That the declaration of heirs and confirmation of sale speaks the truth and was not
intended to prejudice any person;
7.That a sale was made by Vicenta Bucao in favor of Tomas Raga of her 1/2
participation in the land in question;

352
 8.That it cannot be true that the sale to' Alma Deiparine was only discovered by
Antonio Caballero on May 11, 1965, because even before the actual sale was made,
plaintiff Antonio know that there were negotiations for the sale of the land and after
the sale the plaintiffs were also informed that the land has a new owner.
II. Facts of the Case
Before the case was called for hearing, the parties through counsel entered into a stipulation
of facts on March 13, 1968, which provides as follows:
"STIPULATION OF FACTS
"The PLAINTIFFS and the DEFENDANTS in the above-entitled case duly assisted by
their respective counsels, unto this Honorable Court hereby respectfully submit the
following stipulation of facts:
1. "1.That the parties are all of legal ages and residents of Talisay, Cebu;
2. "2.That Plaintiffs Antonio and Concordia, all surnamed Caballero, and Defendant
Tomas, Olimpio, Adriano and Magdalena, all surnamed Raga, are the children of
Vicenta Bucao now deceased, the first two named being the children by the first
marriage and the last four named being the children by the second marriage;
3. "3.That during the lifetime of Vicenta Bucao she with her second husband Casimero
Raga and her son Tomas Raga acquired by joint purchase a parcel of land from the

353
 Talisay-Minglanilla Estate identified as Lot No. 2072 and described in TRANSFER
CERTIFICATE OF TITLE NO. RT-2485 (T-17232) issued by the Register of Deeds
of Cebu on October 12, 1936, a certified true copy of which is identified as Annex 'A'
in the Complaint and Tomas Raga is the owner of undivided one-half thereof;
4. "4.That in 1932 Vicenta Bucao and Tomas Raga before Annex 'A' mentioned in the
next preceding paragraph had been issued, executed jointly a notarial instrument
identified as Annex 'B' wherein they acknowledged that Antonio Caballero had
contributed the amount therein stated for the purchase of the property and they sold
1/4 of the lot to him; when the title to said lot was issued, Vicenta Bucao and Tomas
Raga held it in trust for their co-owner;
"5.That the portion mentioned as sold to plaintiff Antonio Caballero remained
unsegregated from Lot 2072 and the deed of sale, Annex 'B' of the Complaint; nor
had it been registered in the Register of Deeds; but he had been in occupation of a
portion of this lot peacefully until the present;
"6.That the Tax Declaration of the property remained in the name of Vicenta Bucao;
"7.That during the lifetime of Vicenta Bucao, she, with the conformity of her husband,
sold her undivided 1/2 of the above parcel to her co-owner, Tomas Raga;

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"8.That on March 18, 1963 defendants Olimpio Raga, Adriano Raga, Magdalena Raga
and Tomas Raga executed an instrument known as 'Declaration and confirmation of
sale' without the participation of plaintiffs Antonio Caballero and Concordia
Caballero, wherein they stated that they are the heirs of Vicenta Bucao of the 1/2 of
the property to Tomas Raga, a certified true copy of which document is identified as
Annex 'E' in the Complaint;
"9.That on March 28, 1963 Alma Deiparine acquired in good faith, with a just title
and for a valuable consideration, the whole of Lot 2072 from Tomas Raga as per deed
of absolute sale identified as Annex 'C' in the complaint which cancelled Transfer
Certificate of Title No. RT-2482 (T-17232) and the issuance in her name of Transfer
Certificate of Title No. 9934 on April 1, 1963, a certified true copy of which is
identified as Annex 'D' in the complaint;
"10.That defendant Alma Deiparine came to know only of Annex 'B' when it was
presented by plaintiff Antonio Caballero at the trial of an ejectment case filed by the
former in the Municipal Court of Talisay, Cebu which was docketed as Civil Case No.
108. This case was decided in favor of Antonio Caballero but the decision was
appealed by Alma Deiparine to the Court of First Instance of Cebu which affirmed

355
 the decision for Caballero. The case is now in the Court of Appeals on appeal by Alma
Deiparine;
"11.That based on the foregoing stipulation of facts the parties hereby jointly submit
the following legal issues for the determination of this Honorable Court:
1. a)Whether the plaintiffs could ask for the rescission of the declaration of heirs and
confirmation of sale identified as Annex 'E' in the complaint;
2. b)Whether the deed of sale in favor of Alma Deiparine identified as Annex 'C' in the
Complaint can be annulled and Transfer Certificate of Title No. 9934 (Annex 'D') be
cancelled.
"WHEREFORE, it is most respectfully prayed that the foregoing Stipulation of Facts
be approved and that a decision be handed down on the legal issues submitted on the basis
of said Stipulation of Facts.
"Cebu City, March 13,1968.
"(Sgd.) MELECIO C. GUBA
Counsel for Plaintiffs
430 Sanciangko St.,
Cebu City

356
"(Sgd.) HILARIO G. DAVIDE, JR.
Counsel for Defendants
Suite 307, COMTRUST Bldg.,
Jones Ave., Cebu City
"The Clerk of Court
Court of First Instance of Cebu
"SIR:
"Please immediately submit the foregoing Stipulation of Facts for the approval of the
Court upon your receipt hereof.
"(Sgd.) MELECIO C. GUBA
"(Sgd.) H.G. DAVIDE, JR."
The trial court on April 30, 1968, rendered a decision based on the stipulation of facts, the
dispositive portion of which reads as follows:
"IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered
against the plaintiffs, dismissing the complaint insofar as the defendant Alma Deiparine is
concerned, but awarding to said plaintiffs and against the other defendants Raga, jointly
and severally, the amount of ONE THOUSAND PESOS (P1,000.00), as moral damages,
357
and FIVE HUNDRED PESOS (P500.00) as attorney's fees. The defendants Raga are
likewise ordered to pay the costs."
Plaintiffs filed a motion for reconsideration and/or new trial and for leave of court to
admit an amended complaint which the lower court in its order of August 26, 1968, denied.
Hence, this appeal to the Court of Appeals by Antonio Caballero and Concordia Caballero,
which was certif ed to this Court.
III. Discussion of Assigned Errors
Appellants assigned the following errors to have been committed by the trial court:
1. 1.The court a quo erred in finding that the appellants submitted the stipulation of
facts for its approval, the truth being that they were never made to participate in the
preparation and f ormation of said stipulation of f acts;
2. 2.The court a quo erred in finding that the stipulation of facts bear the conformity of
the appellants, the truth being that they never gave their conformity to said stipulation
of f acts which was made the basis of the appealed decision;
3. 3.The court a quo erred in approving the stipulation of facts which did not bear the
conformity of the parties, particularly by plaintiff s-appellants;
4. 4.The court a quo erred in rendering a decision based only on the stipulation of facts
which did not state all the facts as borne by the issues brought about in the complaint

358
 as well as in the answer, nor did the stipulation of facts bear the conformity of plaintiff
s-appellants;
5. 5.The court a quo erred in denying the plaintiffsappellants' motion for
reconsideration;
6. 6.The court a quo erred likewise in denying the admission of plaintiff s-appellants'
amended complaint.
Since the assigned errors are inter-related and revolve around the basic issue of the legality
of the Stipulation of Facts, they will be discussed jointly for the sake of brevity.
A perusal of the stipulation of facts does not disclose any assent and/or conformity to
the same given by the plaintiffsappellants. It should be noted that the complaint is verified
by plaintiff Antonio Caballero who swore to the truth thereof before his counsel-notary-
public, Atty. Melecio C. Guba, although under the Rules, considering the nature and subject
matter of the complaint, it did not require any verification. It should also be noted that the
introductory paragraph of said stipulation of facts clearly states that both parties were "duly
assisted" by their counsel, which seems to connote the idea that the parties-litigants,
particularly the plaintiffs-appellants, had actual participation in the formulation of said
stipulation of facts. But the same stipulation of facts shows that plaintiffsappellants,
particularly principal plaintiff Antonio Caballero, never signed the same. As to why their
counsel, particularly Atty. Melecio C. Guba for the plaintiffs, did not require his clients to
359
affix their signatures so as to show their conformity and assent thereto, when he even
required the same principal plaintiff, Antonio Caballero, to verify the complaint has not
been explained and remains quite puzzling. The conduct of then counsel for plaintiffs-
appellants in entering into a compromise agreement or stipulation of facts which practically
confesses judgment, without the consent and conformity of his clients, is not in keeping
with the sworn duty of a lawyer to protect the interest of his clients. It is a grossly
reprehensible act which amounts to fraud. The stipulation of facts should not have been
tolerated by the trial court by giving its seal of approval thereto.
And to top it all, plaintiffs-appellants' counsel made the unauthorized admission therein
that principal defendant Alma Deiparine acquired in good faith with a just title and for a
valuable consideration the whole of Lot 2072. Their counsel even admitted also in said
document that during the lifetime of Vicenta Bucao, she, with the conformity of her
husband, sold her undivided 1/2 of Lot 2072 to her co-owner Tomas Raga. No document
was ever shown to him by the Ragas in support of this claim and the record does not
disclose that there was such document. On the contrary it is replete with implications that
no such sale was ever made.
Plaintiffs-appellants maintain that if given a chance they can prove that principal
defendant Alma Deiparine is a purchaser in bad faith and her registration of the deed of
sale executed by the Ragas did not confer upon her any right under the law. The stipulation
of facts which was made the basis of the decision appealed from was null and void as it
360
contained serious unauthorized admissions against the interest and claims of plaintiffs-
appellants who had no hand in its preparation and formulation. Hence the lower court
should have set aside the decision and admit the amended complaint so as to have the issues
properly ventilated.
Appellees on the other hand contend that the stipulation of facts was entered into with
full knowledge, consent and authority of all the parties; that the same was executed after
the parties through their respective counsel had manifested at the pre-trial hearing on
February 3, 1968, that they were submitting a stipulation of facts; that at the pre-trial all the
parties were present and the stipulation of facts was signed by counsel for and in behalf of
their clients and strictly within their authority to do so; and that it was entered into in good
faith on the basis of the true facts which could be established at the trial.
The stipulation of facts in question, appellees further continue, is a matter of ordinary
judicial procedure as it relates to admission; that no one is in a better position than the
counsel to determine what facts are to be established in a given case to support the theory
of the case; that he alone knows what facts he cannot established by the evidence and what
facts can be admitted without trial either because he knows it to be true as borne out by
oral or documentary evidence he himself has on hand or because he has no evidence to
refute it; that it was within his authority to make the stipulation for and in behalf of his
client; that in the instant case, the complaint itself is barren of any allegation that appellee
Alma Deiparine is a buyer in bad faith; that the allegations in the complaint are directed
361
only against the alleged false misrepresentations of the defendants Tomas Raga, Olimpio
Raga, Adriano Raga and Magdalena Raga in the declaration of heirs; that the complaint was
prepared by Atty. Melecio C. Guba and as a lawyer of good standing he is presumed to
know the case and the nature of his evidence, and his failure to allege such a material fact
simply shows lack of evidence to prove bad faith on the part of appellee Alma Deiparine;
that no error nor mistake, much less, bad faith, attended the admission made in the
stipulation of facts that said appellee Alma Deiparine purchased the property in good faith
and for a valuable consideration; that it was not necessary that the parties litigant should
sign the stipulation of facts which is nothing more than a pleading containing judicial
admission which the lawyer himself can make.
Finally, appellees argue that the stipulation of facts clearly show that Atty. Guba acted for
and in behalf of his clients; that there is no showing at all of absence of such authority, and
that a client is bound by the action of his counsel in the conduct of a case and he cannot
be heard to complain that the result might have been different had he proceeded differently;
that a client is bound by the mistakes of his lawyer; that if such grounds were to be admitted
as reasons for reopening of cases, there would never be an end to a suit for as long as new
counsel could be employed who could allege and show that prior counsel had not been
sufficiently diligent or experienced or learned; that even granting that Atty. Guba
committed a mistake, such a mistake is no ground for the reversal of the decision or
reopening of the case; that plaintiffs' remedy is to proceed against his counsel Atty. Guba,
362
and that the lower court, therefore, did not err in rendering the decision on the basis thereof
and in denying the motions for reconsideration and for amendment of the complaint.
After weighing the conflicting claims of the parties, We find merit in the contention of
plaintiffs-appellants. Antonio Caballero and Concordia Caballero. A reading of the
stipulation of facts convinces Us that it is a compromise , agreement of the parties. The
stipulation concludes with this prayer: "WHEREFORE, it is most respectf ully prayed that
the foregoing Stipulation of Facts be approved and that a decision be handed down on the
legal issues submitted on the basis of said Stipulation of Facts." Apparently it is intended
to terminate the case. Rule 138, Section 23 of the Rules of Court specif ically provides that:
"Authority of attorneys to bind clients.—Attorneys have authority to bind their clients in
any case by any agreement in relation thereto made in writing, and in taking appeals, and in
all matters of ordinary judicial procedure. But they cannot, without special authority, compromise
their client's litigation, or receive anything in discharge of a client's claim but the full amount
in cash." (Emphasis supplied)
It may be true that during the pre-trial hearing held on February 3, 1968, the parties
concerned agreed to execute a stipulation of facts but it does not mean that the respective
counsels of the contending parties can prepare a stipulation of facts the contents of which
is prejudicial to the interest of their clients and sign it themselves without the intervention
of their clients. In the case at bar, the then counsel for plaintiffsappellants, Atty. Melecio C.
Guba, agreed that defendantappellee Alma Deiparine bought the land in question in good
363
faith and for a valuable consideration; that during the lifetime of their mother Vicenta
Bucao, she, with the conformity of her husband, sold her undivided 1/2 of the land in
question to her co-owner and son, Tomas Raga. All these adverse facts were made the basis
of the appealed decision against the plaintiffs. No further evidence was presented as there
was no hearing. The attorney for the plaintiffs in making such admission went beyond the
scope of his authority as counsel and practically gave away the plaintiffs' case. The
admission does not refer to a matter of judicial procedure related to the enforcement of the
remedy. It related to the very subject matter of the cause of action, or to a matter on which
the client alone can make the admission binding on him. In Belandres vs. Lopez Sugar
Central Mill Co, Inc., L-6869, May 27, 1955; 97 Phil. 100, 104, 105, it was held that:
"The broad implied or apparent powers of an attorney with respect to the conduct or
control of litigation are, however, limited to matters which relate only to the procedure or
remedy. The employment of itself confers upon the attorney no implied or apparent power or authority over
the subject matter of the cause of action or defense; and, unless the attorney has expressly been granted
authority with respect thereto, the power to deal with or surrender these matters is regarded as remaining
exclusively in the client."
"The line of demarcation between the respective rights and powers of an attorney and his client is clearly
defined. The cause of action, the claim or demand sued upon, and the subject matter of the litigation are all
within the exclusive control of a client; and an attorney may not impair, compromise, settle, surrender, or
destroy them without his client's consent. But all the proceedings in court to enforce the remedy,
364
to bring the claim, demand, cause of action, or subject matter of the suit to hearing, trial,
determination, judgment, and execution, are within the exclusive control of the attorney."
(Italics supplied)
FOR ALL THE FOREGOING, the decision appealed from is hereby set aside and this
case shall be remanded to the court a quo for further proceedings in consonance with the
opinion above set forth, and to admit the amended complaint submitted by the plaintiffs.
Costs against appellees.
Makalintal, C.J., Castro, Teehankee and Muñoz Palma, JJ.,concur.
Makasiar, J., on leave.
Decision set aside and case remanded to court a quo for further proceedings.
Notes.—a) Authority of attorney to enter into stipulations.—Although an attorney cannot bind
his client by entering into an agreement compromising and settling the rights of the client
without special authorization, his general authority is sufficient to permit him to enter into
a stipulation of facts which will be binding upon the client to the extent that it is properly
a stipulation as contrasted with a settlement (Anduiza vs. Quirona, L-5073, May 20,1953).
b) Authority of attorney to compromise action.—When, how, and to what extent an attorney
may bind his client is specially and carefully provided in section 21 of Rule 127, which
restricts an attorney's general authority to matters of ordinary judicial procedure and does
not permit an attorney, without special authority, to compromise his client's litigation or

365
receive anything in discharge of his client's claim but the full amount in cash (Rodriguez vs.
Court of First Instance of Rizal, L-3762, March 29,1951).
LEGAL RESEARCH SERVICE
See SCRA Quick Index-Digest,volume one, page 177 on Attorneys; and page 344 on
Compromise.
Batacan, D. F1., Legal and Judicial Ethics, 1973 Edition.

No. L-24765. August 29, 1969.

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. MAXIMO STA. MARIA, ET
AL., defendant, VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and
LEONILA, all surnamed STA. MARIA, defendants-appellants.
Civil law; Agency; Special power of attorney; Special power of attorney to mortgage real estate does not
include power to contract loans for principal.—A special power of attorney to mortgage real estate
is limited to such authority to mortgage and does not carry with it the authority to contract
obligation, unless the contrary is shown.
Same; Same; Same; Liability of principal or grantor is limited to the mortgage.—The grantor of a
special power of attorney to mortgage a real estate is liable only to the extent that the real

366
estate authorized by him to be mortgaged would be subject to foreclosure and sale to
respond for the obligations contracted by the grantee of the power but the grantor cannot
be held personally liable for the payment of such obligations, in the absence of any
ratification or other similar act that would estop the grantor from questioning or disowning
such other obligations contracted by the grantee,
Same; Same; Same; Same; Ratification or estoppel; Burden of proof.—Ratification by the grantor
or estoppel consist" ing in benefiting from the loan must be expressly shown and proven
during the ,trial in order to hold the grantor liable for the loans contracted by the grantee
of the special power of attorney.
Same; Same; Same; Same; Joint liability only.—Where a person expressly authorized another
to mortgage and borrow money for and in his name, the liability of the two to the creditor
is only joint, not joint and several or solidary. Pursuant to Article 1207 of Civil Code, "the
concurrence of two or more debtors in one and the same obligation does not imply that x
x x each one of them (debtors) is bound to render entire compliance with the prestation.
There is solidary 'liability only when the obligation expressly so states, or when the law or
the nature of the obligation requires solidarity."
APPEAL from a judgment of the Court of First Instance of Pampanga. Romero, J.
The facts are stated in the opinion of the Court

367
 Tomas Besa and Jose B. Galang for plaintiff-appellee.
G. P. Nuguid, Jr. for defendants-appellants.
TEEHANKEE, J.:
In this appeal certified to this Court by the Court of Appeals as involving purely legal issues,
we hold that a special power of attorney to mortgage real estate is limited to such authority
to mortgage and does not bind the grantor personally to other obligations contracted by
the grantee, in the absence of any ratif fication or other similar act that would estop the
grantor from questioning or disowning such other obligations contracted by the
Plaintiff bank filed this action on February 10, 1961 against defendant Maximo Sta. Maria
and his six brothers and sisters, defendants-appellants, Valeriana, Emeteria, Teofilo,
Quintin, Rosario and Leonila, all surnamed Sta. Maria, and the Associated
Insurance & Surety Co., Inc, as
305
VOL. 29, 305
AUGUST 29,
1969
Philippine National
Bank vs. Sta. Maria

368
surety, for the collection of certain amounts representing unpaid balances on two
agricultural sugar crop loans due allegedly from defendants.1
The said sugar crop loans were obtained by def fendant Maximo Sta. Maria from plaintiff
bank under a special power of attorney, executed in his favor by his six brothers and sisters,
defendants-appellants herein, to mortgage a16-odd hectare parcel of land, jointly owned by
all of them, the pertinent portion of which reads as follows:
"That we, VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and
LEONILA all surnamed STA. MARIA, sole heirs of our deceased parents CANDIDO
STA. MARIA and FRANCISCA DE LOS REYES, all of legal age, Filipinos, and residents
of Dinalupihan, Bataan, do hereby name, constitute. and appoint Dr. MAXIMO STA.
MARIA, of legal age, married, and residing at Dinalupihan, Bataan to be our true and lawful
attorney of and in our place, name and stead to mortgage, or convey as security to any bank, company
or to any natural or juridical person, our undivided shares over a certain parcel of land together with the
improvements thereon which parcel of land is more particularly described as follows, to wit:
"Situated in the barrio of Pinulot, municipality of Dinalupihan, Bataan, containing an area
of 16.7249 hectares and bounded as follows, to wit: North by property of Alejandro Benito;
on the Northeast, by public land and property of Tomas Tulop; on the southeast, by
property of Ramindo Agustin; on the southwest, by properties of Jose V. Reyes and Emilio
Reyes; and on the northwest, by excluded portion claimed by Emilio Reyes.'

369
 of which parcel of land aforementioned we are together with our said attorney who is our
brother, the owners in equal undivided shares as evidenced by Transfer Certificate of Title
No. T2785 of the Registry of Deeds of Bataan dated Feb. 26th 1951." (Exh. E)2
In addition, Valeriana Sta. Maria alone also executed in favor of her brother, Maximo, a
special power of attorney to borrow money and mortgage any real estate owned by her, granting
him the following authority:
"For me and in my name to borrow money and make, execute, sign and deliver mortgages of
real estate now owned by me standing in my name and to make, execute, sign and deliver any and
all promissory notes necessary in the premises." (Exh. E-1)3
By virtue of the two above powers, Maximo Sta. Maria applied for two separate crop loans,
for the 1952-1953 and 1953-1954 crop years, with plaintiff bank, one in the amount of
P15,000.00, of which only the sum of P13,216.11 was actually extended by plaintiff, and
the other in the amount of P23,000.00, of which only the sum of P12,427.57 was actually
extended by plaintiff. As security for the two loans, Maximo Sta. Maria executed in his own
name in favor of plaintiff bank two chattel mortgages on the standing crops, guaranteed by
surety bonds for the full authorized amounts of the loans executed by the Associated
Insurance & Surety Co., Inc. as surety with Maximo Sta. Maria as principal. The records of
the crop loan application further disclose that among the securities given by Maximo for
the loans were a "2nd mortgage on 25.3023 Has. of sugarland, including sugar quota rights
therein" including the parcel of land jointly owned by Maximo and his six brothers and
370
sisters herein for the 1952-1953 crop loan, with the notation that the bank already held a
first mortgage on the same properties for the 1951-1952 crop loan of Maximo,4 and a 3rd
mortgage on the same properties for the 1953-1954 crop loan.5
The trial court rendered judgment in favor of plaintiff and against defendants thus:
"WHEREFORE, premises considered, judgment is hereby rendered condemning the
defendant Maximo R. Sta. Maria and his co-defendants Valeriana, Quintin, Rosario,
Emeteria, Teofilo, and Leonila all surnamed Sta. Maria and the Associated Insurance and
Surety Company, Inc., jointly and severally, to pay the plaintiff, the Philippine National
Bank, Del Carmen Branch, as follows:
1. "1.On the f irst cause of action, the sum of P8,500.72 with a daily interest of P0.83 on
P6,100.00 at 6% per annum beginning August 21, 1963 until fully paid;
2. "2.On the second cause of action. the sum of P14,299.79 with a daily interest of P1.53
on P9,346.44 at 6% per annum, until fully paid; and
3. "3.On both causes of action the further sum equivalent to 10% of the total amount
due as attorney's fee as of the date of the execution of this decision, and the costs."6
Defendant Maximo Sta. Maria and his surety, defendant Associated Insurance & Surety
Co., Inc. who did not resist the action, did not appeal the judgment. This appeal has been
taken by his six brothers and sisters, defendantsappellants who reiterate in their brief their

371
main contention in their Answer to the complaint that under the special power of attorney,
Exh. E, they had not given their brother, Maximo, the authority to borrow money but only
to mortgage the real estate jointly owned by them; and that if they are liable at all, their
liability should not go beyond the value of the property which they had authorized to be
given as security for the loans obtained by Maximo, In their answer, defendants-appellants
had further contended that they did not benefit whatsoever from the loans, and that the
plaintiff bank's only recourse against them is to foreclose on the property which they had
authorized Maximo to mortgage.
We find the appeal of defendants-appellants, except for defendant Valeriana Sta. Maria
who had executed another special power of attorney, Exh. E-1, expressly authorizing
Maximo to borrow money on her behalf, to be well taken.
1. Plaintiff bank has not made out a cause of action against defendants-appellants (except
Valeriana), so as to hold them liable for the unpaid balances of the loans obtained by
Maximo under the chattel mortgages executed by him in his own name alone. In the early
case of Bank of P.I. vs. De Coster, this Court, in holding that the broad power of attorney
given by the wife to the husband to look after and protect the wife's interests and to transact
her business did not authorize him to make her liable as a surety f or the payment of the
pre-existing debt of a third person, cited the fundamental construction rule that "where in
an instrument powers and duties are specified and defined, that all of such powers and
duties are limited and confined to those which are specified and defined, and that all other
372
powers and duties are excluded."7 This is but in accord with the disinclination of courts to
enlarge an authority granted beyond the powers expressly given and those which
incidentally flow or derive therefrom as being: usual or reasonably necessary and proper for
the performance of such express powers. Even before the filing of the present action, this
Court in the similar case of De Villa vs. Fabricante 8 had already ruled that where the power
of attorney given to the husband by the wife was limited to a grant of authority to mortgage
a parcel of land titled in the wife's name, the wife may not be held liable for the payment of
the mortgage debt contracted by the husband, as the authority to mortgage does not carry
with it the authority to contract obligation. This Court thus held in the said case:
"Appellant claims that the trial court erred in holding that only Cesario A. Fabricante is
liable to pay the mortgage debt and not his wife who is exempt from liability- The trial court
said: 'Only the defendant Cesario A. Fabricante is liable for the payment of this amount because it does
not appearthat the other defendant Maria G. de Fabricante had authorized Cesario A. Fabricante to
contract the debt also in her name. The power of attorney was not presented and it is to be
presumed that the power (of attorney) was limited to a grant of authority to Cesario A.
Fabricante to mortgage the parcel of land covered by Transfer Certificate of Title in the
name of Maria G. de Fabricante.'
"We went over the contents of the deed of mortgage executed by Cesario Fabricante in
favor of Appellant on April 18, 1944, and there is really nothing therein from which we may infer
that Cesario was authorized by his wife to contract the obligation in her name. The deed shows that the
373
authority was limited to the execution of the mortgage insofar as the property of the wife is concerned. There
is a difference betweenauthority to mortgage and authority to contract obligation. Since the power of
attorney was not presented as evidence, the trial court was correct in presuming that that
power was merely limited to a grant of authority to mortgage unless the contrary is shown."9
2. The authority granted by defendants-appellants (except Valeriana) unto their brother,
Maximo, was merely to mortgage the property jointly owned by them. They did not grant
Maximo any authority to contract for any loans in their names and behalf. Maximo alone,
with Valeriana who authorized him to borrow money, must answer for said loans and the
other defendants-appellants' only liability is that the real estate authorized by them to be
mortgaged wouId be subject to foreclosure and sale to respond for the obligations
contracted by Maximo. But they cannot be held personally liable for the payment of such
obligations, as erroneously held by the trial court.
3. The fact that Maximo presented to the plaintiff bank Valeriana's additional special
power of attorney expressly authorizing him to borrow money, Exh. E-1, aside from the
authority to mortgage executed by Valeriana together with the other defendants-appellants
also in Maximo's favor, lends support to our view that the bank was not satisfied with the
authority to mortgage alone. For otherwise, such authority to borrow would have been
deemed unnecessary and a surplusage. And having failed to require that Maximo submit a
similar authority to borrow, from the other defendants-appellants, plaintiff, which
apparently was satisfied with the surety bond for repayment put up by Maximo, cannot now
374
seek to hold said defen dants-appellants similarly liable for the unpaid loans. Plaintiff's
argument that "a mortgage is simply an accessory contract, and that to effect the mortgage,
a loan has to be secured"10 falls far short of the mark. Maximo had indeed secured the loan
on his own account, and the defendants-appellants had authorized him to mortgage their
respective undivided shares of the real property jointly owned by them as security for the
loan. But that was the extent of their authority and consequent liability, to have the real
property answer for the loan in case of nonpayment. It is not unusual in family and business
circles that one would allow his property or an undivided share in real estate to be
mortgaged by another as security, either as an accommodation or for valuable
consideration, but the grant of such authority does not extend to assuming personal liability,
much less solidary liability, for any loan secured by the grantee in the absence of express
authority so given by the grantor.
4, The outcome might be different if there had been an express ratification of the loans
by defendants-appellants or if it had been shown that they had been benefited by the crop
loans so as to put them in estoppel. But the burden of establishing such ratification or
estoppel falls squarely upon plaintiff bank. It has not only failed to discharge this burden,
but the record stands undisputed that defendant-appellant Quintin Sta. Maria testified that
he and his co-defendants executed the authority to mortgage "to accommodate (my)
brother Dr. Maximo Sta, Maria x x x and because he is my brother, I signed it to
accommodate him as security for whatever he may apply as loan. Only for that land, we
375
gave him as security" and that "we brothers did not receive any centavo as benefit." 11 The
record further shows plaintiff bank itself admitted during the trial that defendants-
appellants "did not profit from the loan" and that they "did not receive any money (the loan
proceeds) from (Maximo)."12No estoppel, therefore, can be claimed by plaintiff as against
defendants-appellants.
5. Now, as to the extent of defendant Valeriana Sta. Maria's liability to plaintiff. As already
stated above, Valeriana stands liable not merely on the mortgage of her share in the
property, but also for the loans which Maximo had obtained from plaintiff bank, since she
had expressly granted Maximo the authority to incur such loans. (Exh. E-1.) AIthough the
question has not been raised in appellants' brief, we hold that Valeriana's liability for the
loans secured by Maximo is not joint and several or solidary as adjudged by the trial court, but
only joint, pursuant to the provisions of Article 1207 of the Civil Code that "(t)he
concurrence x x x of two or more debtors in one and the same obligation does not imply
that x x x each one of the (debtors) is bound to render entire compliance with the prestation.
There is a solidary liability only when the obligation expressly so states, or when the law or
the nature of the obligation requires solidarity." It should be noted that in the additional
special power of attorney, Exh. E-1, executed by Valeriana, she did not grant Maximo the
authority to bind her solidarily with him on any loans he might secure thereunder.
6. Finally, as to the 10% award rd of attorney's fees, this Court believes that considering
the resources of plaintiff bank and the fact that the principal debtor, Maximo Sta. Maria,
376
had not contested the suit, an award of five (5%) per cent of the balance due on the
principal, exclusive of interests, i.e., a balance of P6,100.00 on the first cause of action and
a balance of P9,346.44 on the second cause of action, per the bank's statements of August
20, 1963, (Exhs. Q-1 and BB-1, respectively) should be sufficient.
WHEREFORE, the judgment of the trial court against defendants-appellants Emeteria,
Teofilo, Quintin, Rosario and Leonila, all surnamed Sta. Maria is hereby reversed and set
aside, with costs in both instances against plaintiff. The judgment against defendant-
appellant Valeriana Sta. Maria is modified in that her liability is held to be joint and not
solidary, and the award of attorney's fees is reduced as set forth in the preceding paragraph,
without costs in this instance.
Concepcion,
C.J., Dizon, Makalintal, Zaldivar, Sanchez,Castro, Fernando, Capistrano and Barredo, JJ., concur.
Reyes, J.B.L., J., is on official leave.
Judgment reversed and set aside and modified as against defendant-appellant Valeriana Sta. Maria.
Note.—Attorney's fees as damages.—See the annotation in 18 SCRA 360-371 and that in 20
SCRA 68-69.

G.R. No. 94566. July 3, 1992.*

377
BA FINANCE CORPORATION, petitioner, vs. HON. COURT OF APPEALS and
TRADERS ROYAL BANK, respondents.
Agency; Obligations of persons dealing with an agent.—It is a settled rule that persons dealing
with an assumed agent, whether the assumed agency be a general or special one are bound
at their peril, if they would hold the principal liable, to ascertain not only the fact of agency
but also the nature and extent of authority, and in case either is controverted, the burden
of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19). Hence, the
burden is on respondent bank to satisfactorily prove that the credit administrator with
whom they transacted acted within the authority given to him by his principal, petitioner
corporation.
Same; Banks; Authority given to officer to approve loans does not include power to issue guarantees to
3rd persons in principal’s name.—Although Wong was clearly authorized to approve loans even
up to P350,000.00 without any security requirement, which is far above the amount subject
of the guaranty in the amount of P60,000.00, nothing in the said memorandum expressly
vests on the credit administrator power to issue guarantees. We cannot agree with
respondent’s contention that the phrase “contingent commitment” set forth in the
memorandum means guarantees. It has been held that a power of attorney or authority of
an agent should not be inferred from the use of vague or general words. Guaranty is not
presumed, it must be expressed and cannot be extended beyond its specified limits
(Director v. Sing Juco, 53 Phil. 205). In one case, where it appears that a wife gave her
378
husband power of attorney to loan money, this Court ruled that such fact did not authorize
him to make her liable as a surety for the payment of the debt of a third person (Bank of
Philippine Islands v. Coster, 47 Phil. 594).
Same; Same; Evidence; Sole testimony of credit administrator that he is authorized to make loan
guarantees should not be given weight.—The sole allegation of the credit administrator in the
absence of any other proof that he is authorized to bind petitioner in a contract of guaranty
with third persons should not be given weight. The representation of one who acts as agent
cannot by itself serve as proof of his authority to act as agent or of the extent of his authority
as agent (Velasco v. La Urbana, 58 Phil. 681). Wong’s testimony that he had entered into
similar transactions of guaranty in the past for and in behalf of the petitioner, lacks credence
due to his failure to show documents or records of the alleged past transactions. The
actuation of Wong in claiming and testifying that he has the authority is understandable.
He would naturally take steps to save himself from personal liability for damages to
respondent bank considering that he had exceeded his authority. The rule is clear that an
agent who exceeds his authority is personally liable for damages.
Same; Same; Same; Estoppel; Rule of estoppel not applicable where no proof of knowledge of principal
on transaction shown in evidence.—Anent the conclusion of respondent appellate court that
petitioner is estopped from alleging lack of authority due to its failure to cancel or disallow
the guaranty, We find that the said conclusion has no basis in fact. Respondent bank had
not shown any evidence aside from the testimony of the credit administrator that the
379
disputed transaction of guaranty was in fact entered into the official records or files of
petitioner corporation, which will show notice or knowledge on the latter’s part and its
consequent ratification of the said transaction. In the absence of clear proof, it would be
unfair to hold petitioner corporation guilty of estoppel in allowing its credit administrator
to act as though the latter had power to guarantee.
PETITION for review on certiorari of the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Agbayani, Leal, Ebarle and Venturanza for petitioner.
Rogelio P. Mendoza for respondents.
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision of the respondent appellate court
which reversed the ruling of the trial court dismissing the case against petitioner.
The antecedent facts are as follows:
On December 17, 1980, Renato Gaytano, doing business under the name Gebbs
International, applied for and was granted a loan with respondent Traders Royal Bank in
the amount of P60,000.00. As security for the payment of said loan, the Gaytano spouses

380
executed a deed of suretyship whereby they agreed to pay jointly and severally to respondent
bank the amount of the loan including interests, penalty and other bank charges.
In a letter dated December 5, 1980 addressed to respondent bank, Philip Wong as credit
administrator of BA Finance Corporation for and in behalf of the latter, undertook to
guarantee the loan of the Gaytano spouses. The letter reads:
“This is in reference to the application of Gebbs International for a twenty-five (25) month
term loan of 60,000.00 with your Bank.
“In this connection, please be advised that we unconditionally guarantee full payment in
peso value the said accommodation (sic) upon non-payment by subject up to a maximum
amount of P60,000.00.
“Hoping this would meet your requirement and expedite the early processing of their
application.
“Thank you.
Very truly yours,
BA FINANCE CORPORATION
(signed)
PHILIP H. WONG
Credit Administrator”
(p. 12, Rollo)
381
Partial payments were made on the loan leaving an unpaid balance in the amount of
P85,807.25. Since the Gaytano spouses refused to pay their obligation, respondent bank
filed with the trial court a complaint for sum of money against the Gaytano spouses and
petitioner corporation as alternative defendant.
The Gaytano spouses did not present evidence for their defense. Petitioner corporation,
on the other hand, raised the defense of lack of authority of its credit administrator to bind
the corporation.
On December 12, 1988, the trial court rendered a decision the dispositive portion of
which states:
“IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of plaintiff and
against defendants/Gaytano spouses, ordering the latter to jointly and severally pay the
plaintiff the following:
1. “1)EIGHTY FIVE THOUSAND EIGHT HUNDRED SEVEN AND 25/100
(P85,807.25), representing the total unpaid balance with accumulated interests,
penalties and bank charges as of September 22, 1987, plus interests, penalties and bank
charges thereafter until the whole obligation shall have been fully paid.
2. “2)Attorney’s fees at the stipulated rate of ten (10%) percent computed from the total
obligation; and
3. “3)The costs of suit.
382
 “The dismissal of the case against defendant BA Finance Corporation is hereby ordered
without pronouncement as to cost.
“SO ORDERED.” (p. 31, Rollo)
Not satisfied with the decision, respondent bank appealed with the Court of Appeals. On
March 13, 1990, respondent appellate court rendered judgment modifying the decision of
the trial court as follows:
“In view of the foregoing, the judgment is hereby rendered ordering the defendants
Gaytano spouses and alternative defendant BA Finance Corporation, jointly and severally,
to pay the plaintiff the amount of P85,807.25 as of September 8, 1987, including interests,
penalties and other back (sic) charges thereon, until the full obligation shall have been fully
paid. No pronouncement as to costs.
“SO ORDERED.” (p. 27, Rollo)
Hence this petition was filed with the petitioner assigning the following errors committed
by respondent appellate court:
1. “1.THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING
THAT PETITIONER IS JOINTLY AND SEVERALLY LIABLE WITH
GAYTANO SPOUSES DESPITE ITS FINDINGS THAT THE LETTER
GUARANTY (EXH. ‘C’) IS ‘INVALID AT ITS INCEPTION’;

383
 2. “2.THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING
THAT THE PETITIONER WAS GUILTY OF ESTOPPEL DESPITE THE
FACT THAT IT NEVER KNEW OF SUCH ALLEGED LETTER-GUARANTY;
3. “3.THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT
RULING THAT SUCH LETTER GUARANTY (EXHIBIT ‘C’) BEING
PATENTLY ULTRA VIRES, IS UNENFORCEABLE;
4. “4.THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING
RELIEF ON PETITIONER’S COUNTERCLAIM (p. 10, Rollo).”
Since the issues are interrelated, it would be well to discuss them jointly.
Petitioner contends that the letter guaranty is ultra vires, and therefore unenforceable; that
said letter-guaranty was issued by an employee of petitioner corporation beyond the scope
of his authority since the petitioner itself is not even empowered by its articles of
incorporation and by-laws to issue guaranties. Petitioner also submits that it is not guilty of
estoppel to make it liable under the letter-guaranty because petitioner had no knowledge or
notice of such letter-guaranty; that the allegation of Philip Wong, credit administrator, that
there was an audit was not supported by evidence of any audit report or record of such
transaction in the office files.
We find the petitioner’s contentions meritorious. It is a settled rule that persons dealing
with an assumed agent, whether the assumed agency be a general or special one are bound
384
at their peril, if they would hold the principal liable, to ascertain not only the fact of agency
but also the nature and extent of autho-rity, and in case either is controverted, the burden
of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19). Hence, the
burden is on respondent bank to satisfactorily prove that the credit administrator with
whom they transacted acted within the authority given to him by his principal, petitioner
corporation. The only evidence presented by respondent bank was the testimony of Philip
Wong, credit administrator, who testified that he had authority to issue guarantees as can
be deduced from the wording of the memorandum given to him by petitioner corporation
on his lending authority. The said memorandum which allegedly authorized Wong not only
to approve and grant loans but also to enter into contracts of guaranty in behalf of the
corporation, partly reads:
“To: Philip H. Wong, SAM
Credit Administrator
From: Hospicio B. Bayona, Jr., VP and
Head of Credit Administration
Re: Lending Authority
I am pleased to delegate to you in your capacity as Credit Administrator the following
lending limits:
1. a)P650,000.00—Secured Loans
385
 2. b)P550,000.00—Supported Loans
3. c)P350,000.00—Truck Loans/Contracts/Leases
4. d)P350,000.00—Auto Loan Contracts/Leases
5. e)P350,000.00—Appliance Loan Contracts
6. f)P350,000.00—Unsecured Loans
Total loans and/or credits [combination of (a) thru (f) extended to any one borrower
including parents, affiliates and/or subsidiaries, should not exceed P750,000.00. In
exercising the limits aforementioned, both direct and contingent commitments to the
borrower(s) should be considered.
All loans must be within the Company’s established lending guideline and policies.
xxx
LEVELS OF APPROVAL
All transactions in excess of any branch’s limit must be recommended to you through the
Official Credit Report for approval. If the transaction exceeds your limit, you must concur
in application before submitting it to the Vice President, Credit Administration for approval
or concurrence.
x x x” (pp. 62-63, Rollo) (Emphasis ours)

386
Although Wong was clearly authorized to approve loans even up to P350,000.00 without
any security requirement, which is far above the amount subject of the guaranty in the
amount of P60,000.00, nothing in the said memorandum expressly vests on the credit
administrator power to issue guarantees. We cannot agree with respondent’s contention
that the phrase “contingent commitment” set forth in the memorandum means guarantees.
It has been held that a power of attorney or authority of an agent should not be inferred
from the use of vague or general words. Guaranty is not presumed, it must be expressed
and cannot be extended beyond its specified limits (Director v. Sing Juco, 53 Phil. 205). In
one case, where it appears that a wife gave her husband power of attorney to loan money,
this Court ruled that such fact did not authorize him to make her liable as a surety for the
payment of the debt of a third person (Bank of Philippine Islands v. Coster, 47 Phil. 594).
The sole allegation of the credit administrator in the absence of any other proof that he
is authorized to bind petitioner in a contract of guaranty with third persons should not be
given weight. The representation of one who acts as agent cannot by itself serve as proof
of his authority to act as agent or of the extent of his authority as agent (Velasco v. La
Urbana, 58 Phil. 681). Wong’s testimony that he had entered into similar transactions of
guaranty in the past for and in behalf of the petitioner, lacks credence due to his failure to
show documents or records of the alleged past transactions. The actuation of Wong in
claiming and testifying that he has the authority is understandable. He would naturally take
steps to save himself from personal liability for damages to respondent bank considering
387
that he had exceeded his authority. The rule is clear that an agent who exceeds his authority
is personally liable for damages. (National Power Corporation v. National Merchandising
Corporation, Nos. L-33819 and L-33897, October 23, 1982, 117 SCRA 789).
Anent the conclusion of respondent appellate court that petitioner is estopped from
alleging lack of authority due to its failure to cancel or disallow the guaranty, We find that
the said conclusion has no basis in fact. Respondent bank had not shown any evidence
aside from the testimony of the credit administrator that the disputed transaction of
guaranty was in fact entered into the official records or files of petitioner corporation, which
will show notice or knowledge on the latter’s part and its consequent ratification of the said
transaction. In the absence of clear proof, it would be unfair to hold petitioner corporation
guilty of estoppel in allowing its credit administrator to act as though the latter had power
to guarantee.
ACCORDINGLY, the petition is GRANTED and the assailed decision of the
respondent appellate court dated March 13, 1990 is hereby REVERSED and SET ASIDE
and another one is rendered dismissing the complaint for sum of money against BA Finance
Corporation.
SO ORDERED.
Cruz (Chairman), Griño-Aquino and Bellosillo, JJ., concur.
Petition granted; decision reversed and set aside.

388
 Notes.—Principal is liable for obligations contracted by agent (Bedia vs. White, 204 SCRA
273).
An agent-principal relationship can only be effected with the consent of the principal,
and must not, in any way be compelled by law or by any court (Orient Air Services & Hotel
Representative vs. Court of Appeals, 197 SCRA 645).
[No. 30181. July 12, 1929]
THE DIRECTOR OF PUBLIC WORKS, plaintiff and appellee, vs.SING JUCO ET AL.,
defendants. SING Juco, SING BENGCO and PHILIPPINE NATIONAL BANK,
appellants.
1. 1.PRINCIPAL AND AGENT; POWER OF ATTORNEY; CREATION OF
OBLIGATION OF GUARANTY.—A power of attorney to execute a contract of
guaranty should not be inferred from the use of vague or general words, especially
where such words have their origin and explanation in particular powers of a different
nature. In article 1827 of the Civil Code it is declared that suretyship (including
guaranty) shall not be presumed; that it must be expressed, and cannot be extended
beyond its specified limits. By analogy a power of attorney should be construed in
harmony with the same rule, in so far as relates to the creation of the obligation of
guaranty.

389
1. 2.ID. ; ID. ; ID. ; INTERPRETATION OF PARTICULAR CONTRACT.—Where
a power of attorney is executed primarily to enable the attorney-in-fact, as manager of
a mercantile business, to conduct its affairs for and on behalf of the principal, who is
owner of the business, and to this end the attorney-in-fact is authorized to execute
contracts relating to the principal's property, such power will not be interpreted as
giving the attorney-in-fact power to bind the principal by a contract of independent
guaranty unconnected with the conduct of the mercantile business. General words
contained in such power will not be so interpreted as to extend the power to the
making of a contract of guaranty, but will be limited, under the well-known rule of
construction indicated in the expression ejusdem generis,as applying to matters similar
to those particularly mentioned.
1. 3.MORTGAGE; PRIORITY OF MORTGAGE LIEN OVER LIEN FOR
REFECTION SUBSEQUENT TO REGISTRATION OF MORTGAGE.—An
indebtedness resulting from a contract in accordance with which low land is improved
by the deposit of material dredged f rom nearby waters does not enjoy priority over a
mortgage executed by the owner of the fee and duly registered prior to the execution
of the filling contract; and this is true whether the supposed preference under the
filling contract be claimed under subsection 3 of article 1923 of the Civil Code or
under a special stipulation in such contract declaring the cost of filling to be a lien
390
 upon the property. The lien created in such case by the filling contract can only
operate upon the equity of redemption, without prejudice to the creditor under the
prior mortgage who has not assented to the creation of the lien.
APPEAL from a judgment of the Court of First Instance of Iloilo. Salas, J.
The facts are stated in the opinion of the court.
Roman J. Lacson for appellant National Bank.
Soriano & Nepomuceno for appellants Sing Juco and Sing Bengco.
Attorney-General Jaranilla for appellee.
STREET, J.:
From Torrens certificate of title No. 1359, relating to land in the municipality of Iloilo, it
appears that on September 28, 1920, the title to the property described therein was owned,
in undivided shares, by Mariano de la Rama, Gonzalo Mariano Tanboontien, Sing Juco and
Sing Bengco. The interest vested by said certificate in Mariano de la Rama was subsequently
transferred by sale to Enrique Echaus. It further appears that 'on November 23, 1920, the
owners of the property covered by said certificate conveyed it by way of mortgage to the
Philippine National Bank for the purpose of securing a credit in current account in an
amount not in excess of P170,000, with interest at the rate of 12 per cent per annum, The
indebtedness covered by this mortgage has not been satisfied, and upon the date of the
391
decision of the court below it amounted to the sum of P170,000, plus interest at 12 per cent
per annum from November 24, 1920.
The land above referred to contains an area of nearly 16 hectares, or to be exact,
158,589.44 square meters according to the certificate. It is located on "Point Llorente" at
the mouth of Iloilo River, near the City of Iloilo, and it is of so low a level that, prior to the
improvement to which reference is to be made, it was subject to frequent flooding. In 1921
the Government of the Philippine Islands was planning extensive harbor improvements in
this vicinity, requiring extensive dredging by the Bureau of Public Works in the mouth of
said river. " The conduct of these dredging operations made it necessary for the Director
of Public Works to find a place of deposit for the dirt and mud taken from the place, or
places, dredged. As the land already referred to was low and easily accessible to the spot
where dredging was to be conducted, it was obviously to the interest both of the
Government and the owners of said land that the material taken out by the dredges should
be deposited on said property. Accordingly, after preliminary negotiations to this effect had
been conducted, a contract was made between the Director of Public Works, representing
the Government of the Philippine Islands, and the four owners, M. de la Rama, Sing Juco,
G. M. Tanboontien and Sing Bengco, of which, as modified in some respects by subsequent
agreement, the following features are noteworthy.
(1) The Bureau of Public Works agreed to deposit the material to be dredged by it from
the Iloilo River, in connection with the contemplated improvement, upon the lot of land,
392
already described as covered by certificate No. 1359, at a price to be determined by actual
cost of the filling, with certain surcharges to be determined by the Bureau of Public Works.
It was contemplated in the original draft of the contract that the bureau would be able to
furnish some 250,000 cubic meters of dredged material for filling in the land, but in the
course of the negotiations the liability of the bureau, with respect to the amount of dredged
material to be placed upon the land, was limited to the material which should be dredged
from the river as the result of the proposed improvement. To this stipulation the four
owners of the property assented on March 14, 1921.
(2) With respect to the compensation it was agreed that the amount due should be
determined by the Director of Public Works, under certain conditions mentioned in the
contract, at an amount of not less than 20 nor more than 75 centavos per cubic meter. It
was further agreed that, when the work should be finished, the cost thereof should be paid
by the owners in five annual instalments and that for failure to pay any such instalment the
whole of the amount thereafter to accrue should become at once due. This contract was
noted on the Torrens certificate of title on January 8, 1924.
In connection with the making of the contract abovementioned, the Director of Public
Works required a bond to be supplied by the owners in the penal amount of P150,000,
approximately twice the estimated cost of the filling, conditioned for the payment of the
amount due from the owners. This bond was executed contemporaneously with the main
contract; and in connection therewith it should be noted that one of the names appearing
393
upon said contract was that of "Casa Viuda de Tan Toco," purporting to be signed by M.
de la Rama.
The dredging operations were conducted by the Bureau of Public Works in substantial
compliance, we find, with the terms of said agreement; and after the account with the
owners had been liquidated and the amount due from them determined, demand was made
upon them for the payment of the first installment. No such payment was, however, made,
and as a consequence this action was instituted by the Director of Public Works on October
14, 1926, for the purpose of recovering the amount due the Government under the contract
from the original owners of the property and from the sureties whose names were signed
to the contract of suretyship, and to enforce the obligation as a real lien upon the property.
In said action the Philippine National Bank was made a party defendant, as having an
interest under its prior mortgage upon the property, while Enrique Echaus was made
defendant as successor in interest of M. de la Rama, and Tan Ong Sze widow of Tan Toco,
was also made a def endant by reason of her supposed liability derived from the act of De
la Rama in signing the firm name "Casa Viuda de Tan Toco," as a surety on the bond. It is
noteworthy that in the complaint it was asked that, in the enf orcement of the
Government's lien, the property should be sold "subject to the first mortgage in favor of
the Philippine National Bank."

394
To this complaint different defenses were set up, as follows: On behalf of the owners of
the property, it was contended that the Government had not complied with its contract, in
that the dredged material deposited on the land had not been sufficient in quantity to raise
the level of the land above high water, and that, as a consequence, the land had not been
much benefited. It is therefore asserted that the owners of the property are not obligated
to pay for the filling operation. These defendants further sought to recover damages by way
of cross-complaint for the same supposed breach of contract on the part of the
Government. On the part of Viuda de Tan Toco the defense was interposed that the name
"Casa Viuda de Tan Toco," signed to the contract of suretyship by Mariano de la Rama,
was signed without authority; while on the part of the Philippine National Bank it was
asserted that the mortgage credit pertaining to the bank is superior to the Government's
lien for improvement, and by way of counterclaim the bank asked that its mortgage be
foreclosed for the amount of its mortgage credit, and that the four mortgagors, Sing Juco,
Sing Bengco, M. de la Rama and G. M. Tanboontien, be required to pay the amount due
the bank, and that in case of their f ailure to do so the mortgaged property should be sold
and the proceeds paid preferentially to the bank upon its mortgage.
Upon hearing the cause the trial court, ignoring that part of the original complaint
wherein the Government seeks to enf orce its lien in subordination to the first mortgage,
made pronouncements:

395
 "(1)Declaring Sing Juco, Sing Bengco, G. M. Tanboontien, and Mariano de la Rama
indebted to the Government in the amount of P70,938, with interest f rom the date
of the filing of the complaint, and requiring them to pay said sum to the plaintiff;
"(2)Declaring, in effect, that the lien of the Government for the filling improvement
was superior to the mortgage of the Philippine National Bank; and finally
"(3)Declaring the defendant Tan Ong Sze, Viuda de Tan Toco, personally liable upon
the contract of suretyship, in case the four principal obligors should not satisfy their
indebtedness to the Government, or if the land should not sell for enough to satisfy
the same."
From this judgment various parties defendant appealed, as follows: All of the defendants,
except the Philippine National Bank, appealed from so much of the decision as held that
the defendant owners and signatories to the contract of suretyship had not been released
by non-performance of the contract on the part of the Bureau of Public Works, and from
the refusal of the court to give to the defendant owners damages for breach of contract on
the part of the Government. On the part of Tan Ong Sze, Viuda de Tan Toco, error is
assigned to the action of the court in holding said defendant liable upon the contract of
suretyship. Finally, the Philippine National Bank appealed from so much of the decision as

396
gave the lien of the Government for improvements priority over the mortgage executed in
favor of the bank.
Dealing with these contentions in the order indicated, we find that the contention of the
appellants (except the Philippine National Bank), to the effect that the Director of Public
Works has failed to comply with the obligations imposed upon the Government by the
contract, is wholly untenable. By said contract the Government was not obligated to raise
the land on which the dredged material was deposited to any specified level. The
Government only obligated itself to place upon said land the material which should be
dredged from the mouth of the Iloilo River in the course of the improvement undertaken
by the Government in and near that place. Under the original contract as originally drafted,
the Government agreed to furnish 250,000 cubic meters, more or less, of dredged material;
but on March 14,1921, the owners of the property indicated their acceptance of a
modification of the contract, effected by the Director of Public Works and the Secretary of
Commerce and Communications, in which it was made clear that the material to be supplied
would be such only as should be dredged from the river as a result of the proposed
improvement. In the indorsement of the Director of Public Works, thus accepted by the
owners, it was made clear that the Bureau of Public Works did not undertake to furnish
material 'tocomplete the filling of the land to any specified level. Proof submitted on the
part of the owners tends to show that parts of the filled land are still subject to inundation
in rainy weather; and it is contended that the owners have, for this reason, been unable to
397
sell the property in lots to individual occupants. The sum of P15,000, which is claimed upon
this account, as damages, by the owners, is the amount of interest alleged to have accrued
upon their investment, owing to their inability to place the land advantageously upon the
market. The claim is, as already suggested, untenable. There has been no breach on the part
of the Government in fulfilling the contract. In fact it appears that the Government
deposited in the period covered by the contract 236, 460 cubic meters, and after the amount
thus' deposited had been reduced by 21,840 cubic meters, owing to the natural process of
drying, the Bureau of Public Works further deposited 53,000 cubic meters on the same
land. In this connection the district engineer testified that the filling which has been charged
to the owners at P70,938 actually cost the Government the amount of P88,297.85. The
charge made for the work was evidently computed on a very moderate basis; and the owners
of the property have no just ground of complaint whatever.
The contention of Tan Ong Sze, widow of Tan Toco, to the effect that she was not, and
is not, bound by the contract of suretyship, is, in our opinion, well founded. It will be
remembered that said contract purports to have been signed by Mariano de la Rama, acting
for this defendant under power of attorney. But the Government has exhibited no power
of attorney which would authorize the creation, by the attorney-in-fact, of an obligation in
the nature of suretyship binding upon his principal.
It is true that the Government introduced in evidence two documents exhibiting powers
of attorney, conferred by Tan Ong Sze, upon Mariano de la Rama. In the first of these
398
documents (Exhibit K, identical with Exhibit 6) Mariana de la Rama is given a power which
reads as follows:
" * * * and also for me and in my name to sign, seal and execute, and as my act and deed
deliver, any lease, any other deed for the conveying any real or personal property or other
matter or thing wherein I am or may be personally interested or concerned. And I do hereby
further authorize and empower my said attorney to substitute and appoint any other
attorney or attorneys under him for the purposes aforesaid, and the same again and pleasure
to revoke; and generally for me and in my name to do, perform and execute all and every
other lawful and reasonable acts and things whatsoever as fully and effectually as I, the said
Tan Ong Sze might or could do if personally present."
In another document (Exhibits L and M), executed in favor of the same Mariano de la
Rama by his uncle Tan Lien Co, attorney-in-fact of Tan Ong Sze, with power of
substitution, there appears the following:
"* * * and also for her and in her name to sign, seal and execute, and as her act and deed
deliver, any lease, release, bargain, sale, assignment, conveyance or assurance, or any other
deed for the conveying any real or personal property or other matter or thing wherein she
or may be personally interested or concerned."
Neither of these powers specifically confers upon Mariano de la Rama the power to bind
the principal by a contract of suretyship. The clauses quoted relate more specifically to the
execution of contracts relating to property; and the more general words at the close of the
399
quoted clauses should be interpreted, under the rule ejusdem generis, as referring to contracts
of like character. Power to execute a contract of so exceptional a nature as a contract of
suretyship or guaranty cannot be inferred f rom the general words contained in these
powers.
In article 1827 of the Civil Code it is declared that guaranty shall not be presumed; it must
be expressed and cannot be extended beyond its specified limits. By analogy a power of
attorney to execute a contract of guaranty should not be inferred from vague or general
words, especially when such words have their origin and explanation in particular powers
of a wholly different nature. It results that the trial court was in error in giving personal
judgment against Tan Ong Sze upon the bond upon which she was sued in this case.
We now proceed to consider the last important disputed question involved in the case,
which is, whether the indebtedness owing to the Government under the contract for filling
the parcel of land already mentioned is entitled to preference over the mortgage credit due
to the Philippine National Bank, as the trial judge held, or whether, on the contrary, the
latter claim is entitled to priority over the claim of the Government. Upon entering into the
discussion of this feature of the case it is well to recall the fact that the bank's mortgage was
registered in the office of the register of deeds of the Province of Iloilo on November 26,
1920, while the filling contract was registered on January 8, 1924, that is to say, there is a-
priority of more than three years, in point of time, in the inscription of the mortgage credit
over the filling contract. It should also be noted that the Government's credit under the
400
filling contract was made an express lien upon the property which was the subject of the
improvement.
In the brief submitted in behalf of the bank it appears to be assumed that the
Government's credit under the filling contract is a true refectionary credit (crédito
refaccionario) under subsection 2 of article 1923 of the Civil Code. It may be observed,
however, that in a precise and technical sense, this credit is not exactly of the nature of the
refectionary credit as known to the civil law. In the civil law the refectionary credit is
primarily an indebtedness incurred in the repair or reconstruction of something previously
made, such repair or reconstruction being made necessary by the deterioration or
destruction of the thing as it formerly existed. The conception does not ordinarily include
an entirely new work, though Spanish jurisprudence appears to have sanctioned this
broader conception in certain cases, as may be gathered from the discussion in Enciclopedia
Jurídica Española(vol. 26, pp. 888-890), s. v. Refaccionario. The question whether the credit we
are considering falls precisely under the conception of refectionary credit in the civil law is
in this case academic rather than practical, for the reason that by the express terms of the
filling contract the credit was constituted a lien upon the improved property. But assuming,
as might be tenable in the state of the jurisprudence, that said credit is a refectionary credit
enjoying preference under subsection 3 of article 1923 of the Civil Code, then the mortgage
credit must be given priority under subsection 2 of article 1927 of the same Code, for the
reason that the mortgage was registered first.
401
 Possibly the simpler view of the situation is to consider the Government's right under the
stipulation expressly making the credit a lien upon the property, for it was certainly lawful
for the parties to the filling contract to declare the credit a lien upon the property to be
improved—to the extent hereinafter defined—whether the credit precisely fulfills the
conception of refectionary credit or not. In this aspect we have before us a competition
between the real lien created by the registered mortgage and the real lien created by the
filling contract, of later registration. The true solution to this problem is, in our opinion,
not open to doubt; and again the result is that priority must be conceded to the mortgage.
The mortgage was created by the lawful owners at a time when no other competing interest
existed in the property. The lien of the mortgage therefore attached to the fee, or unlimited
interest of the owners in the property. On the other hand, the lien created by the filling
contract was created after the mortgage had been made and registered, and, therefore, after
the owners of the property had parted with the interest created by the mortgage. The
Government's lien owes its origin to the contract, and derives its efficacy from the volition
of the contracting parties. But no party can by contract create a right in another intrinsically
greater than that which he himself possesses. The owners, at the time this contract was
made, were owners of the equity of redemption only and not of the entire interest in the
property, and the lien created by the contract could only operate upon the equity of
redemption.

402
 In this connection we observe that, as the new material was deposited from the
Government dredges upon the property in question, it became an integral part of the soil
and an irremovable fixture; and the deposit having been made under contract between the
Government and the owners of the equity of redemption, without the concurrence of the
mortgage creditor in said contract, the latter could not be prejudiced thereby. The trial
court, in declaring that the Government's lien should have preference over the mortgage,
seems to have proceeded upon the idea that, at the time the mortgage was created, the new
soil had not yet been deposited under the filling contract and that as a consequence the
mortgage lien should not be considered as attaching to the value added by deposit of the
additional material. This proposition, however, overlooks the fact that the deposited
material became an irremovable fixture, by the act and intention of the parties to the filling
contract, and the lien of the mortgage undoubtedly attached to the increment thus spread
over and affixed to the mortgaged land. If the idea which prevailed in the trial court should
be accepted as law upon this point, the result would be that a mortgage creditor could, by
the act of strangers, be entirely improved out of his property by the making of
improvements to which he had not assented. This cannot be accepted as good law.
We may add that the case cannot, on this point, be resolved favorably to the contention of
the Director of Public Works, upon the authority of Unson vs. Urquijo, Zuloaga &
Escubi (50 Phil., 160), for the reason that upon the deposit of the dredged material on the
land such material lost its identity. In the case cited the machinery in respect to which the
403
vendor's preference was upheld by this court retained its separate existence and remained
perfectly capable of identification at all times.
From what has been said it results that them appealed judgment must be affirmed, and
the same is hereby affirmed, in dismissing, in effect, the cross-complaint filed by some of
the defendants against the plaintiff, Director of Public Works. Said judgment is further
affirmed in its findings, which are not in dispute, with respect to the amount of the
Government's claim under the filling contract and the amount of the mortgage credit of
the bank, as it is also affirmed in respect to the joint and several judgment entered in favor
of the plaintiff against Sing Juco, Sing Bengco, Tanboontien and Mariano de la Rama
Tanbunco, (alias Mariano de la Rama) for the amount found due to the Government.
Said judgment, however, must be reversed, and the same is hereby reversed, in so far as
it holds that Tan Ong Sze, Viuda de Tan Toco, is liable upon the contract of suretyship,
and she is hereby absolved from the complaint. The judgment must also be reversed in so
far as it declares that the Government's lien under the filling contract is entitled to priority
over the bank's mortgage. On the contrary it is hereby declared that the bank's credit is
entitled to priority out of the proceeds of the foreclosure sale, the residue, if any, to be
applied to the Government's lien created by the filling contract, and otherwise in
accordance with law. For further proceedings in conformity with this opinion, the cause is
hereby remanded to the court of origin, without pronouncement as to costs. So ordered.
Johnson, Villamor, Johns, Romualdez, and Villa-Real, JJ.,concur.
404
 Malcolm and Ostrand, JJ.,also voted as indicated in the dispositive part of this decision, but
their names are not signed to the opinion owing to their absence on leave at the time of
promulgation.
Judgment affirmed in part and reversed in part.

[No. 23352. December 31, 1926]

THE PHILIPPINE SUGAR ESTATES DEVELOPMENT Co., LTD., INC., plaintiff and
appellee, vs. JUAN M. POIZAT ET AL., defendants. GABRIELA ANDREA DE
COSTER, appellant.
1.WHEN MORTGAGE UNDER POWER OF ATTORNEY is NULL AND
VOID.— When a wife gave her husband a power of attorney to loan or borrow
money, and "in her name, place and stead" to mortgage her property, and where the
husband negotiated a loan to himself and personally executed and acknowledged a
mortgage upon real property which the wife owned in her own right and name at the
time of her marriage, and which was her paraphernal property at the time the mortgage
was executed, and where the mortgage was not signed by the wife or by her husband
as agent or attorney in fact for his wife, the mortgage was never executed by or for
the wife, and as to her it is null and void.
405
2.WHEN ONE SIGNATURE is NOT JOINT OR DUAL.—Where the husband
had a power of attorney from his wife authorizing him to mortgage her property, and
where he is personally a party to the mortgage, and where he signed his name only to
a mortgage on her property, and personally acknowledged the mortgage in his own
name, his personal, unqualified signature only, standing alone, cannot be construed as
the joint or dual signature of both the husband and the wife, and is not binding on
the wife.
3.WHEN MORTGAGE is VOID AS TO PARAPHERNAL PROPERTY OF
WIFE AND VALID AS TO CONJUGAL PROPERTY.—Where a wife gave her
husband a general power of attorney to mortgage or convey her property, and where
on November 2, 1912, the husband personally executed and personally acknowledged
a real mortgage on the property of the wife in which he is personally named and made
a party, and where the mortgage is void as to the wife for want of execution, and
where the mortgage recites "That the marriage of Don Juan M. Poizat and Doña
Gabriela Andrea de Coster being subsisting and undissolved, and with the object of
constructing a new building over the land herein-above described, the aforesaid house
with the six warehouses thereon constructed were demolished and in their stead a
building was erected, by permission of the department of engineering and public
works of this city issued November 10, 1902, said building being of strong material
406
which, together with the land, now forms only one piece of real estate, etc.; which
property must be the subject of a new registration in which it must appear that the
land belongs in fee simple and in full ownership as paraphernal property to the said
Doña Gabriela Andrea de Coster and the new building thereon constructed to the
conjugal partnership of Don Juan M. Poizat and the said Doña Gabriela Andrea de
Coster, etc.," the mortgage is void as to the land belonging to the wife as to her
paraphernal property, and is binding upon the husband, and as such it is valid as to
both the husband and the wife upon the new building constructed on the land as the
conjugal property of the husband and the wife.
4.WHEN DECREE AND SALE SHOULD BE SET ASIDE.—Where in a suit
against husband and wife to foreclose a real mortgage on the property of the wife,
which mortgage as to the wife was void for want of execution, but in which a decree
was rendered against both husband and wife, and execution was issued, and her
property was advertised for sale and sold to satisfy the judgment, and where the wife
later personally appeared and made timely objections to the rendition of the judgment
and the sale of her property, and to the confirmation of the sale, and moved to set
them aside upon the ground that as to her the mortgage and all of such proceedings
were null and void, and where all of such matters appear in the record, both the decree

407
and the sale of her property, as to the wife, will be vacated, set aside, and declared null
and void.
5.LAW OF AGENCY AS TO REAL PROPERTY.—It is a general rule in the law
of agency that, in order to bind the principal by a mortgage on real property executed
by an agent, it must upon its face purport to be made, signed and sealed in the name
of the principal, otherwise, it will bind the agent only. It is not enough merely that the
agent was in fact authorized to make the mortgage, if he has not acted in the name of
the principal. Neither is it ordinarily sufficient that in the mortgage the agent describes
himself as acting by virtue of a power of attorney, if in fact the agent has acted in his
own name and has set his own. hand and seal to the mortgage. This is especially true
where the agent himself is a party to the instrument. However clearly the body of the
mortgage may show and intend that it shall be the act of the principal, yet, unless in
fact it is executed by the agent for and on behalf of his principal and as the act and
deed of the principal, it is not valid as to the principal. (Mechem on Agency, section
1093 et sequor.)
6.DISTINCTION BETWEEN CONTRACTS.—Although by the language used in
the body of a simple contract to which the agent himself is not a party, the signature
of the agent only may bind the principal, that is not true as to a real mortgage to which

408
 the agent himself is personally a party. In such a case, the signature of the agent only,
standing alone, will not bind the principal, and that is especially true where the agent
does not acknowledge the mortgage for and on behalf of his principal.
7.WHEN BUILDING is ACCESSORY TO THE LAND.—Where a building on
land is of much less value than the land, the building is an accessory to the land.
8.WHEN PARTY is ESTOPPED.—Where a person takes and accepts a real
mortgage, he is bound by the recitals made in the instrument, and is estopped to deny
the legal force and effect of such recitals.
9.SPANISH NOTARIAL LAW REPEALED.—Under the provisions of section 81
of Act No. 136, the Spanish Notarial Law and System of Conveyances was repealed
by the enactment of a new system of registration of land titles.
10.SECTION 127 OF ACT No. 496 CONSTRUED.—Section 127 of Act No. 496
provides in legal effect that where two or more persons are parties to a conveyance,
that it must not only be signed by or on behalf of all the parties, but that it should be
acknowledged by or on behalf of all the parties.
APPEAL from an order of the Court of First Instance of Manila. Harvey, J.

409
The facts are stated in the opinion of the court.
Antonio M. Opisso for appellant.
Eusebio Orense and Fisher, DeWitt, Perkins & Brady for appellee.
STATEMENT
August 25, 1905, the appellant, with his consent, executed to and in favor of her husband,
Juan M. Poizat, a general power of attorney, which, among other things, authorized .him to
do "in her name, place and stead, and making use of her rights and actions," the following
things:
"To loan or borrow any amount in cash or fungible things at the rate of interest, for the
time, and under the conditions he may deem convenient, collecting or paying the principal
or the interest, when they respectively should become due; executing and signing the
corresponding public or private documents, and making these transactions with or without
mortgage, pledge or personal securities."
November 2, 1912, Juan M. Poizat applied for and obtained from the plaintiff a credit for
the sum of 10,000 Pounds Sterling to be drawn on the "Banco Español del Río de la Plata"
in London not later than January, 1913. Later, to secure the payment of the loan, he
executed a mortgage upon the real property of his wife, the material portions of which are
as follows:
"This indenture entered into in the City of Manila, P. I., by and between Juan M. Poizat,
merchant, of legal age, married and residing in the City of Manila, in his own behalf and in
410
his capacity also as attorney in fact of his wife Doña Gabriela Andrea de Coster by virtue
of the authority vested in him by the power of attorney duly executed and acknowledged
in this City of Manila, etc.
"First. That in the name of Doña Gabriela Andrea de Coster, wife of Don Juan M. Poizat,
there is registered on page 89 (back) of Book 3, temporary Binondo Section, property No.
685, inscription No. 3, Urban Property consisting of a house and six adjacent warehouses,
all of strong material and constructed upon her own land, said property being Nos. 5, 3,
and 1 of Calle Urbiztondo, and No. 13 of Calle Barraca in the District of Binondo in the
City of Manila, etc.
"Second. That the marriage of Don Juan M. Poizat and Doña Gabriela Andrea de Coster
being subsisting and undissolved, and with the object of constructing a new building over
the land hereinabove described, the aforesaid house with the: six warehouses thereon
constructed were demolished and in their stead a building was erected, by permission of
the Department of Engineering and Public Works of this City issued November 10, 1902,
said building being of strong material which, together with the land, now forms only one
piece of real estate, etc.; which property must be the subject of a new description
[registration] in which it must appear that the land belongs in fee simple and in full
ownership as paraphernal property to the said Doña Gabriela Andrea de Coster and the
new building thereon constructed to the conjugal partnership of Don Juan M. Poizat and
the said Doña Gabriela Andrea deCoster, etc.
411
 "Third. That the Philippine Sugar Estates Development Company, Ltd., having granted
to Don Juan M. Poizat a credit of Ten Thousand Pounds Sterling with a mortgage upon
the real property above described, etc.
"(a).That the Philippine Sugar Estates Development Company, Ltd., hereby grants
Don Juan M. Poizat a credit in the amount of Ten Thousand Pounds Sterling which
the said Mr. Poizat may use within the entire month of January of the coming year,
1913, upon the bank established in the City of London, England, known as 'Banco
Español del Río de la Plata,' which shall be duly advised, so as to place upon the credit
of Mr. Poizat the said amount of Ten Thousand Pounds Sterling, after executing the
necessary receipt therefor.
" (c)That Don Juan M. Poizat personally binds himself and also binds his principal
Doña Gabriela Andrea de Coster to pay the Philippine Sugar Estates Development
Company, Ltd., for the said amount of Ten Thousand Pounds Sterling at the yearly
interest of 9 per cent which shall be paid at the end of each quarter, etc.
" (d)Don Juan M. Poizat also binds himself personally and his principal Doña Gabriela
Andrea de Coster to return to the Philippine Sugar Estates Development Company,
Ltd., the amount of Ten Thousand Pounds Sterling within four years from the date

412
 that the said Mr. Poizat shall receive the aforesaid sum as evidenced by the receipt
that he shall issue to the 'Banco Español del Río de la Plata.'
"(e)As security for the payment of the said credit, in the case Mr. Poizat should receive
the money, together with its interest the said Mr. Poizat in the dual capacity that he
represents hereby constitutes a voluntary especial mortgage upon the Philippine Sugar
Estates Development Company, Ltd., of the urban property above described, etc.
" (f)Don Juan M. Poizat in the capacity above mentioned binds himself, should he
receive the amount of the credit, and while he may not return the said amount of Ten
Thousand Pounds Sterling to the Philippine Sugar Estates Development Company,
Ltd., to insure against fire the mortgaged property in an amount not less than One
Hundred Thousand Pesos, etc.
"Fourth. Don Buenaventura Campa in the capacity that he holds hereby accepts this
indenture in the form, manner, and condition executed by Don Juan M. Poizat by himself
personally and in representation of his wife Doña Gabriela Andrea de Coster, in favor of
the Philippine Sugar Estates Development Company, Ltd.
"In witness whereof, we have signed these presents in Manila, this November 2,' 1912.
(Sgd.) "JUAN M. POIZAT
"THE PHILIPPINE SUGAR ESTATES
413
 DEVELOPMENT COMPANY, LTD.
"The President
"BUENAVENTURA CAMPA
"Signed in the presence of:
(Sgd.) "MANUEL SAPSANO
"JOSE SANTOS
"UNITED STATES OF AMERICA
"PHILIPPINE ISLANDS
"CITY OF MANILA
"In the City of Manila P. I., this November 2, 1912, before me Enrique Barrera y Caldes,
a Notary Public for said city, personally appeared before me Don Juan M. Poizat and Don
Buenaventura Campa, whom I know to be the persons who executed the foregoing
document and acknowledged same before me as an act of their free will and deed; the first
exhibited to me his certificate of registry No. 14237, issued in Manila, February 6, 1912, the
second did not exhibit any cedula, being over sixty years old; this document bears No. 495,
entered on page 80 of my Notarial registry.
"Before me:

414
 (Sgd.) "Dr. ENRIQUE BARRERA Y CALDES
" "Notary
[NOTARIAL Public
SEAL]
"Up to the 31st of December, 1912"
For failure to pay the loan, on November 12, 1923, the plaintiff brought an action against
the defendants, to foreclose the mortgage. In this action, the summons was served upon
the defendant Juan M. Poizat only, who employed the services of Antonio A. Sanz to
represent the defendants. The attorneys filed a general appearance for all of them, and later
an answer in the nature of a general denial.
February 18, 1924, when the case was called for trial, Jose Galan y Blanco in open court
admitted all of the allegations made in the complaint, and consented that judgment should
be rendered as prayed for. Later, Juan M. Poizat personally, for himself and his
codefendants, filed an exception to the judgment, and moved for a new trial, which was
denied March 31, 1924.
August 22, 1924, execution was issued directing the sale of the mortgaged property to
satisfy the judgment.
September 18, 1924, the property, which had an assessed value of P342,685, was sold to
the plaintiff for the sum of P100,000.

415
 September 23, 1924, and for the first time, the appellant personally appeared by her
present attorney, and objected to the confirmation of the sale, among other things, upon
the following grounds: That the mortgage in question was illegally executed, and is null and
void, because the agent of this defendant was not authorized to execute it. That there was
no consideration. That the plaintiff, with full knowledge that J. M. Poizat was acting beyond
the scope of his authority, filed this action to subject the property of this defendant to the
payment of the debt which, as to appellant, was not a valid contract. That the judgment was
rendered by confession when the plaintiff and J. M. Poizat knew that Poizat was not
authorized to confess judgment, and that the proceeding was a constructive fraud. That at
the time the action was filed and the judgment rendered, this defendant was absent from
the Philippine Islands, and had no knowledge of the execution of the mortgage. That after
the judgment of foreclosure became final and the order of the sale of the property was
made, that this defendant for the first time learned that the mortgage contract was tainted
with fraud, and that she first knew and learned of such things on the 11th of September,
1924. That J. M. Poizat was not authorized to bind her property to secure the payment of
his personal debts. That the plaintiff knew that the agent of the defendant was not
authorized to bind her or her property. That the mortgage was executed to secure a loan of
10,000 Pounds, which was not made to this def endant or for her benefit, but was made to
him personally and for the personal use and benefit of J. M. Poizat.

416
 Among other things, the mortgage in question, marked Exhibit B, was introduced in
evidence, and made a part of the record.
All of such objections to the confirmation of the sale were overruled, from which
Gabriela Andrea de Coster appealed and assigns the following errors:
"I.The lower court erred in finding that Juan M. Poizat was, under the power of
attorney which he had from Gabriela Andrea de Coster, authorized to mortgage her
paraphernal property as security for a loan made to him personally by the Philippine
Sugar Estates Development Co., Ltd.;
"II.The lower court erred in not finding that under the power of attorney, Juan M.
Poizat had no authority to make Gabriela Andrea de Coster jointly liable with him for
a loan of 10,000 Pounds made by the Philippine Sugar Estates Development Co., Ltd.,
to him;
"III.The lower court erred in not finding that the Philippine Sugar Estates
Development Co., Ltd., had knowledge and notice of the lack of authority of Juan M.
Poizat to execute the mortgage deed Exhibit A of the plaintiff;
"IV.The lower court erred in holding that Gabriela Andrea de Coster was duly
summoned in this case; and in holding that Attorney Jose Galan y Blanco could
417
 lawfully represent her or could, without proof of express authority, confess judgment
against Gabriela Andrea de Coster;
"V.The court erred in holding that the judgment in this case has become final and res
judicata;
"VI.The court erred in approving the judicial sale made by the sheriff at an inadequate
price;
"VII.The lower court erred in not declaring these proceedings, the judgment and the
sale null and void.
JOHNS, J.:
For the reasons stated in the decision of this court in the Bank of the Philippine
Islands vs. De Coster(47 Phil., 594), the alleged service of the summons in the foreclosure
suit upon the appellant was null and void. In fact, it was made on J. M. Poizat only, and
there is no claim or pretense that any service of summons was ever made upon her. After
service was made upon him, the attorneys in question entered their appearance for all of
the defendants in the action, including the appellant upon whom no service was ever made,
and filed an answer for them. Later, in open court, it was agreed that judgment should be
entered for the plaintiff as prayed for in its complaint.
418
 The appellant contends that the appearance made by the attorneys for her was collusive
and fraudulent, and that it was made without her authority, and there may be some truth in
that contention. It is very apparent that the attorneys made no effort to protect or defend
her legal rights, but under our view of the case, that question is not material to this decision.
The storm center of this case is the legal force and effect of the real mortgage in question,
by whom and f or whom it was executed, and upon whom is it binding, and whether or not
it is null and void as to the appellant.
It is admitted that the appellant gave her husband, J. M. Poizat, the power of attorney in
question, and that it is in writing and speaks for itself. If the mortgage was legally executed
by her attorney in fact for her and in her name as her act and deed, it would be legal and
binding upon her and her property. If not so executed, it is null and void.

It appears upon the face of the instrument that J. M. Poizat, as the husband of the wife,
was personally a party to the mortgage, and that he was the only person who signed the
mortgage. It does not appear from his signature that he signed it f or his wif e or as her
agent or attorney in f act, and there is nothing in his signature that would indicate that in
the signing of it by him, he intended that his signature should bind his wife. It also appears
from the acknowledgment of the instrument that he executed it as his personal act and deed
only, and there is nothing to show that he acknowledged it as the agent or attorney in f act
of his wif e, or as her act and deed.
419
 The mortgage recites that it was entered into by and between Juan M. Poizat in his own
behalf and as attorney in fact of his wife. That the record title of the mortgaged property is
registered in the name of his wife, Doña Gabriela Andrea de Coster. That they were legally
married, and that the marriage between them has never been dissolved. That with the object
of constructing a new building on the land, the six warehouses thereon were demolished,
and that a new building was erected. That the property is the subject of a new registration
in which it must be made to appear that the land belongs in fee simple and in full ownership
as the paraphernal property of the wife, and that the new building thereon is the property
of the conjugal partnership. "That the Philippine Sugar Estates Development Company,
Ltd., having granted to Don Juan M. Poizat a credit of 10,000 Pounds Sterling with the
mortgage upon the real property above described," that the Development Company
"hereby grants Don Juan M. Poizat a credit in the amount of 10,000 Pounds Sterling which
the said Mr. Poizat may use, etc." That should he personally or on behalf of his wife use
the credit he acknowledges, that he and his principal are indebted to the Development
Company in the sum of 10,000 Pounds Sterling which "they deem to have received as a
loan from the said commercial entity." That he binds himself and his wif e to pay that
amount with a yearly interest of 9 per cent, payable quarterly. That as security f or the
payment of said credit in the case Mr. Poizat should receive the money at any time, with its
interest, "the said Mr. Poizat in the dual capacity that he represents hereby constitutes a

420
voluntary especial mortgage." That Don Juan M. Poizat "in the capacity above mentioned
binds himself, should he receive the amount of the credit."
It thus appears that at the time the power of attorney and the mortgage were executed,
Don Juan M. Poizat and Gabriela Andrea de Coster were husband and wife, and that the
real property upon which the mortgage was executed was her sole property before her
marriage, and that it was her paraphernal property at the time the mortgage was executed,
and that the new building constructed on the land was the property of the conjugal
partnership.
The instrument further recites that the Development Company "hereby grants Don Juan
M. Poizat a credit in the amount of 10,000 Pounds Sterling which the said Mr. Poizat may
use within the entire month of January of the coming year, 1913." In other words, it appears
upon the f ace of the mortgage that the loan was made to the husband with authority to
use the money f or his sole use and benefit. With or without a power of attorney, the
signature of the husband would be necessary to make the instrument a valid mortgage upon
the property of the wife, even though she personally signed the mortgage.
It is contended that the instrument upon its face shows that its purpose and intent was
to bind the wife. But it also shows upon its face that the credit was granted to Don Juan M.
Poizat which he might use within the "entire month of January."
Any authority which he had to bind his wife should be confined and limited to his power
of attorney.
421
 Giving to it the very broadest construction, he would not have any authority to mortgage
her property, unless the mortgage was executed for her "and in her name, place or stead,"
and as her act and deed. The mortgage in question was not so executed. It was signed by
Don Juan M. Poizat in his own name, his own proper person, and by him only, and it was
acknowledged by him in his personal capacity, and there is nothing in either the signature
or acknowledgment which shows or tends to show that it was executed f or or on behalf
of his wif e or "in her name, place or stead."
It is contended that the instrument shows upon its face that it was intended to make the
wife liable for his debt, and to mortgage her property to secure its payment, and that his
personal signature should legally be construed as the joint or dual signature of both the
husband and that of the wife as her agent. That is to say, construing the recitals in the
mortgage and the instrument as a whole, his lone personal signature should be construed
in a double capacity and binding equally and alike both upon the husband and the wife. No
authority has been cited, and none will ever be found to sustain such a construction.
As the husband of the wife, his signature was necessary to make the mortgage valid. In
other words, to make it valid, it should have been signed by the husband in his own proper
person and by him as attorney in fact for his wife, and it should have been executed by both
husband and wife, and should have been so acknowledged.
There is no principle of law by which a person can become liable on a real mortgage
which she never executed either in person or by attorney in fact. It should be noted that
422
this is a mortgage upon real property, the title to which cannot be divested except by sale
on execution or the formalities of a will or deed. For such reasons, the law requires that a
power of attorney to mortgage or sell real property should be executed with all of the
formalities required in a deed. For the same reason that the personal signature of Poizat,
standing alone, would not convey the title of his wife in her own real property, such a
signature would not bind her as a mortgagor in real property, the title to which was in her
name.
We make this broad assertion that upon the facts shown in the record, no authority will
ever be found to hold the wife liable on a mortgage of her real property which was executed
in the form and manner in which the mortgage in question was executed.
The real question involved is fully discussed in Mechem on Agency, volume 1, page 784,
in which the author says:
"It is to be observed that the question here is not how authority to execute sealed
instruments is to be conferred, but how such an authority is to be executed. It is assumed
that the agent was authorized to bind his principal, but the question is, has he done so."
That is the question here.
Upon that point, there is a full discussion in the following sections, and numerous
authorities are cited:
"SEC. 1093. Deed by agent must purport to be made and sealed in the name of the principal.—It is a
general rule in the law of agency that in order to bind the principal by a deed executed by
423
an agent, the deed must upon its face purport to be made, signed and sealed in the name
of the principal. If, on the contrary, though the agent describes himself as 'agent/ or though
he add the word 'agent' to his name, the words of grant, covenant and the like, purport
upon the face of the instrument to be his, and the seal purports to be his seal, the deed will
bind the agent if any one and not the principal.
"SEC. 1101. Whose deed is a given deed—How question determined.—In determining whether a
given deed is the deed of the principal, regard may be had, First, to the party named as
grantor. Is the deed stated to be made by the principal or by some other person? Secondly, to
the granting clause. Is the principal or the agent the person who purports to make the
grant? Thirdly, to the covenants, if any. Are these the covenants of the principal ? Fourthly, to
the testimonium clause. Who is it who is to set his name and seal in testimony of the grant?
Is it the principal or the agent? And Fifthly, to the signature and seal. Whose signature and
seal are these? Are they those of the principal or of the agent?
"If upon such an analysis the deed does not upon its face purport to be the deed of the
principal, made, signed, sealed and delivered in his name and as his deed, it cannot take
effect as such.
"SEC. 1102. Not enough to make deed the principal's that the agent is described as such.—It is not
enough merely that the agent was in fact authorized to make the deed, if he has not acted
in the name of the principal. Nor is it ordinarily sufficient that he describes himself in the
deed as acting by virtue of a power of attorney or otherwise, or for or in behalf, or as
424
attorney, of the principal, or as a committee, or as trustee of a corporation, etc.; for these
expressions are usually but descriptio personae, and if, in fact, he has acted in his own name
and set his own hand and seal, the causes of action thereon accrue to and against him
personally and not to or against the principal, despite these recitals.
"SEC. 1103. Not principal's deed where agent appears as grantor and signer.—Neither can the deed
ordinarily be deemed to be the deed of the principal where the agent is the one who is
named as the grantor or maker, and he is also the one who signs and seals it. * * *
"SEC. 1108. * * * But however clearly the body of the deed may show an intent that it
shall be the act of the principal, yet unless it is executed by his attorney for him, it is not his
deed, but the deed of the attorney or of no one. The most usual and approved form of
executing a deed by attorney is by his writing the name of the principal and adding 'by A B
his attorney' or 'by his attorney A B.' ' * * *"
That is good law. Applying it to the facts, under his power of attorney, Don Juan M. Poizat
may have had authority to borrow money and mortgage the real property of his wife, but
the law specifies how and in what manner it must be done, and the stubborn fact remains
that, as to the transaction in question, that power was never exercised. The mortgage in
question was executed by him and him only, and for such reason, it is not binding upon the
wife, and as to her, it is null and void.
It follows that the whole decree against her and her paraphernal property and the sale of
that property to satisfy the mortgage are null and void, and that any title she may have had
425
in or to her paraphernal property remains and is now vested in the wife as fully and as
absolutely as if the mortgage had never been executed, the decree rendered or the property
sold. As to Don Juan M. Poizat, the decree is valid and binding, and remains in full force
and effect.
It is an undisputed fact, which appears in the mortgage itself, that the land in question
was the paraphernal property of the wife, but after the marriage, the old buildings on the
property were torn down and a new building constructed and, in the absence of evidence
to the contrary, it must be presumed that the new building is conjugal property of the
husband and wife (Civil Code, art. 1404). As such, it is subject to the debts of the conjugal
partnership for the payment or security of which the husband has the power to mortgage
or otherwise encumber the property (Civil Code, art. 1413).
It is very probable that this particular question was not fully presented to or considered
by the lower court.
The mortgage as to the paraphernal property of the wife is declared null and void ab
initio,and as to her personally, the decree is declared null and void, and as to her paraphernal
property, the sale is set aside and vacated, and held for naught, leaving it free and clear from
the mortgage, decree and sale, and in the same condition as if the mortgage had never been
executed, with costs in favor of the appellant. So ordered.
Johnson, Malcolm, Ostrand,and Romualdez, JJ., concur.

426
STREET, J., with whom concur AVANCEÑA, C. J., VILLAMOR, and VILLA-
REAL, JJ.,dissenting:
In the year 1913 the plaintiff, the Philippine Sugar Estates Development Co., Ltd., Inc.,
let J. M. Poizat have nearly P100,000 of money on the supposed security of a mortgage on
property belonging to his wife, Gabriela Andrea de Coster, executed by Poizat under a
power of attorney from her. The plaintiff has now to learn that the security on which it
relied is worthless and that it did not even so much as have Gabriela Andrea de Coster in
court in the foreclosure proceeding. In the decision so holding the undersigned are unable
to concur.
To dispose first of the point as to the jurisdiction of the court over the person and
property of Gabriela Andrea de Coster, it is only necessary to refer to the third paragraph
from the end of the power of attorney (Exhibit A to the opposition of Gabriela Andrea de
Coster) under which Poizat acted. To express in a few words the substance of this
paragraph in the part relevant to the present discussion, Poizat is given full authority to
represent his wife in all judicial proceedings in Philippine courts, including, among other
things, the making of appearances, submission of answers, receiving of service of process,
and to take in her behalf any procedural steps and measures required by the law of
procedure in order to make effective and bring to termination the matters in which he, as
attorney in fact, may be concerned. If this power is not sufficient to authorize Poizat to
accept service and employ a lawyer to appear in court for the principal, as was done in this
427
case, it would seem to be useless for lawyers to exercise their ingenuity in the attempt to
draft such authority.
But the disastrous feature of the decision is found in the pronouncement that the
mortgage on which the plaintiff's money was obtained is a nullity; and upon this point the
court holds that Gabriela Andrea de Coster was not bound because the contract is signed
"Juan M. Poizat," instead of "Gabriela Andrea de Coster, by Juan M. Poizat." But the
document expressly recites in its preamble that it is executed by Juan M. Poizat, acting both
in representation of himself and in the character of attorney in fact of his wife, Gabriela
Andrea de Coster, in virtue of the authority conferred upon him in the power of attorney
already mentioned. Furthermore, throughout the body of the document the idea is
repeatedly expressed that J. M. Poizat obligates both himself and his wife. We submit that
under the doctrine informing the Civil Code—which should control in this jurisdiction—
the mortgage instrument was lawfully executed and in a form sufficient to bind the principal
as well as the agent. Certainly it would never occur to a civilian lawyer that the document
in question is informally executed; and the circumstance that a learned Spanish notary (Don
Enrique Barrera y Caldes) intervened in the execution of this instrument would alone
suffice to show that it is done in conformity with approved Spanish models—a f act
otherwise apparent.
Even in the United States and Great Britain, where strict doctrines might be expected to
prevail in such matters, owing to the technical rules involving the law of real property in
428
those countries, ample authority is found to the effect that the principal will be bound by a
contract signed by the agent only, when it appears from the face of the instrument that he
is acting in the character of agent. (2 C. J., 672.)
From the portentous way in which the opinion of the court refers to the question of the
sufficiency of the signature to the mortgage as the "storm centre of the case," one would
suppose that this question had been at least raised by the litigants and had been the subject
of discussion in the lower court as well as in the briefs of the attorneys here. Nothing of
the sort is true, for this capital point, on which the case is made principally to turn, has been
jumped up exclusively in this court; and the voluminous briefs will be searched in vain for
the slightest reference to the subject. In fact both parties appear to have assumed that the
mortgage was executed with all proper formality. Apart from the fact that the question was
not raised in the lower court, no assignment of error in this court calls in question the
sufficiency of the mode of execution of the instrument. Under these circumstances this
court should have confined itself to the matters put in issue by the litigants; and it should
not have gone out of its way to take up a point not discussed by the parties, and upon which
in fact the losing party has never been heard. It is a good rule of practice—sometimes
respected by us—that an appellate court will not permit an appellant to raise a point upon
appeal which was not put in issue in the court below and upon which no assignment of
error has been made. In our opinion the order appealed from should be affirmed.
Order reversed.
429
DECISION UPON PETITION FOR REHEARING
February 15, 1926
JOHNS, J.:
The plaintiff has filed a very able, vigorous and exhaustive petition for a rehearing, which
we have given the careful consideration which the importance of the questions deserve.
The first proposition advanced is that the mortgage in question is valid not only as to the
buildings, but also as to the land on which they are constructed. The previous decision of
this court is to the effect that, the buildings being conjugal property, the mortgage is valid
as to the buildings, but that it is not valid as to the land, which is the paraphernal property
of the wife.
Plaintiff contends that the land is conjugal property under the provisions of article 1404
of the Civil Code. That article does not apply to the instant case. It does not appear that
the buildings are of the nature therein specified. The commentator Manresa, cited in the
motion for reconsideration, rightly distinguishes those buildings which, by reason of their
importance, convert the land on which they are built into an accessory, from those which,
on account of their small relative value, continue to remain as accessories to the land on
which they are constructed, and for such reason partake of the land.

430
"The word building is a generic term f or all architectural work with roof built f or the
purpose of being used as man's dwelling, or for offices, clubs, theaters, etc. When the
structure does not constitute a building, then the rule must be followed. The article cannot
but be interpreted strictly. An inclosure for cattle or a 'tinada,' a stone barn, etc., follow the
soil as accessories thereto." (9 Manresa, 626, 1919 ed.)
It appears from the mortgage that the buildings in question to be constructed are
warehouses, and as the circumstances and details do not appear in the record, such
warehouses could not be construed as the class of buildings mentioned in article 1404.
Hence, the facts are not sufficient to justify the court in holding that the exceptional
provision applies to this case in the sense of considering the soil as an accessory to the
building, contrary to the general rule contained in the Civil Code (arts. 358-364 and 1368).
But conceding that article 1404 does apply, yet, under the provisions of that article, the
owner of the land is entitled to an indemnity for its value. Since, according to the spirit of
the law contained in article 349 of the Civil Code, no one can be deprived of his property
without previous indemnity, and it not appearing in the instant case that such indemnity
was ever paid, the land in question cannot now be considered as conjugal property. But it
further appears that the mortgage upon which plaintiff relies contains the following recitals:
" * * * which property must be the subject of a new registration wherein it must be stated
that the lot forming a part thereof pertains to said Doña Gabriela Andrea de Coster in full ownership and
fee simple as paraphernal property, and the building newly erected thereon to the conjugal
431
partnership between Don Juan M. Poizat and his wife, the aforesaid Doña Gabriela Andrea
de Coster * * *" (Italics ours.)
The plaintiff, having taken and accepted the mortgage, is bound by those recitals. It further
appears that this property is registered under the Torrens System, and that the title to the
land is vested in the wife, and is not conjugal property, and that the wife is at least the owner
of the land.
In a supplemental plea filed January 21, 1926, petitioner cites and relies on the case of
the National Bank vs. Quintos and Ansaldo (46 Phil., 370), in which article 1408 of the Civil
Code was construed and applied. It must be conceded that this article applies only to those
cases wherein there is a presumption that the debt contracted by the husband is for the
common benefit of both spouses, but this presumption may be overcome by evidence to
the contrary.
"All debts and obligations contracted during the marriage by the husband, the legal
representative of the partnership in: the normal condition thereof, are deemed contracted by the
partnership. The law presumes that they are contracted for the common benefit of both.
However, this presumption may be overthrown by evidence to the contrary, as we shall see when
we take up article 1413." (9 Manresa, 648.)
For this reason, where, as in the instant case, it appears that the loan obtained by the
husband was not only not obtained for the common benefit of the conjugal partnership,
but was obtained to the damage of the wife, there is no such presumption, and that article
432
does not apply. It is further contended that the mortgage was executed with all of the legal
necessary formalities, and in accord with the established practice and custom in the
Philippine Islands, citing blank forms given in section 127 of Act No. 496, from which
plaintiff's counsel contends that it is not required that the attorney in f act, who executes a
document in his own name and that of his principal, must show in his signature his double
capacity by writing first his own signature and then the name of his principal, and say "by"
and thereafter his own signature as attorney in fact.
557
The Act should be construed with reference to section 81 of Act No. 136, which says:
"After the enactment of a new system of registration of land titles, the notarial law of the
Philippine Islands of February fifth, eighteen hundred and eighty-nine, its regulations of
April eleventh, eighteen hundred and ninety, and the general instructions for drafting
instruments subject to record in the Philippine Islands, of October third, eighteen hundred
and eighty-nine, and the modifications thereof, by General Order Number Forty, issued
from the office of the United States Military Governor, on September twenty-third,
eighteen hundred and ninety-nine, and by General Order Number Twenty, issued from the
office of the Military Governor on February third, nineteen hundred, shall be repealed and
shall be of no effect after the date of such enactment, and thereafter appointments of
notaries public and the performance of official duties by them shall be regulated by the
subsequent provisions of this Act."
433
The old Spanish notarial law and system of conveyances was repealed in the Philippines,
and another and a different notarial law and system became the law of the land with the
enactment of Act No. 496. One of the fundamental differences between the two systems
consists in this. Under the Spanish system, the documents were executed in the f orm of
minutes, wherein the notary was the one who spoke, and under Act No. 496, the notary is
not the one who speaks, and there is no record kept of the minutes, and the intervention
of a notary is limited to the acknowledgment only of the document. Under the Spanish
system, to determine the capacity in which a person executed a document, it was sufficient
to look at the text of the document, because its whole text was attended with the solemnity
of the notary authorizing its execution. Under the present system, it is necessary to resort
to the form in which the parties sign an instrument, because it is the signature rather than
the text which bears the stamp of authenticity.
Neither does section 127 of Act No. 496 bear the construction for which the plaintiff
contends. It provides in legal effect that where one or more persons executed a conveyance,
the instrument must be executed by all of the parties to the conveyance, and that if there
are two or more persons, the instrument must not only be signed by all of the parties to the
conveyance, but it must be acknowledged by all of them. That clearly appears from the
certificate of acknowledgment in which it is recited:

434
"* * * personally appeared ..........................................., known to me to be the same person
(or persons) who executed the f oregoing instrument, and acknowledged that the same is
his (or their) free act and deed."
The construction for which plaintiff contends would nullify the words "or persons" and
the words "or their." The fact that those words are used in the manner in which they are
used in section 127, must mean that where two or more persons give a deed or mortgage
on real property, that all of them should not only sign the mortgage, but that all of them
should acknowledge it as "their free act and deed."
Again, in the instant case, the power of attorney was given by the wife to the husband, and
the husband himself was a party to the mortgage; and the money was paid to him for and
on his personal account, and his signature was necessary to bind any interest which he had
in the land as the husband of the wife, and the signature of the wife in some form was
necessary to bind her interest in the land. Here, you have the signature of the husband
standing alone, and there is nothing upon the face of it which shows that in the signing of
it, the husband ever intended to bind his wife. If Poizat had not been the husband of his
wife, and if he himself was not a party to the instrument and did not have any interest in
the land mortgaged, another and a very different question would be presented, and his lone
signature might then bind the property of the wife.
With all due respect to the learned counsel, no law, either Spanish or American, has been
cited or will ever be found which, upon the facts shown in the record, will construe the
435
lone unqualified signature of the husband as the joint and dual signature of both the
husband and the wife, so as to make it binding upon the paraphernal property of the wife.
Although not cited in the petition during the discussion of this case in conference,
attention was called to article 1717 of the Civil Code which provides as follows:
"When an agent acts in his own name, the principal shall have no right of action against the
persons with whom the agent has contracted, or such persons against the principal.
"In such case, the agent is directly liable to the person with whom he has contracted, as
if the transaction were his own. Cases involving things belonging to the principal are
excepted.
"The provisions of this article shall be understood to be without prejudice to actions
between principal and agent." In the instant case, this section should be construed with
article 1713, which among other things provides that:
"In order to compromise, alienate, mortgage, or to execute any other act of strict
ownership, an express power is required."
The mortgage in question was upon real property, and it was not a "simple contract," and
where an agency is created by an express power, it must be executed with the formalities of
an express power.
Again, although the wife was a party to the body of the mortgage, Poizat himself had an
interest in the real property, and was a party to the instrument, and his personal signature
was necessary to the mortgage to bind his own personal interest, and the interest of the
436
conjugal partnership. The power of attorney from the wife gave her husband the express
power defined in article 1713, and that power should have been exercised, and the mortgage
should have been executed "in the name, place, and stead of the wife." That was not done.
The authorities cited in the petition for a rehearing and in the minority opinion are based
upon, and refer to, the execution by the agent of a "simple contract," and for such reason
are not in point. There is a very marked legal distinction between the authority of an agent
to make a "simple contract," and his authority to convey or mortgage real property and the
manner in which the power should be executed.
It may be true that the decision of this court is based upon questions that are not as fully
discussed in the appellant's brief, as they should have been, but the fact remains that they
were pointed out, and attention was called to them in the argument in the brief, and that
they are expressly covered by the assignments of error.
Although ably presented, we are clearly of the opinion that the petition for a rehearing
must be denied. So ordered.
Johnson, Malcolm, Ostrand,and Romualdez, JJ., concur.
AVANCEÑA, C. J., STREET, VILLAMOR, and VILLA-REAL, JJ., dissenting:
We insist in our dissenting opinion and reference is hereby made to what we briefly said
in our separate opinion. We wish, however, to emphasize our point of view on the merits
of the case with regard to appellant's liability.

437
 The theory of the majority is contained in the following paragraph of its decision upon
the motion for reconsideration:
" * * * If Poizat had not been the husband of his wife, and if he himself was not a party to
the instrument and did not have any interest in the land mortgaged, another and a very
different question would be presented, and his lone signature might then bind the property
of the wife."
It follows from this that the power given by the appellant to her husband Juan M. Poizat is
held sufficient to mortgage the land in question, that the contract entered into by him with
the plaintiff, mortgaging this land, is within the scope of this power, and that the contract
thus signed by Poizat might be sufficient to bind the appellant. But it is said that it is not,
by reason of the fact that Poizat was also a party to the contract and has an interest in the
property mortgaged. We do not see the importance of this fact. If Poizat were not a party
to the contract and had no interest in the property mortgaged, the document would, as it
stands,—signed by him alone,—be sufficient to bind the appellant, not by what his
signature says, since it says nothing, but because the document shows that he was acting on
behalf of the appellant. This being the case, we see no reason why the document should
not have f ull effect merely because it states that Poizat was acting on his behalf and that of
the appellant. The most that can be said is that it was necessary that Poizat should have
signed twice, but again we do not see the necessity of this duplicity. The signature serves
only to authenticate the document,—and f or this purpose one is enough,—and not to
438
express the nature and extent of the obligation, which must be determined by the document
itself.
But whether this be the effect of the majority opinion, or that it is necessary, in order to
bind the appellant, that Poizat should have signed the document twice, the first time on his
own behalf, and the second on that of the appellant, or should have signed it only once,
stating that he did so in his own behalf and that of the appellant, with all due respect to the
majority, we believe that the decision rendered is erroneous.
The doctrine laid down by the majority is openly repugnant to the spiritualistic
conception which informs article 1278 of the Civil Code, according to which contracts shall
be binding whatever may be the form in which they may have been entered into, provided that the
essential requisites for their validity are present.
In some contracts, a public document is required as a special form for convenience of
evidence (art. 1280, Civil Code), but not as an essential requisite for its validity, but only for
its efficaciousness (art. 1279, Civil Code). In very few cases does the Civil Code require a
certain form for special reasons, as a requisite to the validity of the contract as for instance
in the donation, in which a public document is required (art. 633, Civil Code), and in the
mortgage, which must be registered (art. 1875, Civil Code). But except in these cases, and
even in these cases, once the required special form is complied with, the question as to form
in the former, or the question as to other formalities in the latter, falls under the broad rule
established in article 1278, and loses all its influence on the effects of the contract, it being
439
enough that the contract be proven. In this connection, we are not unmindful of the
amendments introduced by the Code of Civil Procedure to the Civil Code as to the form
of contracts for their efficaciousness, but nevertheless we believe that the rule provided by
article 1278 of the Civil Code subsists.
In the instant case, the power given by the appellant to Poizat, as well as the mortgage
executed by the latter in his own behalf and that of the appellant with the plaintiff was
executed in the form required by the law, that is, in a public document registered in the
registry of property. Under such circumstances, it is not proper to destroy the effects of
these contracts and ignore the rights and obligations which the parties thereby desired to
acquire and assume, merely by reason of a formality which no law requires, and does not
seem to answer any purpose. The theory of agency, according to the Civil Code, is based
on representation and its characteristic is the subrogation of the agent in the place of his
principal whom he substitutes, in matters constituting the subject-matter of the agency.
Thus, once it is stated in the document that the agent acts by virtue of the agency, he
absorbs the personality of the principal, and by a legal fiction, he appears as the principal
himself, and whatever he does within the agency is considered as done by the principal.
At any rate, even supposing that Poizat acted in his own name in executing the contract
with the plaintiff, as he acted within the limits of the agency or power granted him by the
appellant and the contract relates to things belonging to her, the plaintiff has an action
against the appellant under article 1717 of the Civil Code.
440
 Motion denied.

G.R. No. 95703. August 3, 1992.*

RURAL BANK OF BOMBON (CAMARINES SUR), INC., petitioner, vs. HON. COURT
OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO and RUFINO S.
AQUINO, respondents.
Agency; Banks; Mortgages; Agent who signs a Deed of Mortgage in his name alone does not validly
bind owner of mortgaged estate.—In view of this rule, Aquino’s act of signing the Deed of Real
Estate Mortgage in his name alone as mortgagor, without any indication that he was signing
for and in behalf of the property owner, Ederlinda Gallardo, bound himself alone in his
personal capacity as a debtor of the petitioner Bank and not as the agent or attorney-in-fact
of Gallardo.
Same; Same; Same; Same.—The above provision of the Civil Code relied upon by the
petitioner Bank, is not applicable to the case at bar. Herein respondent Aquino acted
purportedly as an agent of Gallardo, but actually acted in his personal capacity. Involved
herein are properties titled in the name of respondent Gallardo against which the Bank
proposes to foreclose the mortgage constituted by an agent (Aquino) acting in his personal
capacity. Under these circumstances, we hold, as we did in Philippine Sugar Estates

441
Development Co. vs. Poizat, supra, that Gallardo’s property is not liable on the real estate
mortgage.
PETITION for review of the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
L.M. Maggay & Associates for petitioner.
GRIÑO-AQUINO, J.:
This petition for review seeks the reversal of the decision dated September 18, 1990 of the
Court of Appeals, reversing the decision of the Regional Trial Court of Makati, Branch 150,
which dismissed the private respondents’ complaint and awarded damages to the petitioner,
Rural Bank of Bombon.
On January 12, 1981, Ederlinda M. Gallardo, married to Daniel Manzo, executed a special
power of attorney in favor of Rufino S. Aquino authorizing him:
“1. To secure a loan from any bank or lending institution for any amount or otherwise
mortgage the property covered by Transfer Certificate of Title No. S-79238 situated at Las
Piñas, Rizal, the same being my paraphernal property, and in that connection, to sign, or
execute any deed of mortgage and sign other document requisite and necessary in securing

442
said loan and to receive the proceeds thereof in cash or in check and to sign the receipt
therefor and thereafter endorse the check representing the proceeds of loan.” (p. 10, Rollo.)
Thereupon, Gallardo delivered to Aquino both the special power of attorney and her
owner’s copy of Transfer Certificate of Title No. S-79238 (19963-A).
On August 26, 1981, a Deed of Real Estate Mortgage was executed by Rufino S. Aquino
in favor of the Rural Bank of Bombon (Camarines Sur), Inc. (hereafter, defendant Rural
Bank) over the three parcels of land covered by TCT No. S-79238. The deed stated that
the property was being given as security for the payment of “certain loans, advances, or
other accommodations obtained by the mortgagor from the mortgagee in the total sum of
Three Hundred Fifty Thousand Pesos only (P350,000.00), plus interest at the rate of
fourteen (14%) per annum x x x” (p. 11, Rollo).
On January 6, 1984, the spouses Ederlinda Gallardo and Daniel Manzo filed an action
against Rufino Aquino and the Bank because Aquino allegedly left his residence at San
Pascual, Hagonoy, Bulacan, and transferred to an unknown place in Bicol. She discovered
that Aquino first resided at Sta. Isabel, Calabanga, Camarines Sur, and then later, at San
Vicente, Calabanga, Camarines Sur, and that they (plaintiffs) were allegedly surprised to
discover that the property was mortgaged to pay personal loans obtained by Aquino from
the Bank solely for personal use and benefit of Aquino; that the mortgagor in the deed was
defendant Aquino instead of plaintiff Gallardo whose address up to now is Manuyo, Las
Piñas, M.M., per the title (TCT No. S-79238) and in the deed vesting power of attorney to
443
Aquino; that correspondence relative to the mortgage was sent to Aquino’s address at “Sta.
Isabel, Calabanga, Camarines Sur” instead of Gallardo’s postal address at Las Piñas, Metro
Manila; and that defendant Aquino, in the real estate mortgage, appointed defendant Rural
Bank as attorney in fact, and in case of judicial foreclosure as receiver with corresponding
power to sell and that although without any express authority from Gallardo, defendant
Aquino waived Gallardo’s rights under Section 12, Rule 39, of the Rules of Court and the
proper venue of the foreclosure suit.
On January 23, 1984, the trial court, thru the Honorable Fernando P. Agdamag,
temporarily restrained the Rural Bank “from enforcing the real estate mortgage and from
foreclosing it either judicially or extrajudicially until further orders from the court” (p. 36,
Rollo).
Rufino S. Aquino in his answer said that the plaintiff authorized him to mortgage her
property to a bank so that he could use the proceeds to liquidate her obligation of P350,000
to him. The obligation to pay the Rural Bank devolved on Gallardo. Of late, however, she
asked him to pay the Bank but defendant Aquino set terms and conditions which plaintiff
did not agree to. Aquino asked for payment to him of moral damages in the sum of P50,000
and lawyer’s fees of P35,000.
The Bank moved to dismiss the complaint and filed counter-claims for litigation
expenses, exemplary damages, and attorney’s fees. It also filed a crossclaim against Aquino

444
for P350,000 with interest, other bank charges and damages if the mortgage be declared
unauthorized.
Meanwhile, on August 30, 1984, the Bank filed a complaint against Ederlinda Gallardo
and Rufino Aquino for “Foreclosure of Mortgage” docketed as Civil Case No. 8330 in
Branch 141, RTC Makati. On motion of the plaintiff, the foreclosure case and the
annulment case (Civil Case No. 6062) were consolidated.
On January 16, 1986, the trial court rendered a summary judgment in Civil Case No. 6062,
dismissing the complaint for annulment of mortgage and declaring the Rural Bank entitled
to damages the amount of which will be determined in appropriate proceedings. The court
lifted the writ of preliminary injunction it previously issued.
On April 23, 1986, the trial court, in Civil Case No. 8330, issued an order suspending the
foreclosure proceedings until after the decision in the annulment case (Civil Case No. 6062)
shall have become final and executory.
The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals, which on
September 18, 1990, reversed the trial court. The dispositive portion of the decision reads:
“UPON ALL THESE, the summary judgment entered by the lower court is hereby
REVERSED and in lieu thereof, judgment is hereby RENDERED, declaring the deed of
real estate mortgage dated August 26, 1981, executed between Rufino S. Aquino with the
marital consent of his wife Bibiana Aquino with the appellee Rural Bank of Bombon,
Camarines Sur, unauthorized, void and unenforceable against plaintiff Ederlinda Gallardo;
445
ordering the reinstatement of the preliminary injunction issued at the onset of the case and
at the same time, ordering said injunction made permanent.
“Appellee Rural Bank to pay the costs.” (p. 46, Rollo.)
Hence, this petition for review by the Rural Bank of Bombon, Camarines Sur, alleging that
the Court of Appeals erred:
1. 1.in declaring that the Deed of Real Estate Mortgage was unauthorized, void, and
unenforceable against the private respondent Ederlinda Gallardo; and
2. 2.in not upholding the validity of the Real Estate Mortgage executed by Rufino S.
Aquino as attorney-in-fact for Gallardo, in favor of the Rural Bank of Bombon, (Cam.
Sur), Inc.
Both assignments of error boil down to the lone issue of the validity of the Deed of Real
Estate Mortgage dated August 26, 1981, executed by Rufino S. Aquino, as attorney-in-fact
of Ederlinda Gallardo, in favor of the Rural Bank of Bombon (Cam. Sur), Inc.
The Rural Bank contends that the real estate mortgage executed by respondent Aquino
is valid because he was expressly authorized by Gallardo to mortgage her property under
the special power of attorney she made in his favor which was duly registered and annotated
on Gallardo’s title. Since the Special Power of Attorney did not specify or indicate that the

446
loan would be for Gallardo’s benefit, then it could be for the use and benefit of the attorney-
in-fact, Aquino.
However, the Court of Appeals ruled otherwise. It held:
“The Special Power of Attorney above quoted shows the extent of authority given by the
plaintiff to defendant Aquino. But defendant Aquino in executing the deed of Real Estate
Mortgage in favor of the rural bank over the three parcels of land covered by Gallardo’s
title named himself as the mortgagor without stating that his signature on the deed was for
and in behalf of Ederlinda Gallardo in his capacity as her attorney-in-fact.
“At the beginning of the deed mention was made of ‘attorney-in-fact of Ederlinda H.
Gallardo,’ thus: ‘(T)his MORTGAGE executed by Rufino S. Aquino attorney in fact of
Ederlinda H. Gallardo, of legal age, Filipino, married to Bibiana Panganiban with postal
address at Sta. Isabel x x x,’ but which of itself, was merely descriptive of the person of
defendant Aquino. Defendant Aquino even signed it plainly as mortgagor with the marital
consent yet of his wife Bibiana P. Aquino who signed the deed as ‘wife of mortgagor.’
“xxx xxx xxx
“The three (3) promissory notes respectively dated August 31, 1981, September 23, 1981
and October 26, 1981, were each signed by Rufino Aquino on top of a line beneath which
is written ‘signature of mortgagor’ and by Bibiana P. Aquino on top of a line under which
is written ‘signature of spouse,’ without any mention that execution thereof was for and in
behalf of the plaintiff as mortgagor. It results, borne out from what were written on the
447
deed, that the amounts were the personal loans of defendant Aquino. As pointed out by
the appellant, Aquino’s wife has not been appointed co-agent of defendant Aquino and her
signature on the deed and on the promissory notes can only mean that the obligation was
personally incurred by them and for their own personal account.
“The deed of mortgage stipulated that the amount obtained from the loans shall be used
or applied only for ‘fishpond (bangus and sugpo production).’ As pointed out by the
plaintiff, the defendant Rural Bank in its Answer had not categorically denied the allegation
in the complaint that defendant Aquino in the deed of mortgage was the intended user and
beneficiary of the loans and not the plaintiff. And the special power of attorney could not
be stretched to include the authority to obtain a loan in said defendant Aquino’s own
benefit.” (pp. 40-41, Rollo.)
The decision of the Court of Appeals is correct. This case is governed by the general rule
in the law of agency which this Court applied in “Philippine Sugar Estates Development
Co. vs. Poizat,” 48 Phil. 536, 538:
“It is a general rule in the law of agency that, in order to bind the principal by a mortgage
on real property executed by an agent, it must upon its face purport to be made, signed and
sealed in the name of the principal, otherwise, it will bind the agent only. It is not enough
merely that the agent was in fact authorized to make the mortgage, if he has not acted in
the name of the principal. Neither is it ordinarily sufficient that in the mortgage the agent
describes himself as acting by virtue of a power of attorney, if in fact the agent has acted in
448
his own name and has set his own hand and seal to the mortgage. This is especially true
where the agent himself is a party to the instrument. However clearly the body of the
mortgage may show and intend that it shall be the act of the principal, yet, unless in fact it
is executed by the agent for and on behalf of his principal and as the act and deed of the
principal, it is not valid as to the principal.”
In view of this rule, Aquino’s act of signing the Deed of Real Estate Mortgage in his name
alone as mortgagor, without any indication that he was signing for and in behalf of the
property owner, Ederlinda Gallardo, bound himself alone in his personal capacity as a
debtor of the petitioner Bank and not as the agent or attorney-in-fact of Gallardo. The
Court of Appeals further observed:
“It will also be observed that the deed of mortgage was executed on August 26, 1981 therein
clearly stipulating that it was being executed ‘as security for the payment of certain loans,
advances or other accommodation obtained by the Mortgagor from the Mortgagee in the
total sum of Three Hundred Fifty Thousand Pesos only (P350,000.00)’ although at the time
no such loan or advance had been obtained. The promissory notes were dated August 31,
September 23 and October 26, 1981 which were subsequent to the execution of the deed
of mortgage. The appellant is correct in claiming that the defendant Rural Bank should not
have agreed to extend or constitute the mortgage on the properties of Gallardo who had
no existing indebtedness with it at the time.

449
 “Under the facts the defendant Rural Bank appeared to have ignored the representative
capacity of Aquino and dealt with him and his wife in their personal capacities. Said appellee
Rural Bank also did not conduct an inquiry on whether the subject loans were to benefit
the interest of the principal (plaintiff Gallardo) rather than that of the agent although the
deed of mortgage was explicit that the loan was for purpose of the bangus and sugpo
production of defendant Aquino.
“In effect, with the execution of the mortgage under the circumstances and assuming it
to be valid but because the loan taken was to be used exclusively for Aquino’s business in
the ‘bangus’ and ‘sugpo’ production, Gallardo in effect becomes a surety who is made
primarily answerable for loans taken by Aquino in his personal capacity in the event Aquino
defaults in such payment. Under Art. 1878 of the Civil Code, to obligate the principal as a
guarantor or surety, a special power of attorney is required. No such special power of
attorney for Gallardo to be a surety of Aquino had been executed.” (pp. 42-43, Rollo.)
Petitioner claims that the Deed of Real Estate Mortgage is enforceable against Gallardo
since it was executed in accordance with Article 1883 which provides:
“Art. 1883. If an agent acts in his own name, the principal has no right of action against the
persons with whom the agent has contracted; neither have such persons against the
principal.

450
 “In such case the agent is the one directly bound in favor of the person with whom he
has contracted, as if the transaction were his own, except when the contract involves things
belonging to the principal.”
The above provision of the Civil Code relied upon by the petitioner Bank, is not applicable
to the case at bar. Herein respondent Aquino acted purportedly as an agent of Gallardo,
but actually acted in his personal capacity. Involved herein are properties titled in the name
of respondent Gallardo against which the Bank proposes to foreclose the mortgage
constituted by an agent (Aquino) acting in his personal capacity. Under these circumstances,
we hold, as we did in Philippine Sugar Estates Development Co. vs. Poizat, supra,that
Gallardo’s property is not liable on the real estate mortgage:
“There is no principle of law by which a person can become liable on a real estate mortgage
which she never executed either in person or by attorney in fact. It should be noted that
this is a mortgage upon real property, the title to which cannot be divested except by sale
on execution or the formalities of a will or deed. For such reasons, the law requires that a
power of attorney to mortgage or sell real property should be executed with all of the
formalities required in a deed. For the same reason that the personal signature of Poizat,
standing alone, would not convey the title of his wife in her own real property, such a
signature would not bind her as a mortgagor in real property, the title to which was in her
name.” (p. 548.)

451
WHEREFORE, finding no reversible error in the decision of the Court of Appeals, we
AFFIRM it in toto. Costs against the petitioner.
SO ORDERED.
Cruz (Chairman), Medialdea and Bellosillo, JJ.,concur.
Note.—An agent-principal relationship can only be effected with the consent of the
principal and must not, in any way be compelled by law or by any court (Orient Air Services
& Hotel Representative vs. Court of Appeals,197 SCRA 675).

Nos. L-18223 & L-18224. September 30, 1963.

COMMERCIAL BANK & TRUST COMPANY OF THE PHILIPPINES, plaintiff-
appellee, vs. REPUBLIC ARMORED CAR SERVICE CORPORATION and DAMASO
PEREZ, ET AL., defendants-appellants.
Agency; Principal and Agent; Where principal was bound by contract of loan executed by his agent;
Case at Bar.—Where in accordance with a power of attorney executed by the principal, the
agent was authorized to negotiate for a loan or various loans with banking institutions,
financing or insurance companies etc., m such sum or sums, aforesaid agent may deem
proper and convenient to the interest of the principal, such general power of attorney was
held sufficient authority for the agent to obtain the credits subject of the case at bar.

452
 Same; Where principal was jointly and severally liable for the loans contracted by his agent.—Where
one named Ramon Racelis, as agent of Damaso Perez (principal), executed a contract of
loan, signing the name “Damaso Perez by Ramon Racelis,” and in the said contract Damaso
Perez agreed jointly and severally to be responsible for such loan, there would be no merit
in the contention that Damaso Perez was only liable as a guarantor.
MOTION FOR NEW TRIAL in the Supreme Court.
The facts are stated in the resolution of the Court.
RESOLUTION ON MOTION FOR NEW TRIAL
LABRADOR, J.:
Defendant-appellant Damaso Perez has presented a motion for new trial on the ground of
newly-discovered evidence. It is claimed that movant was not aware of the nature of the
power of attorney that Ramon Racelis used, purportedly signed by him, to secure the loans
for the Republic Armored Car Service Corporation and the Republic Credit Corporation.
In the motion it is claimed that a photostatic copy of the power of attorney used by Ramon
Racelis was presented at the trial. This photostatic copy or a copy thereof has not been
submitted to Us, for this reason We cannot rule upon his claim and contention that Ramon
Racelis had no authority to bind the movant as surety for the loans obtained from the

453
appellee Commercial Bank & Trust Company. Not having before Us the supposed
photostatic copy of the power of attorney used to secure the loans, there is no reason for
Us to rule, in accordance with his contention, that Racelis exceeded his authority in securing
the loans subject of the present actions.
The motion for reconsideration, however, presents a copy of a power of attorney
purportedly executed by movant on October 22, 1952. It is not expressly mentioned that
this is the precise power of attorney that Ramon Racelis utilized to secure the loans the
collection of which is sought in these cases. But assuming, for the sake of argument, that
the said power of attorney incorporated in the motion for reconsideration was the one used
to obtain the loans, We find that the movant’s contention has no merit.
In accordance with the document, Racelis was authorized to negotiate for a loan or various
loans x x x with other banking institution, financing corporation, insurance companies or
investment corporations, in such sum or sums, aforesaid attorney-in-fact Mr. Ramon
Racelis, may deem proper and convenient to my interests, x x x and to execute any and all
documents he deems requisite and necessary in order to obtain such loans, always having
in mind my best interest; x x x” We hold that this general power of attorney to secure loans
from any banking institution was sufficient authority for Ramon Racelis to obtain the
credits subject of the present suits.
It will be noted furthermore that Racelis, as agent of Damaso Perez, executed the
documents evidencing the loans signing the same “Damaso Perez by Ramon Racelis,” and
454
in the said contracts Damaso Perez agreed jointly and severallyto be responsible for the loans.
As the document as signed makes Perez jointly and severally responsible, there is no merit
in the contention that Perez was only being held liable as a guarantor.
Furthermore, the promissory notes evidencing the loans are attached to the complaint
in G.R. Nos. L-18223 and L-18224. If the movant Perez claims that Racelis had no
authority to execute the said promissory notes, the authenticity of said documents should
have been specifically denied under oath in defendant’s answers in the lower court. This
was not done; consequently Perez could not and may not now claim that his agent did not
have authority to execute the loan agreements.
Motion for new trial is denied.
Padilla, Barrera, Paredes, Dizon, Regala and Makalintal, JJ.,concur.
Motion denied.
Notes.—The ruling in the above case, holding the principal liable for the contract
entered into by his agent, is analogous to the pronouncement made in Macias & Co. v.
Warner Barnes & Co., 43 Phil. 155, where it was held that when it is clear that the agent is
acting only in behalf of a disclosed principal, the agent cannot be held personally liable on
the contract entered into in such manner.
A power of attorney of a special character, authorizing an agent to borrow any amount
of money which he deemed necessary, cannot be interpreted as also authorizing the agent
to use the money as he pleased; and in applying the money borrowed to pay his personal
455
obligations, he exceeds his authority. In such cases, it should be understood that the agent
is obliged to turn over the money to the principals, or at least, place it at their disposal.
(Hodges vs. Salas,63 Phil. 567).

[No. 39037. October 30, 1933]

THE PHILIPPINE NATIONAL BANK, plaintiff and appellee, vs.PAZ AGUDELO Y
GONZAGA ET AL., defendants. PAZ AGUDELO Y GONZAGA, appellant.
PRINCIPAL AND AGENT; PERSONAL LIABILITY OF AGENT.—When an
agent negotiates a loan in his own name and executes a promissory note under his
personal signature without express authority from his principal, giving as security therefor
real estate belonging to the latter, also in his own name and not in the name and in
representation of said principal, the obligation so contracted by him is personal and is not
binding upon the af oresaid principal.
APPEAL from a judgment of the Court of First Instance of Occidental Negros. Barrios, J.
The facts are stated in the opinion of the court.
Hilado & Hilado and Norberto Romualdez for appellant.
Roman J. Lacson for appellee.
VlLLA-REAL, J.:
456
The defendant Paz Agudelo y Gonzaga appeals to this court from the judgment rendered
by the Court of First Instance of Occidental Negros, the dispositive part of which reads as
follows:
"Wherefore, judgment is rendered herein absolving the defendant Mauro A. Garrucho
from the complaint and ordering the defendant Paz Agudelo y Gonzaga to pay to the
plaintiff the sum of P31,091.55, Philippine currency, together with the interest on the
balance of P20,774.73 at 8 per cent per annumor P4.55 daily from July 16, 1929, until fully
paid, plus the sum of P1,500 as attorney's fees, and the costs of this suit.
"It is hereby ordered that in case the above sums adjudged in favor of the defendant by
virtue of this judgment are not paid to the Philippine National Bank or deposited in the
office of the clerk of this court, for delivery to the plaintiff, within three months from the
date of this decision, the provincial sheriff of Occidental Negros shall sell at public auction
the mortgaged properties described in annex E of the second amended complaint, and
apply the proceeds thereof to the payment of the sums in question.
"It is further ordered that in case the proceeds of the mortgaged properties are not
sufficient to cover the amount of this judgment, a writ of execution be issued against any
other property belonging to the defendant Paz Agudelo y Gonzaga, not otherwise exempt
from execution, to cover the balance resulting therefrom."
In support of her appeal, the appellant assigns six alleged errors as committed by the trial
court, which we shall discuss in the course of this decision.
457
 The following pertinent facts, which have been proven without dispute during the trial,
are necessary for the decision of the questions raised in the present appeal, to wit:
On November 9, 1920, the defendant-appellant Paz Agudelo y Gonzaga executed in
favor of her nephew, Mauro A. Garrucho, the document Exhibit K conferring upon him a
special power of attorney sufficiently broad in scope to enable him to sell, alienate and
mortgage in the manner and form he might deem convenient, all her real estate situated in
the municipalities of Murcia and Bacolod, Occidental Negros, consisting in lots Nos. 61
and 207 of the cadastral survey of Bacolod, Occidental Negros, together with the
improvements thereon.

On December 22,1920, Amparo A. Garrucho executed the document Exhibit H whereby

she conferred upon her brother Mauro A. Garrucho a special power of attorney sufficiently
broad in scope to enable him to sell, alienate, mortgage or otherwise encumber, in the
manner and form he might deem convenient, all her real estate situated in the municipalities
of Murcia and Bago, Occidental Negros.
Nothing in the aforesaid powers of attorney expressly authorized Mauro A. Garrucho to
contract any loan nor to constitute a mortgage on the properties belonging to the respective
principals, to secure his obligations.
On December 23, 1920, Mauro A. Garrucho executed in favor of the plaintiff entity, the
Philippine National Bank, the document Exhibit G, whereby he constituted a mortgage on
458
lot No. 878 of the cadastral survey of Murcia, Occidental Negros, with all the improvements
thereon, described in transfer certificate of title No. 2415 issued in the name of Amparo A.
Garrucho, to secure the payment of credits, loans, commercial overdrafts, etc., not
exceeding P6,000, together with interest thereon, which he might obtain from the aforesaid
plaintiff entity, issuing the corresponding promissory note to that effect.
During certain months of the years 1921 and 1922, Mauro A. Garrucho maintained a
personal current account with the plaintiff bank in the form of a commercial credit
withdrawable through checks (Exhibits S, 1 and T).
On August 24, 1931, the said Mauro A. Garrucho executed in favor of the plaintiff entity,
the Philippine National Bank, the document Exhibit J whereby he constituted a mortgage
on lots Nos. 61 and 207 of the cadastral survey of Bacolod, together with the buildings and
improvements thereon, described in original certificates of title Nos. 2216 and 1148,
respectively, issued in the name of Paz Agudelo y Gonzaga, to secure the payment of
credits, loans and commercial overdrafts which the said bank might furnish him to the
amount of P16,000, payable on August 24, 1922, executing the corresponding promissory
note to that effect.

The mortgage deeds Exhibits G and J as well as the corresponding promissory notes for
P6,000 and P16,000, respectively, were executed in Mauro A. Garrucho's own name and
signed by him in his personal capacity, authorizing the mortgage creditor, the Philippine
459
National Bank, 'to take possession of the mortgaged properties, by means of force if
necessary, in case he failed to comply with any of the conditions stipulated therein.
On January 4, 1922, the manager of the Iloilo branch of the Philippine National Bank
notified Mauro A. Garrucho that his promissory note for P6,000 had fallen due on
December 27, 1921, giving him a period of 10 days within which to make payment thereof
(Exhibit O).
On May 9, 1922, the said manager notified Mauro A. Garrucho that his commercial credit
was closed from that date (Exhibit S).
Inasmuch as Mauro A, Garrucho had overdrawn his credit with the plaintiff-appellee, the
said manager thereof, in a letter dated June 27, 1922 (Exhibit T), requested him to liquidate
his account amounting to P15,148.15, at the same time notifying him that his promissory
note for P16,000 giving as, security for the commercial overdraft in question, had fallen due
some time since.
On July 15, 1922, Mauro A. Garrucho, executed in favor of the plaintiff entity the deed
Exhibit C whereby he constituted a mortgage on lots Nos. 61 and 207 of the cadastral
survey of Bacolod, together with the improvements thereon, described in transfer
certificates of title Nos. 2216 and 1148, respectively, issued in the name of Paz Agudelo y
Gonzaga, and on lot No. 878 of the cadastral survey of Murcia, described in transfer
certificate of title No. 2415, issued in the name of Amparo A. Garrucho.

460
 In consideration of the credits, loans, and commercial overdrafts amounting to P21,000
which had been granted him, Mauro A. Garrucho, on the said date of July 15, 1922,
executed the promissory note, Exhibit B, for P21,000 as a novation of the former
promissory notes for P6,000 and P16,000, respectively.

In view of the aforesaid consolidated mortgage, Exhibit C, the Philippine National Bank,
on the said date of July 15, 1922, cancelled the mortgages constituted on lots Nos. 61, 207
and 878 described in Torrens titles Nos. 2216, 1148 and 2415, respectively.
On November 25, 1925, Amparo A. Garrucho sold lot No. 878 described in certificate
of title No. 2415, to Paz Agudelo y Gonzaga (Exhibit M).
On January 15, 1926, in the City of Manila, Paz Agudelo y Gonzaga signed the affidavit,
Exhibit N, which reads as f ollows:
"Know all men by these presents:That I, Paz Agudelo y Gonzaga, single, of age, and resident
of the City of Manila, P. I., by these presents do hereby agree and consent to the transfer
in my favor of lot No. 878 of the Cadastre of Murcia, Occidental Negros, P. I., by Miss
Amparo A. Garrucho, as evidenced by the public instrument dated November 25, 1925,
executed before the notary public Mr. Genaro B. Benedicto, and do hereby further agree
to the amount of the lien thereon stated in the mortgage deed executed by Miss Amparo
A. Garrucho in favor of the Philippine National Bank.

461
 "In testimony whereof, I hereunto affix my signature in the City of Manila, P. L, this 15th
day of January, 1926.
"(Sgd.) PAZ AGUDELO Y GONZAGA."
Pursuant to the sale made by Amparo A. Garrucho in favor of Paz Agudelo y Gonzaga,
of lot No. 878 of the cadastral survey of Murcia, described in certificate of title No. 2415
issued in the name of said Amparo A. Garrucho, and to the affidavit, Exhibit N, transfer
certificate of title No. 5369 was issued in the name of Paz Agudelo y Gonzaga.
Without discussing and passing upon whether or not the powers of attorney issued in
favor of Mauro A. Garrucho by his sister, Amparo A. Garrucho, and by his aunt, Paz
Agudelo y Gonzaga, respectively, to mortgage their respective real estate, authorized him
to obtain loans secured by mortgage on the properties in question, we shall consider the
question of whether or not Paz Agudelo y Gonzaga is liable for the payment of the loans
obtained by Mauro A. Garrucho from the Philippine National Bank for the security of
which he constituted a mortgage on the aforesaid real estate belonging to the defendant-
appellant Paz Agudelo y Gonzaga.
Article 1709 of the Civil Code provides the f ollowing:
"ART. 1709. By the contract of agency, one person binds himself to render some service,
or to do something for the account or at the request of another."
And article 1717 of the same Code provides as follows:

462
 "ART. 1717. When an agent acts in his own name, the principal shall have no right of
action against the persons with whom the agent has contracted, or such persons against the
principal.
"In such case, the agent is directly liable to the person with whom he has contracted, as
if the transaction were his own. Cases involving things belonging to the principal are
excepted.
"The provisions of this article shall be understood to be without prejudice to actions
between principal and agent."
Aside from the phrases "attorney in fact of his sister, Amparo A. Garrucho, as evidenced
by the power of attorney attached hereto" and "attorney in f act of Paz Agudelo y Gonzaga"
written after the name of Mauro A. Garrucho in the mortgage deeds, Exhibits G and J,
respectively, there is nothing in the said mortgage deeds to show that Mauro A. Garrucho
is attorney in fact of Amparo A. Garrucho and of Paz Agudelo y Gonzaga, and that he
obtained the loans mentioned in the aforesaid mortgage deeds and constituted said
mortgages as security for the payment of said loans, for the account and at the request of
said Amparo A. Garrucho and Paz Agudelo y Gonzaga. The above-quoted phrases which
simply described his legal personality, did not mean that Mauro A. Garrucho obtained the
said loans and constituted the mortgages in question for the account, and at the request, of
his principals. From the titles as well as from the signatures therein, Mauro A. Garrucho,
appears to have acted in his personal capacity. In the aforesaid mortgage deeds, Mauro A.
463
Garrucho, in his capacity as mortgage debtor, appointed the mortgage creditor Philippine
National Bank as his attorney in fact so that it might take actual and full possession of the
mortgaged properties by means of force in case of violation of any of the conditions
stipulated in the respective mortgage contracts. If Mauro A. Garrucho acted in his capacity
as mere attorney in fact of Amparo A. Garrucho and of Paz Agudelo y Gonzaga, he could
not delegate his power, in view of the legal principle of "delegata potestas delegare non potest" (a
delegated power cannot be delegated), inasmuch as there is nothing in the records to show
that he has been expressly authorized to do so.
He executed the promissory notes evidencing the aforesaid loans, under his own
signature, without authority from his principals and, therefore, were not binding upon the
latter (2 Corpus Juris, pp. 630-637, par. 280). Neither is there anything to show that he
executed the promissory notes in question for the account, and at the request, of his
respective principals (8 Corpus Juris, pp. 157-158).
Furthermore, it is noted that the mortgage deeds, Exhibits C and J, were cancelled by the
documents, Exhibits I and L, on July 15, 1922, and in their stead the mortgage deed, Exhibit
C, was executed, in which there is absolutely no mention of Mauro A. Garrucho being
attorney in fact of anybody, and which shows that he obtained such credit for himself in
his personal capacity and secured the payment thereof by mortgage constituted by him in
his personal capacity, although on properties belonging to his principal Paz Agudelo y
Gonzaga.
464
 Furthermore, the promissory notes executed by Mauro A. Garrucho in favor of the
Philippine National Bank, evidencing loans of P6,000 and P16,000 have been novated by
the promissory note for P21,000 (Exhibit B) executed by Mau-
662
662 PHILIPPINE
REPORTS
ANNOTATED
National Bank vs.
Agudelo
ro A. Garrucho, not only without express authority from his principal Paz Agudelo y
Gonzaga but also under his own signature.
In the case of National Bank vs.Palma Gil (55 Phil., 639), this court laid down the
following doctrine:
"A promissory note and two mortgages executed by the agent for and on behalf of his
principal, in accordance with a power of attorney executed by the principal in favor of the
agent, are valid, and as provided by article 1727 of the Civil Code, the principal must fulfill
the obligations contracted by the agent; but a mortgage on real property of the principal
not made and signed in the name of the principal is not valid as to the principal."

465
 It has been intimated, and the trial judge has so stated, that it was the intention of the
parties that Mauro A. Garrucho would execute the promissory note, Exhibit B, and the
mortgage deed, Exhibit C, in his capacity as attorney in fact of Paz Agudelo y Gonzaga,
and that although the terms of the aforesaid documents appear to be contrary to the
intention of the parties, such intention should prevail in accordance with article 1281 of the
Civil Code.
Commenting on article 1281 of the Civil Code, Manresa, in his Commentaries to the Civil
Code, says the following:
"IV. Intention of the contracting parties: its appreciation.—In order that the intention may
prevail, it is necessary that the question of interpretation be raised, either because the words
used appear to be contrary thereto, or by the existence of overt acts opposed to such words,
in which the intention of the contracting parties is made manifest. Furthermore, in order
that it may prevail against the terms of the contract, it must be clear or, in other words,
besides the fact that such intention should be proven by admissible evidence, the latter
must be of such character as to carry in the mind of the judge an unequivocal conviction.
This requisite as to the kind of evidence is laid down in the decision relative to the Mortgage
Law of September 30 1891, declaring that article 1281 of the Civil Code gives preference
to intention only when it is clear. When the aforesaid circumstance is not present in a
document, the only thing left for the register of deeds to do is to suspend the registration

466
thereof, leaving the solution of the problem to the free will of the parties or to the decision
of the courts.
"However, the evident intention which prevails against the defective wording thereof is
not that of one of the parties, but the general intent, which, being so, is to a certain extent
equivalent to mutual consent, inasmuch as it was the result desired and intended by the
contracting parties." (8 Manresa, 3d edition, pp. 726 and 727.)
Furthermore, the records do not show that the loan obtained by Mauro A. Garrucho,
evidenced by the promissory note, Exhibit B, was for his principal Paz Agudelo y Gonzaga.
The special power of attorney, Exhibit K, does not authorize Mauro A. Garrucho to
constitute a mortgage on the real estate of his principal to secure his personal obligations.
Therefore, in doing so by virtue of the document, Exhibit C, he exceeded the scope of his
authority and his principal is not liable for his acts. (2 Corpus Juris, p. 651; article 1714,
Civil Code.)
It is further claimed that inasmuch as the properties mortgaged by Mauro. A. Garrucho
belong to Paz Agudelo y Gonzaga, the latter is responsible for the acts of the former
although he acted in his own name, in accordance with the exception contained in article
1717 of the Civil Code. It would be an exception if the agent, acting in his own name in
connection with the properties of his principal, does so within the scope of his authority.
It is noted that Mauro A. Garrucho was not authorized to execute promissory notes even
in the name of his principal Paz Agudelo y Gonzaga, nor to constitute a mortgage on her
467
real properties to secure such promissory notes. The plaintiff Philippine National Bank
should know this inasmuch as it is in duty bound to ascertain the extent of the agent's
authority before dealing with him. Therefore, Mauro A. Garrucho and not Paz Agudelo y
Gonzaga is personally liable for the amount of the promissory note Exhibit B. (2 Corpus
Juris, pp. 563-564.)
However, Paz Agudelo y Gonzaga in an affidavit dated January 15, 1926 (Exhibit AA),
and in a letter dated January 16, 1926 (Exhibit Z), gave her consent to the lien on lot No.
878 of the cadastre of Murcia, Occidental Negros, described in Torrens title No. 5369, the
ownership of which was transferred to her by her niece Amparo A. Garrucho. This
acknowledgment, however, does not extend to lots Nos. 207 and 61 of the cadastral survey
of Bacolod, described in transfer certificates of title Nos. 1148 and 2216, respectively,
inasmuch as, although it is true that a mortgage is indivisible as to the contracting parties
and as to their successors in interest (article 1860, Civil Code), it is not so with respect to a
third person who did not take part in the constitution thereof either personally or through
an agent, inasmuch as he can make the acknowledgment thereof in the form and to the
extent he may deem convenient, on the ground that he is not in duty bound to acknowledge
the said mortgage. Therefore, the only liability of the defendant-appellant Paz Agudelo y
Gonzaga is that which arises from the aforesaid acknowledgment, but only with respect to
the lien and not to the principal obligation secured by the mortgage acknowledged by her

468
to have been constituted on said lot No. 878 of the cadastral survey of Murcia, Occidental
Negros. Such liability is not direct but a subsidiary one.
Having reached this conclusion, it is unnecessary to pass upon the other questions of law
raised by the defendant-appellant in her brief and upon the law cited therein.
In view of the foregoing consideration, we are of the opinion and so- hold that when an
agent negotiates a loan in his personal capacity and executes a promissory note under his
own signature, without express authority from his principal, giving as security therefor real
estate belonging to the latter, also in his own name and not in the name and representation
of the said principal, the obligation so contracted by him is personal and does not bind his
aforesaid principal.
Wherefore, it is hereby held that the liability contracted by the aforesaid defendant-
appellant Paz Agudelo y Gonzaga is merely subsidiary to that of Mauro A. Garrucho,
limited to lot No. 878 of the cadastral survey of Murcia, Occidental Negros, described in
Torrens title No. 2415. However, inasmuch as the principal obligor, Mauro A. Garrucho,
has been absolved from the complaint and the plaintiff-appellee has not appealed from the
judgment absolving him, the law does not afford any remedy whereby Paz Agudelo y
Gonzaga may be required to comply with the said subsidiary obligation in view of the legal
maxim that the accessory follows the principal. Wherefore, the defendant herein should
also be absolved from the complaint which is hereby dismissed, with the costs against the
appellee. So ordered.
469
 Avanceña, C. J., Malcolm, Hull, and Imperial, JJ., concur.
Complaint dismissed.

[No. 13471. January 12, 1920.]

VICENTE SY-JUCO and CIPRIANA VlARDO, plaintiffs and appellants, vs. SANTIAGO
V. SY-JUCO, defendant and appellant.
1.CONTRACTS; PURCHASE AND SALE; PRINCIPAL AND AGENT.—S,
being an administrator of V's and C's property, bought a launch in his own name with
V's and C's money and also registered it in his own name at the Custom House. This
transaction was within the scope of the agency. Held: That the decision of this Court
in the case of Martinez vs. Martinez (1 Phil. Rep., 647), wherein the relation of
principal and agent did not exist, is not applicable to the instant case. By virtue of the
agency, S is bound to transfer to C and V all the rights which he received from the
vendor, and C and V have the right to be subrogated in all the effects of the sale.
2.JUDGMENT; FINDINGS THAT SHOULD BE MADE.—Plaintiffs and
defendant dispute, among other things, the ownership of a casco which has been leased
and sank while in the possession of the lessee before the filing of the complaint. For

470
 this reason, the lower court thought that it was not necessary to render any judgment
upon this casco.Inasmuch as the lessee may be held responsible in damages for the loss
of said casco and it is of interest to the litigants in this case that it be determined who
is the owner thereof that may enforce this responsibility of the lessee, Held: That the
lower court should have made a pronouncement upon this casco.
APPEAL from a judgment of the Court of First Instance of Rizal. McMahon, J.
Sumulong & Estrada for plaintiffs and appellants.
Delgado & Delgado for defendant and appellant.
AVANCEÑA, J.:
In 1902 the defendant was appointed by the plaintiffs administrator of their property and
acted as such until June 30, 1916, when his authority was cancelled. The plaintiffs are
defendant's father and mother who allege that during his administration the defendant
acquired the property claimed in the complaint in his capacity as plaintiffs' administrator
with their money and for their benefit. After hearing the case the trial court rendered his
decision, the dispositive part of which is the following:
"Wherefore, the court gives judgment for the plaintiffs and orders:

471
 "1. That the defendant return to the plaintiffs the launch Malabon, in question, and
execute all the necessary documents and instruments for such delivery and the registration
in 'the records of the Custom House of said launch as plaintiffs' property;
"2. That the defendant return to the plaintiffs the casco No. 2584, or pay to them the value
thereof which has been fixed at the sum of P3,000, and should the return of said casco be
made, execute all the necessary instruments and documents for its registration in plaintiffs'
name at the Custom House; and
"3. That the defendant return to the plaintiffs the automobile No. 2060 and execute the
necessary instruments and documents for its registration at the Bureau of Public Works.
And judgment is hereby given for the defendant absolving him f rom the complaint so f ar
concerns:
1. "1.The rendition of accounts of his administration of plaintiffs' property;
2. "2.The return of the casco No. 2545;
3. "3.The return of the typewriting machine;
4. "4.The return of the house occupied by the defendant; and
5. "5.The return of the price of the piano in question."
Both parties appealed from this judgment.

472
 In this instance defendant assigns three errors alleged to have been committed "by the
lower court in connection with the three items of the dispositive part of the judgment
unfavorable to him. We are of the opinion that the evidence sufficiently justifies the
judgment against the defendant.
Regarding the launch Malabon,it appears that in July, 1914, the defendant bought it in his
own name from the Pacific Commercial Co., and afterwards registered it at the Custom
House. But this does not necessarily show that the defendant bought it for himself and with
his own money, as he claims. This transaction was within the agency which he had received
from the plaintiffs. The fact that he has acted in his own name may be only, as we believe
it was, a violation of the agency on his part. As the plaintiffs' counsel truly say, the question
is not in whose favor the document of sale of the launch is executed nor in whose name
same was registered, but with whose money was said launch bought. The plaintiffs'
testimony that it was bought with their money and for them is supported by the fact that,
immediately after its purchase, the launch had to be repaired at their expense, although said
expense was collected from the defendant. If the launch was not bought for the plaintiffs
and with their money, it is not explained why they had to pay for its repairs.
The defendant invokes the decision of this Court in the case of Martinez vs. Martinez (1
Phil. Rep., 647), which we do not believe is applicable to the present case. In said case,
Martinez, Jr., bought a vessel in his own name and in his name registered it at the Custom
House. This Court then said that although the funds with which the vessel was bought
473
belonged to Martinez Sr., Martinez Jr. is its sole and exclusive owner. But in said case the
relation of principal and agent, which exists between the plaintiffs and the defendant in the
present case, did not exist between Martinez, Sr., and Martinez, Jr. By this agency the
plaintiffs herein clothed the defendant with their representation in order to purchase the
launch in question. However, the defendant acted without this representation and bought
the launch in his own name thereby violating the agency. If the result of this transaction
should be that the defendant has acquired for himself the ownership of the launch, it would
be equivalent to sanctioning this violation and accepting its consequences. But not only
must the consequences of the violation of this agency not be accepted, but the effects of
the agency itself must be sought. If the defendant contracted the obligation to buy the
launch for the plaintiffs and in their representation, by virtue of the agency, notwithstanding
the fact that he bought it in his own name, he is obliged to transfer to the plaintiffs the
rights he received from the vendor, and the plaintiffs are entitled to be subrogated in these
rights.
There is another point of view leading us to the same conclusion. From the rule
established in article 1717 of the Civil Code that, when an agent acts in his own name, the
principal shall have no right of action against the person with whom the agent has
contracted, cases involving things belonging to the principal are excepted. According to
this exception (when things belonging to the principal are dealt with) the agent is bound to the
principal although he does not assume the character of such agent and appears acting in his own
474
name (Decision of the Supreme Court of Spain, May 1, 1900). This means that in the case
of this exception the agent's apparent representation yields to the principal's true
representation and that, in reality and in effect, the contract must be considered as entered
into between the principal and the third person; and, consequently, if the obligations belong
to the former, to him alone must also belong the rights arising from the contract. The
money with which the launch was bought having come from the plaintiff, the exception
established in article 1717 is applicable to the instant case.
Concerning the casco No. 2584, the defendant admits it was constructed by the plaintiff
himself in the latter's ship-yard. Defendant's allegation that it was constructed at his instance
and with his money is not supported by the evidence. In fact the only proof presented to
support this allegation is his own testimony contradicted, on the one hand, by the plaintiffs'
testimony and, on the other hand, rebutted by the fact that, on the date this casco was
constructed, he did not have sufficient money with which to pay the expense of its
construction.
As to the automobile No. 2060, there is sufficient evidence to show that its price was paid
with plaintiffs' money. Defendant's adverse allegation that it was paid with his own money
is not supported by the evidence. The circumstances under which, he says, this payment
has been made, in order to show that it was made with his own money, rather indicate the
contrary. He presented in evidence his check-book wherein it appears that on March 24,
1916, he issued a check for P300 and on the 27th of same month another for P400 and he
475
says that the first installment was paid with said checks. But it results that, in order to issue
the check for P300 on March 24 of that year, he had to deposit P310 on that same day; and
in order to issue the other check f or P400 on the 27th of the same month, he deposited
P390 on that same day. It was necessary for the defendant to make these deposits for on
those dates he had not sufficient money in the bank f or which he could issue those checks.
But, in order to pay for the price of the automobile, he could have made these payments
directly with the money he deposited without the necessity of depositing and withdrawing
it on the same day. If this action shows something, it shows defendant's preconceived
purpose of making it appear that he made the payment with his own funds deposited in the
bank.
The plaintiffs, in turn, assign in this instance the following three errors alleged to have
been committed by the lower court:
1. "1.The court erred in not declaring that the plaintiffs did not sell to the defendant
the casco No. 2545 and that they were its owners until it was sunk in June, 1916.
2. "2.The court erred in absolving the defendant from his obligation to render an
account of his administration to the plaintiffs, and to pay to the latter the amount of
the balance due in their favor.
3. "3.The court erred in not condemning the defendant to pay to the plaintiffs the value
of the woods, windows and doors taken from their lumber-yard by the defendant and
476
 used in the construction of the house on calle Real of the barrio of La Concepción,
municipality of Malabon, Rizal."
Concerning the casco No. 2545, the lower court refrained from making any declaration
about its ownership in view of the fact that this cascohad been leased and was sunk while in
the lessee's hands before the complaint in this case was filed. The lower court, therefore,
considered it unnecessary to pass upon this point, We agree with the plaintiffs that the trial
court should have made a pronouncement upon this casco.The lessee may be responsible in
damages for its loss, and it is of interest to the litigants in this case that it be determined
who is the owner of said casco that may enforce this responsibility of the lessee.
Upon an examination of the evidence relative to this casco, we find that it belonged to the
plaintiffs and that the latter sold it afterwards to the defendant by means of a public
instrument. Notwithstanding plaintiffs' allegation that when they signed this instrument
they were deceived, believing it not to be an instrument of sale in favor of the defendant,
nevertheless, they have not adduced sufficient proof of such deceit which would destroy
the presumption of truth which a public document carries with it. Attorney Sevilla, who
acted as the notary in the execution of this instrument, testifying as a witness in the case,
said that he never verified any document without first inquiring whether the parties knew
its content. Our conclusion is that this casco was lawfully sold to the defendant by the
plaintiffs.
477
 Concerning the wood, windows and doors given by the plaintiffs to the defendant and
used in the construction of the latter's house on calle Real of the barrio of La
Concepción of the municipality of Malabon, Rizal, we find correct the trial Court's decision
that they were given to the defendant as his and his wife's property,
Concerning the rendition of accounts which the plaintiffs require of the defendant, we
likewise find correct the trial court's decision absolving the latter from this petition, for it
appears, from the plaintiffs' own evidence, that the defendant used to render accounts of
his agency after each transaction, to the plaintiffs' satisfaction.
From the foregoing considerations, we affirm the judgment appealed from in all its parts
except in so far as the cascoNo. 2545 is concerned, and as to this we declare that, it having
been sold by the plaintiffs to the defendant, the latter is absolved. No special findings as to
costs. So ordered.
Arellano, C. J., Torres, Johnson, Araullo, Street, and Malcolm, JJ., concur.
Judgment modified.

G.R. No. 75640. April 5, 1990.*

478
NATIONAL FOOD AUTHORITY, (NFA), petitioner, vs.INTERMEDIATE
APPELLATE COURT, SUPERIOR (SG) SHIPPING CORPORATION, respondents.
Civil Law; Agency; Agent’s apparent representation yields to the principal’s true representation and the
contract is considered as entered into between the principal and third person.—Consequently when
things belonging to the principal (in this case, Superior Shipping Corporation) are dealt
with, the agent is bound to the principal although he does not assume the character of such
agent and appears acting in his own name. In other words, the agent’s apparent
representation yields to the principal’s true representation and that, in reality and in effect,
the contract must be considered as entered into between the principal and the third person
(Sy Juco and Viardo v. Sy
Juco, 40 Phil. 634). Corollarily, if the principal can be obliged to perform his duties under
the contract, then it can also demand the enforcement of its rights arising from the contract.
PETITION for certiorari to review the decision of the then Intermediate Appellate
Court. Coquia, J.
The facts are stated in the opinion of the Court.
Zapanta, Gloton & Ulejoradafor petitioner.
Sison, Ortiz & Associates for private respondents.
PARAS, J.:
479
This is a petition for review on certiorari made by National Food Authority (NFA for
brevity) then known as the National Grains Authority or NGA from the decision1 of the
Intermediate Appellate Court affirming the decision2 of the trial court, the decretal portion
of which reads:
“WHEREFORE, defendants Gil Medalla and National Food Authority are ordered to pay
jointly and severally the plaintiff:
a. the sum of P25,974.90, with interest at the legal rate from October 17, 1979 until the
same is fully paid; and,
b. the sum of P10,000.00 as and for attorney’s fees.
“Costs against both defendants.
“SO ORDERED.” (p. 22, Rollo)
Hereunder are the undisputed facts as established by the then Intermediate Appellate Court
(now Court of Appeals), viz:
“On September 6, 1979 Gil Medalla, as commission agent of the plaintiff Superior Shipping
Corporation, entered into a contract for hire of ship known as “MV Sea Runner” with
defendant National Grains Authority. Under the said contract Medalla obligated to
transport on the “MV Sea Runner” 8,550 sacks of rice belonging to defendant National
Grains Authority from the port of San Jose, Occidental Mindoro, to Malabon, Metro
Manila.

480
 “Upon completion of the delivery of rice at its destination, plaintiff on October 17, 1979,
wrote a letter requesting defendant NGA that it be allowed to collect the amount stated in
its statement of account (Exhibit “D”). The statement of account included not only a claim
for freightage but also claims for demurrage and stevedoring charges amounting to
P93,538.70.
“On November 5, 1979, plaintiff wrote again defendant NGA, this time specifically
requesting that the payment for freightage and other charges be made to it and not to
defendant Medalla because plaintiff was the owner of the vessel “MV Sea Runner” (Exhibit
“E”). In reply, defendant NGA on November 16, 1979 informed plaintiff that it could not
grant its request because the contract to transport the rice was entered into by defendant
NGA and defendant Medalla who did not disclose that he was acting as a mere agent of
plaintiff (Exhibit “F”). Thereupon on November 19, 1979, defendant NGA paid defendant
Medalla the sum of P25,974.90, for freight services in connection with the shipment of
8,550 sacks of rice (Exhibit “A”).
“On December 4, 1979, plaintiff wrote defendant Medalla demanding that he turn over
to plaintiff the amount of P27,000.00 paid to him by defendant NFA. Defendant Medalla,
however, ‘ignored the demand.’
“Plaintiff was therefore constrained to file the instant complaint.

481
 “Defendant-appellant National Food Authority admitted that it entered into a contract
with Gil Medalla whereby plaintiff’s vessel ‘MV Sea Runner’ transported 8,550 sacks of rice
of said defendant from San Jose, Mindoro to Manila.
“For services rendered, the National Food Authority paid Gil Medalla P27,000.00 for
freightage.
“Judgment was rendered in favor of the plaintiff. Defendant National Food Authority
appealed to this court on the sole issue as to whether it is jointly and severally liable with
defendant Gil Medalla for freightage.” (pp. 61-62, Rollo)
The appellate court affirmed the judgment of the lower court, hence, this appeal by way of
certiorari, petitioner NFA submitting a lone issue to wit: whether or not the instant case
falls within the exception of the general rule provided for in Art. 1883 of the Civil Code of
the Philippines.
It is contended by petitioner NFA that it is not liable under the exception to the rule (Art.
1883) since it had no knowledge of the fact of agency between respondent Superior
Shipping and Medalla at the time when the contract was entered into between them (NFA
and Medalla). Petitioner submits that “(A)n undisclosed principal cannot maintain an action
upon a contract made by his agent unless such principal was disclosed in such contract.
One who deals with an agent acquires no right against the undisclosed principal.”
Petitioner NFA’s contention holds no water. It is an undisputed fact that Gil Medalla was
a commission agent of respondent Superior Shipping Corporation which owned the vessel
482
“MV Sea Runner” that transported the sacks of rice belonging to petitioner NFA. The
context of the law is clear. Art. 1883, which is the applicable law in the case at bar provides:
“Art. 1883. If an agent acts in his own name, the principal has no right of action against the
persons with whom the agent has contracted; neither have such persons against the
principal.
“In such case the agent is the one directly bound in favor of the person with whom he
has contracted, as if the transaction were his own, except when the contract involves things
belonging to the principal.
“The provision of this article shall be understood to be without prejudice to the actions
between the principal and agent.”
Consequently, when things belonging to the principal (in this case, Superior Shipping
Corporation) are dealt with, the agent is bound to the principal although he does not assume
the character of such agent and appears acting in his own name. In other words, the agent’s
apparent representation yields to the principal’s true representation and that, in reality and
in effect, the contract must be considered as entered into between the principal and the
third person (Sy Juco and Viardo v. Sy Juco, 40 Phil. 634). Corollarily, if the principal can
be obliged to perform his duties under the contract, then it can also demand the
enforcement of its rights arising from the contract.
WHEREFORE, PREMISES CONSIDERED, the petition is hereby DENIED and the
appealed decision is hereby AFFIRMED.
483
 SO ORDERED.
Melencio-Herrera(Chairman), Padilla, Sarmientoand Regalado, JJ., concur.
Petition denied. Decision affirmed.
Note.—Exhibit “A” does not create an agency between Perlas, as principal, and
Vizconde, as agent for the sale of the former’s ring but merely guaranteed the civil
obligation of Pagulayan to pay Perlas the value of the ring in the event of Pagulayan’s failure
to return said article. (Vizconde vs. Intermediate Appellate Court, 149 SCRA 226.)

[No. 25950. December 24, 1926]

E. AWAD, plaintiff and appellant, vs. FILMA MERCANTILE Co., INC., defendant and
appellee.

PRINCIPAL AND AGENT; UNDISCLOSED PRINCIPAL; SALE BY

AGENT; DAMAGES.—The rule in this jurisdiction is that where merchandise is
purchased from an agent with undisclosed principal and without knowledge on the part
of the purchaser that the vendor is merely an agent, the purchaser takes title to the
merchandise and the principal cannot maintain an action against him for the recovery of
the merchandise or for damages, but can only proceed against the agent.
484
APPEAL from a judgment of the Court of First Instance of Manila. Nepomuceno, J.
The facts are stated in the opinion of the court.
M. H. de Joya and Ramon P. Gomez for appellant.
Crossfield & O'Brien for appellee.
OSTRAND, J.;
Early in the month of September, 1924, the plaintiff, doing business in the Philippine
Islands under the name of E. Awad & Co., delivered certain merchandise of the invoice
value of P11,140 to Chua Lioc, a merchant operating under the name of Hang Chuan Co.
in Manila, said merchandise to be sold on commission by Chua Lioc. Representing himself
as being the owner of the merchandise, Chua Lioc, on September 8, 1924, sold it to the
defendant for the sum of P12,155.60. He owed the Philippine Manufacturing Co., the sum
of P3,480, which the defendant agreed to pay, and was also indebted to the defendant itself
in the sum of P2,017.98. The total amount of the two debts, P5,497.98, was deducted from
the purchase price, leaving a balance of P6,657.52 which the def endant promised to pay to
Chua Lioc on or before October 9, 1924.
The merchandise so purchased on September 9, was delivered to the defendant, who
immediately offered it for sale' Three days later D. J. Awad, the representative of the

485
plaintiff in the Philippine Islands, having ascertained that the goods entrusted to Chua Lioc
was being offered for sale by the defendant, obtained authorization from Chua Lioc to
collect the sum of P11,707 from said defendant and informed the latter's treasurer of the
facts above set forth. On September 15, D. J. Awad, in behalf of E. Awad & Co., wrote a
letter to the defendant corporation advising it that, inasmuch as the merchandise belonged
to E. Awad & Co., the purchase price should be paid to them, to which letter, the defendant,
on September 18, 1924, made the following answer:
"Messrs; E. AWAD & Co.
"435 Juan Luna, Manila.
"GENTLEMEN: We are in receipt of your letter of September 15, 1924, in which you state
that certain blankets and shirts were bought from you by the Chinaman Chua Lioc 'under
false pretenses on consignment, basis,' and in which you say that the merchandise is yours
and we should make payment to you f or said merchandise. In answer to your letter, we
beg to say to you that the blankets and shirts in question, together with other merchandise,
were purchased and received by us from the Chinaman Chua Lioc on September 9, 1924,
in the ordinary course of business, and that there is now due from us to the said Chinaman
a balance of P6,657.52, which is payable on October 9, 1924. In view of these facts, we are
unable to comply with your request, and would advise you, in case this Chinaman is

486
indebted to you for said merchandise, to take the necessary steps through the Court to
secure the payment of this balance due to him to your firm, inasmuch as if you do not do
so, we shall be obliged to pay the balance which we owe for said merchandise directly to
him.
"Yours respectfully,
"FILMA MERCANTILE Co. INC."
On the same date, September 18, 1924, the Philippine Trust Company, brought an action,
civil case No. 26934, against Chua Lioc for the recovery of the sum of P1,036.36 and under
a writ of attachment garnished the balance due Chua Lioc from the defendant. On October
7, E. Awad also brought an action, civil case No. 27016, against Chua Lioc for the recovery
of the sum of P11,140, the invoice value of the merchandise above-mentioned and also
obtained a writ of attachment under which notice of garnishment of the aforesaid balance
was served upon the herein defendant.
The complaint in the present action was filed on November 26, 1924, the plaintiff
demanding payment of the same sum of P11 1,140 for which action had already been
brought against Chua Lioc. The defendant, in its answer, set up as special defense that it
bought the merchandise in good faith and without any knowledge whatever of the person
from whom or the condition under which the said merchandise had been acquired by Chua
Lioc or Hang Chuan Co.; that the defendant therefore had acquired title to the merchandise
purchased; that the balance of P6,657.52, now in the hands of the defendant had been
487
attached in the two actions brought on September 18, and October 7, respectively, and
garnishment served upon the defendant, who, therefore, holds the money subject to the
orders of the court in the cases above-mentioned, but which sum the defendant is able and
willing to pay at any time when the court decides to whom the money lawfully pertains.
Upon trial, the court below dismissed the case without costs on the ground that the
plaintiff was only entitled to payment of the sum of P6,657.52, but which sum the defendant
had the right to retain subject to the orders of the court in cases Nos. 26134 and 27016.
From this judgment the plaintiff appealed.
The law applicable to the case is well settled. Article 246 of the Code of Commerce reads
as follows:
"When the agent transacts business in his own name, it shall not be necessary f or him to
state who is the principal and he shall be directly liable, as if the business were for his own
account, to the persons with whom he transacts the same, said persons not having any right
of action against the principal, nor the latter against the former, the liabilities of the principal
and of the agent to each other always being reserved."
The rule laid down in the article quoted is contrary to the general rule in the United States
as to purchases of merchandise from agents with undisclosed principal, but it has been
followed in a number of cases and is the law in this jurisdiction. (Pastells &
Regordosa vs. Hollman & Co., 2 Phil, 235; Castle Bros., Wolf & Sons vs. Go-Juno, 7 Phil.,
144; Lim Tiu vs. Ruiz y Rementería, 15 Phil., 367.) But the appellant points out several
488
circumstances which, in his opinion, indicate that the defendant-appellee was aware of the
condition under which the merchandise was entrusted to the agent Chua Lioc and therefore
did not purchase the goods in good faith. This, if true, would, of course, lead to a decision
of the case in favor of the plaintiff, but there is, in our opinion, nothing conclusive about
the circumstances referred to and they are not sufficient to overcome the presumption of
good faith.
The appealed judgment is in accordance with the law and the facts and is affirmed with
the costs against the appellant. So ordered.
Avanceña, C. J., Street, Malcolm, Villamor, Johns, Romualdez, and Villa-Real, JJ.,concur.
Judgment affirmed.
G.R. No. 113074. January 22, 1997.*
ALFRED HAHN, petitioner, vs. COURT OF APPEALS and BAYERISCHE
MOTOREN WERKE AKTIENGESELLSCHAFT (BMW), respondents.
Agency; Words and Phrases; “Agent” and “Broker,” Distinguished.—An agent receives a
commission upon the successful conclusion of a sale. On the other hand, a broker earns
his pay merely by bringing the buyer and the seller together, even if no sale is eventually
made.
Same; The fact that a person invested his own money to put service centers and showrooms does not
necessarily prove that he is not an agent of a car manufacturer.—As to the service centers and

489
showrooms which he said he had put up at his own expense, Hahn said that he had to
follow BMW specifications as exclusive dealer of BMW in the Philippines. According to
Hahn, BMW periodically inspected the service centers to see to it that BMW standards were
maintained. Indeed, it would seem from BMW’s letter to Hahn that it was for Hahn’s
alleged failure to maintain BMW standards that BMW was terminating Hahn’s dealership.
The fact that Hahn invested his own money to put up these service centers and showrooms
does not necessarily prove that he is not an agent of BMW. For as already noted, there are
facts in the record which suggest that BMW exercised control over Hahn’s activities as a
dealer and made regular inspections of Hahn’s premises to enforce compliance with BMW
standards and specifications.
Evidence; A mere allegation in a motion to dismiss which has been denied by the other party should not
be cited by the court as if it were a fact.—The Court of Appeals also found that petitioner Alfred
Hahn dealt in other products, and not exclusively in BMW products, and, on this basis,
ruled that Hahn was not an agent of BMW. This finding is based entirely on allegations of
BMW in its motion to dismiss filed in the trial court and in its petition for certiorari before
the Court of Appeals. But this allegation was denied by Hahn and therefore the Court of
Appeals should not have cited it as if it were the fact.
Foreign Corporations; Motions to Dismiss; Rule 16, §3 of the Rules of Court authorizes courts to defer
the resolution of a motion to dismiss until after the trial if the ground on which the motion is based does not
appear to be indubitable.—It is not true then that the question whether BMW is doing business
490
could have been resolved simply by considering the parties’ pleadings. There are genuine
issues of facts which can only be determined on the basis of evidence duly presented. BMW
cannot short circuit the process on the plea that to compel it to go to trial would be to deny
its right not to submit to the jurisdiction of the trial court which precisely it denies. Rule
16, §3 authorizes courts to defer the resolution of a motion to dismiss until after the trial if
the ground on which the motion is based does not appear to be indubitable. Here the record
of the case bristles with factual issues and it is not at all clear whether some allegations
correspond to the proof.
Same; Actions; Pleadings and Practice; It is now settled that, for purposes of having summons served on
a foreign corporation in accordance with Rule 14, §14, it is sufficient that it be alleged in the complaint that
the foreign corporation is doing business in the Philippines.—Anyway, private respondent need not
apprehend that by responding to the summons it would be waiving its objection to the trial
court’s jurisdiction. It is now settled that, for purposes of having summons served on a
foreign corporation in accordance with Rule 14, §14, it is sufficient that it be alleged in the
complaint that the foreign corporation is doing business in the Philippines. The court need
not go beyond the allegations of the complaint in order to determine whether it has
jurisdiction. A determination that the foreign corporation is doing business is only tentative
and is made only for the purpose of enabling the local court to acquire jurisdiction over the
foreign corporation through service of summons pursuant to Rule 14, §14. Such

491
determination does not foreclose a contrary finding should evidence later show that it is
not transacting business in the country.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Siguion Reyna, Montecillo & Ongsiako for petitioner.
Castillo, Laman, Tan & Pantaleon for private respondent.
MENDOZA, J.:

This is a petition for review of the decision1 of the Court of Appeals dismissing a
complaint for specific performance which petitioner had filed against private respondent
on the ground that the Regional Trial Court of Quezon City did not acquire jurisdiction
over private respondent, a nonresident foreign corporation, and of the appellate court’s
order denying petitioner’s motion for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style
“Hahn-Manila.” On the other hand, private respondent Bayerische Motoren Werke

492
Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the laws of
the former Federal Republic of Germany, with principal office at Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a “Deed of
Assignment with Special Power of Attorney,” which reads in full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark
and device in the Philippines which ASSIGNOR uses and has been using on the products
manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized exclusive
Dealer of the ASSIGNEE in the Philippines, the same being evidenced by certificate of
registration issued by the Director of Patents on 12 December 1963 and is referred to as
Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said
transfer of the said BMW trademark and device in favor of the ASSIGNEE herein with
the Philippines Patent Office;
NOW THEREFORE, in view of the foregoing and in consideration of the stipulations
hereunder stated, the ASSIGNOR hereby affirms the said assignment and transfer in favor
of the ASSIGNEE under the following terms and conditions:
1. 1.The ASSIGNEE shall take appropriate steps against any user other than
ASSIGNOR or infringer of the BMW trademark in the Philippines; for such purpose,
the ASSIGNOR shall inform the ASSIGNEE immediately of any such use or
493
 infringement of the said trademark which comes to his knowledge and upon such
information the ASSIGNOR shall automatically act as Attorney-In-Fact of the
ASSIGNEE for such case, with full power, authority and responsibility to prosecute
unilaterally or in concert with ASSIGNEE, any such infringer of the subject mark and
for purposes hereof the ASSIGNOR is hereby named and constituted as
ASSIGNEE’s Attorney-In-Fact, but any such suit without ASSIGNEE’s consent
exclusively be the responsibility and for the account of the ASSIGNOR.
2. 2.That the ASSIGNOR and the ASSIGNEE shall continue business relations as has
been usual in the past without a formal contract, and for that purpose, the dealership
of ASSIGNOR shall cover the ASSIGNEE’s complete production program with the
only limitation that, for the present, in view of ASSIGNEE’s limited production, the
latter shall not be able to supply automobiles to ASSIGNOR.
Per the agreement, the parties “continue[d] business relations as has been usual in the
past without a formal contract.” But on February 16, 1993, in a meeting with a BMW
representative and the president of Columbia Motors Corporation (CMC), Jose Alvarez,
petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW
cars and products to CMC, which had expressed interest in acquiring the same. On
February 24, 1993, petitioner received confirmation of the information from BMW which,
in a letter, expressed dissatisfaction with various aspects of petitioner’s business,
494
mentioning among other things, decline in sales, deteriorating services, and inadequate
showroom and warehouse facilities, and petitioner’s alleged failure to comply with the
standards for an exclusive BMW dealer.2Nonetheless, BMW expressed willingness to
continue business relations with the petitioner on the basis of a “standard BMW importer”
contract, otherwise, it said, if this was not acceptable to petitioner, BMW would have no
alternative but to terminate petitioner’s exclusive dealership effective June 30, 1993.
Petitioner protested, claiming that the termination of his exclusive dealership would be a
breach of the Deed of Assignment.3Hahn insisted that as long as the assignment of its
trademark and device subsisted, he remained BMW’s exclusive dealer in the Philippines
because the assignment was made in consideration of the exclusive dealership. In the same
letter petitioner explained that the decline in sales was due to lower prices offered for BMW
cars in the United States and the fact that few customers returned for repairs and servicing
because of the durability of BMW parts and the efficiency of petitioner’s service.
Because of Hahn’s insistence on the former business relation, BMW withdrew on March
26, 1993 its offer of a “standard importer contract” and terminated the exclusive dealer
relationship effective June 30, 1993.4 At a conference of BMW Regional Importers held on
April 26, 1993 in Singapore, Hahn was surprised to find Alvarez among those invited from
the Asian region. On April 29, 1993, BMW proposed that Hahn and CMC jointly import
and distribute BMW cars and parts.

495
 Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for
specific performance and damages against BMW to compel it to continue the exclusive
dealership. Later he filed an amended complaint to include an application for temporary
restraining order and for writs of preliminary, mandatory and prohibitory injunction to
enjoin BMW from terminating his exclusive dealership. Hahn’s amended complaint alleged
in pertinent parts:
1. 2.Defendant [BMW] is a foreign corporation doing business in the Philippines with
principal offices at Munich, Germany. It may be served with summons and other
court processes through the Secretary of the Department of Trade and Industry of
the Philippines . . . .
2. . . . .
3. 5.On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of
Assignment with Special Power of Attorney covering the trademark and in
consideration thereof, under its first whereas clause, Plaintiff was duly acknowledged
as the “exclusive Dealer of the Assignee in the Philippines” . . . .
4. . . . .
5. 8.From the time the trademark “BMW & DEVICE” was first used by the Plaintiff in
the Philippines up to the present, Plaintiff, through its firm name “HAHN MANILA”
and without any monetary contribution from defendant BMW, established BMW’s
496
 goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff has
invested a lot of money and resources in order to single-handedly compete against
other motorcycle and car companies . . . . Moreover, Plaintiff has built buildings and
other infrastructures such as service centers and showrooms to maintain and promote
the car and products of defendant BMW.
6. . . . .
7. 10.In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was
willing to maintain with Plaintiff a relationship but only “on the basis of a standard
BMW importer contract as adjusted to reflect the particular situation in the
Philippines” subject to certain conditions, otherwise, defendant BMW would
terminate Plaintiff’s exclusive dealership and any relationship for cause effective June
30, 1993 . . . .
1. . . . .
2. 15.The actuations of defendant BMW are in breach of the assignment agreement
between itself and plaintiff since the consideration for the assignment of the BMW
trademark is the continuance of the exclusive dealership agreement. It thus, follows
that the exclusive dealership should continue for so long as defendant BMW enjoys
the use and ownership of the trademark assigned to it by Plaintiff.

497
 The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104 of the
Quezon City Regional Trial Court, which on June 14, 1993 issued a temporary restraining
order. Summons and copies of the complaint and amended complaint were thereafter
served on the private respondent through the Department of Trade and Industry, pursuant
to Rule 14, §14 of the Rules of Court. The order, summons and copies of the complaint
and amended complaint were later sent by the DTI to BMW via registered mail on June 15,
19935 and received by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the application for
the writ of preliminary injunction proceeded ex parte, with petitioner Hahn testifying. On
June 30, 1993, the trial court issued an order granting the writ of preliminary injunction
upon the filing of a bond of P100,000.00. On July 13, 1993, following the posting of the
required bond, a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did not
acquire jurisdiction over it through the service of summons on the Department of Trade
and Industry, because it (BMW) was a foreign corporation and it was not doing business in
the Philippines. It contended that the execution of the Deed of Assignment was an isolated
transaction; that Hahn was not its agent because the latter undertook to assemble and sell
BMW cars and products without the participation of BMW and sold other products; and

498
that Hahn was an indentor or middleman transacting business in his own name and for his
own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business
in the Philippines through him as its agent, as shown by the fact that BMW invoices and
order forms were used to document his transactions; that he gave warranties as exclusive
BMW dealer; that BMW officials periodically inspected standards of service rendered by
him; and that he was described in service booklets and international publications of BMW
as a “BMW Importer” or “BMW Trading Company” in the Philippines.
The trial court6 deferred resolution of the motion to dismiss until after trial on the merits
for the reason that the grounds advanced by BMW in its motion did not seem to be
indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed a petition for
certiorari with the Court of Appeals alleging that:
1. I.THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR
OTHERWISE INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD
THE ISSUANCE OF THE WRIT OF PRELIMINARY INJUNCTION, AND IN
PRESCRIBING THE TERMS FOR THE ISSUANCE THEREOF.
2. II.THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING
RESOLUTION OF THE MOTION TO DISMISS ON THE GROUND OF
499
 LACK OF JURISDICTION, AND THEREBY FAILING TO IMMEDIATELY
DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order and, after hearing,
for a writ of preliminary injunction, to enjoin the trial court from proceeding further in Civil
Case No. Q-93-15933. Private respondent pointed out that, unless the trial court’s order
was set aside, it would be forced to submit to the jurisdiction of the court by filing its answer
or to accept judgment in default, when the very question was whether the court had
jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner’s complaint. On
December 20, 1993, it rendered judgment finding the trial court guilty of grave abuse of
discretion in deferring resolution of the motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court before it came out with
its questioned order of July 26, 1993, we rule and so hold that petitioner’s (BMW) motion
to dismiss could be resolved then and there, and that the respondent judge’s deferment of
his action thereon until after trial on the merit constitutes, to our mind, grave abuse of
discretion.
...
. . . [T]here is not much appreciable disagreement as regards the factual matters relating
to the motion to dismiss. What truly divide (sic) the parties and to which they greatly differ
500
is the legal conclusions they respectively draw from such facts, (sic) with Hahn maintaining
that on the basis thereof, BMW is doing business in the Philippines while the latter asserts
that it is not.

Then, after stating that any ruling which the trial court might make on the motion to
dismiss would anyway be elevated to it on appeal, the Court of Appeals itself resolved the
motion. It ruled that BMW was not doing business in the country and, therefore,
jurisdiction over it could not be acquired through service of summons on the DTI pursuant
to Rule 14, §14. The court upheld private respondent’s contention that Hahn acted in his
own name and for his own account and independently of BMW, based on Alfred Hahn’s
allegations that he had invested his own money and resources in establishing BMW’s
goodwill in the Philippines and on BMW’s claim that Hahn sold products other than those
of BMW. It held that petitioner was a mere indentor or broker and not an agent through
whom private respondent BMW transacted business in the Philippines. Consequently, the
Court of Appeals dismissed petitioner’s complaint against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in finding that
the trial court gravely abused its discretion in deferring action on the motion to dismiss and
(2) in finding that private respondent BMW is not doing business in the Philippines and,
for this reason, dismissing petitioner’s case.
Petitioner’s appeal is well taken. Rule 14, §14 provides:
501
 §14. Service upon private foreign corporations.—If the defendant is a foreign corporation, or a
nonresident joint stock company or association, doing business in the Philippines, service may
be made on its resident agent designated in accordance with law for that purpose, or, if
there be no such agent, on the government official designated by law to that effect, or on
any of its officer or agents within the Philippines. (Emphasis added)

What acts are considered “doing business in the Philippines” are enumerated in §3(d) of
the Foreign Investments Act of 1991 (R.A. No. 7042) as follows:7
d) the phrase “doing business” shall include soliciting orders, service contracts, opening
offices, whether called “liaison” offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay in the country for a period or
periods totalling one hundred eighty (180) days or more; participating in the management,
supervision or control of any domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business
organization: Provided, however, That the phrase “doing business” shall not be deemed to
include mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor; nor having a
nominee director or officer to represent its interests in such corporation; nor appointing a
502
representative or distributor domiciled in the Philippines which transacts business in its own name and for
its own account (Emphasis supplied)

Thus, the phrase includes “appointing representatives or distributors in the Philippines”

but not when the representative or distributor “transacts business in its name and for its
own account.” In addition, §1(f)(1) of the Rules and Regulations implementing (IRR) the
Omnibus Investment Code of 1987 (E.O. No. 226) provided:
(f) “Doing business” shall be any act or combination of acts, enumerated in Article 44 of
the Code. In particular, “doing business” includes:
(1) . . . . A foreign firm which does business through middlemen acting in their own
names, such as indentors, commercial brokers or commission merchants, shall not be
deemed doing business in the Philippines. But such indentors, commercial brokers or
commission merchants shall be the ones deemed to be doing business in the Philippines.

The question is whether petitioner Alfred Hahn is the agent or distributor in the
Philippines of private respondent BMW. If he is, BMW may be considered doing business
in the Philippines and the trial court acquired jurisdiction over it (BMW) by virtue of the
service of summons on the Department of Trade and Industry. Otherwise, if Hahn is not
the agent of BMW but an independent dealer, albeit of BMW cars and products, BMW, a
foreign corporation, is not considered doing business in the Philippines within the meaning
503
of the Foreign Investments Act of 1991 and the IRR, and the trial court did not acquire
jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for
his own account and not as agent or distributor in the Philippines of BMW on the ground
that “he alone had contacts with individuals or entities interested in acquiring BMW
vehicles. Independence characterizes Hahn’s undertakings, for which reason he is to be
considered, under governing statutes, as doing business.” (p. 13) In support of this
conclusion, the appellate court cited the following allegations in Hahn’s amended
complaint:
8. From the time the trademark “BMW & DEVICE” was first used by the Plaintiff in the
Philippines up to the present, Plaintiff, through its firm name “HAHN MANILA” and
without any monetary contributions from defendant BMW, established BMW’s goodwill
and market presence in the Philippines. Pursuant thereto, Plaintiff invested a lot of money
and resources in order to single-handedly compete against other motorcycle and car
companies . . . . Moreover, Plaintiff has built buildings and other infrastructures such as
service centers and showrooms to maintain and promote the car and products of defendant
BMW.

As the above quoted allegations of the amended complaint show, however, there is
nothing to support the appellate court’s finding that Hahn solicited orders alone and for
504
his own account and without “interference from, let alone direction of, BMW.” (p. 13) To
the contrary, Hahn claimed he took orders for BMW cars and transmitted them to BMW.
Upon receipt of the orders, BMW fixed the downpayment and pricing charges, notified
Hahn of the scheduled production month for the orders, and reconfirmed the orders by
signing and returning to Hahn the acceptance sheets. Payment was made by the buyer
directly to BMW. Title to cars purchased passed directly to the buyer and Hahn never paid
for the purchase price of BMW cars sold in the Philippines. Hahn was credited with a
commission equal to 14% of the purchase price upon the invoicing of a vehicle order by
BMW. Upon confirmation in writing that the vehicles had been registered in the Philippines
and serviced by him, Hahn received an additional 3% of the full purchase price. Hahn
performed after-sale services, including warranty services, for which he received
reimbursement from BMW. All orders were on invoices and forms of BMW.8

These allegations were substantially admitted by BMW which, in its petition for certiorari
before the Court of Appeals, stated:9
1. 9.4.As soon as the vehicles are fully manufactured and full payment of the purchase
prices are made, the vehicles are shipped to the Philippines. (The payments may be
made by the purchasers or third-persons or even by Hahn). The bills of lading are

505
 made up in the name of the purchasers, but Hahn-Manila is therein indicated as the
person to be notified.
2. 9.5.It is Hahn who picks up the vehicles from the Philippine ports, for purposes of
conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the
purchasers.
3. 9.6.As soon as BMW invoices the vehicle ordered, Hahn is credited with a
commission of fourteen percent (14%) of the full purchase price thereof, and as soon
as he confirms in writing that the vehicles have been registered in the Philippines and
have been serviced by him, he will receive an additional three percent (3%) of the full
purchase prices as commission.

Contrary to the appellate court’s conclusion, this arrangement shows an agency. An agent
receives a commission upon the successful conclusion of a sale. On the other hand, a broker
earns his pay merely by bringing the buyer and the seller together, even if no sale is
eventually made.
As to the service centers and showrooms which he said he had put up at his own expense,
Hahn said that he had to follow BMW specifications as exclusive dealer of BMW in the
Philippines. According to Hahn, BMW periodically inspected the service centers to see to
it that BMW standards were maintained. Indeed, it would seem from BMW’s letter to Hahn
506
that it was for Hahn’s alleged failure to maintain BMW standards that BMW was
terminating Hahn’s dealership.
The fact that Hahn invested his own money to put up these service centers and
showrooms does not necessarily prove that he is not an agent of BMW. For as already
noted, there are facts in the record which suggest that BMW exercised control over Hahn’s
activities as a dealer and made regular inspections of Hahn’s premises to enforce
compliance with BMW standards and specifications.10 For example, in its letter to Hahn
dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions and letters that we have
to tackle in the Philippine market more professionally and that we are through your present
activities not adequately prepared to cope with the forthcoming challenges.11
In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of Appeals,12 in which
the foreign corporation entered into a “Representative Agreement” and a “Licensing
Agreement” with a domestic corporation, by virtue of which the latter was appointed
“exclusive representative” in the Philippines for a stipulated commission. Pursuant to these
contracts, the domestic corporation sold products exported by the foreign corporation and
put up a service center for the products sold locally. This Court held that these acts
constituted doing business in the Philippines. The arrangement showed that the foreign

507
corporation’s purpose was to penetrate the Philippine market and establish its presence in
the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive distributor in the
Philippines, even as it announced in the Asian region that Hahn was the “official BMW
agent” in the Philippines.13
The Court of Appeals also found that petitioner Alfred Hahn dealt in other products, and
not exclusively in BMW products, and, on this basis, ruled that Hahn was not an agent of
BMW. (p. 14) This finding is based entirely on allegations of BMW in its motion to dismiss
filed in the trial court and in its petition for certiorari before the Court of Appeals.14 But
this allegation was denied by Hahn15and therefore the Court of Appeals should not have
cited it as if it were the fact.
Indeed this is not the only factual issue raised, which should have indicated to the Court
of Appeals the necessity of affirming the trial court’s order deferring resolution of BMW’s
motion to dismiss. Petitioner alleged that whether or not he is considered an agent of BMW,
the fact is that BMW did business in the Philippines because it sold cars directly to
Philippine buyers.16 This was denied by BMW, which claimed that Hahn was not its agent
and that, while it was true that it had sold cars to Philippine buyers, this was done without
solicitation on its part.17
It is not true then that the question whether BMW is doing business could have been
resolved simply by considering the parties’ pleadings. There are genuine issues of facts
508
which can only be determined on the basis of evidence duly presented. BMW cannot short
circuit the process on the plea that to compel it to go to trial would be to deny its right not
to submit to the jurisdiction of the trial court which precisely it denies. Rule 16, §3
authorizes courts to defer the resolution of a motion to dismiss until after the trial if the
ground on which the motion is based does not appear to be indubitable. Here the record
of the case bristles with factual issues and it is not at all clear whether some allegations
correspond to the proof.
Anyway, private respondent need not apprehend that by responding to the summons it
would be waiving its objection to the trial court’s jurisdiction. It is now settled that, for
purposes of having summons served on a foreign corporation in accordance with Rule 14,
§14, it is sufficient that it be alleged in the complaint that the foreign corporation is
doingbusiness in the Philippines. The court need not go beyond theallegations of the
complaint in order to determine whether ithas jurisdiction.18 A determination that the
foreign corporationis doing business is only tentative and is made only for thepurpose of
enabling the local court to acquire jurisdiction overthe foreign corporation through service
of summons pursuantto Rule 14, §14. Such determination does not foreclose acontrary
finding should evidence later show that it is nottransacting business in the country. As this
Court has explained:
This is not to say, however, that the petitioner’s right to question the jurisdiction of the
court over its person is now to be deemed a foreclosed matter. If it is true, as Signetics
509
claims, that its only involvement in the Philippines was through a passive investment in
Sigfil, which it even later disposed of, and that TEAM Pacific is not its agent, then it cannot
really be said to be doing business in the Philippines. It is a defense, however, that requires
the contravention of the allegations of the complaint, as well as a full ventilation, in effect,
of the main merits of the case, which should not thus be within the province of a mere
motion to dismiss. So, also, the issue posed by the petitioner as to whether a foreign
corporation which has done business in the contrary, but which has ceased to do business
at the time of the filing of a complaint, can still be made to answer for a cause of action
which accrued while it was doing business, is another matter that would yet have to await
the reception and admission of evidence. Since these points have seasonably been raised by
the petitioner, there should be no real cause for what may understandably be its
apprehension, i.e., that by its participation during the trial on the merits, it may, absent an
invocation of separate or independent reliefs of its own, be considered to have voluntarily
submitted itself to the court’s jurisdiction.19

Far from committing an abuse of discretion, the trial court properly deferred resolution
of the motion to dismiss and thus avoided prematurely deciding a question which requires
a factual basis, with the same result if it had denied the motion and conditionally assumed
jurisdiction. It is the Court of Appeals which, by ruling that BMW is not doing business on
the basis merely of uncertain allegations in the pleadings, disposed of the whole case with
510
finality and thereby deprived petitioner of his right to be heard on his cause of action. Nor
was there justification for nullifying the writ of preliminary injunction issued by the trial
court. Although the injunction was issued ex parte, the fact is that BMW was subsequently
heard on its defense by filing a motion to dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is
REMANDED to the trial court for further proceedings.
SO ORDERED.
Regalado (Chairman), Romero, Puno and Torres, Jr., JJ., concur.
Judgment reversed and set aside, case remanded to court a quo for further proceedings.
Notes.—A foreign corporation performing acts pursuant to its primary purposes and
functions as regional/area headquarters for its home office is clearly doing business in the
country. (Georg Grotjahn GMBH & Co. vs. Isnani, 235 SCRA 216 [1994])
The license requirement was imposed to subject the foreign corporation doing business
in the Philippines to the jurisdiction of its courts, not to favor domestic corporations who
enter into solitary transactions with unwary foreign firms and then repudiate their
obligations simply because the latter are not licensed to do business. (National Sugar Trading
Corporation vs. Court of Appeals, 246 SCRA 465 [1995])
G.R. No. 143978. December 3, 2002.*

511
MANUEL B. TAN, GREGG M. TECSON and ALEXANDER SALDAÑA,
petitioners, vs. EDUARDO R. GULLAS and NORMA S. GULLAS, respondents.
Civil Law; Contracts; “Broker” defined.—In Schmid and Oberly v. RJL Martinez Fishing
Corporation, we defined a “broker” as “one who is engaged, for others, on a commission,
negotiating contracts relative to property with the custody of which he has no concern; the
negotiator between other parties, never acting in his own name but in the name of those
who employed him. x x x a broker is one whose occupation is to bring the parties together, in
matters of trade, commerce or navigation.” (Emphasis supplied)
Same; Same; Evidence; The trial court’s evaluation of the witnesses is accorded great respect and
finality.—The trial court’s evaluation of the witnesses is accorded great respect and finality
in the absence of any indication that it overlooked certain facts or circumstances of weight
and influence, which if reconsidered, would alter the result of the case.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Yulando L. Ursal for petitioners.
Francisco M. Malilong, Jr. for private respondents.
YNARES-SANTIAGO, J.:

512
This is a petition for review seeking to set aside the decision1 of the Court of
Appeals2 in CA-G.R. CV No. 46539, which reversed and set aside the decision3 of the
Regional Trial Court of Cebu City, Branch 22 in Civil Case No. CEB-12740.
The records show that private respondents, Spouses Eduardo R. Gullas and Norma S.
Gullas, were the registered owners of a parcel of land in the Municipality of Minglanilla,
Province of Cebu, measuring 104,114 sq. m., with Transfer Certificate of Title No.
31465.4 On June 29, 1992, they executed a special power of attorney5 authorizing
petitioners Manuel B. Tan, a licensed real estate broker,6 and his associates Gregg M.
Tecson and Alexander Saldaña, to negotiate for the sale of the land at Five Hundred Fifty
Pesos (P550.00) per square meter, at a commission of 3% of the gross price. The power of
attorney was non-exclusive and effective for one month from June 29, 1992.7
On the same date, petitioner Tan contacted Engineer Edsel Ledesma, construction
manager of the Sisters of Mary of Banneaux, Inc. (hereafter, Sisters of Mary), a religious
organization interested in acquiring a property in the Minglanilla area.
In the morning of July 1, 1992, petitioner Tan visited the property with Engineer
Ledesma. Thereafter, the two men accompanied Sisters Michaela Kim and Azucena
Gaviola, representing the Sisters of Mary, to see private respondent Eduardo Gullas in his
office at the University of Visayas. The Sisters, who had already seen and inspected the
land, found the same suitable for their purpose and expressed their desire to buy
it.8 However, they requested that the selling price be reduced to Five Hundred Thirty Pesos
513
(P530.00) per square meter instead of Five Hundred Fifty Pesos (P550.00) per square meter.
Private respondent Eduardo Gullas referred the prospective buyers to his wife.
It was the first time that the buyers came to know that private respondent Eduardo Gullas
was the owner of the property. On July 3, 1992, private respondents agreed to sell the
property to the Sisters of Mary, and subsequently executed a special power of attorney9 in
favor of Eufemia Cañete, giving her the special authority to sell, transfer and convey the
land at a fixed price of Two Hundred Pesos (P200.00) per square meter.
On July 17, 1992, attorney-in-fact Eufemia Cañete executed a deed of sale in favor of the
Sisters of Mary for the price of Twenty Million Eight Hundred Twenty Two Thousand
Eight Hundred Pesos (P20,822,800.00), or at the rate of Two Hundred Pesos (P200.00) per
square meter.10 The buyers subsequently paid the corresponding taxes.11 Thereafter, the
Register of Deeds of Cebu Province issued TCT No. 75981 in the name of the Sisters of
Mary of Banneaux, Inc.12
Earlier, on July 3, 1992, in the afternoon, petitioners went to see private respondent
Eduardo Gullas to claim their commission, but the latter told them that he and his wife
have already agreed to sell the property to the Sisters of Mary. Private respondents refused
to pay the broker’s fee and alleged that another group of agents was responsible for the sale
of land to the Sisters of Mary.
On August 28, 1992, petitioners filed a complaint13 against the defendants for recovery
of their broker’s fee in the sum of One Million Six Hundred Fifty Five Thousand Four
514
Hundred Twelve and 60/100 Pesos (P1,655,412.60), as well as moral and exemplary
damages and attorney’s fees. They alleged that they were the efficient procuring cause in
bringing about the sale of the property to the Sisters of Mary, but that their efforts in
consummating the sale were frustrated by the private respondents who, in evident bad faith,
malice and in order to evade payment of broker’s fee, dealt directly with the buyer whom
petitioners introduced to them. They further pointed out that the deed of sale was
undervalued obviously to evade payment of the correct amount of capital gains tax,
documentary stamps and other internal revenue taxes.
In their answer, private respondents countered that, contrary to petitioners’ claim, they
were not the efficient procuring cause in bringing about the consummation of the sale
because another broker, Roberto Pacana, introduced the property to the Sisters of Mary
ahead of the petitioners.14 Private respondents maintained that when petitioners introduced
the buyers to private respondent Eduardo Gullas, the former were already decided in buying
the property through Pacana, who had been paid his commission. Private respondent
Eduardo Gullas admitted that petitioners were in his office on July 3, 1992, but only to ask
for the reimbursement of their cellular phone expenses.
In their reply and answer to counterclaim,15 petitioners alleged that although the Sisters
of Mary knew that the subject land was for sale through various agents, it was petitioners
who introduced them to the owners thereof.

515
 After trial, the lower court rendered judgment in favor of petitioners, the dispositive
portion of which reads:
“WHEREFORE, UPON THE AEGIS OF THE FOREGOING, judgment is hereby
rendered for the plaintiffs and against the defendants. By virtue hereof, defendants Eduardo
and Norma Gullas are hereby ordered to pay jointly and severally plaintiffs Manuel Tan,
Gregg Tecson and Alexander Saldaña;
1)The sum of SIX HUNDRED TWENTY FOUR THOUSAND AND SIX
HUNDRED EIGHTY FOUR PESOS (P624,684.00) as broker’s fee with legal
interest at the rate of 6% per annum from the date of filing of the complaint; and
2)The sum of FIFTY THOUSAND PESOS (P50,000.00) as attorney’s fees and costs
of litigation.
For lack of merit, defendants’ counterclaim is hereby DISMISSED.
IT IS SO ORDERED.”16
Both parties appealed to the Court of Appeals. Private respondents argued that the lower
court committed errors of fact and law in holding that it was petitioners’ efforts which
brought about the sale of the property and disregarding the previous negotiations between
private respondent Norma Gullas and the Sisters of Mary and Pacana. They further alleged

516
that the lower court had no basis for awarding broker’s fee, attorney’s fees and the costs of
litigation to petitioners.17
Petitioners, for their part, assailed the lower court’s basis of the award of broker’s fee
given to them. They contended that their 3% commission for the sale of the property
should be based on the price of P55,180.420.00, or at P530.00 per square meter as agreed
upon and not on the alleged actual selling price of P20,822,800,00 or at P200.00 per square
meter, since the actual purchase price was undervalued for taxation purposes. They also
claimed that the lower court erred in not awarding moral and exemplary damages in spite
of its finding of bad faith; and that the amount of P50,000.00 as attorney’s fees awarded to
them is insufficient. Finally, petitioners argued that the legal interest imposed on their claim
should have been pegged at 12% per annum instead of the 6% fixed by the court.18
The Court of Appeals reversed and set aside the lower court’s decision and rendered
another judgment dismissing the complaint.19
Hence, this appeal.
Petitioners raise following issues for resolution:
I.
THE APPELLATE COURT GROSSLY ERRED IN THEIR FINDING THAT THE
PETITIONERS ARE NOT ENTITLED TO THE BROKERAGE COMMISSION.

517
 II.
IN DISMISSING THE COMPLAINT, THE APPELLATE COURT HAS
DEPRIVED THE PETITIONERS OF MORAL AND EXEMPLARY DAMAGES,
ATTORNEYS’ FEES AND INTEREST IN THE FOREBEARANCE OF MONEY.
The petition is impressed with merit.
The records show that petitioner Manuel B. Tan is a licensed real estate broker, and
petitioners Gregg M. Tecson and Alexander Saldaña are his associates. In Schmid and Oberly
v. RJL Martinez Fishing Corporation,20 we defined a “broker” as “one who is engaged, for
others, on a commission, negotiating contracts relative to property with the custody of
which he has no concern; the negotiator between other parties, never acting in his own
name but in the name of those who employed him. x x x a broker is one whose occupation
is to bring the parties together, in matters of trade, commerce or navigation.” (Emphasis
supplied)
During the trial, it was established that petitioners, as brokers, were authorized by private
respondents to negotiate for the sale of their land within a period of one month reckoned
from June 29, 1992. The authority given to petitioners was non-exclusive, which meant that
private respondents were not precluded from granting the same authority to other agents
with respect to the sale of the same property. In fact, private respondent authorized another
agent in the person of Mr. Bobby Pacana to sell the same property. There was nothing
518
illegal or amiss in this arrangement, per se, considering the non-exclusivity of petitioners’
authority to sell. The problem arose when it eventually turned out that these agents were
entertaining one and the same buyer, the Sisters of Mary.
As correctly observed by the trial court, the argument of the private respondents that
Pacana was the one entitled to the stipulated 3% commission is untenable, considering that
it was the petitioners who were responsible for the introduction of the representatives of
the Sisters of Mary to private respondent Eduardo Gullas. Private respondents, however,
maintain that they were not aware that their respective agents were negotiating to sell said
property to the same buyer.
Private respondents failed to prove their contention that Pacana began negotiations with
private respondent Norma Gullas way ahead of petitioners. They failed to present witnesses
to substantiate this claim. It is curious that Mrs. Gullas herself was not presented in court
to testify about her dealings with Pacana. Neither was Atty. Nachura who was supposedly
the one actively negotiating on behalf of the Sisters of Mary, ever presented in court.
Private respondents’ contention that Pacana was the one responsible for the sale of the
land is also unsubstantiated. There was nothing on record which established the existence
of a previous negotiation among Pacana, Mrs. Gullas and the Sisters of Mary. The only
piece of evidence that the private respondents were able to present is an undated and
unnotarized Special Power of Attorney in favor of Pacana. While the lack of a date and an
oath do not necessarily render said Special Power of Attorney invalid, it should be borne in
519
mind that the contract involves a considerable amount of money. Hence, it is inconsistent
with sound business practice that the authority to sell is contained in an undated and
unnotarized Special Power of Attorney. Petitioners, on the other hand, were given the
written authority to sell by the private respondents.
The trial court’s evaluation of the witnesses is accorded great respect and finality in the
absence of any indication that it overlooked certain facts or circumstances of weight and
influence, which if reconsidered, would alter the result of the case.21
Indeed, it is readily apparent that private respondents are trying to evade payment of the
commission which rightfully belong to petitioners as brokers with respect to the sale. There
was no dispute as to the role that petitioners played in the transaction. At the very least,
petitioners set the sale in motion. They were not able to participate in its consummation
only because they were prevented from doing so by the acts of the private respondents. In
the case of Alfred Hahn v. Court of Appeals and Bayerische Motoren Werke Aktiengesellschaft
(BMW)22 we ruled that, “An agent receives a commission upon the successful conclusion of
a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller
together, even if no sale is eventually made.” (Italics ours). Clearly, therefore, petitioners, as
brokers, should be entitled to the commission whether or not the sale of the property
subject matter of the contract was concluded through their efforts.
Having ruled that petitioners are entitled to the brokers’ commission, we should now
resolve how much commission are petitioners entitled to?
520
 Following the stipulation in the Special Power of Attorney, petitioners are entitled to 3%
commission for the sale of the land in question. Petitioners maintain that their commission
should be based on the price at which the land was offered for sale, i.e.,P530.00 per square
meter. However, the actual purchase price for which the land was sold was only P200.00
per square meter. Therefore, equity considerations dictate that petitioners’ commission
must be based on this price. To rule otherwise would constitute unjust enrichment on the
part of petitioners as brokers.
In the matter of attorney’s fees and expenses of litigation, we affirm the amount of
P50,000.00 awarded by the trial court to the petitioners.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The May 29, 2000
decision of the Court of Appeals is REVERSED and SET ASIDE. The decision of the
Regional Trial Court of Cebu City, Branch 22, in Civil Case No. CEB-12740 ordering
private respondents Eduardo Gullas and Norma S. Gullas to pay jointly and severally
petitioners Manuel B. Tan, Gregg Tecson and Alexander Saldaña the sum of Six Hundred
Twenty-Four Thousand and Six Hundred Eighty-Four Pesos (P624,684.00) as broker’s fee
with legal interest at the rate of 6% per annum from the filing of the complaint; and the
sum of Fifty Thousand Pesos (P50,000.00) as attorney’s fees and costs of litigation, is
REINSTATED.
SO ORDERED.
Vitug and Carpio, JJ.,concur.
521
 Davide, Jr. (C.J., Chairman), No part due to close relationship to a party.
Azcuna, J., On official leave.
Petition granted, judgment reversed and set aside. That of the trial court reinstated.
Note.—Generally, contracts are obligatory, in whatever form such contracts may have
been entered into, provided all the essential requisites for their validity are present. (Cenido
vs. Apacionado, 318 SCRA 688 [1999])

[No. 11491. August 23, 1918.]

ANDRES QUIROGA, plaintiff and appellant, vs. PARSONS HARDWARE Co.,
defendant and appellee.
1.SALES; INTERPRETATION OF CONTRACT.—For the classification of
contracts, due regard must be paid to their essential clauses. In the contract in the
instant case, what was essential, constituting its cause and subject matter, was that the
plaintiff was to furnish the defendant with the beds which the latter might order, at
the stipulated price, and that the defendant was to pay this price in the manner agreed
upon. These are precisely the essential features of a contract of purchase and sale.
There was the obligation on the part of the plaintiff to supply the beds, and, on that
of the defendant, to pay their price. These features exclude the legal conception of an
522
 agency or order to sell whereby the mandatary or agent receives the thing to sell it,
and does not pay its price, but delivers to the principal the price he obtains from the
sale of the thing to a third person, and if he does not succeed in selling it, he returns
it. Held: That this contract is one of purchase and sale, and not of commercial agency.
2.ID.; ID.—The testimony of the person who drafted this contract, to the effect that
his purpose was to be an agent for the beds and to collect a commission on the sales, is of no
importance to prove that the contract was one of agency, inasmuch as the agreements
contained in the contract constitute, according to law, covenants of purchase and sale,
and not of commercial agency. It must be understood that a contract is what the law
defines it to be, and not what it is called by the contracting parties.
3.ID.; ID.—The fact that the contracting parties did not; perform the contract in
accordance with its terms, only shows mutual tolerance and gives no right to have the
contract considered, not as the parties stipulated it, but as they performed it.
4.ID.; ID.—Only the acts of the contracting parties, subsequent to, and in connection
with, the performance of the contract must be considered in the interpretation of the
contract, when such interpretation is necessary, but not when, as in the instant case, its
essential agreements are clearly set forth and plainly show that the- contract belongs to a
certain kind and not to another.
523
 5.ID.; ID.—The defendant obligated itself to order the beds from the plaintiff by the
dozen. Held: That the effect of a breach of this clause by the defendant would only
entitle the plaintiff to disregard the orders which the defendant might place under
other conditions; but if the plaintiff consents to fill them, he waives his right and
cannot complain for having acted thus at his own free will.
APPEAL from a judgment of the Court of First Instance of Manija. Abreu, J.
The facts are stated in the opinion of the court.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.
AVANCENA, J.:
On January 24, 1911, in this city of Manila, a contract in the following tenor was entered
into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights
and obligations the present defendant later subrogated itself), as party of the second. part:
"CONTBACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND
J. PAKSONS, BOTH MERCHANTS ESTABLISHED IN MANILA,
FOR THE EXCLUSIVE SALE OF 'QUIROGA' BEDS IN THE VI
SAYAN ISLANDS.

524
 "ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the
Visayan Islands to J. Parsons under the following conditions:
1. " (A)Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's
establishment in Iloilo, and shall invoice them at the same price he has fixed for sales,
in Manila, and, in the invoices, shall make an allowance of a discount of 25 per cent
of the invoiced. prices, as commission on the sales; and, Mr. Parsons shall order the
beds by the dozen, whether of the same or of different styles.
2. "(B)Mr, Parsons binds himself to pay Mr. Quiroga for the beds received, within a
period of sixty days from the date of their shipment.
3. "(C)The expenses for transportation and shipment shall be borne by M. Quiroga, and
the freight, insurance, and cost of unloading from the vessel at the point where the
beds are received, shall be paid by Mr. Parsons.
4. "(D)If, before an invoice falls due, Mr. Quiroga should request its payment, said
payment when made shall be considered as a prompt payment, and as such a
deduction of 2 per cent shall be made f rom the amount of the invoice. "The same
discount shall be made on the amount of any invoice which Mr. Parsons may deem
convenient to pay in cash.
5. "(E)Mr. Quiroga binds himself to give notice at least fifteen days before hand of any
alteration in price which he may plan to make in respect to his beds, and agrees that
525
 if on the date when such alteration takes effect he should have any order pending to
be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the
price thereby be lowered, but shall not be affected by said alteration if the price
thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to
invoice the beds at the price at which the order was given.
6. "(F)Mr. Parsons binds himself not to sell any other kind except the 'Quiroga' beds.
"ART. 2. In compensation for the expenses of advertisement which, for the benefit of both
contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes
the obligation to offer and give the preference to Mr. Parsons in case anyone should apply
for the exclusive agency for any island not comprised within the Visayan group.
"ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of 'Quiroga'
beds in all the towns of the Archipelago where there are no exclusive agents, and shall
immediately report such action to Mr. Quiroga for his approval.
"ART. 4. This contract is made for an unlimited period, and may be terminated by either
of the contracting parties on a previous notice of ninety days to the other party."
Of the three causes of action alleged by the plaintiff in his complaint, only two of them
constitute the subject matter of this appeal and both substantially amount to the averment
that the defendant violated the following obligations: not to sell the beds at higher prices
than those of the invoices; to have an open establishment in Iloilo; itself to conduct the
526
agency; to keep the beds on public exhibition, and to pay for the advertisement expenses
for the same; and to order the beds by the dozen and in no other manner. As may be seen,
with the exception of the obligation on the part of the defendant to order the beds by the
dozen and in no other manner, none of the obligations imputed to the defendant in the
two causes of action are expressly set forth in the contract. But the plaintiff alleged that the
defendant was his agent for the sale of his beds in Iloilo, and that said obligations are
implied in a contract of commercial agency. The whole question, therefore, reduces itself
to a determination as to whether the defendant, by reason of the contract hereinbefore
transcribed, was a purchaser or an agent of the plaintiff f or the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In the
contract in question, what was essential, as constituting its cause and subject matter, is that
the plaintiff was to furnish the defendant with the beds which the latter might order, at the
price stipulated, and that the defendant was to pay the price in the manner stipulated. The
price agreed upon was the one determined by the plaintiff for the sale of these beds in
Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to
be made at the end of sixty days, or before, at the plaintiff s request, or in cash, if the
defendant so preferred, and in these last two cases an additional discount was to be allowed
for prompt payment. These are precisely the essential features of a contract of purchase
and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on
the part of the defendant, to pay their price. These features exclude the legal conception of
527
an agency or order to sell whereby the mandatory or agent received the thing to sell it, and,
does not pay its price, but delivers to the principal the price he obtains from the sale of the
thing to a third person, and if he does not succeed in selling if, he returns it. By virtue of
the contract between the plaintiff and the defendant, the latter, on receiving the beds, was
necessarily obliged to pay their price within the term fixed, without any other consideration
and regardless as to whether he had or had not sold the beds.
It would be enough to held, as we do, that the contract by and between the defendant
and the plaintiff is one of purchase and sale, in order to show that it was not one made on
the basis of a commission on sales, as the plaintiff claims it was, for these contracts are
incompatible with each other. But, besides, examining the clauses of this contract, none of
them is found that substantially supports the plaintiff's contention. Not a single one of
these clauses necessarily conveys the idea of an agency. The words commission on sales used
in clause (A) of article 1 mean nothing else, as stated. in the contract itself, than a mere
discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses
that the defendant was the only one that could sell the plaintiff's beds in the Visayan
IslandsT. With regard to the remaining clauses, the least that can be said is that they are not
incompatible with the contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of
the defendant corporation and who established and managed the latter's business in Iloilo.
It appears that this witness, prior to the time of his testimony, had serious trouble with the
528
defendant, had maintained a civil suit against it, and had even accused one of its partners,
Guillermo Parsons, of falsification. He testified that it was he who drafted the contract
Exhibit A, and, when questioned as to what was his purpose in contracting with the
plaintiff, replied that it was to be an agent for his beds and to collect a, commission on sales. However,
according to the def endant's evidence, it was Mariano Lopez Santos, a director of the
corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated
the truth, his statement as to what was his idea in contracting with the plaintiff is of no
importance, inasmuch a$ the agreements contained in Exhibit A which he claims to have
drafted, constitute, as we have said, a contract of purchase and sale, and not one of
commercial agency. This only means that Ernesto Vidal was mistaken in his classification
of the contract. But it must be understood that a contract is what the law defines it to be,
and not what it is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned beds that it could
not sell; that, without previous notice, it forwarded to the defendant the beds that it wanted;
and that the defendant received its commission for the beds sold by the plaintiff directly to
persons in Iloilo. But all this, at the most only shows that, on the part of both of them,
there was mutual tolerance in the performance of the contract in disregard of its terms; and
it gives no right to have the contract considered, not as the parties stipulated it, but as they
performed it. Only the acts of the contracting parties, subsequent to, and in connection
with, the execution of the contract, must be considered for the purpose of interpreting the
529
contract, when such interpretation is necessary, but not when, as in the instant case, its
essential agreements are clearly set forth and plainly show that the contract belongs to a
certain kind and not to another. Furthermore, the return made was of certain brass beds,
and was not effected in exchange for the price paid for them, but was for other beds of
another kind; and for the purpose of making this return, the defendant, in its letter Exhibit
L-1, requested the plaintiff s prior consent with respect to said beds, which shows that it
was not considered that the defendant had a right, by virtue of the contract, to make this
return. As regards the shipment of beds without previous notice, it is insinuated in the
record that these brass beds were precisely the ones so shipped, and that, for this very
reason, the plaintiff agreed to their return. And with respect to the so-called commissions,
we have said that they merely constituted a discount on the invoice price, and the reason
for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was
because, as the defendant obligated itself in the contract to incur the expenses of
advertisement of the plaintiff's beds, such sales were to be considered as a result of that
advertisement.
In respect to the defendant's obligation to order by the dozen, the only one expressly
imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard
the orders which the defendant might place under other conditions; but if the plaintiff
consents to fill them, he waives his right and cannot complain for having acted thus at his
own free will.
530
 For the foregoing reasons, we are of opinion that the contract by and between the plaintiff
and the defendant was one of purchase and sale, and that the obligations the breach of
which is alleged as a cause of action are not imposed upon the defendant, either by
agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So ordered.
Arellano, C. J., Torres, Johnson, Street, and Malcolm, JJ.,concur.
Judgment affirmed.

G.R. No. 129919. February 6, 2002.*

DOMINION INSURANCE CORPORATION, petitioner, vs.COURT OF APPEALS,
RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents.
Civil Law; Contracts; Agency; The basis for agency is representation; There must be an actual intention
by the principal to appoint and on the part of the agent an intention to accept the appointment and act on
it, otherwise there is generally no agency.—By the contract of agency, a person binds himself to
render some service or to do something in representation or on behalf of another, with the
consent or authority of the latter. The basis for agency is representation. On the part of the
principal, there must be an actual intention to appoint or an intention naturally inferrable
from his words or actions; and on the part of the agent, there must be an intention to accept

531
the appointment and act on it, and in the absence of such intent, there is generally no
agency.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Romeo G. Maglalang for private respondent R.S. Guevarra.
PARDO, J.:
The Case
This is an appeal via certiorari1from the decision of the Court of Appeals2 affirming the
decision3 of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered
petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra
(Guevarra) the sum of P156,473.90 representing the total amount advanced by Guevarra
in the payment of the claims of Dominion’s clients.

The Facts
The facts, as found by the Court of Appeals, are as follows:
“On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum
of money against defendant Dominion Insurance Corporation. Plaintiff sought to recover

532
thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as
manager of defendant to satisfy certain claims filed by defendant’s clients.
“In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for
P249,672.53, representing premiums that plaintiff allegedly failed to remit.
“On August 8, 1991, defendant filed a third-party complaint against Fernando Austria,
who, at the time relevant to the case, was its Regional Manager for Central Luzon area.
“In due time, third-party defendant Austria filed his answer.
“Thereafter the pre-trial conference was set on the following dates: October 18, 1991,
November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29,
1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-
trial conference was held. The record shows that except for the settings on October 18,
1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of
defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon
joint request of the parties.
“On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and
counsel were present. Despite due notice, defendant and counsel did not appear, although
a messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by
defendant’s counsel which instructed him to request for postponement. Plaintiffs counsel
objected to the desired postponement and moved to have defendant declared as in default.
This was granted by the trial court in the following order:
533
 “ORDER
“When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty.
Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain
Roy who was requested to ask for postponement, Atty. Maglalang vigorously objected to
any postponement on the ground that the note is but a mere scrap of paper and moved
that the defendant corporation be declared as in default for its failure to appear in court
despite due notice.
“Finding the verbal motion of plaintiff ’s counsel to be meritorious and considering that
the pre-trial conference has been repeatedly postponed on motion of the defendant
Corporation, the defendant Dominion Insurance Corporation is hereby declared (as) in
default and plaintiff is allowed to present his evidence on June 16, 1992 at 9:00 o’clock in
the morning.
“The plaintiff and his counsel are notified of this order in open court.
“SO ORDERED.
“Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer
of documentary exhibits on July 8 and a supplemental offer of additional exhibits on July
13, 1992. The exhibits were admitted in evidence in an order dated July 17, 1992.
“On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT ORDER OF
DEFAULT.’ It alleged therein that the failure of counsel to attend the pre-trial conference
534
was ‘due to an unavoidable circumstance’ and that counsel had sent his representative on
that date to inform the trial court of his inability to appear. The Motion was vehemently
opposed by plaintiff.
“On August 25, 1992 the trial court denied defendant’s motion for reasons, among
others, that it was neither verified nor supported by an affidavit of merit and that it further
failed to allege or specify the facts constituting his meritorious defense.
“On September 28, 1992 defendant moved for reconsideration of the aforesaid order.
For the first time counsel revealed to the trial court that the reason for his nonappearance
at the pre-trial conference was his illness. An Affidavit of Merit executed by its Executive
Vice-President purporting to explain its meritorious defense was attached to the said
Motion. Just the same, in an Order dated November 13, 1992, the trial court denied said
Motion.
“On November 18, 1992, the court a quo rendered judgment as follows:
“WHEREFORE, premises considered, judgment is hereby rendered ordering:
“1.The defendant Dominion Insurance Corporation to pay plaintiff the sum of
P156,473.90 representing the total amount advanced by plaintiff in the payment of
the claims of defendant’s clients;
“2.The defendant to pay plaintiff P10,000.00 as and by way of attorney’s fees;

535
 “3.The dismissal of the counter-claim of the defendant and the third-party complaint;
“4.The defendant to pay the costs of suit.”4
On December 14, 1992, Dominion appealed the decision to the Court of Appeals.5
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial
court.6On September 3, 1996, Dominion filed with the Court of Appeals a motion for
reconsideration.7 On July 16, 1997, the Court of Appeals denied the motion.8
Hence, this appeal.9

The Issues
The issues raised are: (1) whether respondent Guevarra acted within his authority as agent
for petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of
amounts he paid out of his personal money in settling the claims of several insured.
The Court’s Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter.10 The basis for agency is representation.11 On the part of the principal, there must be
an actual intention to appoint12 or an intention naturally inferrable from his words or

536
actions;13 and on the part of the agent, there must be an intention to accept the appointment
and act on it,14 and in the absence of such intent, there is generally no agency.15
A perusal of the Special Power of Attorney16 would show that petitioner (represented by
third-party defendant Austria) and respondent Guevarra intended to enter into a principal-
agent relationship. Despite the word “special” in the title of the document, the contents
reveal that what was constituted was actually a general agency. The terms of the agreement
read:
“That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,17 a corporation
duly organized and existing under and by virtue of the laws of the Republic of the
Philippines, x x x represented by the undersigned as Regional Manager, x x x do hereby
appoint RSG Guevarra Insurance Services represented by Mr. Rodolfo Guevarra x x x to be our Agency
Manager in San Fdo., for our place and stead, to do and perform the following acts and things:
“1.To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as
usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL
ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents
and sub-agents.
“2.To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for
and on our behalf.

537
 “3.To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and receive
and give effectual receipts and discharge for all money to which the FIRST
CONTINENTAL ASSURANCE COMPANY, INC.,18 may hereafter become due,
owing payable or transferable to said Corporation by reason of or in connection with
the above-mentioned appointment.
“4.To receive notices, summons, and legal processes for and in behalf of the FIRST
CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and
all legal proceedings against the said Corporation.”19[Emphasis supplied]
The agency comprises all the business of the principal,20 but, couched in general terms, it is
limited only to acts of administration.21
A general power permits the agent to do all acts for which the law does not require a
special power.22 Thus, the acts enumerated in or similar to those enumerated in the Special
Power of Attorney do not require a special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special power of attorney is
required. The pertinent portion that applies to this case provides that:
“Article 1878. Special powers of attorney are necessary in the following cases:
1. “(1)To make such payments as are not usually considered as acts of administration;
“x x x xxx xxx
538
 2. “(15)Any other act of strict dominion.”
The payment of claims is not an act of administration. The settlement of claims is not
included among the acts enumerated in the Special Power of Attorney, neither is it of a
character similar to the acts enumerated therein. A special power of attorney is required
before respondent Guevarra could settle the insurance claims of the insured.
Respondent Guevarra’s authority to settle claims is embodied in the Memorandum of
Management Agreement23 dated February 18, 1987 which enumerates the scope of
respondent Guevarra’s duties and responsibilities as agency manager for San Fernando,
Pampanga, as follows:
“x x x xxx xxx
1. “1.You are hereby given authority to settle and dispose of all motor car claims in the
amount of P5,000.00 with prior approval of the Regional Office.
2. “2.Full authority is given you on TPPI claims settlement.
“x x x xxx x x x”24
In settling the claims mentioned above, respondent Guevarra’s authority is further limited
by the written standard authority to pay,25 which states that the payment shall come from
respondent Guevarra’s revolving fund or collection. The authority to pay is worded as
follows:
539
“This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS
_____________ (P________) representing the payment on the __________ claim of
assured __________ under Policy No. ______ in that accident of _______________ at
________________.
“It is further expected, release papers will be signed and authorized by the concerned and
attached to the corresponding claim folder after effecting payment of the claim.
“(sgd.) FERNANDO C. AUSTRIA
Regional Manager”26
[Emphasis supplied]
The instruction of petitioner as the principal could not be any clearer. Respondent Guevarra
was authorized to pay the claim of the insured, but the payment shall come from the
revolving fund or collection in his possession.
Having deviated from the instructions of the principal, the expenses that respondent
Guevarra incurred in the settlement of the claims of the insured may not be reimbursed
from petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code,
which states that:
“The principal is not liable for the expenses incurred by the agent in the following cases:
“(1) If the agent acted in contravention of the principal’s instructions, unless the latter should wish
to avail himself of the benefits derived from the contract;
“x x x xxx x x x”
540
However, while the law on agency prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be justified under the general law on
obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
“Whoever pays for another may demand from the debtor what he has paid, except that if
he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor.”
In this case, when the risk insured against occurred, petitioner’s liability as insurer arose.
This obligation was extinguished when respondent Guevarra paid the claims and obtained
Release of Claim Loss and Subrogation Receipts from the insured who were paid.
Thus, to the extent that the obligation of the petitioner has been extinguished, respondent
Guevarra may demand for reimbursement from his principal. To rule otherwise would
result in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the settlement of the insurance claims
could best be proven by the Release of Claim Loss and Subrogation Receipts27 which were
attached to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-1, in
the total amount of P116,276.95.
However, the amount of the revolving fund/collection that was then in the possession
of respondent Guevarra as reflected in the statement of account dated July 11, 1990 would
be deducted from the above amount.
541
 The outstanding balance and the production/remittance for the period corresponding to
the claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is
the amount that may be reimbursed to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the petition. However, we MODIFY the decision of
the Court of Appeals28 and that of the Regional Trial Court, Branch 44, San Fernando,
Pampanga,29 in that petitioner is ordered to pay respondent Guevarra the amount of
P112,672.11 representing the total amount advanced by the latter in the payment of the
claims of petitioner’s clients.
No costs in this instance.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Puno, Kapunan and Ynares-Santiago, JJ., concur.
Petition denied, judgment modified.
Note.—The general principles of agency govern the relation between the corporation
and its officers or agents subject to the articles of incorporation, by laws or relevant
provisions of law. (San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals, 296 SCRA
631 [1998])
——o0o——

542
END

543